425

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 2, 2009

Peet's Coffee & Tea, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Washington (State of jurisdiction) 0-32233 (Commission File No.) 91-0863396 (IRS Employer Identification No.)

1400 Park Avenue

Emeryville, California 94608-3520

(Address of principal executive offices and zip code)

Registrant's telephone number, including area code: (510) 594-2100

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

ý Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01      Entry into a Material Definitive Agreement.

Merger Agreement and Stockholder Agreements

On November 2, 2009, Peet’s Coffee & Tea, Inc., a Washington corporation (the “Company”), Marty Acquisition Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Acquisition Sub”), and Diedrich Coffee, Inc., a Delaware corporation (“Diedrich”), entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) which contemplates the acquisition by the Company, through Acquisition Sub, of all of the outstanding common stock of Diedrich in a two-step transaction comprised of a combination cash and stock exchange offer for all of the issued and outstanding shares of Diedrich common stock (the “Offer”), followed by a merger of Acquisition Sub with and into Diedrich (the “Merger”). In the Offer, the Company will deliver a combination of $17.33 in cash (the “Cash Component”) and a fraction of a share of the Company’s common stock having a numerator equal to $8.67 and a denominator equal to the Parent Average Stock Price (as defined in the Merger Agreement), provided that in no event will such fraction of a share exceed 0.315 of a share of the Company’s common stock, all of the foregoing cash and stock in exchange for each share of Diedrich common stock validly tendered in the Offer (and not withdrawn), subject to adjustment for stock splits, stock dividends and similar events. In addition, upon the acquisition by Acquisition Sub of shares of Diedrich common stock tendered in the Offer, all outstanding options to acquire Diedrich common stock will be converted into a combination of cash and shares of the Company’s common stock based on a formula set forth in the Merger Agreement, and certain of these options will vest in full as a result of the transactions contemplated by the Merger Agreement.

The Merger Agreement provides that Acquisition Sub will use commercially reasonable efforts to commence the Offer as promptly as practicable after the date of the Merger Agreement.  The obligation of Acquisition Sub to accept for exchange and deliver consideration for shares of Diedrich common stock validly tendered in the Offer (and not withdrawn) is subject to a number of conditions set forth in the Merger Agreement, including (i) that more than 50% of the outstanding shares of Diedrich common stock (determined on a fully-diluted basis based on a formula set forth in the Merger Agreement) have been validly tendered (and not withdrawn) in the Offer and (ii) other conditions set forth in Exhibit B to the Merger Agreement. The obligation under the Merger Agreement of Acquisition Sub to accept for exchange and deliver consideration for shares of Diedrich common stock validly tendered in the Offer (and not withdrawn) is not subject to a financing condition.

The Merger Agreement further provides that, following the consummation of the Offer (and if necessary, the adoption of the Merger Agreement by Diedrich’s stockholders) and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Acquisition Sub will be merged with and into Diedrich, and Diedrich will become a wholly-owned subsidiary of the Company, and that upon consummation of the Merger, each then-outstanding share of Diedrich common stock held by persons other than the Company and Acquisition Sub, and stockholders of Diedrich who have properly preserved their appraisal rights under applicable law, will be converted into the right to receive the same combination of cash and fraction of a share of the Company’s common stock delivered in the Offer.

The respective boards of directors of the Company and Diedrich have approved the Merger Agreement, the Offer and the Merger, and the Diedrich board of directors has agreed to recommend that Diedrich’s stockholders tender all of their outstanding shares of Diedrich common stock into the Offer and if necessary, vote in favor of the adoption of the Merger Agreement.

The Merger Agreement may be terminated by either the Company and Diedrich under certain circumstances set forth in the Merger Agreement, including the failure of the Offer to be consummated on or before March 31, 2010 and the failure of the minimum tender condition to the Offer.  If the Merger Agreement is terminated (a) in certain circumstances following the receipt by Diedrich of an alternative acquisition proposal, or (b) as a result of the Diedrich board of directors changing its recommendation in favor of the Offer and the Merger, Diedrich will be obligated to pay a termination fee to the Company.

The description of the Merger Agreement in this Current Report on Form 8-K is qualified in its entirety by reference to the full text of the Merger Agreement referenced as Exhibit 2.1, which is incorporated by reference herein. The Merger Agreement contains representations and warranties of Diedrich, the Company and Acquisition Sub made solely to each other as of specific dates. Those representations and warranties were made solely for purposes of the Merger Agreement and may be subject to important qualifications and limitations agreed to by Diedrich, the Company and Acquisition Sub. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a standard of materiality provided for in the Merger Agreement and have been used for the purpose of allocating risk among Diedrich, the Company and Acquisition Sub rather than establishing matters as facts.

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As an inducement to the Company to enter into the Merger Agreement, on November 2, 2009, Paul C. Heeschen entered into a Stockholder Agreement with the Company pursuant to which he has agreed, in his capacity as a stockholder of Diedrich, to tender 1,832,580 of his beneficially owned shares of Diedrich common stock (representing approximately 32% of the currently outstanding shares of Diedrich) to Acquisition Sub in the Offer.  Pursuant to the Stockholder Agreement, Mr. Heeschen has also agreed, among other things, to vote all of the shares of Diedrich common stock that he has agreed to tender: (a) in favor of the adoption of the Merger Agreement; and (b) against any action that is intended, or that could reasonably be expected, to impede, interfere with, delay, postpone, discourage or adversely affect the Offer or the Merger. In addition, Mr. Heeschen has agreed not to exercise, or cause or permit to be exercised, any warrants to purchase shares of Diedrich common stock owned of record or beneficially by Mr. Heeschen (the “Warrants”).  The Voting Agreement and the foregoing obligations terminate upon the earlier of (i) any termination of the Merger Agreement in accordance with its terms and (ii) the effective time of the Merger.

Pursuant to the Stockholder Agreement and the Merger Agreement, the Warrants will, contemporaneously with the consummation of the Offer, be cancelled and converted into the right to receive a combination of cash and shares of the Company’s common stock based on a formula set forth in the Merger Agreement.

In addition to Mr. Heeschen, certain of the other directors and executive officers of the Company have signed or intend to sign a similar form of Stockholder Agreement, covering all of the shares of Diedrich common stock beneficially owned by such individual, as well as any additional shares of which such individual may become the beneficial owner.  These directors and executive officers collectively hold approximately 4% of the currently outstanding shares of Diedrich.  These Stockholder Agreements also contain the voting provisions set forth in the Stockholder Agreement entered into by Mr. Heeschen, and terminate upon any termination of the Merger Agreement in accordance with its terms.

The description of the Stockholder Agreements in this Current Report on Form 8-K is qualified in its entirety by reference to the full text of the forms of Stockholder Agreements referenced as Exhibits 2.2 and 2.3, which are incorporated by reference herein.

Financing Commitment Letter

Also on November 2, 2009, the Company entered into a commitment letter with Wells Fargo Bank, National Association (“Wells Fargo”) and Wells Fargo Securities, LLC (“WFS”), setting forth the material terms and conditions of:  (a) a senior secured revolving credit facility in an aggregate amount up to $40,000,000 to be provided by Wells Fargo and a syndicate of financial institutions and other institutional lenders (the “Lenders”) to the Company, as borrower; and (b) one or more tranches of term loans in an aggregate amount up to $100,000,000 to be provided by the Lenders to the Company, each of which is to be guaranteed by all existing and future subsidiaries of the Company. Wells Fargo and WFS have committed to provide the financing described in the commitment letter through the earliest to occur of (a) consummation of the Offer, (b) termination of the Merger Agreement, (c) April 1, 2010, if the Offer has not been consummated on or prior to March 31, 2010, (d) April 15, 2010, unless the commitment letter is terminated earlier by the Company. The commitment letter provides that the revolving credit facility and term loans would mature five years after the closing of the financing.

The Company intends to use the proceeds from the senior secured credit facilities, together with cash on hand at the Company, to finance the Offer and the Merger (and may also use the cash on hand at Diedrich to finance the Merger), the costs and expenses related to the Offer and the Merger and the ongoing working capital and other general corporate purposes of the combined organization after consummation of the Merger.

The senior credit facilities are subject to the negotiation of mutually acceptable credit or loan agreements and other mutually acceptable definitive documentation, which are expected to include customary representations and warranties, affirmative and negative covenants, provisions for security, mandatory prepayments upon the occurrence of certain events, financial covenants (including maximum total leverage ratio, minimum fixed charged coverage ratio and minimum net income tests) and provisions for events of default. The Lenders’ obligations to provide the financing are subject to the satisfaction of specified conditions, including that more than 50% of the shares of Diedrich common stock (determined on a fully-diluted basis based on a formula set forth in the Merger Agreement) have been validly tendered (and not withdrawn), no material adverse effect having occurred with respect to Diedrich, the absence of debt other than certain permitted debt, the accuracy of specified representations and warranties, compliance with a minimum EBITDAR requirement and a maximum total leverage ratio after giving effect to the Offer, and other customary conditions.

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The description of the commitment letter in this Current Report on Form 8-K is qualified in its entirety by reference to the full text of the commitment letter referenced as Exhibit 10.1, which is incorporated by reference herein.

Forward-Looking Statements

This Current Report on Form 8-K contains statements that are not based on historical fact and are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements relating to the proposed Offer and Merger and the anticipated timing of the consummation of the transaction. Forward-looking statements are based on management’s beliefs, as well as assumptions made by and information currently available to management, including financial and operational information, the Company’s stock price volatility, and current competitive conditions.  As a result, these statements are subject to various risks and uncertainties.  The Company’s actual results could differ materially from those set forth in forward-looking statements depending on a variety of factors including, but not limited to, general economic conditions, including the current recession and its ongoing negative impact on consumer spending and its ongoing impact on the financial markets, the Company’s ability to implement its business strategy and to successfully integrate the business of Diedrich. the risk that the Offer and the Merger will not close, the risk that the Company’s business and/or Diedrich’s business will be adversely impacted during the pendency of the Offer and the Merger, and the risk that the Company may not be able to consummate the financing required to effect the Offer and the Merger on terms satisfactory to it or at all, as well as other risk factors as described more fully in the Company’s filings with the Securities and Exchange Commission (the “Commission”), including its Annual Report on Form 10-K for the year ended December 28, 2008.  These factors may not be exhaustive.  The Company operates in a continually changing business environment, and new risks emerge from time to time.  Any forward-looking statements speak only as of the date of this report.  There can be no assurance that the proposed Offer and Merger will in fact be consummated.

Additional Information and Where to Find It

The description contained herein is neither an offer to purchase nor a solicitation of an offer to sell shares of Diedrich. Diedrich stockholders are urged to read the relevant exchange offer documents when they become available because they will contain important information that stockholders should consider before making any decision regarding tendering their shares. At the time the Offer, if any, is commenced, the Company will file a registration statement on Form S-4 and a tender offer statement on Schedule TO with the Commission and Diedrich will file a solicitation/recommendation statement on Schedule 14D-9 with respect to the Offer.  The exchange offer materials (including the prospectus contained in the registration statement and the other offer documents contained in the tender offer statement) and the solicitation/recommendation statement will contain important information, which should be read carefully before any decision is made with respect to the Offer. The prospectus and certain other offer documents, as well as the solicitation/recommendation statement, will be made available to all stockholders of Diedrich at no expense to them. The registration statement, the tender offer statement and the solicitation/recommendation statement will be made available for free at the Commission’s web site at www.sec.gov. Free copies of these materials will also be made available by the Company by mail to Peet’s Coffee & Tea, Inc., 1400 Park Avenue, Emeryville, CA 94608, attention: Investor Relations.

In addition to the registration statement (including the prospectus) and the tender offer statement (including certain other offer documents), as well as the solicitation/recommendation statement, the Company and Diedrich file annual, quarterly and special reports, proxy statements and other information with the Commission. Investors may read and copy any reports, statements or other information filed by the Company or Diedrich at the SEC public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room. The Company’s and Diedrich’s filings with the Commission are also available to the public from commercial document-retrieval services and at the website maintained by the Commission at http://www.sec.gov.

Interests of Certain Persons in the Offer and the Merger

The Company will be, and certain other persons may be, soliciting Diedrich stockholders to tender their shares into the Offer. The directors and executive officers of the Company and the directors and executive officers of Diedrich may be deemed to be participants in the Company’s solicitation of Diedrich’s stockholders to tender their shares into the Offer.

Investors and stockholders may obtain more detailed information regarding the names, affiliations and interests of the directors and officers of the Company and Diedrich in the tender offer by reading the prospectus certain other offer documents, as well as the solicitation/recommendation statement, when they become available.

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 Item 9.01      Financial Statements and Exhibits.

(d)	Exhibits
	Exhibit	Description
	2.1	Agreement and Plan of Merger dated as of November 2, 2009, among Peet’s Coffee & Tea, Inc., Marty Acquisition Sub, Inc. and Diedrich Coffee, Inc.*
	2.2	Stockholder Agreement dated as of November 2, 2009, between Peet’s Coffee & Tea, Inc. and Paul C. Heeschen.
	2.3	Form of Stockholder Agreement dated as of November 2, 2009, between Peet’s Coffee & Tea, Inc. and certain directors and executive officers of Diedrich Coffee, Inc.
	10.1	Commitment Letter dated as of November 2, 2009, among Peet’s Coffee & Tea, Inc., Wells Fargo Bank, National Association and Wells Fargo Securities, LLC.

* Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules upon request by the Securities and Exchange Commission.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, Peet's Coffee & Tea, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Peet's Coffee & Tea, Inc.
Dated: November 3, 2009	By:	/s/ Thomas Cawley
		Thomas Cawley
		Chief Financial Officer

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EXHIBIT INDEX

Exhibits
Exhibit	Description
2.1	Agreement and Plan of Merger dated as of November 2, 2009, among Peet’s Coffee & Tea, Inc., Marty Acquisition Sub, Inc. and Diedrich Coffee, Inc.*
2.2	Stockholder Agreement dated as of November 2, 2009, between Peet’s Coffee & Tea, Inc. and Paul C. Heeschen.
2.3	Form of Stockholder Agreement dated as of November 2, 2009, between Peet’s Coffee & Tea, Inc. and certain directors and executive officers of Diedrich Coffee, Inc.
10.1	Commitment Letter dated as of November 2, 2009, among Peet’s Coffee & Tea, Inc., Wells Fargo Bank, National Association and Wells Fargo Securities, LLC.

* Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules upon request by the Securities and Exchange Commission.

EX-2.1

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

among:

Peet’s Coffee & Tea, Inc.,

a Washington corporation;

Marty Acquisition Sub, Inc.,

a Delaware corporation; and

Diedrich Coffee, Inc.,

a Delaware corporation

___________________________

Dated as of November 2, 2009

___________________________

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (“Agreement”) is made and entered into as of November 2, 2009, by and among:  Peet’s Coffee & Tea, Inc., a Washington corporation (“Parent”); Marty Acquisition Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Acquisition Sub”); and Diedrich Coffee, Inc., a Delaware corporation (the “Company”).  Certain capitalized terms used in this Agreement are defined in Exhibit A.

Recitals

A.           The boards of directors of Parent, Acquisition Sub and the Company have each determined that it is in the best interests of their respective stockholders for Parent to acquire the Company upon the terms and subject to the conditions set forth in this Agreement.

B.           In furtherance of the contemplated acquisition of the Company by Parent, on the terms and subject to the conditions set forth in this Agreement:  (a) Acquisition Sub shall make an exchange offer (such exchange offer, as it may be amended from time to time, being referred to in this Agreement as the “Offer”) to acquire all of the issued and outstanding shares of Company Common Stock at the Per Share Consideration (as defined in Section 1.1(a)) for each such share; and (b) after acquiring shares of Company Common Stock pursuant to the Offer, Acquisition Sub shall merge into the Company (the merger of Acquisition Sub into the Company being referred to in this Agreement as the “Merger”).

C.           In order to induce Parent and Acquisition Sub to enter into this Agreement and to consummate the Contemplated Transactions, concurrently with the execution and delivery of this Agreement certain stockholders of the Company are executing and delivering stockholder agreements in favor of Parent and Acquisition Sub (the “Stockholder Agreements”).

Agreement

The parties to this Agreement, intending to be legally bound, agree as follows:

Section 1.The Offer

1.1           Conduct of the Offer.

(a)            Parent shall cause Acquisition Sub to, and Acquisition Sub shall, use commercially reasonable efforts to commence (within the meaning of Rule 14d-2 under the Exchange Act) the Offer as promptly as practicable after the date of this Agreement and to the extent feasible and with the reasonable cooperation of the Company and the Company’s Representatives, within ten (10) business days after the date of this Agreement.  Each share of Company Common Stock accepted by Acquisition Sub in accordance with the terms and subject to the conditions of the Offer shall be exchanged for the right to receive a combination of (i) $17.33, net to the holder of such share in cash (the “Cash Component”), and (ii) a fraction of a share of Parent Common Stock having a numerator equal to $8.67 and having a denominator equal to the Parent Average Stock Price (the “Applicable Fraction”); provided, however, that in no event will the Applicable Fraction exceed 0.315 of a share of Parent Common Stock.  The date on which Acquisition Sub commences the Offer, within the meaning of Rule 14d-2 under the Exchange Act, is referred to in this Agreement as the “Offer Commencement Date.”

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(b)            The obligation of Acquisition Sub to accept for exchange (and the obligation of Parent to cause Acquisition Sub to accept for exchange) shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer shall be subject to (i) the condition (the “Minimum Condition”) that there shall be validly tendered (and not withdrawn) a number of shares of Company Common Stock that, together with any shares of Company Common Stock owned by Parent, Acquisition Sub or any other Subsidiaries of Parent immediately prior to the acceptance for exchange of shares of Company Common Stock pursuant to the Offer, represents more than 50% of the Adjusted Outstanding Share Number (as defined below) and (ii) the other conditions set forth in Exhibit B.  The Minimum Condition and the other conditions set forth in Exhibit B are referred to collectively as the “Offer Conditions.”  For purposes of this Agreement, the “Adjusted Outstanding Share Number” shall be the sum of (1) the aggregate number of shares of Company Common Stock issued and outstanding immediately prior to the Acceptance Time, plus (2) at the election of Parent, an additional number of shares up to (but not exceeding) the aggregate number of shares of Company Common Stock issuable upon the exercise of all Company Options, Company Warrants and other rights to acquire Company Common Stock that are outstanding immediately prior to the acceptance of shares of Company Common Stock for exchange pursuant to the Offer and that are vested and exercisable or will be vested and exercisable prior to the Effective Time (but in all cases excluding the shares of Company Common Stock subject to the Top-Up Option).

(c)            Acquisition Sub expressly reserves the right, in its sole discretion, to (i) increase the Per Share Consideration and (ii) waive or make any other changes to the terms and conditions of the Offer; provided, however, that without the prior written consent of the Company:  (A) the Minimum Condition may not be amended or waived; and (B) no change may be made to the Offer that (1) changes the form of consideration to be delivered by Acquisition Sub pursuant to the Offer, (2) decreases any component of the Per Share Consideration, (3) decreases the number of shares of Company Common Stock to be purchased by Acquisition Sub in the Offer, (4) modifies the Offer or the Offer Conditions in a manner adverse to the stockholders of the Company or imposes conditions to the Offer in addition to the Offer Conditions, or (5) except as provided in Section 1.1(d), extends the expiration time of the Offer beyond the initial expiration time of the Offer.  Subject to the terms and conditions of the Offer and this Agreement, Acquisition Sub shall, and Parent shall cause Acquisition Sub to, (x) accept for exchange all shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer as soon as practicable after Acquisition Sub is permitted to do so under applicable Legal Requirements (and in any event in compliance with Rule 14e-1(c) of the Exchange Act) and (y) deliver the Per Share Consideration in exchange for each share of Company Common Stock accepted for exchange pursuant to the Offer.

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(d)            The Offer shall initially be scheduled to expire 20 business days following the Offer Commencement Date (calculated as set forth in Rule 14d-1(g)(3) and Rule 14e-1(a) under the Exchange Act).  Notwithstanding anything to the contrary contained in this Agreement, but subject to the parties’ respective termination rights under Section 8.1:  (i) if, at the time as of which the Offer is scheduled to expire, any Offer Condition is not satisfied and has not been waived, then, subject to the parties’ respective termination rights under Section 8.1, Acquisition Sub shall extend the Offer on one or more occasions, for additional successive periods of up to 20 business days per extension (with the length of such periods to be determined by Parent), until all Offer Conditions are satisfied or validly waived in order to permit the Acceptance Time to occur; provided, however, that in no event shall Acquisition Sub be required to extend the Offer to a date later than March 31, 2010; and (ii) Acquisition Sub shall extend the Offer from time to time for any period required by any rule, regulation, interpretation or position of the SEC or the staff of the SEC applicable to the Offer.  If less than 90% of the number of outstanding shares of Company Common Stock are accepted for exchange pursuant to the Offer, Acquisition Sub may, in its sole discretion (and without the consent of the Company or any other Person), elect to provide for one or more subsequent offering periods (of up to 20 business days in the aggregate) in accordance with Rule 14d-11 under the Exchange Act.  Subject to the terms and conditions of this Agreement, Acquisition Sub shall promptly accept for exchange, and deliver consideration for, all shares of Company Common Stock that are validly tendered during any such subsequent offering period (or any extension thereof).  For the avoidance of doubt, if, at any scheduled expiration date of the Offer, all of the Offer Conditions have been satisfied or waived in writing by Parent, and this Agreement has not otherwise been terminated in accordance with its terms, Acquisition Sub shall promptly accept for exchange, and deliver consideration for, all Shares validly tendered and not validly withdrawn pursuant to the Offer in accordance with this Agreement.  For the further avoidance of doubt, the Acceptance Time shall not be extended by any subsequent offering periods.

(e)            No fractional shares of Parent Common Stock shall be issued in connection with the Offer, and no certificates or scrip for any such fractional shares shall be issued in connection with the Offer.  Any holder of Company Common Stock who would otherwise be entitled to receive a fraction of a share of Parent Common Stock in the Offer (after aggregating all fractional shares of Parent Common Stock issuable to such holder in the Offer) shall, in lieu of such fraction of a share, be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the closing trading price of a share of Parent Common Stock as reported on the Nasdaq Capital Market on the trading day immediately before the trading day that includes the Acceptance Time.

(f)            As soon as practicable after the date of this Agreement but in no event after the Offer Commencement Date, Parent shall prepare and file with the SEC a registration statement on Form S-4 to register the offer and sale of Parent Common Stock pursuant to the Offer (the “Registration Statement”).  The Registration Statement will include a preliminary prospectus containing the information required under Rule 14d-4(b) under the Exchange Act (the “Preliminary Prospectus”).  On the Offer Commencement Date, Parent and Acquisition Sub shall:  (i) cause to be filed with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer, which will contain or incorporate by reference the Preliminary Prospectus and forms of the related letter of transmittal and summary advertisement (such Tender Offer Statement on Schedule TO and all exhibits, amendments and supplements thereto being referred to collectively in this Agreement as the “Offer Documents”); and (ii) cause the Offer Documents to be disseminated to holders of shares of Company Common Stock to the extent required by applicable Legal Requirements (including the Exchange Act and the rules and regulations thereunder).  Parent and Acquisition Sub shall cause the Registration Statement and the Offer Documents to comply in all material respects with applicable Legal Requirements (including the Exchange Act and the Securities Act and the rules and regulations thereunder).  

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The Company and its counsel shall be given reasonable opportunity to review and comment on the Registration Statement and the Offer Documents (including all amendments and supplements thereto) prior to the filing thereof with the SEC, and Parent and Acquisition Sub shall include all additions, deletions or changes thereto suggested by the Company and its legal counsel that Parent determines, in its good faith discretion, to be appropriate.  Parent and Acquisition Sub shall promptly provide the Company and its counsel with a copy of any written comments and a description of any oral comments received by Parent, Acquisition Sub or their counsel from the SEC or its staff with respect to the Registration Statement or the Offer Documents.  Each of Parent and Acquisition Sub shall use reasonable efforts to respond promptly to any comments of the SEC or its staff with respect to the Registration Statement, the Offer Documents or the Offer.  To the extent required by applicable Legal Requirements (including the Exchange Act and the Securities Act and the rules and regulations thereunder), (1) each of Parent, Acquisition Sub and the Company shall correct promptly any information provided by it for use in the Registration Statement or the Offer Documents to the extent that it becomes aware that such information shall be or shall have become false or misleading in any material respect and (2) Parent and Acquisition Sub shall take all steps necessary to promptly cause the Registration Statement and the Offer Documents, as supplemented or amended to correct such information, to be filed with the SEC and to be disseminated to holders of shares of Company Common Stock.  The Company shall promptly furnish to Parent and Acquisition Sub all information concerning the Company and the Company’s stockholders that may be required or reasonably requested in connection with any action contemplated by this Section 1.1(f).  Parent shall use commercially reasonable efforts to have the Registration Statement declared effective under the Securities Act as promptly as possible after its filing and to maintain its effectiveness for so long as shall be required for the issuance of Parent Common Stock pursuant to the Offer and the Merger.  Following the time the Registration Statement is declared effective, Parent shall file the final prospectus included therein under Rule 424(b) under the Securities Act.

(g)            Between the date of this Agreement and the date on which any particular share of Company Common Stock is accepted for exchange pursuant to the Offer, (i) if the outstanding shares of Company Common Stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the Per Share Consideration shall be adjusted to the extent necessary or appropriate to achieve the same economic outcome, and (ii) if the outstanding shares of Parent Common Stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the Applicable Fraction shall be adjusted to the extent necessary or appropriate to achieve the same economic outcome.

(h)            Notwithstanding anything to the contrary in this Agreement (including Section 1.1(a)), in the event that pursuant to Nasdaq Listing Rule 5635(a) (or its successor), the issuance of shares of Parent Common Stock (or rights with respect thereto) as part of the Contemplated Transactions would, but for the provisions of this Section 1.1(h), require the approval of the stockholders of Parent, then the Applicable Fraction shall automatically (and without any action on the part of any party hereto) be reduced to be the greatest fraction of a share of Parent Common Stock that would, if such fraction were the Applicable Fraction, not require the approval of the stockholders of Parent with respect to such issuance.

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1.2           Company Actions.

(a)            The Company hereby consents to the Offer and represents and warrants to Parent and Acquisition Sub that the Company’s board of directors, at a meeting duly called and held on November 2, 2009, has by the unanimous vote of all directors of the Company (i) determined that this Agreement and the Contemplated Transactions, including the Offer and the Merger, are fair to and in the best interests of the Company’s stockholders, (ii) adopted and approved this Agreement and approved the Offer, the Merger and the other Contemplated Transactions, in accordance with the requirements of the Delaware General Corporation Law (the “DGCL”), (iii) declared that this Agreement is advisable, (iv) resolved to recommend that the stockholders of the Company accept the Offer and tender their shares of Company Common Stock pursuant to the Offer and (to the extent necessary) adopt this Agreement, and (v) to the extent necessary, adopted a resolution having the effect of causing the Company not to be subject to any restriction set forth in any state takeover law or similar Legal Requirement that would otherwise apply to the Stockholder Agreements, the Offer, the Merger or any of the other Contemplated Transactions.

(b)            Contemporaneously with the filing of the Schedule TO or as promptly as practicable thereafter on the Offer Commencement Date, the Company shall file with the SEC and (following or contemporaneously with the dissemination of the Offer Documents and related documents) disseminate to holders of shares of Company Common Stock a Solicitation/Recommendation Statement on Schedule 14D-9 (together with any amendments or supplements thereto, the “Schedule 14D-9”) that, subject to Section 5.3, shall reflect the Company Board Recommendation.  Without limiting the foregoing, the parties hereto shall use commercially reasonable efforts to cause the Schedule 14D-9 to be disseminated concurrently with and in the same mailing envelope as the Offer Documents.  The Company shall cause the Schedule 14D-9 and the filing and dissemination thereof to comply in all material respects with applicable Legal Requirements (including the Exchange Act and the rules and regulations thereunder).  Parent and its legal counsel shall be given reasonable opportunity to review and comment on the Schedule 14D-9 (including any amendment or supplement thereto) prior to the filing thereof with the SEC, and the Company shall include all additions, deletions or changes thereto suggested by Parent and its legal counsel that the Company determines, in its good faith discretion, to be appropriate.  The Company shall promptly provide Parent and its legal counsel with a copy of any written comments and a description of any oral comments received by the Company or its legal counsel from the SEC or its staff with respect to the Schedule 14D-9 and shall use commercially reasonable efforts to respond promptly to any such comments.  To the extent required by applicable Legal Requirements (including the Exchange Act and the rules and regulations thereunder), (i) each of Parent, Acquisition Sub and the Company shall promptly correct any information provided by it for use in the Schedule 14D-9 to the extent that it becomes aware that such information shall be or shall have become false or misleading in any material respect, and (ii) the Company shall take all steps necessary to cause the Schedule 14D-9, as supplemented or amended to correct such information, to be filed with the SEC and, if required by applicable Legal Requirements, to be disseminated to holders of shares of Company Common Stock.

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(c)            The Company shall promptly provide to Parent (i) a list of the Company’s stockholders as well as mailing labels and any available listing or computer file containing the names and addresses of all record holders of shares of Company Common Stock and lists of securities positions of shares of Company Common Stock held in stock depositories, in each case accurate and complete as of the most recent practicable date, and (ii) such additional information (including updated lists of stockholders, mailing labels and lists of securities positions) and such other assistance as Parent may reasonably request in connection with the Offer or the Merger.  Except as may be required by applicable Legal Requirements, and except as may be necessary to disseminate the Offer Documents, Parent and Acquisition Sub shall hold in confidence, in accordance with the terms of the Confidentiality Agreement and this Agreement, any information contained in any such labels, listings and files provided by the Company to Parent.

1.3            Directors.  

(a)            Effective upon the Acceptance Time and from time to time thereafter, Parent shall be entitled to designate, to serve on the Company’s board of directors, the number of directors, rounded up to the next whole number, determined by multiplying:  (i) the total number of directors on the Company’s board of directors (giving effect to any increase in the size of the Company’s board of directors effected pursuant to this Section 1.3(a)); by (ii) a fraction having (x) a numerator equal to the aggregate number of shares of Company Common Stock then beneficially owned by Parent or Acquisition Sub or any other Subsidiaries of Parent (including all shares of Company Common Stock accepted for exchange pursuant to the Offer) and (y) a denominator equal to the total number of shares of Company Common Stock then issued and outstanding.  Promptly following a written request from Parent, the Company shall take all actions necessary and reasonably available to the Company to cause Parent’s designees (the “Parent Designees”) to be elected or appointed to the Company’s board of directors, including seeking and accepting resignations of incumbent directors and, if such resignations are not obtained, increasing the size of the Company’s board of directors.  From and after the Acceptance Time, to the extent requested by Parent, the Company shall also, as permitted by all applicable Legal Requirements (including the rules of the Nasdaq Capital Market), cause the Parent Designees to constitute the number of members, rounded up to the next whole number, on (1) each committee of the Company’s board of directors and (2) the board of directors of each Subsidiary of the Company (and each committee thereof) that represents at least the same percentage as individuals designated by Parent represent on the board of directors of the Company.  In furtherance of the foregoing, Parent shall designate an adequate number of Parent Designees so that the audit committee of the Company has at least three (3) members, and each of the Parent Designees serving on such audit committee shall be an “independent director” as defined by Rule 5605(a)(2) of the Nasdaq Marketplace Rules and eligible to serve on the Company’s audit committee under the Exchange Act and Nasdaq Marketplace Rules, and at least one (1) of whom shall be an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K and the instructions thereto. Notwithstanding the provisions of this Section 1.3, at all times prior to the Effective Time (as defined in Section 2.3), at least two (2) of the members of the Company’s board of directors shall be individuals who were directors of the Company on the date of this Agreement (“Continuing Directors”); provided, however, that if at any time prior to the Effective Time there shall be only one Continuing Director serving as a director of the Company for any reason, then the Company’s board of directors shall, subject to the following sentence, cause an individual selected by the remaining Continuing Director to be appointed to serve on the Company’s board of directors (and such individual shall be deemed to be a Continuing Director for all purposes under this Agreement).  The Company shall designate, prior to the Acceptance Time, two (2) alternate Continuing Directors that the board of directors of the Company shall appoint in the event of death, disability or resignation of the Continuing Directors, each of whom shall, following such appointment to the Company’s board of directors, be deemed to be a Continuing Director of the Company.

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(b)            In connection with the performance of its obligations to cause the Parent Designees to be elected or appointed to the Company’s board of directors, each of the Company and Parent shall use its commercially reasonable efforts to promptly take all actions, and the Company shall cause to be included in the Schedule 14D-9 such information with respect to the Company and its officers and directors, as Section 14(f) of the Exchange Act and Rule 14f-1 thereunder require (subject to the Company’s receipt of the information with respect to Parent and its nominees, officers, directors and affiliates required by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder).  Parent shall supply to the Company in writing and be solely responsible for any information with respect to itself and its nominees (including the Parent Designees), officers, directors and affiliates required by Section 14(f) and Rule 14f-1, and Parent shall use its commercially reasonable efforts to provide such information to enable it to be filed with the SEC in the Schedule 14D-9 on the date the Offer Documents are filed with the SEC.  The provisions of this Section 1.3 are in addition to, and shall not limit, any right that Acquisition Sub, Parent or any affiliate of Acquisition Sub or Parent may have (with respect to the election of directors or otherwise) under applicable Legal Requirements as a holder or beneficial owner of shares of Company Common Stock.

(c)            Following the election or appointment of the Parent Designees to the Company’s board of directors pursuant to Section 1.3(a) and until the Effective Time, each of the following actions may be effected only if there are on the Company’s board of directors one or more Continuing Directors and such action is approved by a majority of such Continuing Directors:  (i) action by the Company with respect to any amendment or waiver of any term or condition of this Agreement, the Merger, or the certificate of incorporation or bylaws of the Company; (ii) termination of this Agreement by the Company; (iii) extension by the Company of the time for the performance of any of the obligations or other acts of Parent or Acquisition Sub, or any waiver or assertion of any of the Company’s rights under this Agreement; or (iv) other consent or action by the Company with respect to the Offer, the Merger or any of the other Contemplated Transactions; provided that, in each case, the taking of such action could reasonably be expected to affect adversely the holders of shares of Company Common Stock (other than Parent or Acquisition Sub).  To the extent permitted under applicable Legal Requirements, until the Effective Time, (x) the approval of any of the foregoing actions by a majority of the Continuing Directors shall constitute the valid authorization of the Company’s board of directors with respect to such action (provided that all other requirements under the Company’s certificate of incorporation and bylaws and under applicable Legal Requirements are satisfied) and (y) in addition to any requirements under the Company’s certificate of incorporation and bylaws, any quorum of the Company’s board of directors for the purposes of any meeting thereof or transacting of business thereby with respect to the approval of any of the foregoing actions shall be deemed to require the attendance of at least one (1) Continuing Director.

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1.4            Top-Up Option.

(a)            The Company hereby grants to Parent and Acquisition Sub an assignable and irrevocable option (the “Top-Up Option”), exercisable upon the terms and subject to the conditions set forth in this Agreement, to purchase from the Company an aggregate number of newly-issued shares of Company Common Stock equal to the lesser of (i) the Top-Up Number (as defined below) or (ii) the aggregate number of shares of Company Common Stock that the Company is authorized to issue under its certificate of incorporation but that are not issued and outstanding (and are not subscribed for or otherwise committed to be issued) at the time of exercise of the Top-Up Option.  “Top-Up Number” means the number of shares of Company Common Stock that, when added to the number of shares of Company Common Stock owned of record by Parent or Acquisition Sub or any other Subsidiaries of Parent at the time of exercise of the Top-Up Option, constitutes a designated percentage of the number of shares of Company Common Stock that would be outstanding immediately after the issuance of all shares of Company Common Stock subject to the Top-Up Option, which percentage shall be designated by Parent at its sole discretion, provided that such percentage shall be greater than 90% but less than 91%.

(b)            The Top-Up Option may be exercised by Parent or Acquisition Sub, in whole or in part, at any time at or after the Acceptance Time but prior to the earlier of the Effective Time and the date on which this Agreement is terminated.  The aggregate purchase price payable for the shares of Company Common Stock being purchased by Parent or Acquisition Sub pursuant to the Top-Up Option shall be determined by multiplying the number of such shares by an amount equal to the sum of (i) the Cash Component and (ii) the amount determined by multiplying (A) the Applicable Fraction by (B) the Parent Average Stock Price.  Such purchase price may be paid by Parent or Acquisition Sub, at its election, either entirely in cash or by executing and delivering to the Company a promissory note having a principal amount equal to such purchase price, or by any combination of the foregoing.  Any such promissory note shall bear interest at the rate of 3% per annum, shall mature on the first anniversary of the date of execution thereof and may be prepaid without premium or penalty.

(c)            In the event Parent or Acquisition Sub wishes to exercise the Top-Up Option, Parent or Acquisition Sub shall deliver to the Company a notice setting forth (i) the number of shares of Company Common Stock that Parent or Acquisition Sub intends to purchase pursuant to the Top-Up Option, (ii) the manner in which Parent or Acquisition Sub intends to pay the applicable exercise price and (iii) the place, date and time at which the closing of the purchase of such shares of Company Common Stock by Parent or Acquisition Sub is to take place, which date shall not be more than ten (10) business days after the date of such notice.  At the closing of the purchase of such shares of Company Common Stock, Parent or Acquisition Sub shall cause to be delivered to the Company the consideration required to be delivered in exchange for such shares, and the Company shall cause to be issued to Parent or Acquisition Sub (as the case may be) a certificate representing such shares or, at Parent or Acquisition Sub’s request or otherwise if the Company does not then have certificated shares, the applicable number of uncertificated shares represented by book-entry (“Book-Entry Shares”).

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(d)            Acquisition Sub acknowledges that the shares of Company Common Stock that Acquisition Sub may acquire upon exercise of the Top-Up Option will not be registered under the Securities Act and will be issued in reliance upon an exemption thereunder for transactions not involving a public offering.  Acquisition Sub represents and warrants to the Company that Acquisition Sub is, and will be upon the purchase of shares subject to the Top-Up Option, an “accredited investor,” as defined in Rule 501 of Regulation D under the Securities Act.  Acquisition Sub agrees that the Top-Up Option and the shares to be acquired upon exercise thereof are being and will be acquired by Acquisition Sub for its own account, for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof (within the meaning of the Securities Act).

Section 2.  The Merger

2.1           Merger of Acquisition Sub into the Company.  At the Effective Time (as defined in Section 2.3), upon the terms and subject to the conditions set forth in this Agreement and in accordance with the DGCL, Acquisition Sub shall be merged with and into the Company.  Following the Merger, the Company shall continue as the surviving corporation (the “Surviving Corporation”), and the separate corporate existence of Acquisition Sub shall cease.

2.2           Effect of the Merger.  The Merger shall have the effects set forth in this Agreement and in the DGCL.  Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all of the properties, rights, privileges, immunities, powers and franchises of the Company and Acquisition Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations and duties of the Company and Acquisition Sub shall become the debts, liabilities, obligations and duties of the Surviving Corporation.

2.3           Closing; Effective Time.  The consummation of the Merger (the “Closing”) shall take place at the offices of Cooley Godward Kronish llp, 3175 Hanover Street, Palo Alto, California, at 10:00 a.m. on a date to be designated by Parent, which shall be no later than the second (2nd) business day after the satisfaction or waiver of the last to be satisfied or waived of the conditions set forth in Section 7, or at such other place or at such other time or on such other date as Parent and the Company mutually agree in writing.  The day on which the Closing takes place is referred to as the “Closing Date.”  Subject to the provisions of this Agreement, Parent, Acquisition Sub and the Company shall cause the Merger to be consummated by causing a certificate of merger complying with Section 251 or a certificate of ownership and merger complying with Section 253, as applicable, of the DGCL (either, the “Certificate of Merger”) to be filed with the Secretary of State of the State of Delaware on the Closing Date.  The Merger shall become effective upon the date and time of the filing of such Certificate of Merger, or at such later time as may be mutually agreed in writing by the Company and Parent and specified in such Certificate of Merger (the “Effective Time”).

2.4           Certificate of Incorporation and Bylaws; Directors and Officers.  Unless otherwise determined by Parent prior to the Effective Time:

(a)           the Certificate of Incorporation of the Surviving Corporation shall be amended in its entirety immediately after the Effective Time to conform to the Certificate of Incorporation of Acquisition Sub as in effect immediately prior to the Effective Time, except that the name of the Surviving Corporation shall be “Diedrich Coffee, Inc.”;

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(b)           the Bylaws of the Surviving Corporation shall be amended and restated as of the Effective Time to conform to the Bylaws of Acquisition Sub as in effect immediately prior to the Effective Time; and

(c)           the directors and officers of the Surviving Corporation immediately after the Effective Time shall be the respective individuals who are directors and officers of Acquisition Sub immediately prior to the Effective Time.

2.5           Conversion of Shares.

(a)            At the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Acquisition Sub, the Company or any holder of shares of the Company:

(i)           any shares of Company Common Stock then held by the Company or any wholly owned Subsidiary of the Company or held in the Company’s treasury shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor;

(ii)           any shares of Company Common Stock then owned of record by Parent, Acquisition Sub or any other wholly owned Subsidiary of Parent shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor;

(iii)           except as provided in clauses “(i)” and “(ii)” above and subject to Sections 2.5(b), 2.5(c) and 2.7, each share of Company Common Stock then outstanding shall be converted into the right to receive (upon the proper surrender of the certificate representing such share or, in the case of a Book-Entry Share, the proper surrender of such Book-Entry Share) the Per Share Consideration; and

(iv)           each share of the common stock, $0.001 par value per share, of Acquisition Sub then outstanding shall be converted into one newly and validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation.

(b)            Between the date of this Agreement and the Effective Time, (i) if the outstanding shares of Company Common Stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the Per Share Consideration shall be adjusted to the extent necessary or appropriate to achieve the same economic outcome, and (ii) if the outstanding shares of Parent Common Stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the Applicable Fraction shall be adjusted to the extent necessary or appropriate to achieve the same economic outcome.

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(c)            If (i) any share of Company Common Stock outstanding immediately prior to the Effective Time is unvested or is subject to a repurchase option, risk of forfeiture or other condition under any restricted stock purchase agreement or other agreement with the Company or under which the Company has any rights, and (ii) such restricted stock purchase agreement or other agreement does not provide that the vesting of such share of Company Common Stock shall fully accelerate at or prior to the Effective Time, then the amount payable with respect thereto (or with respect to any portion that does not accelerate at or prior to the Effective Time) pursuant to Section 2.5(a)(iii) will also be unvested and subject to the same repurchase option, risk of forfeiture or other condition.  The Company shall take all action that may be necessary to ensure that, from and after the Effective Time, Parent is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement or other agreement.

(d)            No fractional shares of Parent Common Stock shall be issued in connection with the Merger, and no certificates or scrip for any such fractional shares shall be issued in connection with the Merger.  Any holder of Company Common Stock who would otherwise be entitled to receive a fraction of a share of Parent Common Stock in the Merger (after aggregating all fractional shares of Parent Common Stock issuable to such holder in the Merger) shall, in lieu of such fraction of a share and upon surrender of such holder’s Stock Certificate(s) (as defined in Section 2.6(b)), be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the closing trading price of a share of Parent Common Stock as reported on the Nasdaq Capital Market on the trading day immediately before the trading day that includes the Effective Time.

2.6           Surrender of Certificates; Stock Transfer Books.  

(a)            Prior to the Effective Time, Parent shall designate a bank or trust company to act as exchange agent in the Merger (the “Exchange Agent”).  Promptly after the Effective Time, Parent shall deposit with the Exchange Agent (i) cash in an amount equal to the cash payable pursuant to Section 2.5(a)(iii), (ii) certificates representing any shares of Parent Common Stock issuable pursuant to Section 2.5(a)(iii) and (iii) cash sufficient to make any payments in lieu of fractional shares of Parent Common Stock that would have been payable with respect to Company Common Stock but for Section 2.5(d), in each case excluding amounts applicable to shares of Company Common Stock with respect to which the holder thereof has perfected appraisal rights under Section 262 of the DGCL.  The cash amounts and any shares of Parent Common Stock so deposited with the Exchange Agent, together with any dividends or distributions received by the Exchange Agent with respect to such shares, are referred to collectively as the “Exchange Fund.”  The cash in the Exchange Fund shall be invested by the Exchange Agent as directed by Parent in money market funds or similar short-term liquid investments.

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(b)            Promptly after the Effective Time (and in any event no more than five (5) business days after the Effective Time), Parent will instruct the Exchange Agent to promptly mail to the Persons who, immediately prior to the Effective Time, were record holders of certificates representing shares of Company Common Stock (“Stock Certificates”) or uncertificated shares of Company Common Stock represented by Book-Entry Shares, (i) a letter of transmittal in customary form and containing such provisions as Parent may reasonably specify (including, in the case of holders of Stock Certificates, a provision confirming that delivery of Stock Certificates shall be effected, and risk of loss and title to Stock Certificates shall pass, only upon delivery of such Stock Certificates to the Exchange Agent), and (ii) instructions for use in effecting the surrender of Stock Certificates and Book-Entry Shares.  Upon surrender of a Stock Certificate or Book-Entry Share to the Exchange Agent for exchange, together with a duly executed letter of transmittal and such other documents as may be reasonably required by the Exchange Agent or Parent, (A) the holder of such Stock Certificate or Book-Entry Share shall be entitled to receive in exchange therefor the consideration deliverable to such holder pursuant to Section 2.5(a)(iii) and any cash payment in lieu of a fractional share of Parent Common Stock in accordance with Section 2.5(d), and (B) the Stock Certificate or Book-Entry Share so surrendered shall be canceled.  Until surrendered as contemplated by this Section 2.6(b), each Stock Certificate or Book-Entry Share shall be deemed, from and after the Effective Time, to represent solely the right to receive the Per Share Consideration for each share of Company Common Stock formerly evidenced by such Stock Certificate or Book-Entry Share.  If any Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its discretion and as a condition to the delivery of any consideration with respect thereto, require the owner of such lost, stolen or destroyed Stock Certificate to provide an appropriate affidavit and to deliver a bond (in such sum as Parent may reasonably direct) as indemnity against any claim that may be made against the Exchange Agent, Parent or the Surviving Corporation with respect to such Stock Certificate.

(c)            No dividends or other distributions declared or made with respect to Parent Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Stock Certificate with respect to any shares of Parent Common Stock that such holder has the right to receive in the Merger until such holder surrenders such Stock Certificate in accordance with this Section 2.6 (at which time such holder shall be entitled, subject to the effect of applicable escheat or similar laws, to receive all such dividends and distributions, without interest).

(d)            Any portion of the Exchange Fund that remains undistributed to holders of Stock Certificates or Book-Entry Shares as of the date that is nine (9) months after the date on which the Merger becomes effective shall be delivered to Parent upon demand, and any holders of Stock Certificates or Book-Entry Shares who have not theretofore surrendered their Stock Certificates or Book-Entry Shares in accordance with this Section 2.6 shall thereafter look only to Parent for satisfaction of their claims for delivery of consideration in connection with the Merger.  Neither Parent nor the Surviving Corporation shall be liable to any holder or former holder of Company Common Stock or to any other Person with respect to any cash amounts or shares of Parent Common Stock delivered to any public official pursuant to any applicable abandoned property law, escheat law or similar Legal Requirement.

(e)            At the Effective Time, holders of Stock Certificates and Book-Entry Shares that were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of the Company, and the stock transfer books of the Company shall be closed with respect to all shares of Company Common Stock outstanding immediately prior to the Effective Time.  No further transfer of any such shares of Company Common Stock shall be made on such stock transfer books after the Effective Time.  If, after the Effective Time, a valid Stock Certificate is presented to the Surviving Corporation or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in this Section 2.6.

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(f)            Parent and the Surviving Corporation shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable to any holder or former holder of Company Common Stock pursuant to this Agreement such amounts as Parent or the Surviving Corporation determines in good faith may be required to be deducted or withheld therefrom under the Code or any provision of state, local or foreign Tax law or under any other Legal Requirement.  To the extent any such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

(g)            If any Stock Certificate has not been surrendered by the earlier of (i) the fifth anniversary of the date on which the Merger becomes effective or (ii) the date immediately prior to the date on which the consideration that such Stock Certificate represents the right to receive would otherwise escheat to or become the property of any Governmental Body, then such consideration shall, to the extent permitted by applicable Legal Requirements, become the property of the Surviving Corporation, free and clear of any claim or interest of any Person previously entitled thereto.

2.7            Appraisal Rights.  

(a)            Notwithstanding anything to the contrary contained in this Agreement, any share of Company Common Stock that, as of the Effective Time, is held by a holder who is entitled to, and who has properly preserved, appraisal rights under Section 262 of the DGCL with respect to such share shall not be converted into or represent the right to receive the Per Share Consideration in accordance with Section 2.5(a)(iii), and the holder of such share shall be entitled only to such rights as may be granted to such holder pursuant to Section 262 of the DGCL with respect to such share; provided, however, that if such appraisal rights shall not be perfected or the holder of such share shall otherwise lose such holder’s appraisal rights with respect to such share, then, as of the later of the Effective Time or the time of the failure to perfect such rights or the loss of such rights, such share shall automatically be converted into and shall represent only the right to receive (upon the surrender of the Stock Certificate representing such share) the Per Share Consideration in accordance with Section 2.5(a)(iii).

(b)            The Company shall give Parent (i) prompt notice of (A) any written demand received by the Company prior to the Effective Time to require the Company to purchase shares of Company Common Stock pursuant to Section 262 of the DGCL and (B) any other demand, notice or instrument delivered to the Company prior to the Effective Time pursuant to the DGCL, and (ii) the opportunity to direct all negotiations and proceedings with respect to any such demand, notice or instrument.  Without limiting the generality of the foregoing, the Company shall not make any payment or settlement offer prior to the Effective Time with respect to any such demand unless Parent shall have consented in writing to such payment or settlement offer.

2.8            Further Action.  If, at any time after the Effective Time, any further action is determined by Parent to be necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full right, title and possession of and to all rights and property of Acquisition Sub and the Company, the officers and directors of the Surviving Corporation and Parent shall be fully authorized (in the name of Acquisition Sub, in the name of the Company and otherwise) to take such action.

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Section 3.  Representations and Warranties of the Company

Except as explicitly set forth in (i) the Annual Report on Form 10-K filed by the Company with the SEC with respect to the fiscal year ended June 24, 2009, (ii) any Current Reports on Form 8-K filed by the Company with the SEC since the filing date of the Form 10-K referred to above, and (iii) the most recent draft of the Quarterly Report on Form 10-Q to be filed by the Company with the SEC with respect to the quarter ended September 16, 2009, a copy of which draft has been furnished to Parent, excluding any “risk factors” or similar statements that are cautionary, predictive or forward-looking in nature (but, for the purpose of clarification, including and giving effect to any factual or historical statements included in any such statements) in a manner where the relevance of such information to a particular representation and warranty below is readily apparent, and except as set forth in the Disclosure Schedule (it being understood that any exception or disclosure set forth in any part or subpart of the Disclosure Schedule shall be deemed an exception or disclosure, as applicable, only with respect to:  (a) the corresponding Section or subsection of this Section 3; (b) the Section or subsection of this Section 3 corresponding to any other part or subpart of the Disclosure Schedule that is explicitly cross-referenced therein; and (c) any other Section or subsection of this Section 3 with respect to which the relevance of such exception or disclosure is readily apparent), the Company represents and warrants to Parent and Acquisition Sub as follows:

3.1           Due Organization; Former Subsidiary; Etc.

(a)            The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary corporate power and authority:  (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Company Contracts.

(b)            The Company is qualified to do business as a foreign corporation, and is in good standing (except for any jurisdiction that does not recognize such concept) under the laws of all jurisdictions where the nature of its business requires such qualification, except where the failure to be so qualified or in good standing, individually or in the aggregate, do not constitute a Company Material Adverse Effect.

(c)            The Company has no Subsidiaries, and does not own any capital stock of, or any equity interest of any nature in, any other Entity, other than the Entities identified in Part 3.1(c) of the Disclosure Schedule.  The Company has not agreed and is not obligated to make, and is not bound by any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity.  Except as set forth on Part 3.1(c) of the Disclosure Schedule, the Company has not, at any time, been a general partner of, or has otherwise been liable for any of the debts or other obligations of, any general partnership, limited partnership or other Entity.

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3.2           Certificate of Incorporation and Bylaws.  The Company has Made Available to Parent accurate and complete copies of its certificate of incorporation, bylaws and other charter and organizational documents (collectively the “Charter Documents”), each as currently in effect.  The Company has Made Available to Parent accurate and complete copies of:  (a) the charters of all committees of the Company’s board of directors; and (b) any code of conduct or similar policy adopted by the Company or by the board of directors, or any committee of the board of directors, of the Company.  The Company has not violated any of its Charter Documents.

3.3           Capitalization, Etc.

(a)           The authorized capital stock of the Company consists of:  (i) 17,500,000 shares of Company Common Stock, of which 5,726,813 shares have been issued and are outstanding as of the date of this Agreement; and (ii) 3,000,000 shares of Company Preferred Stock, of which no shares have been issued or are outstanding.  The Company does not hold any shares of its capital stock in its treasury.  All of the outstanding shares of Company Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable.  Except as set forth in Part 3.3(a) of the Disclosure Schedule:  (A) none of the outstanding shares of Company Common Stock is entitled or subject to any preemptive right, right of participation, right of maintenance or any similar right; (B) none of the outstanding shares of Company Common Stock is subject to any right of first refusal in favor of the Company; and (C) there is no Company Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or from granting any option or similar right with respect to), any shares of Company Common Stock.  The Company is not under any obligation, nor is the Company bound by any Company Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of Company Common Stock or other securities.  The Company holds no repurchase right with respect to shares of Company Common Stock (including shares issued pursuant to the exercise of stock options).

(b)           As of the date of this Agreement:  (i) 791,500 shares of Company Common Stock are subject to issuance pursuant to Company Options; and (ii) 261,417 shares of Company Common Stock are reserved for future issuance pursuant to equity awards not yet granted under the Company Equity Plans.  Part 3.3(b) of the Disclosure Schedule sets forth with respect to each Company Option outstanding as of the date of this Agreement the following information:  (A) the particular plan (if any) pursuant to which such Company Option was granted; (B) the name of the holder of such Company Option; (C) the number of shares of Company Common Stock subject to such Company Option; (D) the per-share exercise price (if any) of such Company Option; (E) the date on which such Company Option was granted; (F) the applicable vesting schedule, and the extent to which such Company Option is vested and exercisable; (G) the date on which such Company Option expires; and (H) whether such Company Option is an “incentive stock option” (as defined in the Code) or a non-qualified stock option.  The Company has Made Available to Parent accurate and complete copies of all equity plans pursuant to which any outstanding Company Options were granted by the Company, and the forms of all stock option agreements evidencing such Company Options.  The exercise price of each Company Option is no less than the fair market value of a share of Company Common Stock as determined on the date of grant of such Company Option.  All grants of Company Options were recorded on the Company’s financial statements (including, any related notes thereto) contained in the Company SEC Documents (as defined in Section 3.4(a)) in accordance with GAAP, and no such grants involved any “back dating,” “forward dating” or similar practices with respect to the effective date of grant (whether intentionally or otherwise).  There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights or equity-based awards with respect to the Company other than as set forth in Part 3.3(b) of the Disclosure Schedule.

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(c)           As of the date of this Agreement, 1,987,000 shares of Company Common Stock are subject to issuance pursuant to Company Warrants.  Part 3.3(c) of the Disclosure Schedule sets forth with respect to each Company Warrant outstanding as of the date of this Agreement the following information:  (A) the name of the holder of such Company Warrant; (B) the number of shares of Company Common Stock subject to such Company Warrant; (C) the per-share exercise price (if any) of such Company Warrant; (D) the date on which such Company Warrant was granted; (E) the applicable vesting schedule, if any, and the extent to which such Company Warrant is vested and exercisable; and (F) the date on which such Company Warrant expires.  The Company has Made Available to Parent accurate and complete copies of all Company Warrants and all related agreements.

(d)           Except as set forth in Parts 3.3(b) and 3.3(c) of the Disclosure Schedule, there is:  (i) as of the date of this Agreement, no outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of the Company; (ii) as of the date of this Agreement, no outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of the Company; or (iii) no stockholder rights plan (or similar plan commonly referred to as a “poison pill”) or Company Contract under which the Company is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities.

(e)           All outstanding shares of Company Common Stock, Company Options, Company Warrants and other securities of the Company have been issued and granted in compliance with:  (i) all applicable securities laws and other applicable Legal Requirements; and (ii) all requirements set forth in applicable Contracts.

3.4           SEC Filings; Internal Controls and Procedures; Financial Statements.

(a)           Except as set forth on Part 3.4(a) of the Disclosure Schedule, the Company has filed with the SEC all registration statements, proxy statements, Certifications (as defined below) and other statements, reports, schedules, forms and other documents required to be filed by the Company with the SEC since January 1, 2005, and all amendments thereto (the “Company SEC Documents”).  All statements, reports, schedules, forms and other documents required to have been filed by the Company or its officers with the SEC have been so filed on a timely basis.  The Company has Made Available to Parent accurate and complete copies of each Company SEC Document (including each exhibit thereto) that is not publicly available through the SEC’s EDGAR database.  As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing):  (i) each of the Company SEC Documents complied as to form with the applicable requirements of the Securities Act or the Exchange Act (as the case may be) and the applicable rules and regulations of the SEC thereunder; and (ii) none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  Each of the certifications and statements required by:  (A) Rule 13a-14 or Rule 15d-14 under the Exchange Act; (B) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act); or (C) any other rule or regulation promulgated by the SEC or applicable to the Company SEC Documents (collectively, the “Certifications”) are accurate and complete, and comply as to form and content with all applicable Legal Requirements.  As used in this Agreement, the term “file” and variations thereof, when used in reference to the SEC, shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC.

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(b)           The Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are reasonably designed to ensure that:  (i) all material information required to be disclosed by the Company in the reports that it files or furnishes under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC; and (ii) all material information concerning the Company is made known on a timely basis to the individuals responsible for the preparation of the Company’s filings with the SEC and other public disclosure documents.

(c)           The Company maintains a system of “internal controls over financial reporting” (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) sufficient to provide reasonable assurance that:  (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  The Company’s management has completed an assessment of the effectiveness of the Company’s system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the fiscal year ended June 24, 2009, and such assessment concluded that such controls were effective.  Since June 24, 2009, neither the Company nor the Company’s independent registered accountant has identified or been made aware of:  (A) any significant deficiency or material weakness in the design or operation of internal control over financial reporting utilized by the Company; (B) any illegal act or fraud, whether or not material, that involves the Company’s management or other employees; or (C) any claim or allegation regarding any of the foregoing.

(d)           The consolidated financial statements (including any related notes) contained or incorporated by reference in the Company SEC Documents (as amended prior to the date of this Agreement):  (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial statements, as permitted by Form 10-Q, Form 8-K or any successor form under the Exchange Act, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments that will not, individually or in the aggregate, be material in amount), and (iii) fairly presented, in all material respects, the consolidated financial position of the Company and its consolidated Subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows of the Company and its consolidated Subsidiaries for the periods covered thereby.  No financial statements of any Person other than the Company are required by GAAP to be included in the consolidated financial statements of the Company.  With respect to the financial statements (including any related notes) contained or incorporated by reference in the Company SEC Documents, there have been no deficiencies or weaknesses identified in writing by the Company or the Company’s independent auditors (whether current or former) in the design or operation of internal controls of financial reporting utilized by the Company and its consolidated Subsidiaries.

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(e)           The Company’s auditor has at all times since the date of enactment of the Sarbanes-Oxley Act been:  (i) a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act); (ii) “independent” with respect to the Company within the meaning of Regulation S-X under the Exchange Act; and (iii) to the Knowledge of the Company, in compliance with subsections (g) through (l) of Section 10A of the Exchange Act and the rules and regulations promulgated by the SEC and the Public Company Accounting Oversight Board thereunder. All non-audit services performed by the Company’s auditors for the Company that were required to be approved in accordance with Section 202 of the Sarbanes-Oxley Act were so approved.

(f)           Part 3.4(f) of the Disclosure Schedule lists all securitization transactions, special purpose entities, unconsolidated Subsidiaries, joint ventures, material minority interest investments and all other “off-balance sheet arrangements” (as defined in Item 303(c) of Regulation S-K under the Exchange Act) effected by the Company or the Former Subsidiary since January 1, 2005.  The Company does not have any obligation or other commitment to become a party to any such “off-balance sheet arrangements” in the future.

(g)           As of the date of this Agreement, there are no unresolved comments issued by the staff of the SEC with respect to any of the Company SEC Documents.

(h)           Except as set forth on Part 3.4(h) of the Disclosure Schedule, the Company is, in all material respects, in compliance with (i) the applicable rules and regulations of the NASDAQ Stock Market LLC, (ii) the applicable listing requirements of the NASDAQ Capital Market, and (iii) the applicable provisions of the Sarbanes-Oxley Act, and has not since January 1, 2005 received any notice asserting any non-compliance with the rules and regulations of the NASDAQ Stock Market LLC, the listing requirements of the NASDAQ Capital Market or the applicable provisions of the Sarbanes-Oxley Act.

3.5           Absence of Changes.  Since the date of the Year-End Balance Sheet:

(a)           there has not been any Company Material Adverse Effect;

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(b)           there has not been any material loss, damage or destruction to, or any material interruption in the use of, any of the assets of the Company (whether or not covered by insurance);

(c)           the Company has not:  (i) declared, accrued, set aside or paid any dividend or made any other distribution in respect of any shares of capital stock; or (ii) repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities, other than repurchases from employees of the Company following termination of employment pursuant to the terms of applicable pre-existing restricted stock purchase agreements;

(d)           the Company has not sold, issued or granted, or authorized the issuance of:  (i) any capital stock or other security (except for Company Common Stock issued upon the valid exercise of outstanding Company Options); (ii) any option, warrant or right to acquire any capital stock or any other security (except for Company Options identified in Part 3.3(b) of the Disclosure Schedule); or (iii) any instrument convertible into or exchangeable for any capital stock or other security;

(e)           the Company has not amended or waived any of its rights under, or permitted the acceleration of vesting under:  (i) any provision of any of the Company Equity Plans; (ii) any provision of any Contract evidencing any outstanding Company Option; (iii) any restricted stock agreement; or (iv) any other Contract evidencing or relating to any equity award (whether payable in cash or stock);

(f)           the Company has not:  (i) acquired, leased or licensed any material right or other material asset from any other Person; (ii) sold or otherwise disposed of, or leased or licensed, any material right or other material asset to any other Person; or (iii) waived or relinquished any material right; except for, in each case, rights or other assets acquired, leased, licensed or disposed of in the ordinary course of business and consistent with past practices;

(g)           the Company has not written off as uncollectible, or established any extraordinary reserve with respect to, any account receivable or other indebtedness in excess of $20,000 in each case and $100,000 in the aggregate;

(h)           the Company has not:  (i) lent money to any Person in excess of $250,000 in the aggregate; or (ii) incurred or guaranteed any indebtedness (other than indebtedness for reimbursement of expenses made in the ordinary course of business) in excess of $250,000 in the aggregate;

(i)           the Company has not:  (i) adopted, established or entered into any Company Employee Plan; (ii) caused or permitted any Company Employee Plan to be amended in any material respect; or (iii) materially increased the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to any of its directors, officers or other employees;

(j)           to the Knowledge of the Company, there has been no violation of, and neither the Company’s board of directors nor any committee of the Company’s board of directors has granted any waiver with respect to, the Company’s Code of Ethics;

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(k)           the Company has not changed any of its methods of accounting or accounting practices in any material respect, except as required by GAAP;

(l)           the Company has not entered into any material transaction or taken any other material action outside the ordinary course of business or inconsistent with past practices; and

(m)           the Company has not agreed or committed to take any of the actions referred to in clauses “(c)” through “(l)” above.

3.6           Title to Assets.  The Company owns, and has good and valid title to, all assets reflected on the Year-End Balance Sheet (except for assets sold or otherwise disposed of in the ordinary course of business since the date of the Year-End Balance Sheet, free and clear of any Encumbrances, except for:  (i) any Encumbrance for current taxes not yet due and payable; (ii) Encumbrances that have arisen in the ordinary course of business and that do not (individually or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the operations of the Company; and (iii) Encumbrances described in Part 3.6 of the Disclosure Schedule (clauses “(i)” through “(iii),” collectively, “Permitted Encumbrances”).  The Company is the lessee of, and holds valid leasehold interests in, all leasehold estates reflected in the Year-End Balance Sheet and has enjoyed undisturbed possession of such leasehold estates.

3.7           Receivables; Customers; Inventories; Cash.

(a)           All existing accounts receivable of the Company (including those accounts receivable reflected on the Year-End Balance Sheet that have not yet been collected and those accounts receivable that have arisen since the date of the Year-End Balance Sheet and have not yet been collected):  (i) represent, in all material respects, valid obligations of customers of the Company arising from bona fide transactions entered into in the ordinary course of business; and (ii) are current and, to the Knowledge of the Company, will be collected in full when due, without any counterclaim or set off (net of an allowance for doubtful accounts not to exceed $250,000 in the aggregate).

(b)           Part 3.7(b) of the Disclosure Schedule accurately identifies, and provides an accurate and complete breakdown of the revenues received from, each customer or other Person that accounted for more than 5% of the consolidated gross revenues of the Company in the fiscal year ended June 24, 2009.  The Company has not received any written notice or, to the Knowledge of the Company, other communication indicating that any such customer is ceasing, will cease or plans to cease dealing with the Company.

(c)           The inventory of the Company reflected on the Year-End Balance Sheet was as of June 24, 2009, and the current inventory of the Company (the “Current Inventory”) is, in all material respects, in usable and saleable condition in the ordinary course of business.  The Current Inventory is not, in any material respect, excessive and is, in all material respects, adequate in relation to the requirements of the businesses of the Company, and none of the Current Inventory is obsolete, slow moving, unmarketable or of limited value in relation to the businesses of the Company, in any material respect.  The finished goods, work in progress, raw materials and other materials and supplies included in the Current Inventory are, in all material respects, of a standard that is at least as high as the generally accepted standard prevailing in the industries in which the Company operate.

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(d)           The cash equivalents and short-term investments of the Company are liquid and unimpaired.  The Year-End Balance Sheet accurately reflects the fair market value of the cash equivalents and short-term investments of the Company as of June 24, 2009.  Except as set forth in Part 3.7(d) of the Disclosure Schedule, none of the cash, cash equivalents or short-term investments of the Company is subject to any restriction or other Encumbrance.

3.8           Real Property; Equipment.

(a)          The Company does not own a fee interest in any real property. Part 3.8(a) of the Disclosure Schedule sets forth an accurate and complete description of each real property lease pursuant to which the Company leases real property from any other Person.  (All real property leased to the Company, including all buildings, structures, fixtures and other improvements leased to the Company, are referred to as the “Leased Real Property.”)  The present use and operation of the Leased Real Property is, in all material respects, in compliance with all applicable zoning, land use, building, fire, health, labor, safety and environmental laws and other Legal Requirements.  To the Knowledge of the Company, no Legal Proceeding is pending or has been threatened that challenges or adversely affects the continuation of the present leasehold ownership, use or operation of any Leased Real Property by the Company.  To the Knowledge of the Company, there is no existing plan or study by any Governmental Body or by any other Person that challenges or otherwise adversely affects the continuation of the present ownership, use or operation of any Leased Real Property by the Company.  Except as set forth on Part 3.8(a) of the Disclosure Schedule, there are no subleases, licenses, occupancy agreements or other contractual obligations to which the Company is party that grant the right of use or occupancy of any of the Leased Real Property to any Person other than the Company, and there is no Person in possession of or with a right to occupy, any of the Leased Real Property other than the Company.

(b)          All items of equipment and other tangible assets owned by or leased to the Company are, in all material respects, adequate for the uses to which they are being put, in good condition and repair (ordinary wear and tear excepted) and adequate for the conduct of the business of the Company in the manner in which such business is currently being conducted.

3.9           Intellectual Property.

(a)           Part 3.9(a) of the Disclosure Schedule accurately identifies:

(i)           in Part 3.9(a)(i) of the Disclosure Schedule:  (A) each item of Registered IP that is part of the Company IP; (B) the jurisdiction in which such item of Registered IP has been registered or filed and the applicable registration or serial number; and (C) any other Person that has an ownership interest in such item of Registered IP and the nature of such ownership interest; provided, however, that nothing in this Agreement shall constitute any representation or warranty by Company that any Registered IP, if an application for registration, shall proceed to grant or registration.

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(ii)           in Part 3.9(a)(ii) of the Disclosure Schedule:  (A) each Contract (including any Contract entered into in settlement or avoidance of litigation) pursuant to which any material Intellectual Property or Intellectual Property Right is licensed or otherwise provided (but not assigned) to the Company (other than implied licenses to Intellectual Property Rights where the Company receives a license to the Intellectual Property which embodies the Intellectual Property Rights, or software license agreements for any third-party software that is generally available on standard terms or is licensed under an Open Source License); and (B) whether these licenses are exclusive or nonexclusive (for purposes of this Agreement, a covenant not to sue or not to assert infringement claims shall be deemed to be equivalent to a license); and

(iii)           in Part 3.9(a)(iii) of the Disclosure Schedule:  (A) each patent license or cross-license (other than implied licenses to Intellectual Property Rights where the Company receives a license to the Intellectual Property which embodies the Intellectual Property Rights) to which the Company is a party pursuant to which any Person has been granted any license under, or otherwise has received or acquired any right (whether or not currently exercisable) or interest in, any Company IP; and (B) whether these licenses, rights and interests are exclusive or nonexclusive.

(b)           The Company has sufficient rights to all of the material Intellectual Property and Intellectual Property Rights in or relating to the Company Products and necessary to conduct its business in the manner that such business is, as of the date of this Agreement, being conducted by the Company and planned by the Company to be conducted.

(c)           All Company IP is valid, subsisting and enforceable.  The Company is not bound by, and no Company IP is subject to, any settlement, Legal Proceeding, Order or stipulation that limits or restricts, or would limit or restrict, in any material respect the ability of the Company to use, transfer, license, exploit, assert or enforce any Company IP or that may adversely affect the validity of any Company IP differently from the manner in which such Company IP is, as of the date of this Agreement, being used by the Company and planned by the Company to be used.  The Company has taken sufficient reasonable steps to maintain the confidentiality of, and otherwise protect and enforce its rights in, all material proprietary information held by the Company, or purported to be held by the Company, as a trade secret.

(d)           Neither the execution, delivery or performance of this Agreement or the Stockholder Agreements, nor the consummation of the Offer or the Merger or any of the other Contemplated Transactions will, with or without notice or the lapse of time, result in or give any other Person the right or option to cause, impose or declare:  (i) a loss of, or Encumbrance on, any Company IP; (ii) an obligation to make any payment or royalties or the loss or acceleration of any payment or royalties; (iii) a breach, modification, cancellation, termination or suspension of any Contract listed or required to be listed in Part 3.9(a) of the Disclosure Schedule or any Material Contract relating to any Company IP; (iv) the release, disclosure or delivery of any Company IP by or to any escrow agent or other Person; (v) the grant, assignment or transfer to any other Person of any license or other right or interest under, to or in any of the Company IP; or (vi) any restriction on pursuing any claim or enforcing any material Intellectual Property Right or any other material restriction, including any noncompetition restriction, on the operation or scope of the business of the Company.

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(e)           To the Knowledge of the Company, since January 1, 2007, no Person has infringed, misappropriated or otherwise violated, and no Person is currently infringing, misappropriating or otherwise violating, any Company IP.

(f)           Except as set forth in Part 3.9(f) of the Disclosure Schedule, neither the Company nor any of the Company Products, since January 1, 2007, has infringed (directly, contributorily, by inducement or otherwise), misappropriated or otherwise violated (where such infringement, misappropriation, or violation has not been settled, dismissed or otherwise concluded) or currently infringes (directly, contributorily, by inducement or otherwise), misappropriates or otherwise violates any Intellectual Property Right of any other Person.

(g)           (i) No infringement, misappropriation or similar claim or Legal Proceeding is pending (other than office actions in connection with applications for Registered IP) or, to the Knowledge of the Company, threatened against the Company, and (ii) since January 1, 2007, the Company has not received any requests for indemnification or received written notice of any claims from any Person that is, or has asserted or could reasonably be expected to assert that it is, entitled to be indemnified, defended, held harmless or reimbursed by the Company with respect to such claim or Legal Proceeding (excluding any claim or Legal Proceeding that has been settled, dismissed or otherwise concluded).

(h)           Except for the Company’s obligations to indemnify customers, distributors, resellers and sales representatives against third party infringement claims based on Company Products as part of the ordinary course of business, the Company has not assumed, or agreed to discharge or otherwise take responsibility for, any obligation to indemnify, defend, hold harmless or reimburse any other Person with respect to any infringement, misappropriation or similar claim relating to Intellectual Property Rights.

(i)           Except as set forth in Part 3.9(i) of the Disclosure Schedule, the Company has complied at all applicable times and in all material respects with all Company Privacy Policies and with all applicable Legal Requirements pertaining to privacy, user data, or Personal Data and none of (i) the execution, delivery, or performance of this Agreement or the Stockholder Agreement, (ii) the consummation of the Offer, the Merger or any of the other Contemplated Transactions, or (iii) Parent’s possession or use of any user data, will or could reasonably be expected to result in any violation of any Company Privacy Policy or any Legal Requirement pertaining to privacy or Personal Data.

3.10           Contracts.

(a)           Part 3.10 of the Disclosure Schedule identifies each Company Contract that constitutes a Material Contract (as defined below).  For purposes of this Agreement, each of the following shall be deemed to constitute a “Material Contract”:

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(i)           any Contract imposing any material restriction on the right or ability of the Company:  (A) to compete with any other Person; (B) to acquire any product or other asset or any services from any other Person; (C) to solicit, hire or retain any Person as an employee, consultant or independent contractor; (D) to develop, sell, supply, distribute, offer, support or service any product or any technology or other asset to or for any other Person; (E) to perform services for any other Person; (F) to bring any claim or enforce any Intellectual Property right against any Person; or (G) to transact business or deal in any other manner with any other Person;

(ii)           any Contract of the type required under Section 3.9 to be identified on the Disclosure Schedule;

(iii)           any Contract relating to the disposition or acquisition by the Company of a business unit or material amount of assets outside the ordinary course of business;

(iv)           any Contract that provides for indemnification of any Indemnified Person (as defined in Section 6.5(a));

(v)           any Contract that contemplates or involves the payment or delivery of cash or other consideration in an amount or having a value in excess of $250,000 in the aggregate, or contemplates or involves the performance of services having a value in excess of $250,000 in the aggregate;

(vi)           any Contract (other than Contracts evidencing Company Options):  (A) relating to the acquisition, issuance, voting, registration, sale or transfer of any securities; (B) providing any Person with any preemptive right, right of participation, right of maintenance or similar right with respect to any securities; or (C) providing to or imposing upon the Company any right of first refusal with respect to, or right or obligation to repurchase or redeem, any securities;

(vii)           any Contract incorporating or relating to any guaranty, any warranty, any sharing of liabilities or any indemnity or similar obligation, except for (A) Contracts which do not differ materially from the standard forms Made Available by the Company to Parent, (B) the Company’s obligations to indemnify customers, distributors, resellers and sales representatives against third party infringement claims based solely on Company Products that are contained in Company Contracts entered into in the ordinary course of business, and (C) the Company’s obligations to indemnify certain licensors, suppliers and other vendors that are contained in Company Contracts entered into in the ordinary course of business;

(viii)                      any Contract containing “standstill” or similar provisions;

(ix)           any other Contract, if a breach or termination of such Contract would constitute a Company Material Adverse Effect; and

(x)           any “material contract” as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC.

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(b)           The Company has Made Available to Parent an accurate and complete copy of each Material Contract.  To the Company’s Knowledge, there are no agreements, understandings, arrangements or courses of dealing between the Company and any third party, written or oral, explicit or implicit, that could result in any Material Contract, other than any agreement set forth on Part 3.10(b) of the Disclosure Schedule (any such agreement, a “Specified Contract”), being interpreted or enforced other than in accordance with the explicit terms thereof that have been disclosed to Parent prior to the date of this Agreement.  There are no agreements, understandings, arrangements or courses of dealing between the Company and any third party, written or oral, explicit or implicit, that could result in any Specified Contract being interpreted or enforced other than in accordance with the explicit terms thereof that have been disclosed to Parent prior to the date of this Agreement.

(c)           Each Material Contract is valid and in full force and effect, and is enforceable against the Company (and to the Knowledge of the Company is enforceable against each other party thereto) in accordance with its terms, and subject to:  (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.

(d)           (i) The Company is not in material violation or breach of, or in default under, any Material Contract; (ii) to the Knowledge of the Company, no other Person is in material violation or breach of, or in default under, any Material Contract; (iii) to the Knowledge of the Company, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) could reasonably be expected to:  (A) result in a material violation or breach of any of the provisions of any Material Contract; or (B) give any Person the right to cancel, terminate, modify or declare a default or exercise any remedy under any Material Contract; and (iv) the Company has not received any written notice from another party to a Material Contract asserting that the Company is in breach of or default under any such Material Contract.

3.11           Company Products.

(a)           Since January 1, 2009, to the Knowledge of the Company, the Company has not received any written notice from any material supplier threatening to cease supplying products to the Company.

(b)           Except as set forth in Part 3.11(b) of the Disclosure Schedule, the Company is not bound by any Contract that limits or restricts the ability of the Company to develop, manufacture, market or sell any Company Product for any period of time, in any territory, to or for any particular customer or group of customers or in any other material respect.

3.12           No Undisclosed Liabilities.  The Company does not have any accrued, contingent or other liabilities of any nature, either matured or unmatured, except for:  (a) liabilities identified in the Year-End Balance Sheet of the Company (or the notes thereto); (b) normal and recurring current liabilities that have been incurred by the Company since the date of the Year-End Balance Sheet in the ordinary course of business and consistent with past practice; and (c) liabilities for performance of obligations of the Company under Company Contracts, to the extent such liabilities are readily ascertainable (in nature, scope and amount) from the copies of such Company Contracts Made Available to Parent prior to the date of this Agreement.

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3.13           Compliance with Legal Requirements.  Except as set forth on Part 3.13 of the Disclosure Schedule, the Company is, and the Company and the Former Subsidiary have at all times since January 1, 2007 been in compliance in all material respects with all applicable Legal Requirements.  Since January 1, 2007, neither the Company nor the Former Subsidiary has received any written notice or, to the Knowledge of the Company, other communication from any Governmental Body or other Person, or otherwise obtained Knowledge, regarding any actual or possible violation of, inquiry or investigation relating to or failure of the Company or the Former Subsidiary, or any of their respective Representatives, to comply with any material Legal Requirement, or any actual or possible violation by any Person of, or failure by any Person to comply with, any Legal Requirement relating to the Company Common Stock or the purchase or sale of Company Common Stock, or any inquiry or investigation relating to any of the foregoing.

3.14           Certain Business Practices.  Neither the Company nor any director, officer, other employee or agent of the Company has violated any provision of the Foreign Corrupt Practices Act of 1977, as amended.

3.15           Governmental Authorizations.  Except as set forth on Part 3.15 of the Disclosure Schedule, (a) The Company holds all Governmental Authorizations necessary to enable the Company to conduct its businesses in the manner in which such businesses are currently being conducted, (b) all such Governmental Authorizations are valid and in full force and effect, and (c) the Company is, and at all times since January 1, 2007 has been, in compliance with the terms and requirements of such Governmental Authorizations.  Since January 1, 2007, the Company has not received any written notice or, to the Knowledge of the Company, other communication from any Governmental Body regarding:  (i) any violation of or failure to comply with any term or requirement of any such Governmental Authorization; or (ii) any revocation, withdrawal, suspension, cancellation, termination or modification of any such Governmental Authorization.

3.16           Tax Matters.

(a)           Each of the Tax Returns required to be filed by or on behalf of the Company with respect to any taxable period ending on or before the Closing Date (the “Company Returns”):  (i) has been or will be filed on or before the applicable due date (taking into account any extensions of such due date); and (ii) has been, or will be when filed, prepared in all material respects in compliance with all applicable Legal Requirements.  All amounts shown on the Company Returns to be due on or before the Closing Date have been or will be paid on or before the Closing Date.  The Company has timely withheld and timely paid all Taxes which are required to have been withheld and paid by it in connection with amounts paid or owing to any employee, independent contractor, creditor, supplier, stockholder or other Person.  There are no material unsatisfied liabilities of the Company (including liabilities for interest, additions to Tax and penalties thereon and related expenses) with respect to any Tax (other than liabilities for Taxes that are being contested in good faith by the Company and with respect to which adequate reserves for payment have been established on the Year-End Balance Sheet).

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(b)           To the Knowledge of the Company, except as set forth in Part 3.16(b) of the Disclosure Schedule, since January 1, 2007, no Company Return has been examined or audited by any Governmental Body.  No extension or waiver of the limitation period applicable to any of the Company Returns has been granted by the Company or other Person(s) authorized by the Company, and no such extension or waiver has been requested in writing from the Company.  The Company has not received any notice or other communication in writing that any Company Return will be subject to an audit that has not commenced.

(c)           No Legal Proceeding with respect to Tax is pending or, to the Knowledge of the Company, threatened against or with respect to the Company.  There are no liens for material Taxes upon any of the assets of the Company except liens for current Taxes not yet due and payable.

(d)           The Company has not been, and the Company will not be, required to include any adjustment in taxable income for any tax period (or portion thereof) pursuant to Section 481 or 263A of the Code (or any comparable provision of state or foreign Tax laws) as a result of transactions or events occurring, or accounting methods employed, prior to the Closing.

(e)           Part 3.16(e) of the Disclosure Schedule sets forth each country or state in which the Company files a Tax Return.  Since January 1, 2007, no written claim has been received by the Company from any Governmental Body in a jurisdiction where the Company does not file a Tax Return that it is or may be subject to taxation by that jurisdiction which has resulted or would reasonably be expected to result in a material Tax obligation.

(f)           There are no agreements relating to allocating or sharing of Taxes to which the Company is a party.  The Company is not liable for Taxes of any other Person, or is currently under any contractual obligation to indemnify any Person with respect to any amounts of such Person’s Taxes or is a party to any agreement providing for payments by the Company with respect to any amount of Taxes of any other Person.  For the purposes of this Section 3.16(f), commercially reasonable agreements providing for the allocation or payment of real property Taxes attributable to real property leased or occupied by the Company and commercially reasonable agreements for the allocation of payment of personal property Taxes, sales or use Taxes or value added Taxes with respect to personal property leased, used, owned or sold by the Company in the ordinary course of business shall be disregarded.

(g)           The Company is not, and has not been since January 1, 2007, either a “distributing corporation” or a “controlled corporation” within the meaning of Section 355(a)(1)(A) of the Code.

(h)           The Company is not and has never been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code.

(i)           The Company is not and has never been a member of an affiliated group of corporations within the meaning of Section 1504 of the Code (or any similar provision of state, local or non-U.S. Tax law).

(j)           Except as set forth on Part 3.16(j) of the Disclosure Schedule, the Company has Made Available to Parent accurate and complete copies of all federal and state income Tax Returns of the Company for all Tax years that remain open or are otherwise subject to audit, and all other material Tax Returns of the Company filed after December 31, 2006.  The Company has disclosed on its federal income Tax Returns all positions that could give rise to a material understatement penalty within the meaning of Section 6662 of the Code or any similar Legal Requirement.

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(k)           The Company has not participated in, and is not currently participating in, a “Listed Transaction” or a “Reportable Transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2) or similar transaction under any corresponding or similar Legal Requirement.

(l)           The Company has never participated in an international boycott as defined in Section 999 of the Code.

(m)           The Company is not and has never been a passive foreign investment company within the meaning of Sections 1291 through 1297 of the Code.

(n)           The Company has not incurred (or been allocated) an “overall foreign loss” as defined in Section 904(f)(2) of the Code which has not been previously recaptured in full as provided in Sections 904(f)(1) and/or 904(f)(3) of the Code.

(o)           The Company is not a party to a gain recognition agreement under Section 367 of the Code.

(p)           Since January 1, 2007, the Company is not and has not been a party to a transaction or agreement that is in conflict with, in any material respect, the Tax rules on transfer pricing in any relevant jurisdiction.  None of the transactions by the Company (or other related party) that occurred on or after January 1, 2007 is subject to any material adjustment, apportionment, allocation or re-characterization under Section 482 of the Code or any similar federal, state or local or foreign rule or regulation, and all of such transactions have been effected on an arm’s length basis.  The Company has made available to Parent copies or descriptions of all intercompany agreements (whether or not in writing) that were entered into on or after January 1, 2007 and relate to transfer pricing.

(q)           The Company is, in all material respects, in compliance with all terms and conditions of any Tax exemptions, Tax holiday or other Tax reduction agreement, approval or order of any Governmental Body.

3.17           Employee and Labor Matters; Benefit Plans.

(a)           The Company has Made Available to Parent accurate and complete copies of all employee manuals and handbooks, disclosure materials, policy statements and other materials relating to the employment of Company Associates.

(b)           To the Knowledge of the Company, no employee of the Company is a party to or is bound by any confidentiality agreement, noncompetition agreement or other Contract (with any Person) that may have a material effect on the business or operations of the Company or, following the Merger, Parent or any of its Subsidiaries.

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(c)           The Company is not a party to or bound by any collective bargaining agreement or union contract, and no collective bargaining agreement is being negotiated by the Company.  To the Knowledge of the Company, there are no activities or proceedings of any labor union to organize any Company employees.  There is no labor dispute, strike or work stoppage pending against the Company or, to the Knowledge of the Company, threatened against the Company.  The Company has not committed and, to the Knowledge of the Company, the Company has not been accused of committing any unfair labor practice in connection with the operation of its business that could reasonably be expected to result in a material liability to the Company.  There are no material actions, suits, claims, labor disputes or grievances pending or, to the Knowledge of the Company, threatened relating to any labor, safety or discrimination matters involving any Company Associate, including charges of unfair labor practices or discrimination complaints, which, if adversely determined, could reasonably be expected to result in a material liability to the Company.

(d)           None of the current or former independent contractors of the Company is required to be reclassified as an employee.

(e)           Part 3.17(e)(i) of the Disclosure Schedule contains an accurate and complete list, as of the date of this Agreement, of each material Company Employee Plan and each Company Employee Agreement.  Except as set forth in Part 3.17(e)(ii) of the Disclosure Schedule, the Company does not intend, and the Company has not committed, to establish or enter into any new Company Employee Plan, Foreign Plan or Company Employee Agreement, or to modify any Company Employee Plan, Foreign Plan or Company Employee Agreement (except to conform any such Company Employee Plan, Foreign Plan or Company Employee Agreement to the requirements of Section 409A of the Code or any other applicable Legal Requirements).

(f)           Except as set forth on Part 3.17(f) of the Disclosure Schedule, the Company has Made Available to Parent accurate and complete copies of:  (i) each material Company Employee Plan and each Company Employee Agreement, including all amendments thereto and all related trust documents; (ii) the most recent annual reports/filings, if any, required under applicable Legal Requirements in connection with each Company Employee Plan; (iii) the most recent annual and periodic accounting of Company Employee Plan assets, if any, for each Company Employee Plan; (iv) the most recent summary plan description together with the summaries of material modifications thereto, if any, required under ERISA or any similar Legal Requirement with respect to each Company Employee Plan; (v) all material written Contracts relating to each Company Employee Plan, including administrative service agreements and group insurance contracts; (vi) all material correspondence to or from any Governmental Body relating to any Company Employee Plan since January 1, 2007; and (vii) the most recent IRS determination or opinion letter issued with respect to each Company Employee Plan intended to be qualified under Section 401(a) of the Code.

(g)

(i)           The Company and each of the Company Affiliates has performed in all material respects all obligations required to be performed by it under each Company Employee Plan, each Foreign Plan and each Company Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance in all material respects with all applicable Legal Requirements.

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(ii)           Each Company Employee Plan intended to be qualified under Section 401(a) of the Code has obtained a favorable determination letter (or opinion letter, if applicable, on which the adopting employer is entitled to rely) as to its qualified status under the Code, and no event has occurred and no circumstance or condition exists that would reasonably be expected to result in the disqualification of any such Company Employee Plan.

(iii)           No non-exempt “prohibited transaction,” within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA has occurred with respect to any Company Employee Plan.

(iv)           There are no claims or Legal Proceedings pending, or, to the Knowledge of the Company, threatened or reasonably anticipated (other than routine claims for benefits), against any Company Employee Plan or against the assets of any Company Employee Plan.

(v)           There are no audits, inquiries or Legal Proceedings pending or, to the Knowledge of the Company, threatened by the IRS, DOL, or any other Governmental Body with respect to any Company Employee Plan.

(vi)           The Company and each of the Company Affiliates has made all contributions and other payments required by and due under the terms of each Company Employee Plan.

(h)           Neither the Company nor any Company Affiliate has at any time in the past six (6) years maintained, established, sponsored, participated in or contributed to any:  (i) Company Pension Plan subject to Title IV of ERISA; (ii) “multiemployer plan” within the meaning of Section (3)(37) of ERISA; or (iii) plan described in Section 413 of the Code.

(i)           Except as set forth in Part 3.17(i) of the Disclosure Schedule, no Company Employee Plan or Company Employee Agreement provides (except at no cost to the Company or any Company Affiliate) post-termination or retiree life insurance, post-termination or retiree health benefits or other post-termination or retiree employee welfare benefits to any Person for any reason, except as may be required by COBRA or other applicable Legal Requirements.

(j)           Except as set forth in Part 3.17(j) of the Disclosure Schedule, and except as expressly required or provided by this Agreement, neither the execution and delivery of this Agreement, nor the consummation of the Offer or the Merger or any of the other Contemplated Transactions will (either alone or upon the occurrence of termination of employment) constitute an event under any Company Employee Plan or Company Employee Agreement that will result (either alone or in connection with any other circumstance or event) in or give rise to:  (i) any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Company Associate; or (ii) any “parachute payment” within the meaning of Section 280G(b)(2) of the Code.  The Company is not a party to any agreement to compensate any Person for excise taxes payable pursuant to Section 4999 of the Code.

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(k)           Except as set forth in Part 3.17(k) of the Disclosure Schedule, each of the Company and Company Affiliates:  (i) is, and at all times has been, in compliance in all material respects with all applicable Legal Requirements respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Company Associates; (ii) has withheld and reported all amounts required by applicable Legal Requirements or by applicable Contracts to be withheld and reported with respect to wages, salaries and other payments to Company Associates; (iii) is not liable for any arrears of wages or any Taxes or any penalty for failure to comply with the Legal Requirements applicable of the foregoing; and (iv) is not liable for any payment to any trust or other fund governed by or maintained by or on behalf of any Governmental Body with respect to unemployment compensation benefits, social security or other benefits or obligations for Company Associates (other than routine payments to be made in the ordinary course of business and consistent with past practice).

(l)           There is no agreement, plan, arrangement or other Contract covering any Company Associate, and no payments have been made or will be made to any Company Associate, that, considered individually or considered collectively with any other such Contracts or payments, will, or could reasonably be expected to, be characterized as a “parachute payment” within the meaning of Section 280G(b)(2) of the Code or give rise directly or indirectly to the payment of any amount that would not be deductible pursuant to Section 162(m) of the Code (or any comparable provision under state or foreign Tax laws). The Company is not a party to any agreement to compensate any Person for excise taxes payable pursuant to Section 4999 of the Code.

(m)           There are no loans or other advances that have been made by the Company to any Company Associate that are currently outstanding, other than expense advances made to employees in the ordinary course of business.

(n)           To the Knowledge of the Company, except as set forth in Part 3.17(n) of the Disclosure Schedule, no executive officer of the Company or other employee of the Company at the level of Vice President or above:  (i) has indicated his or her intent to terminate his or her employment with the Company; or (ii) has received an offer to join a business that could reasonably be expected to be competitive with the Company’s business.

3.18           Environmental Matters.

(a)           The Company:  (i) is and has since January 1, 2007 been in compliance in all material respects with, and has not been and is not in material violation of or subject to any material liability under, any applicable Environmental Laws (as defined below); and (ii) possesses all permits and other Governmental Authorizations required under applicable Environmental Laws, and is in compliance with the terms and conditions thereof.

(b)           The Company has not received any written notice or, to the Knowledge of the Company, other communication, whether from a Governmental Body that alleges that the Company is not or might not be in compliance in any material respect with any Environmental Law.

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(c)           To the Knowledge of the Company:  (i) all Leased Real Property and any other property that is or was controlled or used by the Company, and all surface water, groundwater and soil associated with or adjacent to such property, is free of any Materials of Environmental Concern (as defined below) or material environmental contamination of any nature caused by the Company; (ii) none of the Leased Real Property or any other property that is or was controlled or used by the Company contains any underground storage tanks, asbestos, equipment using PCBs or underground injection wells; and (iii) none of the Leased Real Property or any other property that is or was controlled or used by the Company contains any septic or other tanks or leach field or other area into which process wastewater or any Materials of Environmental Concern have been Released (as defined below) by the Company.

(d)           The Company has never Released any Materials of Environmental Concern except in compliance in all material respects with all applicable Environmental Laws.

(e)           To the Knowledge of the Company, the Company has never sent or transported, or arranged to send or transport, any Materials of Environmental Concern to a site that, pursuant to any applicable Environmental Law:  (i) has been placed on the “National Priorities List” of hazardous waste sites or any similar state list; (ii) is otherwise designated or identified as a potential site for remediation, cleanup, closure or other environmental remedial activity; or (iii) is subject to a Legal Requirement to take “removal” or “remedial” action as detailed in any applicable Environmental Law or to make payment for the cost of cleaning up any site.

(f)           For purposes of this Section 3.18:  (i) “Environmental Law” shall mean any federal, state, local or foreign Legal Requirement relating to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface or subsurface strata), including any Legal Requirement relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern; (ii) “Materials of Environmental Concern” include chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products and any other substance that is regulated by any Environmental Law; and (iii) “Release” shall mean any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping or other releasing into the environment, whether intentional or unintentional.

3.19           Insurance.  Except as set forth on Part 3.19 of the Disclosure Schedule, the Company has Made Available to Parent a copy of all material insurance policies and all material self insurance programs and arrangements relating to the business, assets and operations of the Company.  Each of such insurance policies is in full force and effect.  Since January 1, 2007, the Company has not received any (a) written notice or, to the Knowledge of the Company, other communication regarding any cancellation or invalidation of any such insurance policy; or (b) written notice of refusal of any coverage or rejection of any material claim under any such insurance policy.  Except as set forth in Part 3.19 of the Disclosure Schedule, there is no pending workers’ compensation claim under any insurance policy of the Company.  With respect to each Legal Proceeding that has been filed against the Company, the Company has provided written notice of such Legal Proceeding to the appropriate insurance carrier(s), if any, and no such carrier has issued a denial of coverage or a reservation of rights with respect to any such Legal Proceeding, or, to the Knowledge of the Company, informed the Company of its intent to do so.

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3.20           Transactions with Affiliates.  Except as set forth in the Company SEC Documents filed prior to the date of this Agreement, between June 24, 2009 and the date of this Agreement, no event has occurred that would be required to be reported by the Company pursuant to Item 404 of Regulation S-K promulgated by the SEC.

3.21           Legal Proceedings; Orders.

(a)           Except as set forth in Part 3.21(a) of the Disclosure Schedule, there is not pending any Legal Proceeding, and, to the Knowledge of the Company, no Person has threatened to commence any Legal Proceeding that involves the Company or any of the assets owned or used by the Company.

(b)           There is no Order to which the Company, or any of the assets owned or used by the Company, is subject.  To the Knowledge of the Company, no named executive officer of the Company is subject to any Order that prohibits such officer from engaging in or continuing any conduct, activity or practice relating to the business of the Company.

3.22           Authority; Inapplicability of Anti-takeover Statutes; Binding Nature of Agreement.  The board of directors of the Company (at a meeting duly called and held) has:  (a) unanimously determined that the Offer, the Merger and this Agreement are advisable and fair to and in the best interests of the Company and its stockholders; (b) unanimously authorized and approved the execution, delivery and performance of this Agreement by the Company and unanimously approved the Offer and the Merger; (c) unanimously resolved to recommend that stockholders of the Company accept the Offer and tender their shares of Company Common Stock pursuant to the Offer and adopt this Agreement; and (d) to the extent necessary, adopted a resolution having the effect of causing the Contemplated Transactions not to be subject to Section 203 of the DGCL.  This Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to:  (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.

3.23           Vote Required.  If required under applicable Legal Requirements in order to permit the consummation of the Merger, the affirmative vote of the holders of a majority of the shares of Company Common Stock outstanding on the record date for the Company Stockholders’ Meeting (the “Required Company Stockholder Vote”) is the only vote of the holders of any class or series of the Company’s capital stock necessary to adopt this Agreement, approve the Merger or consummate any of the other Contemplated Transactions.

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3.24           Non-Contravention; Consents.  Except as set forth in Part 3.24 of the Disclosure Schedule, neither (1) the execution, delivery or performance of this Agreement or the Stockholder Agreements, nor (2) the consummation of the Offer, the Merger or any of the other Contemplated Transactions, will directly or indirectly (with or without notice or lapse of time):

(a)           contravene, conflict with or result in a violation of:  (i) any of the provisions of the Charter Documents of the Company; or (ii) any resolution adopted by the stockholders, the board of directors or any committee of the board of directors of the Company;

(b)           in any material respect, contravene, conflict with or result in a violation of any Legal Requirement or any Order to which the Company, or any of the assets owned or used by the Company, is subject;

(c)           in any material respect, contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by the Company or that otherwise relates to the business of the Company or to any of the assets owned or used by the Company;

(d)           in any material respect, contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any Material Contract, or give any Person the right to:  (i) declare a default or exercise any remedy under any such Material Contract; (ii) accelerate the maturity or performance of any such Material Contract; or (iii) cancel, terminate or modify any right, benefit, obligation or other term of any such Material Contract;

(e)           result in the imposition or creation of any Encumbrance upon or with respect to any material asset owned or used by the Company, except for Permitted Encumbrances; or

(f)           result in the transfer of any material asset of the Company to any Person (except as contemplated by this Agreement).

Except as set forth in Part 3.24 of the Disclosure Schedule, the Company is not and will not be required to make any filing with, give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement by the Company, (y) the execution, delivery or performance of the Stockholder Agreements or (z) the consummation of the Offer, the Merger or any of the other Contemplated Transactions, except as may be required by the Securities Act, the Exchange Act, the DGCL, any applicable state or foreign securities laws, the HSR Act, any foreign antitrust Legal Requirement and the NASD Bylaws.

3.25           Fairness Opinion.  The Company’s board of directors has received the written opinion of Houlihan, Lokey, Howard & Zukin Capital, Inc. (“Houlihan Lokey”), financial advisor to the Company, dated November 2, 2009, to the effect that, as of the date of such opinion and subject to the matters set forth in such opinion, the Per Share Consideration is fair, from a financial point of view, to the holders of Company Common Stock (other than any Affiliates of the Company or Parent, Acquisition Sub and their respective Affiliates).  The Company has furnished (solely for informational purposes) a copy of said written opinion to Parent.

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3.26           Financial Advisor.  Except for Houlihan Lokey, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Offer or the Merger or any of the other Contemplated Transactions based upon arrangements made by or on behalf of the Company.

3.27           Disclosure.  None of the information supplied or to be supplied by or on behalf of the Company for inclusion in the Registration Statement, the Post-Effective Amendment, the Offer Documents or the Schedule 14D-9 will, at the time the Registration Statement is filed with the SEC, at the time the Post-Effective Amendment is filed with the SEC, at the time the Offer Documents and the Schedule 14D-9 are mailed to stockholders of the Company or at any time between the time the Registration Statement is filed with the SEC and the Acceptance Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.  None of the information supplied or to be supplied by or on behalf of the Company for inclusion in the Proxy Statement will, at the time the Proxy Statement is mailed to stockholders of the Company or at the time of the Company Stockholders’ Meeting (or any adjournment or postponement thereof), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.  The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated by the SEC thereunder.  No representation or warranty is made by the Company with respect to written information supplied by Parent or Acquisition Sub specifically for inclusion in the Schedule 14D-9 or the Proxy Statement.

Section 4.  Representations and Warranties of Parent and Acquisition Sub

Except as explicitly set forth in (i) the Annual Report on Form 10-K filed by Parent with the SEC with respect to the fiscal year ended December 28, 2008, (ii) any Current Reports on Form 8-K filed by Parent with the SEC since the filing date of the Form 10-K referred to above, and (iii) the Quarterly Reports on Form 10-Q filed by Parent with the SEC since the filing date of the Form 10-K referred to above (excluding any “risk factors” or similar statements that are cautionary, predictive or forward-looking in nature (but, for the purpose of clarification, including and giving effect to any factual or historical statements included in any such statements) in a manner where the relevance of such information to a particular representation and warranty below is readily apparent, Parent and Acquisition Sub represent and warrant to the Company as follows:

4.1           Due Organization.

(a)           Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Washington and has all necessary corporate power and authority:  (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Contracts by which it is bound.  Parent is qualified to do business as a foreign corporation, and is in good standing (except for any jurisdiction that does not recognize such concept) under the laws of all jurisdictions where the nature of its business requires such qualification, except where the failure to be so qualified or in good standing, individually or in the aggregate, do not constitute a Parent Material Adverse Effect.

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(b)           Acquisition Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary corporate power and authority:  (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Contracts by which it is bound.

4.2           Certificate of Incorporation and Bylaws.  Parent has Made Available to the Company accurate and complete copies of its and Acquisition Sub’s certificate of incorporation, bylaws and other charter and organizational documents (collectively the “Parent Charter Documents”), each as currently in effect.

4.3           Capitalization.  The authorized capital stock of Parent consists of 50,000,000 shares of Parent Common Stock.  As of October 30, 2009, (a) 12,995,078 shares of Parent Common Stock are issued and outstanding and (b) 2,887,917 shares of Parent Common Stock are subject to issuance pursuant to securities convertible into or exchangeable for shares of Parent Common Stock. There are no outstanding obligations of Parent or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Parent Common Stock or securities convertible into or exchangeable for Parent Common Stock.  The shares of Parent Common Stock to be issued in the Offer and the Merger will be duly authorized, validly issued, fully paid and nonassessable.  All shares or other equity interests of the Subsidiaries of Parent are owned by Parent or another wholly owned Subsidiary of Parent free and clear of any Encumbrance.

4.4           SEC Filings; Financial Statements.

(a)           Parent has filed with the SEC all registration statements, proxy statements, Certifications and other statements, reports, schedules, forms and other documents required to be filed by Parent with the SEC since January 1, 2005, and all amendments thereto (the “Parent SEC Documents”).  All statements, reports, schedules, forms and other documents required to have been filed by Parent or its officers with the SEC have been so filed on a timely basis.  Parent has Made Available to the Company accurate and complete copies of each Parent SEC Document (including each exhibit thereto) that is not publicly available through the SEC’s EDGAR database.  As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing):  (i) each of the Parent SEC Documents complied with the applicable requirements of the Securities Act or the Exchange Act (as the case may be) and the applicable rules and regulations of the SEC thereunder; and (ii) none of the Parent SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  Each of the certifications and statements required by:  (A) Rule 13a-14 or Rule 15d-14 under the Exchange Act; (B) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act); or (C) any other rule or regulation promulgated by the SEC or applicable to the Parent SEC Documents are accurate and complete, and comply as to form and content with all applicable Legal Requirements.

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(b)           The consolidated financial statements (including any related notes) contained or incorporated by reference in the Parent SEC Documents (as amended prior to the date of this Agreement):  (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial statements, as permitted by Form 10-Q, Form 8-K or any successor form under the Exchange Act, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments that will not, individually or in the aggregate, be material in amount), and (iii) fairly presented, in all material respects, the consolidated financial position of Parent and its consolidated Subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows of Parent and its consolidated Subsidiaries for the periods covered thereby.  No financial statements of any Person other than Parent are required by GAAP to be included in the consolidated financial statements of Parent.  With respect to the financial statements (including any related notes) contained or incorporated by reference in the Parent SEC Documents, there have been no deficiencies or weaknesses identified in writing by Parent or Parent’s independent auditors (whether current or former) in the design or operation of internal controls of financial reporting utilized by Parent and its consolidated Subsidiaries.

4.5           Authority; Binding Nature of Agreement.  Parent and Acquisition Sub have the absolute and unrestricted right, power and authority to perform their obligations under this Agreement; and the execution, delivery and performance by Parent and Acquisition Sub of this Agreement have been duly authorized by any necessary action on the part of Parent and Acquisition Sub and their respective boards of directors.  This Agreement constitutes the legal, valid and binding obligation of Parent and Acquisition Sub, enforceable against them in accordance with its terms, subject to:  (a) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (b) rules of law governing specific performance, injunctive relief and other equitable remedies.

4.6           No Vote Required.  No vote of the holders of Parent Common Stock is required to authorize the issuance of shares of Parent Common Stock in connection with the Offer or the Merger.

4.7           Absence of Changes.  Since June 28, 2009, except as otherwise contemplated by this Agreement, there has not been any Parent Material Adverse Effect.

4.8           Non-Contravention; Consents.  Except as does not constitute a Parent Material Adverse Effect, neither (1) the execution, delivery or performance by Parent or Acquisition Sub of this Agreement, nor (2) the consummation by Parent or Acquisition Sub of the Offer, the Merger or any of the other Contemplated Transactions, will directly or indirectly (with or without notice or lapse of time):

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(a)           contravene, conflict with or result in a violation of:  (i) any of the provisions of the Parent Charter Documents; or (ii) any resolution adopted by the stockholders, the board of directors or any committee of the board of directors of Parent or Acquisition Sub; or

(b)           contravene, conflict with or result in a violation of any Legal Requirement or any Order to which Parent, Acquisition Sub or any of the assets owned or used by either of them, is subject.

Each of Parent and Acquisition Sub is not and will not be required to make any filing with, give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement by Parent or Acquisition Sub, or (y) the consummation of the Offer, the Merger or any of the other Contemplated Transactions, except as may be required by the Securities Act, the Exchange Act, the DGCL, any applicable state or foreign securities laws, the HSR Act, any foreign antitrust Legal Requirement and the NASD Bylaws.

4.9           Disclosure.  None of the information supplied or to be supplied by or on behalf of Parent for inclusion in the Registration Statement, the Post-Effective Amendment, the Offer Documents or the Schedule 14D-9 will, at the time the Registration Statement is filed with the SEC, at the time the Post-Effective Amendment is filed with the SEC or at the time the Offer Documents and the Schedule 14D-9 are mailed to the stockholders of the Company or at any time between the time the Registration Statement is filed with the SEC and the Acceptance Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.  None of the information supplied or to be supplied by or on behalf of Parent for inclusion in the Proxy Statement will, at the time the Proxy Statement is mailed to the stockholders of the Company or at the time of the Company Stockholders’ Meeting (or any adjournment or postponement thereof), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.  No representation or warranty is made by Parent or Acquisition Sub with respect to written information supplied by the Company specifically for inclusion in the Registration Statement, the Post-Effective Amendment or the Offer Documents.

4.10           Funds.  Parent or Acquisition Sub will have, at the Acceptance Time, sufficient funds available to satisfy the obligation to pay the Cash Component for each share of Company Common Stock validly tendered (and not withdrawn) in the Offer, and Parent or Acquisition Sub will have, at the Effective Time, sufficient funds available to satisfy the obligation to pay the Cash Component for each share of Company Common Stock that is converted into the right to receive the Per Share Consideration pursuant to Section 2.5(a)(iii) in connection with the Merger.

Section 5.Certain Covenants of the Parties

5.1           Access and Investigation.  During the period from the date of this Agreement through the earlier of (1) the Effective Time and (2) the termination of this Agreement pursuant to Section 8.1 (the “Pre-Closing Period”), the Company shall, and shall cause the respective Representatives of the Company to:  (a) provide Parent and Parent’s Representatives with reasonable access to the Company’s Representatives, personnel and assets and to all existing books, records, Tax Returns, work papers and other documents and information relating to the Company; and (b) provide Parent and Parent’s Representatives with such copies of the existing books, records, Tax Returns, work papers and other documents and information relating to the Company, and with such additional financial, operating and other data and information regarding the Company, as Parent may reasonably request. During the Pre-Closing Period, the Company shall, and shall cause the Representatives of the Company to, permit Parent’s senior officers to meet, upon reasonable notice and during normal business hours, with the chief financial officer and other officers of the Company responsible for the Company’s financial statements and the internal controls of the Company to discuss such matters as Parent may deem necessary or appropriate in order to enable Parent to satisfy its obligations under theSarbanes-Oxley Act and the rules and regulations relating thereto.  Without limiting the generality of any of the foregoing, during the Pre-Closing Period, the Company shall promptly provide Parent with copies of:

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(i)          all material operating and financial reports prepared by the Company for the Company’s senior management, including copies of the unaudited monthly consolidated balance sheets of the Company and the related unaudited monthly consolidated statements of operations, statements of stockholders’ equity and statements of cash flows;

(ii)          any written materials or communications sent by or on behalf of the Company to its stockholders;

(iii)          any material notice, document or other communication (other than any communication that relates solely to routine commercial transactions and that is of the type sent in the ordinary course of business and consistent with past practices) sent by or on behalf of the Company to any party to any Company Contract that constitutes a Material Contract or sent to the Company by any party to any Company Contract that constitutes a Material Contract;

(iv)          any notice, report or other document filed with or sent to any Governmental Body on behalf of the Company in connection with the Offer or the Merger or any of the other Contemplated Transactions; and

(v)          any material notice, report or other document received by the Company from any Governmental Body.

During the Pre-Closing Period, Parent shall promptly provide the Company with copies of any notice, report or other document filed with or sent to any Governmental Body on behalf of Parent or Acquisition Sub in connection with the Offer or the Merger or any of the other Contemplated Transactions.  Without limiting the effect of any of the other obligations set forth in this Agreement, before filing any document with or furnishing any document to the SEC or any other Governmental Body in connection with the Offer or the Merger or any of the other Contemplated Transactions, each party shall consult with the other party regarding the proposed content of such document.  All information obtained pursuant to this Section 5.1 shall be subject to the Confidentiality Agreement to the extent such information constitutes Confidential Information (as defined in the Confidentiality Agreement).

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5.2           Operation of the Company’s Business.

(a)           Except in each case (x) as specifically required by any other provision of this Agreement or specifically set forth in Part 5.2(a) of the Disclosure Schedule, (y) as required by any applicable Legal Requirement, or (z) with the prior written consent of Parent, during the Pre-Closing Period:  (i) the Company shall conduct its business and operations (A) in the ordinary course and in accordance with past practices and (B) in compliance, in all material respects, with all applicable Legal Requirements and the requirements of all Company Contracts that constitute Material Contracts; (ii) the Company shall use commercially reasonable efforts to preserve intact its current business organization, keep available the services of its current officers and other employees and maintain its relations and goodwill with all suppliers, customers, landlords, creditors, licensors, licensees, distributors, resellers, employees and other Persons having business relationships with the Company; (iii) the Company shall keep in full force all insurance policies referred to in Section 3.19 (other than any such policies that are immediately replaced with substantially similar policies); and (iv) the Company shall promptly notify Parent of (A) any written notice or other communication of which the Company has Knowledge from any Person alleging that the Consent of such Person is or may be required in connection with any of the Contemplated Transactions, and (B) any Legal Proceeding commenced, or, to the Knowledge of the Company, threatened against, relating to, involving or otherwise affecting the Company that relates to the consummation of the Offer or the Merger or any of the other Contemplated Transactions.  Except in each case (x) as specifically required by any other provision of this Agreement, (y) as required by any applicable Legal Requirement, or (z) with the prior written consent of the Company, during the Pre-Closing Period, Parent shall promptly notify the Company of (A) any written notice or other communication of which Parent has Knowledge from any Person alleging that the Consent of such Person is or may be required in connection with any of the Contemplated Transactions, and (B) any Legal Proceeding commenced, or, to the Knowledge of Parent, threatened against, relating to, involving or otherwise affecting Parent or Acquisition Sub that relates to the consummation of the Offer or the Merger or any of the other Contemplated Transactions.

(b)           Except in each case (x) as specifically required by any other provision of this Agreement or specifically set forth in Part 5.2(b) of the Disclosure Schedule, (y) as required by any applicable Legal Requirement, or (z) with the prior written consent of Parent, during the Pre-Closing Period (which consent shall not be unreasonably withheld, conditioned or delayed, but only with respect to clauses “(xi),” “(xvii),” “(xx),” “(xxi)” and “(xxii)” below), the Company shall not:

(i)           declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock, split, combine or reclassify any capital stock or repurchase, redeem or otherwise reacquire, directly or indirectly, any shares of capital stock or other securities, other than repurchases from employees of the Company following termination of employment pursuant to the terms of applicable pre-existing restricted stock agreements;

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(ii)           sell, issue, grant deliver or authorize the sale, issuance, delivery or grant of:  (A) any capital stock or other security; (B) any option, call, warrant or right to acquire any capital stock or other security; or (C) any instrument convertible into or exchangeable for any capital stock or other security (except that:  (1) the Company may issue shares of Company Common Stock upon the valid exercise of Company Options or Company Warrants outstanding as of the date of this Agreement; and (2) the Company may, in the ordinary course of business and consistent with past practices, grant to any employee of the Company below the level of Vice President (x) options (having an exercise price equal to the fair market value of the Company Common Stock covered by such options determined as of the time of the grant of such options, containing no vesting acceleration provisions and containing the Company’s standard vesting schedule) or (y) restricted stock units or restricted stock awards (containing no vesting acceleration provisions and containing the Company’s standard vesting schedule) under the Company Equity Plans in connection with either the hiring of such employee during the Pre-Closing Period or the Company’s annual employee review process, provided that (I) any such award grants made to newly-hired employees of the Company shall be made in accordance with the Company’s new hire guidelines set forth in Part 5.2(b)(ii)(I) of the Disclosure Schedule; and (II) any award grants made to Company employees in connection with the Company’s annual employee performance review process, shall be made in accordance with the guidelines set forth in Part 5.2(b)(ii)(I) of the Disclosure Schedule;

(iii)           amend or waive any of its rights under, or accelerate the vesting under, any provision of any of the Company Equity Plans or any provision of any Contract evidencing any outstanding Company Option or any restricted stock purchase agreement, or otherwise modify any of the terms of any outstanding option, restricted stock units, warrant or other security or any related Contract, other than any acceleration of vesting that occurs in accordance with the terms of a Company Contract in effect as of the date of this Agreement and previously Made Available to Parent;

(iv)           amend or permit the adoption of any amendment to any of its Charter Documents, or effect or become a party to any merger, consolidation, share exchange, business combination, amalgamation, recapitalization, reclassification of shares, stock split, reverse stock split, division or subdivision of shares, consolidation of shares or similar transaction;

(v)           form any Subsidiary or acquire any equity interest or other interest in any other Entity;

(vi)           make any capital expenditure (except that the Company may make any capital expenditure that:  (A) does not exceed $250,000 individually; and (B) when added to all other capital expenditures made on behalf of the Company during the calendar month in which such capital expenditure is made, does not exceed $2,000,000 in the aggregate);

(vii)           other than in the ordinary course of business consistent with past practices (A) enter into or become bound by, or permit any of the material assets owned or used by it to become bound by, any Material Contract or (B) amend or terminate, or waive or exercise any material right or remedy under, any Material Contract;

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(viii)                      grant any exclusive license or right with respect to any Company IP, other than any grant of Company IP that occurs in accordance with the terms of a Company Contract in effect as of the date of this Agreement and previously Made Available to Parent;

(ix)           enter into, renew or become bound by, or permit any of the material assets owned or used by it to become bound by, any Contract the effect of which would be to grant to any Person following the Merger any right or license to any Intellectual Property right owned as of the date of this Agreement by the Company or Parent;

(x)           enter into, renew or become bound by, or permit any of the material assets owned or used by it to become bound by, any Contract containing, or otherwise subjecting the Company to, any non-competition, exclusivity or other material restriction on the operation of the business of the Company or Parent;

(xi)           acquire, lease or license any right or other asset from any other Person or sell or otherwise dispose of, lease or license any right or other asset to any other Person (except in each case for assets (that are not material individually or in the aggregate) acquired, leased, licensed or disposed of by the Company in the ordinary course of business and consistent with past practices), or, other than in the ordinary course of business in connection with the collection of accounts receivable, waive or relinquish any material right;

(xii)           other than in the ordinary course of business consistent with past practices, write off as uncollectible, or establish any extraordinary reserve with respect to, any receivable or other indebtedness;

(xiii)                      make any pledge of any of its material assets or (B) permit any of its material assets to become subject to any Encumbrances, except for Encumbrances that do not materially detract from the value of such assets or materially impair the operations of the Company;

(xiv)                      permit any cash, cash equivalents or short-term investments of the Company to become subject to any Encumbrance;

(xv)           (A) lend money to any Person, incur or guarantee any indebtedness (including capital lease obligations) (other than indebtedness for reimbursement of expenses made in the ordinary course of business) or obtain or enter into any bond or letter of credit or any related Contract, in each case in excess of $50,000 individually or $250,000 in the aggregate, or (B) announce, offer, arrange, syndicate or issue any debt securities (including convertible securities) or announce, arrange or syndicate any bank financing;

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(xvi)                      establish, adopt, enter into or amend any Company Employee Plan or Company Employee Agreement, pay any bonus or make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation (including equity-based compensation, whether payable in stock, cash or other property) or remuneration payable to, any of its directors or any of its officers or other employees (except that the Company:  (A) may provide routine, reasonable salary increases to employees that are not at the Vice President level or above in the ordinary course of business and in accordance with past practices in connection with the Company’s customary employee review process; (B) may amend the Company Employee Plans to the extent required by Section 409A of the Code and other applicable Legal Requirements; (C) may make customary bonus payments and profit sharing payments consistent with past practices in accordance with existing bonus and profit sharing plans referred to in Part 3.16(b) of the Disclosure Schedule); and (D) may comply with requirements set forth Company Employee Plans or Company Employee Agreements that are in existence as of the date of this Agreement or are entered into in compliance with this Agreement, each of which was previously Made Available to Parent;

(xvii)                      hire any employee (A) at the director level with compensation that is inconsistent with the Company’s compensation guidelines or its past practices; (B) at the level of Vice President or above, or (C) with an annual base salary in excess of $150,000;

(xviii)                      other than in the ordinary course of business consistent with past practices, materially change any of its pricing policies, product return policies, product maintenance polices, service policies, product modification or upgrade policies, personnel policies or other business policies, or any of its methods of accounting or accounting practices (other than as required by GAAP) in any respect;

(xix)                      make any material Tax election, amend any Tax Return or file a claim for refund with respect to any Tax Return described in the first sentence of Section 3.16(j), compromise or settle any Legal Proceeding with respect to any Tax or Tax-related matter, enter into or obtain any Tax ruling or take any action that could reasonably be expected to have a material and adverse impact on the Tax liability of the Company;

(xx)           commence any Legal Proceeding, other than Legal Proceedings commenced for the routine collection of bills;

(xxi)                      settle any claim or Legal Proceeding, other than claims or Legal Proceedings against the Company that do not relate to Tax or Tax-related matters and with respect to which the settlement involves solely the payment by the Company of an amount less than $50,000 individually and less than $250,000 in the aggregate for all such claims and Legal Proceedings settled during the Pre-Closing Period;

(xxii)                      pay, discharge, settle or satisfy any claims (whether or not commenced prior to the date of this Agreement), except that the Company may pay, discharge, settle or satisfy any claim if the only obligation involved on the part of the Company will be payment of money in an amount not to exceed $50,000 individually and not to exceed $250,000 in the aggregate for all such claims during the Pre-Closing Period; or

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(xxiii)                      agree or commit to take any of the actions described in clauses “(i)” through “(xxii)” of this Section 5.2(b).

(c)           Notwithstanding anything in Section 5.2(a) or 5.2(b) to the contrary, if (i) the Parent Designees constitute a majority of the directors sitting on the board of directors of the Company and (ii) the board of directors of the Company expressly directs or authorizes the Company (of its officers) to act or not act in a certain manner, or expressly consents, in advance, to such action or inaction, then such action or inaction shall be deemed not to constitute a breach of Section 5.2(a) or 5.2(b); provided, however, that such direction, authorization or consent, as applicable, of the board of directors of the Company shall be based on a resolution of the entire board of directors (and not the approval of merely the majority of the Continuing Directors, as contemplated by the Section 1.3(c)).

(d)           During the Pre-Closing Period, the Company shall promptly notify Parent in writing if the Company has the right to exercise any right or option to repurchase shares of its capital stock from any Company Associate or other Person upon termination of such Person Person’s service.  The Company shall not exercise any such repurchase right except to the extent directed by Parent in writing.

(e)           By not later than immediately prior to the Acceptance Time, the Company shall either (i) renegotiate all existing equipment leases that have change in control provisions so that the lessor no longer has the right to either demand accelerated rent or repossess the equipment by reason of the consummation of the Offer or the Merger, or (ii) if the Company shall have been unable to renegotiate all such leases in the manner described above, exercise its buyout option with respect to all of such leases that have not been renegotiated, with the result that the Company shall obtain fee ownership in all such equipment and the lessors’ rights with respect to such equipment shall be terminated.  If the Company becomes obligated to exercise such buyout option, but determines in good faith that it has inadequate funds to do so, then the Company shall promptly notify Parent of the amount of funds so required and provide Parent with reasonable documentary evidence supporting such calculation, and Parent shall thereafter either (A) make such funds available to the Company (which the Company shall use solely for the purpose of exercising such buyout option), or (B) waive the Company’s obligation to exercise such buyout option.

5.3           No Solicitation; Go-Shop; Etc.

(a)            Subject to Sections 5.3(b), 5.3(c) and 5.3(g), during the Pre-Closing Period, the Company shall not directly or indirectly, and shall not cause or permit any Representatives of the Company to, directly or indirectly, (i) solicit, initiate, knowingly encourage or knowingly facilitate the making, submission or announcement of any Acquisition Proposal or Acquisition Inquiry, (ii) furnish any non-public information regarding the Company to any Person in connection with or in response to an Acquisition Proposal or Acquisition Inquiry, (iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal or Acquisition Inquiry, (iv) approve, endorse or recommend any Acquisition Proposal or (v) enter into any letter of intent or similar document or any Contract contemplating or providing for any Acquisition Transaction or accepting any Acquisition Proposal; provided, however, that none of the foregoing restrictions shall apply to the Company’s and its Representatives’ interactions with Parent, Acquisition Sub and their respective Representatives. Without limiting the generality of the foregoing, the Company acknowledges and agrees that any action taken by any Representative of the Company that, if taken by the Company would constitute a breach of this Section 5.3, shall be deemed to constitute a breach of this Section 5.3 by the Company (whether or not such Representative is purporting to act on behalf of the Company).

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(b)            Notwithstanding the provisions of Section 5.3(a), during the period between the date of this Agreement and 5:00 p.m. Pacific Time on November 23, 2009 (the “Go-Shop Period”), the Company may (directly or through its Representatives) take any of the actions set forth in Section 5.3(a), provided that (i) the Company shall not take any of the actions set forth in Section 5.3(a) with respect to such Person unless the Company has informed Parent in writing of the identity of such Person prior to taking any such action, and (ii) the Company shall not furnish any non-public information regarding the Company to any Person unless the board of directors of the Company (or a committee thereof) has determined in good faith, after consultation with the Company’s outside legal counsel and its financial advisor(s), that such Person has made or is financially capable of making a Superior Proposal, and that such Person would be reasonably capable of consummating the transaction contemplated by such Superior Proposal.  Notwithstanding the foregoing, the Company shall, and shall cause its Representatives to, (A) immediately upon the expiration of the Go-Shop Period, cease and cause to be terminated all actions and activities that, but for the provisions of this Section 5.3(b), would have been prohibited by the terms of this Agreement and (B) during the Go-Shop Period, comply with all other requirements set forth in this Section 5.3 (other than the requirements set forth in Section 5.3(a) which is addressed by this Section 5.3(b)).

(c)            Nothing in this Agreement shall prohibit the Company or its board of directors from furnishing non-public information regarding the Company to, or entering into discussions or negotiations (including, as a part thereof, exchanging any counterproposals) with, any Person and its Representatives in response to a written Acquisition Proposal that is submitted to the Company by such Person (and not withdrawn) which the board of directors of the Company determines in good faith (after consultation with its financial advisor(s)) is, or could reasonably be expected to lead to, a Superior Proposal if (i) neither the Company nor any Representative of the Company shall have breached in any material respect any of the provisions set forth in this Section 5.3, (ii) the board of directors of the Company determines in good faith, after consultation with the Company’s outside legal counsel, that the failure to take such action could reasonably be expected to constitute a breach of the Company’s board of directors’ fiduciary obligations to the Company’s stockholders under applicable Legal Requirements, (iii) prior to furnishing any such non-public information to, or entering into discussions or negotiations with, such Person, (A) the Company gives written notice to Parent of the identity of such Person and of the Company’s decision to furnish non-public information to, or enter into discussions or negotiations with, such Person, and (B) the Company receives from such Person an executed confidentiality agreement containing customary limitations on the use and disclosure of all non-public written and oral information furnished to such Person by or on behalf of the Company that are no less favorable to the Company than the confidentiality provisions and use restrictions of the Confidentiality Agreement, and (iv) contemporaneously with or prior to furnishing any such non-public information to such Person, the Company Makes Available to Parent all such non-public information (to the extent such non-public information has not been previously Made Available to Parent).

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(d)            If the Company or any of its Representatives receives an Acquisition Proposal or any request for non-public information at any time during the Pre-Closing Period (other than from Parent, Acquisition Sub or their respective Representatives), then the Company shall promptly (and in no event later than 24 hours after receipt of such Acquisition Proposal or request) advise Parent in writing of such Acquisition Proposal or request (including the identity of the Person making or submitting such Acquisition Proposal or request and the material terms thereof) and provide Parent with a copy of such Acquisition Proposal or request if it is in writing.  The Company shall keep Parent promptly informed with respect to any material development relating to such Acquisition Proposal or request and any modification or proposed modification thereto, and provide Parent with copies of such development, modification and proposed modification if they are in writing.

(e)            Subject to Section 5.3(b), the Company shall immediately cease and cause to be terminated any existing discussions between the Company or any of its Representatives and any Person (other than Parent, Acquisition Sub and their respective Representatives) with respect to any Acquisition Proposal or Acquisition Inquiry pending as of the date of this Agreement.

(f)            Except to the extent necessary to engage in the activities permitted during the Go-Shop Period, the Company agrees not to release any Person from, or to amend or waive any provision of, any confidentiality, “standstill,” nonsolicitation or similar agreement to which the Company is or becomes a party or under which the Company has or acquires any rights, and will use commercially reasonable efforts to enforce or cause to be enforced each such agreement at the request of Parent; provided, however, that this Section 5.3(f) shall not preclude the Company from responding to an unsolicited Acquisition Proposal submitted to the Company by a party that is bound by a “standstill” agreement and shall not require the Company to enforce or cause to be enforced its rights under such “standstill” agreement relating to the submission of such unsolicited Acquisition Proposal.  The Company also shall promptly request each Person that has executed a confidentiality agreement in connection with its consideration of a possible Acquisition Transaction to return or destroy in accordance with the terms of such confidentiality agreement all confidential information heretofore furnished to such Person by or on behalf of the Company, provided that in the case of any Person with respect to which the Company or its Representatives permissibly engages in the activities described in Section 5.3(a) during the Go-Shop Period, the Company shall not be required to make the foregoing request until the expiration of the Go-Shop Period.

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(g)            Notwithstanding any other provision in this Agreement to the contrary:

(i)           Subject to the Company’s right to make a Recommendation Change (as defined below) to the extent permitted by Section 5.3(g)(ii) or 5.3(g)(iii), the Company (1) consents to the inclusion of the Company Board Recommendation in the Offer Documents; and (2) agrees that the Company Board Recommendation shall not be withdrawn or modified in a manner adverse to Parent or Acquisition Sub, and that no resolution of the board of directors of the Company or any committee thereof to withdraw or modify the Company Board Recommendation in a manner adverse to Parent or Acquisition Sub shall be adopted (it being understood that the Company Board Recommendation shall be deemed to have been modified in a manner adverse to Parent and Acquisition Sub if it shall no longer be unanimous) (any such withdrawal, modification or adoption being referred to in this Agreement as a “Recommendation Change”).

(ii)           A Recommendation Change may be made at any time prior to the Acceptance Time if:  (i) an Acquisition Proposal is made that did not result from a breach by the Company of any of the provisions of Section 5.3; (ii) at least one (1) day prior to the date of any meeting of the Company’s board of directors (or any committee thereof) at which such board of directors (or committee) will consider whether such Acquisition Proposal may constitute a Superior Proposal or whether such Acquisition Proposal may require the Company to make a Recommendation Change, the Company provides Parent with a written notice specifying the date and time of such meeting, the reasons for holding such meeting and a description of such Acquisition Proposal; (iii) the Company’s board of directors determines in good faith, after consultation with the Company’s outside legal counsel and its financial advisor(s), (A) that such Acquisition Proposal would, if this Agreement or the Offer were not amended or an alternative transaction with Parent were not entered into, constitute a Superior Proposal and (B) that in light of such Acquisition Proposal, the failure to make a Recommendation Change, if this Agreement or the Offer were not amended or an alternative transaction with Parent were not entered into, could reasonably be expected to constitute a breach of the Company’s board of directors’ fiduciary obligations to the Company’s stockholders under applicable Legal Requirements; (iv) the Company delivers to Parent a Superior Proposal Notice in accordance with Section 5.3(g)(iv) with respect to such Acquisition Proposal (including as an attachment the Specified Definitive Acquisition Agreement (as defined in Section 5.3(g)(iv)) relating to such Acquisition Proposal) and otherwise complies in all material respects with the notice, negotiation and other requirements set forth in Section 5.3(g)(iv); and (v) following the negotiation period(s) described in Section 5.3(g)(iv), the Company’s board of directors determines in good faith, after consultation with the Company’s outside legal counsel and its financial advisor(s), and after taking into account any definitive written proposal submitted to the Company by Parent or Acquisition Sub to amend this Agreement or the Offer or to enter into an alternative transaction as a result of any negotiations contemplated by Section 5.3(g)(iv), that (A) such Acquisition Proposal constitutes a Superior Proposal, and (B) in light of such Acquisition Proposal, the failure to make a Recommendation Change could reasonably be expected to constitute a breach of the Company’s board of directors’ fiduciary obligations to the Company’s stockholders under applicable Legal Requirements.

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(iii)           A Recommendation Change may also be made at any time prior to the Acceptance Time if:  (i) there shall occur or arise after the date of this Agreement a material and fundamental development or material and fundamental change in circumstances that relates to the Company but does not relate to any Acquisition Proposal (any such material development or material change in circumstances unrelated to an Acquisition Proposal being referred to in this Agreement as an “Intervening Event”); (ii) neither the Company nor any Representative of the Company had any Knowledge of such Intervening Event or, as of the date of this Agreement, could reasonably foresee that such Intervening Event would occur; (iii) at least one (1) day prior to the date of any meeting of the Company’s board of directors (or any committee thereof) at which such board of directors (or committee) will consider whether such Intervening Event may require a Recommendation Change, the Company provides Parent with a written notice specifying the date and time of such meeting, the reasons for holding such meeting and a description of such Intervening Event; (iv) the Company’s board of directors determines in good faith, after consultation with the Company’s outside legal counsel and its financial advisor(s), that, in light of such Intervening Event, the failure to make a Recommendation Change, if this Agreement or the Offer were not amended or an alternative transaction with Parent were not entered into, could reasonably be expected to constitute a breach of the Company’s board of directors’ fiduciary obligations to the Company’s stockholders under applicable Legal Requirements; (v) a Recommendation Change is not made at any time within the period of four (4) business days after Parent receives written notice from the Company confirming that the Company’s board of directors has determined that the failure to make a Recommendation Change in light of such Intervening Event could reasonably be expected to constitute a breach of its fiduciary obligations to the Company’s stockholders under applicable Legal Requirements; (vi) during such four (4) business day period, if requested by Parent, the Company engages in good faith negotiations with Parent to amend this Agreement or the Offer or enter into an alternative transaction so that the failure to make a Recommendation Change in light of such Intervening Event could reasonably be expected to constitute a breach of its fiduciary obligations to the Company’s stockholders under applicable Legal Requirements; and (vii) at the end of such four (4) business day period, the Company’s board of directors determines in good faith, after consultation with the Company’s outside legal counsel and its financial advisor(s), that the failure to make a Recommendation Change could reasonably be expected to constitute a breach of the fiduciary obligations of the Company’s board of directors to the Company’s stockholders under applicable Legal Requirements in light of such Intervening Event (taking into account any definitive written proposal submitted to the Company by Parent or Acquisition Sub to amend this Agreement or the Offer or enter into an alternative transaction as a result of the negotiations contemplated by clause “(vi)” above).

(iv)           Notwithstanding anything to the contrary contained in Section 5.3(g)(ii), a Recommendation Change may not be made pursuant to Section 5.3(g)(ii), and this Agreement may not be terminated pursuant to Section 8.1(e), unless:  (i) the board of directors of the Company shall have received an Acquisition Proposal that it has determined to be a Superior Proposal pursuant to Section 5.3(g)(ii) and shall have received from the Person making such Acquisition Proposal a definitive acquisition agreement, duly executed on behalf of such Person, providing for the consummation of the transaction contemplated by such Acquisition Proposal, or other duly executed summary of all of the terms of such Acquisition Proposal (in either case, the “Specified Definitive Acquisition Agreement”); (ii) not less than four (4) business days (or such longer period as provided below) prior to any such

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Recommendation Change pursuant to Section 5.3(g)(ii) and not less than four (4) business days (or such longer period as provided below) prior to any termination of this Agreement by the Company pursuant to Section 8.1(e), the Company shall have delivered to Parent a written notice (the “Superior Proposal Notice”) stating that the Company (or its board of directors) intends to take such action pursuant to Section 5.3(g)(ii) and/or Section 8.1(e) and intends to enter into the Specified Definitive Acquisition Agreement with respect to such Acquisition Proposal (it being understood and agreed that any determination to send to Parent, or actual delivery to Parent of, a Superior Proposal Notice shall not, in and of itself, constitute a Triggering Event); (iii) during the four (4) business day period commencing on the date of Parent’s receipt of such Superior Proposal Notice (as such period may be extended as provided below), the Company shall have made its Representatives reasonably available for the purpose of engaging in negotiations with Parent (to the extent Parent desires to negotiate) regarding a possible amendment of this Agreement or the Offer or a possible alternative transaction so that the Acquisition Proposal that is the subject of the Superior Proposal Notice ceases to be a Superior Proposal; and (iv) any definitive written proposal made by Parent or Acquisition Sub to amend this Agreement or the Offer or enter into an alternative transaction during the negotiations described in clause “(iii)” above shall have been considered by the board of directors of the Company in good faith, and, after the expiration of the negotiation period described in clause “(iii)” above, the Company’s board of directors shall have determined in good faith, after consultation with the Company’s outside legal counsel and its financial advisor(s), that such Acquisition Proposal still constitutes a Superior Proposal; provided, however, that, in the event of any amendment to the financial or other material terms of such Acquisition Proposal, the Company shall be required to deliver to Parent a new Superior Proposal Notice (including as attachments thereto a copy of the new Specified Definitive Acquisition Agreement relating to such amended Acquisition Proposal), and the negotiation period described in clause “(iii)” above shall be extended by an additional two (2) business days from the date of Parent’s receipt of such new Superior Proposal Notice, with respect to any such amendment.

(h)            Nothing in this Agreement shall prohibit the Company or its board of directors from disclosing to the Company’s stockholders a position with respect to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or Item 1012(a) of Regulation M-A; provided, however, that unless such disclosure consists solely of a “stop, look and listen” communication containing only statements contemplated by Rule 14d-9(f) under the Exchange Act, the Company shall first comply with Section 5.3(g)(iii) to the extent applicable to such disclosure and such disclosure may, to the extent provided herein, constitute a Triggering Event.

Section 6.Additional Covenants of the Parties

6.1           Stockholder Approval; Proxy Statement.

(a)           If the adoption of this Agreement by the Company’s stockholders is required by applicable Legal Requirements in order to consummate the Merger, the Company shall, as promptly as practicable following the later of the Acceptance Time or the expiration of any subsequent offering period provided in accordance with Rule 14d-11 under the Exchange Act, take all action necessary or advisable under applicable Legal Requirements to call, give notice of and hold a meeting of the holders of Company Common Stock to vote on the adoption of this Agreement (the “Company Stockholders’ Meeting”).  The Company shall ensure that all proxies solicited in connection with the Company Stockholders’ Meeting are solicited in compliance with all applicable Legal Requirements.

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(b)            If the adoption of this Agreement by the Company’s stockholders is required by applicable Legal Requirements in order to consummate the Merger, as soon as practicable following the later of the Acceptance Time or the expiration of any subsequent offering period provided in accordance with Rule 14d-11 under the Exchange Act, (i) the Company shall prepare and file with the SEC the Proxy Statement, and (ii) Parent shall prepare and file with the SEC the Post-Effective Amendment.  Each of Parent and the Company shall use its reasonable efforts to (A) cause the Post-Effective Amendment and the Proxy Statement to comply in all material respects with applicable Legal Requirements (including the Exchange Act and the Securities Act and the rules and regulations thereunder), (B) respond promptly to any comments received from the SEC or its staff with respect to the Post-Effective Amendment or the Proxy Statement, (C) have the Post-Effective Amendment declared effective under the Securities Act as promptly as practicable after it is filed with the SEC, and (D) cause the Proxy Statement to be mailed to the Company’s stockholders as promptly as practicable after the Post-Effective Amendment is declared effective under the Securities Act.  The Company (x) shall give Parent reasonable opportunity to comment on any correspondence with the SEC or its staff regarding the Proxy Statement or any proposed material to be included in the Proxy Statement prior to its transmission to the SEC or its staff and (y) shall not transmit any such material to which Parent reasonably objects.  Parent (I) shall give the Company reasonable opportunity to comment on any correspondence with the SEC or its staff regarding the Post-Effective Amendment or any proposed material to be included in the Post-Effective Amendment prior to its transmission to the SEC or its staff and (II) shall not transmit any such material to which the Company reasonably objects.  The Company shall respond promptly to any comments received from the SEC or its staff with respect to the Proxy Statement, and shall correct promptly any information in the Proxy Statement if and to the extent that it becomes aware that such information shall be or shall have become false or misleading in any material respect.  If at any time prior to the Company Stockholders’ Meeting there shall occur any event that should be set forth in an amendment or supplement to the Post-Effective Amendment or to the Proxy Statement, or the Post-Effective Amendment or the prospectus included therein is amended by Parent to correct any information therein, the Company shall (1) with respect to the Post-Effective Amendment and the prospectus included therein, cooperate with Parent in filing such amendment or supplement with the SEC and transmitting such supplement or amendment to the Company’s stockholders, and (2) with respect to the Proxy Statement, promptly prepare such an amendment or supplement and, after obtaining the consent of Parent to such amendment or supplement, promptly transmit such amendment or supplement to the Company's stockholders.

(c)            Notwithstanding anything to the contrary contained in this Agreement, if Parent, Acquisition Sub or any other Subsidiary of Parent shall own, by virtue of the Offer or otherwise, in the aggregate at least 90% of the outstanding shares of Company Common Stock, Parent, Acquisition Sub and the Company shall take all actions necessary and appropriate to cause the merger of Acquisition Sub into the Company to become effective as soon as practicable following the time such ownership is first obtained, without a stockholders’ meeting in accordance with Section 253 of the DGCL.

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(d)            If the adoption of this Agreement by the Company’s stockholders is required by applicable Legal Requirements in order to consummate the Merger, Parent agrees to cause all shares of Company Common Stock owned by Parent, Acquisition Sub or any other Subsidiary of Parent to be present and voted in favor of the adoption of this Agreement at the Company Stockholders’ Meeting.

6.2           Company Options and Company Warrants.

(a)           At the Acceptance Time, each Company Option that is outstanding and unexercised as of immediately prior to the Acceptance Time, whether or not vested, shall automatically (and without any action on the part of any party hereto or the holder thereof) be cancelled and cease to represent a right to acquire shares of Company Common Stock, and converted into the right (each, a “Right”) to receive the following:

(i)           if the exercise price per share of such Company Option is less than the Cash Component, then (A) an amount of cash determined by multiplying (1)the number of shares of Company Common Stock that were subject to such Company Option immediately prior to the Acceptance Time, times (2) the amount by which (x) the Cash Component exceeds (y) the exercise price per share of such Company Option, and (B) a number of shares of Parent Common Stock determined by multiplying(1) the number of shares of Company Common Stock that were subject to such Company Option immediately prior to the Acceptance Time, times (2) the Applicable Fraction;

(ii)           if the exercise price per share of such Company Option is equal to the Cash Component, then (A) no cash and (B) a number of shares of Parent Common Stock determined by multiplying(1) the number of shares of Company Common Stock that were subject to such Company Option immediately prior to the Acceptance Time, times (2) the Applicable Fraction;

(iii)           if the exercise price per share of such Company Option is greater than the Cash Component but less than the Total Option Value (as defined below), then (A) no cash and (B) a number of shares of Parent Common Stock determined by multiplying(1) the number of shares of Company Common Stock that were subject to such Company Option immediately prior to the Acceptance Time, times (B) the Applicable Fraction, times (C) the In-the-Money Option Percentage (as defined below); and

(iv)           if the exercise price per share of such Company Option is greater than the Total Option Value, then (A) no cash and (B) no shares of Parent Common Stock.

For purposes of this Section 6.2(a):  (1) the “Total Option Value” shall be the sum of (i) the Cash Component, plus (ii) the product of the Applicable Fraction times the Parent Average Stock Price; and (2) the “In-the-Money Option Percentage” shall be the percentage corresponding to a fraction (i) whose numerator is the sum of (A) an amount equal to the product of the Applicable Fraction times the Parent Average Stock Price, minus (B) the amount by which the exercise price per share of such Company Option exceeds the Cash Component, and (ii) whose denominator is an amount equal to the product of the Applicable Fraction times the Parent Average Stock Price.  The vesting terms previously applicable to any Company Option that is so cancelled and converted into a Right shall continue in full force and effect and in all respects apply to such Right, and the cash and shares of Parent Common Stock payable or issuable in respect of such Right, as set forth in clauses “(i)” through “(iv)” above, shall be delivered to the holder of such Right at such times and in the same percentages as the cancelled Company Option would have become vested in connection with or following the acquisition of shares by Acquisition Sub pursuant to the Offer and/or consummation of the Merger.  For the avoidance of doubt, any vesting of a Company Option that occurs by reason of the acquisition of shares by Acquisition Sub pursuant to the Offer and/or consummation of the Merger (whether alone or in combination with any other event) shall be given effect by its application to the Right into which such Company Option shall be converted upon its cancellation.  At the Acceptance Time, Parent’s board of directors or a committee thereof shall succeed to the authority and responsibility of the Company’s board of directors or any committee thereof with respect to each such Company Option and corresponding Right.

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(b)           Within ten (10) business days following the Acceptance Time, Parent shall send to each former holder of a Company Option a written notice setting forth the amount of cash and the number of shares of Parent Common Stock subject to each Right in respect of a Company Option.

(c)           Prior to the Acceptance Time, the Company shall use commercially reasonable efforts to take all action that may be necessary (under the Company Equity Plans and otherwise) to effectuate the provisions of this Section 6.2 and to ensure that, from and after the Effective Time, holders of Company Options have no rights with respect thereto other than those specifically provided in this Section 6.2.

(d)           At the Acceptance Time, each Company Warrant that is outstanding immediately prior to the Acceptance Time shall automatically (and without any action on the part of any party hereto or the holder thereof) be cancelled and cease to represent a right to acquire shares of Company Common Stock, and converted into the right to receive (i) an amount of cash determined by multiplying (A)the number of shares of Company Common Stock that were subject to such Company Warrant immediately prior to the Acceptance Time, times (B) the Cash Component, times (C) the In-the-Money Warrant Percentage (as defined below), and (ii) a number of shares of Parent Common Stock determined by multiplying(A) the number of shares of Company Common Stock that were subject to such Company Warrant immediately prior to the Acceptance Time, times (B) the Applicable Fraction, times (C) the In-the-Money Warrant Percentage.  For purposes of this Section 6.2(d), the “In-the-Money Warrant Percentage” shall be the percentage corresponding to a fraction (1) whose numerator is the sum of (A) the Cash Component, plus (B) an amount equal to the product of the Applicable Fraction times the Parent Average Stock Price, minus (C) the exercise price per share of such Company Warrant, and (2) whose denominator is the sum of (A) the Cash Component, plus (B) an amount equal to the product of the Applicable Fraction times the Parent Average Stock Price.

(e)           The Surviving Corporation shall be entitled to deduct and withhold from the amounts otherwise payable pursuant to this Section 6.2 such amounts as Parent or the Surviving Corporation is required to deduct and withhold under the Code, or any provision of state or local Tax law.  Notwithstanding the foregoing, no deduction or withholding shall be made with respect to amounts payable in consideration for the Company Warrants if the holder thereof provides documentation reasonably requested by Parent or the Surviving Corporation that evidences that such deduction or withholding is not required.

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6.3           Employees, Compensation and Benefits.

(a)           Parent agrees that, during the period commencing at the Effective Time and ending on the first anniversary of the Effective Time, all employees of the Company who continue employment with Parent, the Surviving Corporation or any Subsidiary of the Surviving Corporation after the Effective Time (“Continuing Employees”) will be provided with base salary, incentive compensation opportunities and employee benefits (excluding equity, equity-based and long-term incentive opportunities) that are no less favorable in the aggregate than that provided by the Company and immediately prior to the Effective Time.  Parent agrees that the acquisition of shares of Company Common Stock by Acquisition Sub pursuant to the Offer shall be deemed a “change in control” and/or “change of control” for all purposes under each of the Company Employee Plans and Company Employee Agreements.

(b)           If Parent elects not to maintain the Surviving Corporation’s health, vacation or 401(k) plans after the Effective Time, then, subject to any Legal Requirements:  (i) all Continuing Employees shall be eligible to participate in Parent’s health, vacation and 401(k) plans, to substantially the same extent as similarly situated employees of Parent; and (ii) for purposes of determining a Continuing Employee’s eligibility to participate in such plans, such Continuing Employee shall receive credit under such plans for his or her years of continuous service with the Company prior to the Effective Time.  Each such Continuing Employee will receive credit for purposes of eligibility to participate, level of benefits, vesting and vacation, sick and personal time off (but not for purposes of benefit accrual) under such plan, program or policy for years of service with the Company, provided that such credit does not result in a duplication of benefits, compensation, incentive or otherwise. Parent shall cause any and all pre-existing condition (or actively at work or similar) limitations, eligibility waiting periods and evidence of insurability requirements under Parent’s employee benefit plans in which Continuing Employees are eligible to participate after the Effective Time to be waived with respect to such Continuing Employees and their eligible dependents, and shall provide Continuing Employees and their eligible dependents with credit for any co-payments, deductibles, and offsets (or similar payments) made during the plan year in which the Effective Time occurs for the purposes of satisfying any applicable deductible, out-of-pocket, or similar requirements under any of Parent’s employee benefit plans in which they are eligible to participate after the Effective Time.

(c)           Nothing in this Section 6.3 or elsewhere in this Agreement shall be construed to create a right in any Company Associate to employment with Parent, the Surviving Corporation or any other Subsidiary of Parent.  Except for Indemnified Persons (as defined in Section 6.4(a)) to the extent of their respective rights pursuant to Section 6.4, no Company Associate, and no Continuing Employee, shall be deemed to be a third party beneficiary of this Agreement.  Nothing in this Section 6.3(c) shall limit the effect of Section 9.9.

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(d)           Unless otherwise requested by Parent in writing at least two (2) days prior to the Acceptance Time, the Company shall take (or cause to be taken) all actions necessary or appropriate to terminate, effective no later than the day prior to the date on which the Merger becomes effective, any Company Employee Plan that contains a cash or deferred arrangement intended to qualify under Section 401(k) of the Code (a “Company 401(k) Plan”).  If the Company is required to terminate any Company 401(k) Plan, then the Company shall provide to Parent prior to the date on which the Acceptance Time occurs written evidence of the adoption by the Company’s board of directors of resolutions authorizing the termination of such Company 401(k) Plan (the form and substance of which shall be subject to the prior review and approval of Parent).  The Company also shall take such other actions in furtherance of terminating such Company 401(k) Plan as Parent may reasonably request.

(e)           To the extent any employee notification or consultation requirements are imposed by applicable Legal Requirements with respect to the Contemplated Transactions, the Company shall cooperate with Parent to ensure that such notification or consultation requirements are complied with prior to the Effective Time.  Prior to the Effective Time, neither the Company nor any ERISA Affiliate shall communicate with Continuing Employees regarding post-Closing employment matters, including post-Closing employee benefits and compensation, without the prior written approval of Parent, which shall not be unreasonably withheld.

6.4           Indemnification of Officers and Directors.

(a)           Parent and the Company agree that all rights to exculpation, indemnification and advancement of expenses existing as of the date of this Agreement in favor of the current (as of the Effective Time) or former directors or officers of the Company (each, an “Indemnified Person”) as provided in the Charter Documents or in any Indemnification Agreement (as defined below) shall survive the Merger and shall continue in full force and effect.  For a period of six (6) years from the Effective Time, Parent shall cause the Surviving Corporation to maintain in effect the exculpation, indemnification and advancement of expenses provisions of the Charter Documents as in effect as of the date of this Agreement or in any Indemnification Agreements, and shall not amend, repeal or otherwise modify any such provisions in any manner that would adversely affect the rights thereunder of any Indemnified Person; provided, however, that all rights to exculpation, indemnification and advancement of expenses in favor of such Indemnified Person in respect of any Action (as defined in Section 5.5(b)) pending or asserted or any claim made against them within such six-year period shall continue until the final disposition of such Action or resolution of such claim.  From and after the Effective Time, Parent shall cause the Surviving Corporation to honor, in accordance with their respective terms, each of the covenants contained in this Section 6.4.  For purposes of this Agreement, “Indemnification Agreement” shall mean any indemnification agreement between the Company and an Indemnified Person, as such agreement is in effect as of the date of this Agreement.

(b)           Without limitation of any superior rights in the Charter Documents or any Indemnification Agreement, Parent shall cause the Surviving Corporation to, to the fullest extent permitted under applicable Legal Requirements, indemnify and hold harmless each Indemnified Person against any costs or expenses (including advancing attorneys’ fees and expenses in advance of the final disposition of any Action to each Indemnified Person to the fullest extent permitted by applicable Legal Requirements), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (an “Action”) arising out of, relating to or in connection with any action or omission by such Indemnified Person occurring or alleged to have occurred at or before the Effective Time (whether such Action is asserted or claimed prior to, at or after the Effective Time) in connection with such Indemnified Person serving as an officer or director of the Company or at the request of the Company as a director, officer, employee, agent or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan.  In the event of any such Action, Parent and the Surviving Corporation shall cooperate with the Indemnified Person in the defense of any such Action.

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(c)           Prior to the Effective Time, the Company shall purchase and prepay a six-year “tail” policy on terms and conditions providing substantially equivalent benefits and coverage levels as the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by the Company (the “Existing D&O Policies”) with respect to matters arising at or before the Effective Time, covering without limitation the Contemplated Transactions (the “Tail Policy”); provided, however, that if such “tail” policy is not available at a cost equal to or less than 300% of the aggregate annual premiums paid by the Company during the most recent policy year for the Existing D&O Policies (the “Maximum Premium Amount”), the Company shall purchase the best coverage as is reasonably available for such amount.  Parent shall cause the Tail Policy to be maintained in full force and effect, for its full term, and cause all obligations thereunder to be honored by the Surviving Corporation.  In the event that any of the carriers issuing or reinsuring the Tail Policy shall become insolvent or otherwise financially distressed such that any of them is unable to satisfy its financial obligations under the Tail Policy at any time during the aforementioned six-year period, Parent agrees that it shall, from time to time, cause the Tail Policy to be replaced with another prepaid “tail” policy on terms and conditions providing substantially equivalent benefits and coverage levels as the Tail Policy, with a term extending for the remainder of such six-year period (the “New Tail Policy”); provided, however, that in no event shall the maximum amount that Parent is required to expend to obtain any New Tail Policy under this Section 5.5(c) exceed the amount by which the Maximum Premium Amount exceeds the sum of (i) the premium paid by the Company for the Tail Policy plus (ii)the aggregate premium(s) paid by Parent and the Surviving Corporation to obtain any other New Tail Policy.  In such event, references in this Agreement to the Tail Policy shall be deemed to include any New Tail Policy, as applicable.

(d)           The rights of each Indemnified Person hereunder shall be in addition to, and not in limitation of, any other rights such Indemnified Person may have under the Charter Documents of the Company or the Surviving Corporation, under any other indemnification arrangement, under the DGCL or otherwise.  The provisions of this Section 6.4 shall survive the consummation of the Merger and expressly are intended to benefit, and are enforceable by, each of the Indemnified Persons.

(e)           This Section 6.4 shall be binding on Parent and the Surviving Corporation and their successors and assigns.

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6.5           Regulatory Approvals and Related Matters.

(a)           Each party shall use commercially reasonable efforts to file, as soon as practicable after the date of this Agreement, all notices, reports and other documents required to be filed by such party with any Governmental Body with respect to the Offer, the Merger and the other Contemplated Transactions, and to submit promptly any additional information requested by any such Governmental Body.  Without limiting the generality of the foregoing, the Company and Parent shall, promptly after the date of this Agreement and in any event within ten (10) business days, prepare and file: (i) the notification and report forms required to be filed under the HSR Act in connection with the Offer, the Merger and the other Contemplated Transactions; and (ii) if required in connection with the Offer, the Merger and the other Contemplated Transactions, all notifications and other documents under all applicable foreign antitrust- or competition-related Legal Requirements.  The Company and Parent shall respond as promptly as practicable to: (A) any inquiries or requests received from the Federal Trade Commission or the Department of Justice for additional information or documentation; and (B) any inquiries or requests received from any state attorney general, foreign antitrust or competition authority or other Governmental Body in connection with antitrust or competition matters.  At the request of Parent, the Company shall agree to divest, sell, dispose of, hold separate or otherwise take or commit to take any other action with respect to any of the businesses, product lines or assets of the Company, provided that any such action is conditioned upon the consummation of the Offer or the Merger.

(b)           Subject to the limitations set forth in Section 6.5(c), Parent and the Company shall use commercially reasonable efforts to take, or cause to be taken, all actions necessary to consummate the Offer and the Merger and make effective the other Contemplated Transactions.  Without limiting the generality of the foregoing, but subject to the limitations set forth in Section 6.5(c), each party to this Agreement: (i) shall make all filings (if any) and give all notices (if any) required to be made and given by such party or any of its Subsidiaries in connection with the Offer and the Merger and the other Contemplated Transactions; (ii) shall use commercially reasonable efforts to obtain each Consent (if any) required to be obtained pursuant to any applicable Legal Requirement by such party or any of its Subsidiaries in connection with the Offer and the Merger or any of the other Contemplated Transactions; and (iii) shall use commercially reasonable efforts to lift any restraint, injunction or other legal bar to the Offer or the Merger or any of the other Contemplated Transactions.  Each of Parent and the Company shall provide the other party with a copy of each proposed filing with or other submission to any Governmental Body relating to any of the Contemplated Transactions, and shall give the other party a reasonable time prior to making such filing or other submission in which to review and comment on such proposed filing or other submission.  Each of Parent and the Company shall promptly deliver to the other party a copy of each such filing or other submission made, each notice given and each Consent obtained.

(c)           Notwithstanding anything to the contrary contained in this Section 6.6 or elsewhere in this Agreement, neither Parent nor Acquisition Sub shall have any obligation under this Agreement to take any of the following actions, if Parent determines in good faith that taking such actions could reasonably be expected to materially affect the business or interests of Parent, any of Parent’s Subsidiaries or the Surviving Corporation in any adverse way:  (i) to dispose of or transfer or cause any of its Subsidiaries to dispose of or transfer any assets, or to commit to cause the Company to dispose of or transfer any assets; (ii) to discontinue or cause any of its Subsidiaries to discontinue offering any product or service, or to commit to cause the Company to discontinue offering any product or service; (iii) to license or otherwise make available, or cause any of its Subsidiaries to license or otherwise make available to any Person any technology, software or other Intellectual Property or Intellectual Property Right, or to commit to cause the Company to license or otherwise make available to any Person any technology, software or other Intellectual Property or Intellectual Property Right; (iv) to hold separate or cause any of its Subsidiaries to hold separate any assets or operations (either before or after the Closing Date), or to commit to cause the Company to hold separate any assets or operations; (v) to make or cause any of its Subsidiaries to make any commitment, or to commit to cause the Company to make any commitment (to any Governmental Body or otherwise) regarding its future operations or the future operations of the Company; or (vi) to contest any Legal Proceeding or any order, writ, injunction or decree relating to the Offer or the Merger or any of the other Contemplated Transactions.

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6.6           Notification of Certain Matters.

(a)           During the Pre-Closing Period, the Company shall promptly notify Parent in writing of the discovery by the Company of:  (i) any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a material inaccuracy in any representation or warranty made by the Company in this Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that would cause or constitute a material inaccuracy in any representation or warranty made by the Company in this Agreement if such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement; (iii) any material breach of any covenant or obligation of the Company; and (iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the Offer Conditions or the conditions set forth in Section 7 impossible or would make the failure of any such condition reasonably likely.  No notification given to Parent pursuant to this Section 6.6(a) or any information or knowledge obtained pursuant to Section 5.1 shall limit or otherwise affect any of the representations, warranties, covenants or obligations of the Company contained in this Agreement.

(b)           During the Pre-Closing Period, Parent shall promptly notify the Company in writing of the discovery by Parent of:  (i) any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a material inaccuracy in any representation or warranty made by Parent or Acquisition Sub in this Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that would cause or constitute a material inaccuracy in any representation or warranty made by Parent or Acquisition Sub in this Agreement if such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement; (iii) any material breach of any covenant or obligation of Parent or Acquisition Sub; and (iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the Offer Conditions or the conditions set forth in Section 7 impossible or would make the failure of any such condition reasonably likely.  No notification given to the Company pursuant to this Section 6.6(b) or any information or knowledge obtained pursuant to Section 5.1 shall limit or otherwise affect any of the representations, warranties, covenants or obligations of Parent or Acquisition Sub contained in this Agreement.

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6.7           Public Announcements.  Parent and the Company shall consult with one another before any press release is issued by a party hereto or any public statement is made by a party hereto with respect to the Offer, the Merger or any of the other Contemplated Transactions.  Except as otherwise required or permitted by this Agreement, the parties to this Agreement shall not, and shall not permit any of their respective Subsidiaries or Representatives to, make any public disclosure regarding the Offer, the Merger or any of the other Contemplated Transactions unless (a) the other parties shall have approved such disclosure (which approval shall not be unreasonably withheld, conditioned or delayed) or (b) such disclosure is required by applicable Legal Requirements.

6.8           Listing.  Parent shall use commercially reasonable efforts to cause the shares of Parent Common Stock being issued in the Offer to be promptly approved for listing (subject to notice of issuance) on The Nasdaq Capital Market at or prior to the Acceptance Time and shall cause the shares of Parent Common Stock being issued in the Merger to be approved for listing (subject to notice of issuance) on The Nasdaq Capital Market at or prior to the Effective Time.

6.9           Financing.  During the Pre-Closing Period, upon the request of Parent, the Company shall, and shall instruct its Representatives to, cooperate reasonably with Parent in connection with Parent’s financing of the Offer and the Merger, including by:  (i) making senior management of the Company available to participate in meetings and road shows, if any; (ii) providing on a timely basis information reasonably requested by Parent relating to such financing; (iii) preparing in a timely manner business projections and financial statements (including pro forma financial statements), including delivery to Parent of a balance sheet, income statement and statement of cash flows for the Company for any fiscal year that has ended at least 90 days prior to the Closing Date and for any fiscal quarter since the most recently ended fiscal year that has ended at least 45 days prior to the Closing Date; (iv) assisting in a timely manner in the preparation of offering memoranda, private placement memoranda, prospectuses and similar documents; (v) providing such assistance as Parent may reasonably require in procuring a corporate credit rating for Parent from Standard & Poor’s Rating Services and a corporate family credit rating for Parent from Moody’s Investor Services, Inc.; (vi) obtaining the consent of, and customary comfort letters from, BDO Seidman, LLP (including by providing customary management letters and requesting legal letters to obtain such consent) if necessary or desirable for Parent’s use of the Company’s financial statements; (vii) using commercially reasonable efforts to ensure that the syndication effort of the lenders to Parent benefit materially from the existing lending relationships of the Company; and (viii) providing such other documents as may be reasonably requested by Parent for such financing, including (x) confirmation of public or non-public nature of information provided, (y) solvency and closing certificates and documents and information necessary to facilitate the pledge of collateral (including the release of any Encumbrances on the assets of the Company), and (z) providing such documentation and other information to Parent’s lenders that is required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including without limitation, the Patriot Act; provided, however, to the extent that a third party (including the Person brokering, arranging or providing the financing) is proposed to receive confidential information in connection with any of the foregoing activities, the Company’s related obligations shall be subject to such party first entering into a confidentiality agreement in form and substance reasonably acceptable to the Company.  Without limiting the generality of the foregoing, all financial and other projections concerning the Company that are Made Available by the Company to Parent after the date of this Agreement shall be prepared in good faith and shall be based upon assumptions that are reasonable at the time made.  Notwithstanding the foregoing:  (A) such requested cooperation shall not unreasonably interfere with the ongoing operations of the Company; and (B) the Company shall not be required to pay any commitment or other similar fee or incur any other liability in connection with such financing prior to the Acceptance Time.

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6.10           Stockholder Litigation.  The Companyshall give Parent the opportunity to participate in the defense or settlement of any stockholder litigation (including any class action or derivative litigation) against the Company and/or any of its directors or officers relating to this Agreement, the Offer, the Merger or any of the other Contemplated Transactions or the Stockholder Agreements, and no compromise or full or partial settlement of any such litigation shall be agreed to by the Company without Parent’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed).

6.11           Section 16 Matters.  Prior to the Effective Time, Parent and the Company shall take all such steps as may be required (to the extent permitted under applicable Legal Requirements and no-action letters issued by the SEC) to cause any dispositions of Company Common Stock (including derivative securities with respect to Company Common Stock) in connection with the Merger by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company, and the acquisition of Parent Common Stock (including derivative securities with respect to Parent Common Stock) by each individual who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent, to be exempt under Rule 16b-3 under the Exchange Act.  At least five (5) days prior to the Closing Date, the Company shall furnish the following information to Parent for each individual who, in connection with the Contemplated Transactions, immediately after the Effective Time, will become subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent:  (a) the number of shares of Company Common Stock held by such individual and expected to be exchanged for shares of Parent Common Stock pursuant to the Merger; (b) the number of Company Options and Company RSUs held by such individual and expected to be converted into options to purchase or rights to be issued shares of Parent Common Stock in connection with the Merger; and (c) the number of other derivative securities (if any) with respect to Company Common Stock held by such individual and expected to be converted into shares of Parent Common Stock or derivative securities with respect to Parent Common Stock in connection with the Merger.

Section 7.  Conditions Precedent to the Merger

The respective obligations of the parties to effect the Merger are subject to the satisfaction, at or prior to the Closing, of each of the following conditions:

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7.1           Stockholder Approval.  If required by applicable Legal Requirements in order to consummate the Merger, this Agreement shall have been duly adopted by the Required Company Stockholder Vote.

7.2           No Restraints.  No temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any Legal Requirement enacted or deemed applicable to the Merger by a Governmental Body having authority over Parent, Acquisition Sub or the Company that makes consummation of the Merger illegal; provided, however, that prior to invoking this Section 7.2, each party shall have used its commercially reasonable efforts to have any such injunction, order or Legal Requirement or other prohibition lifted.

7.3           Effectiveness of Registration Statement.  The Registration Statement and the Post-Effective Amendment shall have become effective in accordance with the provisions of the Securities Act, and no stop order shall have been issued by the SEC and be outstanding, and no proceeding for that purpose shall have been initiated by the SEC and be outstanding or be threatened by the SEC, with respect to the Registration Statement or the Post-Effective Amendment.

7.4           Consummation of Offer.  Shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer shall have been accepted for exchange and paid for pursuant to the Offer; provided, however, that neither Parent nor Acquisition Sub shall be entitled to assert the failure of this condition if, in breach of this Agreement or the terms of the Offer, Acquisition Sub fails to purchase any shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer.

Section 8.Termination

8.1           Termination.  This Agreement may be terminated:

(a)           by mutual written consent of Parent and the Company at any time prior to the Effective Time;

(b)            by either Parent or the Company at any time prior to the Effective Time if any U.S. court of competent jurisdiction or other U.S. Governmental Body having authority over Parent, Acquisition Sub or the Company shall have issued a final and nonappealable judgment, order, injunction, writ or decree, or shall have taken any other action, having the effect of (i) permanently restraining, enjoining or otherwise prohibiting (A) prior to the Acceptance Time, the acquisition or acceptance for exchange of, or the delivery of consideration in exchange for, shares of Company Common Stock pursuant to the Offer or (B) prior to the Effective Time, the Merger, (ii) prior to the Acceptance Time, making the acquisition of or delivery of consideration for shares of Company Common Stock pursuant to the Offer illegal, or (iii) prior to the Effective Time, making the consummation of the Merger illegal; provided, however, that (1) the party to this Agreement seeking to terminate this Agreement pursuant to this Section 8.1(b) shall have used commercially reasonable efforts to resist or lift such judgment, order, injunction, writ or decree and (2) a party shall not be permitted to terminate this Agreement pursuant to this Section 8.1(b) if the issuance of such judgment, order, injunction, writ or decree is attributable to the failure of such party to fulfill any of its obligations under this Agreement;

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(c)            by either Parent or the Company at any time after March 31, 2010 and prior to the Acceptance Time if the Acceptance Time shall not have occurred on or prior to March 31, 2010; provided, however, that a party shall not be permitted to terminate this Agreement pursuant to this Section 8.1(c) if the failure of the Acceptance Time to occur on or prior to March 31, 2010 is attributable to the failure of such party to fulfill any of its obligations under this Agreement;

(d)            by Parent at any time prior to the Acceptance Time if a Triggering Event shall have occurred;

(e)            by the Company at any time prior to the Acceptance Time, in order to accept a Superior Proposal and enter into the Specified Definitive Acquisition Agreement relating to such Superior Proposal, if (i) such Superior Proposal shall not have resulted from a breach by the Company of any of the provisions of Section 5.3, (ii) the Company and its board of directors shall have satisfied in all material respects all of the notice, negotiation and other requirements set forth in Section 5.3(g) with respect to such Superior Proposal and the negotiation period(s) described in Section 5.3(g)(iii) shall have expired, (iii) the Company shall have, or shall have caused to be, paid to Parent the fee required to be paid to Parent pursuant to Section 8.3(c) or Section 8.3(d), as applicable, and (iv) the Company enters into the Specified Definitive Acquisition Agreement relating to such Superior Proposal immediately following the termination of this Agreement;

(f)            by Parent at any time prior to the Acceptance Time if:  (i) any of the Company’s representations and warranties contained in this Agreement shall be inaccurate as of the date of this Agreement or shall have become inaccurate as of a date subsequent to the date of this Agreement (as if made on such subsequent date), in either case such that the condition set forth in clause “(a)” of Exhibit B or the condition set forth in clause “(b)” of Exhibit B would not be satisfied (it being understood that, for purposes of determining the accuracy of such representations and warranties as of the date of this Agreement or as of any subsequent date, (A) all “Company Material Adverse Effect” and other qualifications based on the word “material” contained in such representations and warranties shall be disregarded and (B) any update of or modification to the Disclosure Schedule made or purported to have been made on or after the date of this Agreement shall be disregarded); or (ii) any of the Company’s covenants contained in this Agreement shall have been breached such that the condition set forth in clause “(c)” of Exhibit B would not be satisfied; provided, however, that if such inaccuracy or breach is curable by the Company within 30 days after receiving notice thereof and the Company is continuing to exercise reasonable efforts to cure such inaccuracy or breach, then Parent may not terminate this Agreement under this Section 8.1(f) on account of such inaccuracy or breach (1) during the 30-day period commencing on the date on which the Company receives notice of such inaccuracy or breach or (2) after such 30-day period if such inaccuracy or breach shall have been cured in a manner such that such inaccuracy or breach no longer results in the applicable condition set forth in Exhibit B not being satisfied;

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(g)            by the Company at any time prior to the Acceptance Time if:  (i) Parent’s representations and warranties contained in this Agreement shall have failed to be accurate in all respects as of the date of this Agreement or shall have failed to be accurate in all respects as of a date subsequent to the date of this Agreement (as if made on such subsequent date) (in each case, except for representations and warranties that by their terms are made only as of a specific date or time, which need only be accurate in all respects as of such date or time), and the inaccuracy in such representations and warranties has had or could reasonably be expected to have or result in a material adverse effect on Acquisition Sub’s ability to purchase and pay for shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer or Parent’s or Acquisition Sub’s ability to otherwise consummate the Contemplated Transactions; provided, however, that, for purposes of determining the accuracy of such representations and warranties, all “material adverse effect” and other qualifications based on the word “material” contained in such representations and warranties shall be disregarded; (ii) Parent or Acquisition Sub shall have materially failed to comply with or perform its obligations under Sections 1.1(a) or 6.5(a); or (iii) Parent or Acquisition Sub shall have materially failed to comply with or perform each covenant set forth in this Agreement (other than the covenants set forth in Section 8.1(g)(ii) above) that Parent or Acquisition Sub is required to comply with or perform, and such failure has a material adverse effect on Acquisition Sub’s ability to purchase and pay for shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer or Parent’s or Acquisition Sub’s ability to otherwise consummate the Contemplated Transactions; provided, however, that if any inaccuracy or breach described in clause “(i),” clause “(ii)” or clause “(iii)” above is curable by Parent or Acquisition Sub within 30 days after receiving notice thereof and Parent is continuing to exercise reasonable efforts to cure such inaccuracy or breach, then the Company may not terminate this Agreement under this Section 8.1(g) on account of such inaccuracy or breach (1) during the 30-day period commencing on the date on which Parent receives notice of such inaccuracy or breach or (2) after such 30-day period if such inaccuracy or breach shall have been cured in a manner such that such inaccuracy or breach no longer has a material adverse effect on Acquisition Sub’s ability to purchase and pay for shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer or Parent’s or Acquisition Sub’s ability to otherwise consummate the Contemplated Transactions; or

(h)            by Parent at any time prior to the Acceptance Time if a Company Material Adverse Effect shall have occurred; provided, however, that if the Company can reasonably expect to cause such Company Material Adverse Effect to no longer constitute a Company Material Adverse Effect prior to March 31, 2010 and the Company is continuing to exercise reasonable efforts to cause such Company Material Adverse Effect to no longer constitute a Company Material Adverse Effect, then Parent may not terminate this Agreement under this Section 8.1(h) on account of such Company Material Adverse Effect prior to the expiration time of the Offer.

Notwithstanding anything to the contrary contained in this Section 8.1, this Agreement may not be terminated by any party unless any fee required to be paid (or caused to be paid) by such party pursuant to Section 8.3 at or prior to the time of such termination shall have been paid in full.

8.2           Effect of Termination.  In the event of the termination of this Agreement as provided in Section 8.1, this Agreement shall be of no further force or effect; provided, however, that (i) this Section 8.2, Section 8.3 and Section 9 (and the Confidentiality Agreement) shall survive the termination of this Agreement and shall remain in full force and effect, (ii) the termination of this Agreement shall not relieve any party from any liability for any prior material breach of any covenant or obligation contained in this Agreement and shall not relieve any party from any liability for any material breach of any representation or warranty contained in this Agreement, and (iii) no termination of this Agreement shall in any way affect any of the parties’ rights or obligations with respect to any shares of Company Common Stock accepted for exchange pursuant to the Offer prior to such termination.  Notwithstanding anything herein to the contrary, except with respect to any liability of the Company for any willful or intentional breach of any covenant or obligation contained in this Agreement, the payment of the Termination Fee shall be the exclusive remedy of Parent and Acquisition Sub with respect to a termination of this Agreement pursuant to Sections 8.1(d) or 8.1(e) or a termination of this Agreement pursuant to Sections 8.1(c)) followed by payment of the Termination Fee pursuant to Section 8.3(b).

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8.3           Expenses; Termination Fees.

(a)           Except as set forth in this Section 8.3, all expenses incurred in connection with this Agreement and the Contemplated Transactions shall be paid by the party incurring such expenses, whether or not any shares are purchased pursuant to the Offer and whether or not the Merger is consummated.

(b)            If (i) this Agreement is terminated by Parent or the Company pursuant to Section 8.1(c), and (ii) at or prior to the time of the termination of this Agreement an Acquisition Proposal shall have been publicly disclosed, announced or commenced (and not withdrawn at least five (5) business days prior to the time of termination), and (iii) within one (1) year after the date of termination of this Agreement, (A) an Acquisition Transaction is consummated or (B) a definitive agreement contemplating an Acquisition Transaction is executed and such Acquisition Transaction is ultimately consummated, then the Company shall pay to Parent, in cash at the time such Acquisition Transaction (as it may have been modified, including any other Acquisition Transaction among or involving the parties to such definitive agreement or any of such parties’ affiliates) is consummated, a nonrefundable fee in the amount of $8,517,000; provided, however, that for purposes of clause “(iii)” above, all references to “15%” in the definition of Acquisition Transaction shall be deemed to refer to “50%”.

(c)            If this Agreement is terminated (i) by Parent at any time pursuant to Section 8.1(d) based upon clause “(i)” of the definition of “Triggering Event”, (ii) by Parent following the expiration of the Go-Shop Period pursuant to Section 8.1(d) based upon any of clauses “(ii),” “(iii),” “(iv)” or “(v)” of the definition of “Triggering Event” or (iii) by the Company following the expiration of the Go-Shop Period pursuant to Section 8.1(e), then the Company shall pay to Parent, in cash at the time specified in the next sentence, a nonrefundable fee in the amount of $8,517,000.  In the case of any termination of this Agreement by Parent pursuant to Section 8.1(d), the fee referred to in the preceding sentence shall be paid by the Company within two (2) business days after such termination; and in the case of termination of this Agreement by the Company pursuant to Section 8.1(e), the fee referred to in the preceding sentence shall be paid by the Company at or prior to the time of such termination.

(d)            If, during the Go-Shop Period, this Agreement is terminated by the Company pursuant to Section 8.1(e) or by Parent pursuant to Section 8.1(d) based upon any of any of clauses “(ii),” “(iii),” “(iv)” or “(v)” of the definition of “Triggering Event”, then the Company shall pay to Parent, in cash at or prior to the time of such termination, a nonrefundable fee in the amount of $6,388,000.

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(e)            If the Company fails to pay when due any amount payable under Section 8.3(b), Section 8.3(c) or Section 8.3(d), then (i) the Company shall reimburse Parent for all reasonable costs and expenses (including fees and disbursements of legal counsel) actually incurred in connection with the collection of such overdue amount and the enforcement by Parent of its rights under this Section 8.3, and (ii) the Company shall pay to Parent interest on any amount that is overdue (for the period during which such amount is overdue) at a rate per annum equal to 300 basis points over the “prime rate” (as announced by Bank of America or any successor thereto) in effect on the date such amount was originally required to be paid.

Section 9.   Miscellaneous Provisions

9.1           Amendment.  Subject to Section 1.3, this Agreement may be amended with the approval of the respective boards of directors of the Company and Parent at any time (whether before or after the adoption of this Agreement by the Company’s stockholders); provided, however, that after any such adoption of this Agreement by the Company’s stockholders, no amendment shall be made which under applicable Legal Requirements requires further approval of the stockholders of the Company without the further approval of such stockholders.  This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.

9.2           Parent Guarantee.  Parent shall cause Acquisition Sub to comply in all respects with each of its representations, warranties, covenants, obligations, agreements and undertakings pursuant to or otherwise in connection with this Agreement, the Offer, the Merger and the other Contemplated Transactions.

9.3           Waiver.

(a)           Subject to Section 1.3, at any time prior to the Effective Time, Parent and Acquisition Sub, on the one hand, and the Company, on the other hand, may (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any uncured inaccuracies in the representations and warranties of the other contained herein or in any document delivered pursuant hereto and (iii) waive compliance by the other with any of the agreements or conditions contained herein; provided, however, that after any approval of this Agreement by the Company’s stockholders, there may not be any extension or waiver of this Agreement which would require the approval of the Company’s stockholders under applicable Legal Requirements without the approval of such stockholders.

(b)            No failure on the part of any party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.  No party shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such party; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

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9.4           No Survival of Representations and Warranties.  None of the representations and warranties contained in this Agreement or in any certificate delivered pursuant to this Agreement shall survive the Acceptance Time.

9.5           Entire Agreement; Counterparts.  Without limiting Section 8.2, this Agreement and the other agreements referred to in this Agreement constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among or between any of the parties with respect to the subject matter hereof and thereof; provided, however, that the provisions of the Confidentiality Agreement shall not be superseded and shall remain in full force and effect.  This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument.

9.6           Applicable Law; Jurisdiction.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.  In any action between any of the parties arising out of or relating to this Agreement or any of the Contemplated Transactions:  (a) each of the parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the Court of Chancery of the State of Delaware; and (b) each of the parties irrevocably waives the right to trial by jury.

9.7           Disclosure Schedule.  The fact that any item of information is disclosed in the Disclosure Schedule shall not be construed to mean that such information is required to be disclosed by this Agreement.  Inclusion of any item in the Disclosure Schedule shall not be deemed an admission that such item is material or that such item constitutes or is reasonably likely to result in a Company Material Adverse Effect.  The Disclosure Schedule shall be arranged in separate parts corresponding to the sections contained in Section 3.  However, descriptive headings in the Disclosure Schedule are inserted for reference purposes and for convenience of the reader only, and shall not affect the interpretation thereof or of this Agreement.  Nothing contained in the Disclosure Schedule shall be construed as an admission of liability or responsibility in connection with any pending, threatened or future matter or proceeding.

9.8           Attorneys’ Fees.  In any action at law or suit in equity to enforce this Agreement or the rights of any of the parties hereunder, the prevailing party in such action or suit shall be entitled to receive a reasonable sum for its attorneys’ fees and all other reasonable costs and expenses incurred in such action or suit.

9.9           Assignability; Third Party Beneficiaries.  This Agreement shall be binding upon, and except as otherwise provided in Section 6.4, shall be enforceable by and inure solely to the benefit of, the parties hereto and their respective successors and assigns; provided, however, that neither this Agreement nor any of the rights hereunder may be assigned by any party hereto without the prior written consent of the other parties, and any attempted assignment of this Agreement or any of such rights by any party without such consent shall be void and of no effect.  Nothing in this Agreement, express or implied, is intended to or shall confer any right, benefit or remedy of any nature whatsoever upon any Person (other than (i) the parties hereto and (ii) the Indemnified Persons to the extent of their respective rights pursuant to Section 6.4).

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9.10           Notices.  Each notice, request, demand or other communication under this Agreement shall be in writing and shall be deemed to have been duly given or made as follows:  (a) if sent by registered or certified mail in the United States, return receipt requested, then such communication shall be deemed duly given and made upon receipt; (b) if sent by nationally recognized overnight air courier (such as DHL or Federal Express), then such communication shall be deemed duly given and made two (2) business days after being sent; (c) if sent by facsimile transmission before 5:00 p.m. (California time) on any business day, then such communication shall be deemed duly given and made when receipt is confirmed; (d) if sent by facsimile transmission on a day other than a business day and receipt is confirmed, or if sent after 5:00 p.m. (California time) on any business day and receipt is confirmed, then such communication shall be deemed duly given and made on the business day following the date which receipt is confirmed; and (e) if otherwise actually personally delivered to a duly authorized representative of the recipient, then such communication shall be deemed duly given and made when delivered to such authorized representative; provided that, in all cases, such notices, requests, demands and other communications are delivered to the address set forth below, or to such other address as any party shall provide by like notice to the other parties to this Agreement:

if to Parent or Acquisition Sub:

Peet’s Coffee & Tea, Inc.

1400 Park Avenue

Emeryville, CA 94608

Attention:  Chief Financial Officer

Facsimile:  (510) 594-2180

with a copy (which shall not constitute notice) to:

Cooley Godward Kronish LLP

101 California Street

San Francisco, CA 94111

Attention:  Kenneth L. Guernsey

Facsimile:  (650) 849-7400

if to the Company:

Diedrich Coffee, Inc.

28 Executive Park, Suite 200

Irvine, CA 92614

Attention:  Chief Financial Officer

Facsimile:  (949) 260-6781

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with a copy (which shall not constitute notice) to:

Gibson Dunn & Crutcher LLP

3161 Michelson Drive

Irvine, CA 92612

Attention:  John M. Williams

Facsimile:  (949) 451-4220

9.11           Cooperation.  The Company and Parent agree to cooperate fully with each other and to execute and deliver such further documents, certificates, agreements and instruments and to take such other actions as may be reasonably requested by the other to evidence or reflect the Contemplated Transactions and to carry out the intent and purposes of this Agreement.

9.12           Severability.  Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.  If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto agree that the court making such determination shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified.  In the event such court does not exercise the power granted to it in the prior sentence, the parties hereto shall replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term.

9.13           Enforcement.  In the event of any breach or threatened breach by Parent or Acquisition Sub, on the one hand, or the Company, on the other hand, of any covenant or obligation of such party contained in this Agreement, the other party shall be entitled to seek, in addition to any monetary or damages remedy:  (a) a decree or order of specific performance to enforce the observance and performance of such covenant or obligation; and (b) an injunction restraining such breach or threatened breach.

9.14           Construction.

(a)           For purposes of this Agreement, whenever the context requires:  the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders.

(b)            The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

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(c)            As used in this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”

(d)            Except as otherwise indicated, all references in this Agreement to “Sections,” “Exhibits” and “Schedules” are intended to refer to Sections of this Agreement and Exhibits or Schedules to this Agreement.

(e)            The bold-faced headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.

[Signature page follows.]

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In Witness Whereof, the parties have caused this Agreement to be executed as of the date first above written.

Peet’s Coffee & Tea, Inc.

By:  /s/ Patrick O’Dea

Name:  Patrick O’Dea

Title:  Chief Executive Officer

Marty Acquisition Sub, Inc.

By:  /s/ Tom Cawley

Name:  Tom Cawley

Title:  Chief Financial Officer

Diedrich Coffee, Inc.

By:  /s/ James R Phillips

Name:  James R. Phillips

Title:  President and Chief Executive Officer

Signature Page

to

Agreement and Plan of Merger

Exhibit A

Certain Definitions

For purposes of the Agreement (including this Exhibit A and Exhibit B):

Acceptance Time.  “Acceptance Time” shall mean the first time as of which Acquisition Sub accepts any shares of Company Common Stock for exchange pursuant to the Offer.

Acquisition Inquiry.  “Acquisition Inquiry” shall mean an inquiry, indication of interest or request for information (other than an inquiry, indication of interest or request for information made or submitted by Parent, Acquisition Sub or any of their respective Subsidiaries or by any of their respective Representatives on their behalf) that could reasonably be expected to lead to an Acquisition Proposal.

Acquisition Proposal.  “Acquisition Proposal” shall mean any offer, proposal, inquiry or indication of interest (other than an offer, proposal, inquiry or indication of interest made or submitted by Parent, Acquisition Sub or any of their respective Subsidiaries or by any of their respective Representatives on their behalf) relating to any Acquisition Transaction.

Acquisition Transaction.  “Acquisition Transaction” shall mean any transaction or series of transactions with any Person other than Parent or Acquisition Sub or any of their respective Subsidiaries involving:

(a)              any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction:  (i) in which the Company is a constituent corporation; (ii) in which a Person or “group” (as defined in the Exchange Act and the rules thereunder) of Persons directly or indirectly acquires beneficial or record ownership of securities representing more than 15% of the outstanding securities of any class of voting securities of the Company; or (iii) in which the Company issues securities representing more than 15% of the outstanding securities of any class of voting securities of the Company; or

(b)              any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 15% or more of the consolidated net revenues, consolidated net income or consolidated assets of the Company.

Affiliate.  “Affiliate” of any Person shall mean another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person.

Agreement.  “Agreement” shall mean the Agreement and Plan of Merger to which this Exhibit A is attached, as it may be amended from time to time.

Exhibit A – Page 1

COBRA.  “COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

Code.  “Code” shall mean the Internal Revenue Code of 1986, as amended.

Company Affiliate.  “Company Affiliate” shall mean any Person under common control with the Company within the meaning of Sections 414(b), (c), (m) and (o) of the Code, and the regulations thereunder.

Company Associate.  “Company Associate” shall mean any current or former employee, independent contractor, consultant or director of or to the Company or any Company Affiliate.

Company Board Recommendation.  “Company Board Recommendation” shall mean the recommendation of the Company’s board of directors that the stockholders of the Company accept the Offer and tender their shares of Company Common Stock pursuant to the Offer and adopt the Agreement.

Company Common Stock.  “Company Common Stock” shall mean the Common Stock, $0.01 par value per share, of the Company.

Company Contract.  “Company Contract” shall mean any Contract to which the Company is a party, by which the Company or any of its assets are bound or pursuant to which the Company has any rights.

Company Employee Agreement.  “Company Employee Agreement” shall mean any management, employment, severance, transaction bonus, change in control, consulting, relocation, repatriation or expatriation agreement or other Contract between the Company or any Company Affiliate and any Company Associate, other than:  (i) any such Contract which is terminable “at will” without any obligation on the part of the Company or any Company Affiliate to make any severance, change in control or similar payment or provide any benefit; (ii) any Company Employee Plan; and (iii) any Foreign Plan.

Company Employee Plan.  “Company Employee Plan” shall mean any plan, program, policy, practice or Contract providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits, retirement benefits or other benefits or remuneration of any kind, whether written, unwritten or otherwise and whether funded or unfunded, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA (whether or not ERISA is applicable to such plan):  (a) that is or has been maintained or contributed to, or required to be maintained or contributed to, by the Company or any Company Affiliate for the benefit of any Company Associate; and (b) with respect to which the Company or any Company Affiliate has or may incur or become subject to any liability or obligation; provided, however, that Company Employee Agreements and Foreign Plans shall not be considered Company Employee Plans.

Company Equity Plan.  “Company Equity Plan” shall mean any of the following, in each case as amended:  the Diedrich Coffee, Inc. 2000 Equity Incentive Plan; the 2000 Non-Employee Directors Stock Option Plan; the Amended and Restated Diedrich Coffee, Inc. 1996 Stock Incentive Plan; the Diedrich Coffee, Inc. 1996 Non-Employee Directors Stock Option Plan; and the J. Russell Phillips Stock Option Agreement.

Exhibit A – Page 2

Company IP.  “Company IP” shall mean all material Intellectual Property and Intellectual Property Rights that the Company owns (or purports to own) or in which the Company has (or purports to have) an exclusive license or similar exclusive right.

Company Material Adverse Effect.  “Company Material Adverse Effect” shall mean any effect, change, claim, event or circumstance that, considered together with all other effects, changes, claims, events and circumstances, has had or could reasonably be expected to have or result in a material adverse effect on, (1) the business, financial condition or results of operations of the Company or (2) the ability of the Company to consummate the Contemplated Transactions, but shall not include:  (i) effects, changes, claims, events or circumstances resulting from (A) changes since the date of the Agreement in general economic or political conditions or the securities, credit or financial markets worldwide, (B) changes since the date of the Agreement in conditions generally affecting the industry in which the Company operates, (C) changes since the date of the Agreement in generally accepted accounting principles or the interpretation thereof, (D) changes since the date of the Agreement in Legal Requirements, (E) any acts of terrorism or war since the date of the Agreement, or (F) any stockholder class action or derivative litigation commenced against the Company since the date of the Agreement and arising from allegations of breach of fiduciary duty of the Company’s directors relating to their approval of the Agreement or from allegations of false or misleading public disclosure by the Company with respect to the Agreement; (ii) any adverse impact on the Company’s relationships with employees, customers and suppliers of the Company that is attributable to the announcement or pendency of the Agreement and the Contemplated Transactions, or any other adverse impact on the Company that is directly (and to the extent) attributable to the announcement and pendency of the Contemplated Transactions; (iii) any failure after the date of the Agreement to meet internal or analyst projections or forecasts for any period or changes in the trading price or trading volume of Company Common Stock, in and of itself; or (iv) the taking of any action required to be taken by the Company pursuant to the Agreement or specifically instructed or consented to, in advance and in writing, by Parent; provided that, (x) in the case of each of clauses “(i)(A),” “(i)(B),” (i)(C),” (i)(D)” and “(i)(E)” above, the exception shall apply so long as and only to the extent that such effects, changes, claims, events or circumstances do not disproportionately impact the Company relative to other participants in the industry or industries in which the Company conducts its business and (y) any facts or circumstances underlying, causing or contributing to any litigation of the type referred to in clause “(i)(F)” of the preceding sentence, or underlying, causing or contributing to any failure or decline of the type referred to in clause “(iii)” of the preceding sentence, in each case that are not otherwise excluded from the definition of a Company Material Adverse Effect, may be taken into account in determining whether there has been or would be a Company Material Adverse Effect.  Notwithstanding any of the foregoing, (x) for purposes of the representations and warranties of the Company in Section 3 and the conditions set forth in clauses “(a)” and “(b)” of Exhibit B, any effect, change, claim, event or circumstance that results or could reasonably be expected to result in (i) the termination of any Specified Contract, or (ii) a material adverse effect on the value to the Company of any Specified Contract will be considered a Company Material Adverse Effect, and (y) any action taken by a party to a Specified Contract or any Affiliate of such party after the date of the Agreement, other than effects, changes, claims, events and circumstances described in clause “(x)” above, will not in and of itself be considered a Company Material Adverse Effect.

Exhibit A – Page 3

Company Option.  “Company Option” shall mean each option to purchase shares of Company Common Stock from the Company, whether granted by the Company pursuant to a Company Equity Plan, assumed by the Company in connection with any merger, acquisition or similar transaction or otherwise issued or granted and whether vested or unvested; provided that the Top-Up Option shall not be considered a Company Option.

Company Pension Plan.  “Company Pension Plan” shall mean each Company Employee Plan that is an “employee pension benefit plan,” within the meaning of Section 3(2) of ERISA.

Company Preferred Stock.  “Company Preferred Stock” shall mean the Preferred Stock, $0.01 par value per share, of the Company.

Company Privacy Policy.  “Company Privacy Policy” shall mean each external or internal, past or current privacy policy of the Company, including any policy relating to:  (a) the privacy of any user of any Company Product or any user of any website of the Company; (b) the collection, storage, disclosure or transfer of any Personal Data; or (c) any employee information.

Company Product.  “Company Product” shall mean any product or service that the Company manufactured, marketed, distributed, leased (as lessor), licensed (as licensor) or sold at any time since January 1, 2008.

Company Warrants.  “Company Warrants” shall mean all warrants to acquire shares of Company Common Stock from the Company.

Confidentiality Agreement.  “Confidentiality Agreement” shall mean that certain Confidentiality Agreement dated as of March 5, 2008, between the Company and Parent, as amended through the date hereof.

Consent.  “Consent” shall mean any approval, consent, ratification, permission, waiver or authorization (including any Governmental Authorization).

Contemplated Transactions.  “Contemplated Transactions” shall mean:  (i) all actions and transactions contemplated by the Agreement, including (A) the Offer and the acceptance for exchange of shares of Company Common Stock pursuant to the Offer, and (B) the Merger; and (ii) all actions and transactions contemplated by the Stockholder Agreements.

Contract.  “Contract” shall mean any written, oral or other agreement, contract, subcontract, lease, understanding, instrument, warrant, note, debenture, indenture, option, warranty, purchase order, license, sublicense, or legally binding commitment or undertaking, and any amendments to any of the foregoing.

Designated Representations.  “Designated Representations” shall mean the representations and warranties of the Company contained in Section 3.3 of the Agreement.

Exhibit A – Page 4

Disclosure Schedule.  “Disclosure Schedule” shall mean the disclosure schedule that has been prepared by the Company in accordance with the requirements of Section 9.7 of the Agreement and that has been delivered by the Company to Parent on the date of the Agreement.

DOL.  “DOL” shall mean the United States Department of Labor.

Employee Plans.  “Employee Plans” shall mean each employment, consulting, salary, bonus, vacation, deferred compensation, incentive compensation, stock purchase, stock option or other equity-based, severance, termination, retention, change-in-control, death and disability benefits, hospitalization, medical, life or other insurance, flexible benefits, supplemental unemployment benefits, other welfare fringe benefits, profit-sharing, pension or retirement plans, program, practice agreement or commitment and each other employee benefit plan or arrangement, whether written, unwritten or otherwise, funded or unfunded, including each Foreign Plan and each “employee benefit plan,” within the meaning of Section 3(3) of ERISA which is or has been sponsored, maintained, contributed to or required to be contributed to by the Company and with respect to which the Company has or may have any liability or obligation.

Encumbrance.  “Encumbrance” shall mean any lien, pledge, hypothecation, charge, mortgage, easement, encroachment, imperfection of title, title exception, title defect, right of possession, lease, tenancy license, security interest, encumbrance, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).

Entity.  “Entity” shall mean any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association, organization or entity.

ERISA.  "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.

ERISA Affiliate.  "ERISA Affiliate" shall mean any Person that, together with the Company, is or was at any time treated as a single employer under Section 414 of the Code or Section 4001 of ERISA and any general partnership of which the Company is or has been a general partner.

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

FMLA.  “FMLA” shall mean the Family Medical Leave Act of 1993, as amended.

Foreign Plan.  “Foreign Plan” shall mean any (a) plan, program, policy, practice, Contract or other arrangement mandated by a Governmental Body outside the United States to which the Company is required to contribute or under which the Company has or may have any material liability, (b) Employee Plan that is subject to any of the Legal Requirements of any jurisdiction outside the United States or (c) Employee Plan that covers or has covered any former or current employee, consultant or director of the Company whose services are or have been performed primarily outside of the United States.

Exhibit A – Page 5

Form S-4 Registration Statement.  “Form S-4 Registration Statement” shall mean the registration statement on Form S-4 to be filed with the SEC by Parent in connection with theissuance of Parent Common Stock pursuant to the Offer and the Merger, as said registration statement may be amended.

Former Subsidiary.  “Former Subsidiary” shall mean Praise U.S. Holdings, Inc., a Delaware corporation.

Governmental Authorization.  “Governmental Authorization” shall mean any:  (a) permit, license, certificate, franchise, permission, variance, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement; or (b) right under any Contract with any Governmental Body.

Governmental Body.  “Governmental Body” shall mean any:  (a) nation, state, commonwealth, province, territory, county, municipality, district or other governmental jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, ministry, fund, foundation, center, organization, unit, body or Entity and any court or other tribunal); or (d) self-regulatory organization (including the NASDAQ Stock Market LLC and the Financial Industry Regulatory Authority).

HIPAA.  “HIPAA” shall mean the Health Insurance Portability and Accountability Act of 1996, as amended.

HSR Act.  “HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Intellectual Property.  “Intellectual Property” shall mean algorithms, apparatus, databases, data collections, diagrams, formulae, inventions (whether or not patentable), recipes, tools, files, records and data, all schematics, test methodologies, prototypes, processes, know-how, logos, marks (including brand names, product names, logos, and slogans), methods, proprietary information, protocols, schematics, specifications, software, software code (in any form, including firmware, source code and executable or object code), techniques, user interfaces, URLs, web sites, works of authorship and other forms of technology (whether or not embodied in any tangible form and including all tangible embodiments of the foregoing, such as instruction manuals, laboratory notebooks, samples, studies and summaries).

Intellectual Property Rights.  “Intellectual Property Rights” shall mean all rights of the following types, which may exist or be created under the laws of any jurisdiction in the world: (a) rights associated with works of authorship, including exclusive exploitation rights, copyrights, moral rights and mask works; (b) trademark and trade name rights and similar rights (collectively with those rights in clause “(f)”, “Trademarks”); (c) trade secret rights; (d) patent and industrial property rights (collectively with those rights in clause “(f)”, “Patents”); (e) other proprietary rights in Intellectual Property; and (f) rights in or relating to registrations, renewals, extensions, combinations, divisions and reissues of, and applications for, any of the rights referred to in clauses “(a)” through “(e)” above.

Exhibit A – Page 6

IRS.  “IRS” shall mean the United States Internal Revenue Service.

Knowledge.  An Entity shall be deemed to have “Knowledge” of a fact or other matter if any of the members of its board of directors or any of its executive officers has actual knowledge of such fact or other matter.

Legal Proceeding.  “Legal Proceeding” shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel.

Legal Requirement.  “Legal Requirement” shall mean any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, order, award, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Body.

Made Available.  Any statement in the Agreement to the effect that any information, document or other material has been “Made Available” shall mean that such information, document or material was made available by the Company to Parent or by Parent to the Company, as applicable, for review prior to the execution of the Agreement, by either (i) physically delivering such information to the recipient, (ii) delivering such information to the recipient in electronic format, whether via email or contained in a disc or other memory device, or (iii) by making such information available to the recipient in a virtual data room maintained by such party or otherwise in connection with the Contemplated Transactions.

Open Source License.  “Open Source License” shall mean any license that has been designated as an approved “open source license” on www.opensource.org (including the GNU General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic License, the Netscape Public License, the Sun Community Source License (SCSL), the Sun Industry Standards Source License (SISSL) and the Apache License).

Order.  “Order” shall mean any order, writ, injunction, judgment or decree issued, entered or otherwise promulgated by a court of competent jurisdiction or other Governmental Body.

Parent Average Stock Price.  “Parent Average Stock Price” shall mean the volume weighted average price for one share of Parent Common Stock as reported on the Nasdaq Capital Market for the five (5) trading day period ending immediately prior to (and excluding) the date on which the Acceptance Time occurs.

Exhibit A – Page 7

Parent Common Stock.  “Parent Common Stock” shall mean the Common Stock, no par value per share, of Parent.

Parent Material Adverse Effect.  “Parent Material Adverse Effect” shall mean any effect, change, claim, event or circumstance that, considered together with all other effects, changes, claims, events and circumstances, has or could reasonably be expected to have or result in a material adverse effect on, (i) the business, financial condition or results of operations of Parent or (ii) the ability of Parent or Acquisition Sub to consummate the Contemplated Transactions, but shall not include:  (i) effects, changes, claims, events or circumstances resulting from (A) changes since the date of the Agreement in general economic or political conditions or the securities, credit or financial markets worldwide, (B) changes since the date of the Agreement in conditions generally affecting the industry in which Parent operates, (C) changes since the date of the Agreement in generally accepted accounting principles or the interpretation thereof, (D) changes since the date of the Agreement in Legal Requirements, (E) any acts of terrorism or war since the date of the Agreement, or (F) any stockholder class action or derivative litigation commenced against Parent since the date of the Agreement and arising from allegations of breach of fiduciary duty of Parent’s directors relating to their approval of the Agreement or from allegations of false or misleading public disclosure by Parent with respect to the Agreement; (ii) any adverse impact on Parent’s relationships with employees, customers and suppliers of Parent that is attributable to the announcement or pendency of the Agreement and the Contemplated Transactions, or any other adverse impact on Parent that is directly (and to the extent) attributable to the announcement and pendency of the Contemplated Transactions; (iii) any failure after the date of the Agreement to meet internal or analyst projections or forecasts for any period or changes in the trading price or trading volume of Parent Common Stock, in and of itself; or (iv) the taking of any action required to be taken by Parent or Acquisition Sub pursuant to by the Agreement or specifically instructed or consented to, in advance and in writing, by the Company; provided that, (x) in the case of each of clauses “(i)(A),” “(i)(B),” (i)(C),” (i)(D)” and “(i)(E)” above, the exception shall apply so long as and only to the extent that such effects, changes, claims, events or circumstances do not disproportionately impact Parent relative to other participants in the industry or industries in which Parent conducts its business, and (y) any facts or circumstances underlying, causing or contributing to any litigation of the type referred to in clause “(i)(F)” of the preceding sentence, or underlying, causing or contributing to any failure or decline of the type referred to in clause “(iii)” of the preceding sentence, in each case that are not otherwise excluded from the definition of a Parent Material Adverse Effect, may be taken into account in determining whether there has been or would be a Parent Material Adverse Effect.

PBGC.  “PBGC” shall mean the United States Pension Benefit Guaranty Corporation.

Per Share Consideration.  “Per Share Consideration” shall mean the Cash Component and the fraction of a share of Parent Common Stock representing the Applicable Fraction.

Person.  “Person” shall mean any individual, Entity or Governmental Body.

Personal Data.  “Personal Data” shall include (a) a natural person’s name, street address, telephone number, e-mail address, photograph, social security number, driver’s license number, passport number and customer or account number, (b) any other piece of information that allows the identification of a natural person and (c) any other data or information collected by or on behalf of the Company from users of Company Products or any website of the Company.

Exhibit A – Page 8

Post-Effective Amendment.  “Post-Effective Amendment” shall mean a post-effective amendment to the Registration Statement for the offer and sale of shares of Parent Common Stock in connection with the Merger, in which the Proxy Statement shall be included as a prospectus.

Proxy Statement.  “Proxy Statement” shall mean the proxy or information statement of the Company to be sent to the Company’s stockholders in connection with the Company Stockholders’ Meeting.

Registered IP.  “Registered IP” shall mean all Intellectual Property Rights that are registered or filed with, or issued under the authority of, any Governmental Body, including all granted Patents, registered copyrights, registered mask works and registered Trademarks and all applications for any of the foregoing.

Representatives.  “Representatives” shall mean directors, officers, other employees, agents, attorneys, accountants, advisors and representatives.

Sarbanes-Oxley Act.  “Sarbanes-Oxley Act” shall mean the Sarbanes-Oxley Act of 2002.

SEC.  “SEC” shall mean the United States Securities and Exchange Commission.

Securities Act.  “Securities Act” shall mean the Securities Act of 1933, as amended.

Subsidiary.  An Entity shall be deemed to be a “Subsidiary” of another Person if such Person directly or indirectly owns or purports to own, beneficially or of record, (a) an amount of voting securities or other interests in such Entity that is sufficient to enable such Person to elect at least a majority of the members of such Entity’s board of directors or other governing body, or (b) at least 50% of the outstanding equity, voting or financial interests in such Entity.

Superior Proposal.  “Superior Proposal” shall mean an unsolicited bona fide written offer by a third party to purchase, in exchange for consideration consisting exclusively of cash or publicly traded equity or debt securities or a combination thereof, all or substantially all of the outstanding shares of Company Common Stock or the Company's assets, that (a) was not obtained or made as a direct or indirect result of a breach of the Agreement and (b) is on terms and conditions that the board of directors of the Company (or a committee thereof) determines, in its reasonable, good faith judgment, after consultation with the Company's financial advisors and outside counsel, and after taking into account the likelihood and timing of consummation of the purchase transaction contemplated by such Superior Proposal, to be more favorable from a financial point of view to the Company’s stockholders than the Transaction.

Tax.  “Tax” shall mean any tax (including any tax based upon or measured by income, capital gains, gross receipts, profits, employment or occupation, any value-added tax, franchise tax, surtax, estimated tax, unemployment tax, national health insurance tax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, withholding tax or payroll tax), levy, assessment, tariff or duty (including any customs duty) and any related charge or amount (including any fine, penalty or interest), imposed, assessed or collected by or under the authority of any Governmental Body.

Exhibit A – Page 9

Tax Return.  “Tax Return” shall mean any return (including any information return), report, declaration, schedule, notice, form, election, certificate or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body relating to Taxes.

Triggering Event.  A “Triggering Event” shall be deemed to have occurred if:  (i) the board of directors of the Company shall have failed to make a Company Board Recommendation or shall have made a Recommendation Change, or shall have taken any other action publicly that would cause a reasonable observer to conclude that the board of directors of the Company does not unanimously support the Offer or the Merger; (ii) following the disclosure or announcement of an Acquisition Proposal or an Acquisition Inquiry, the board of directors of the Company fails to reaffirm publicly the Company Board Recommendation, within ten (10) business days after Parent requests in writing that such recommendation or determination be reaffirmed publicly; (iii) the board of directors of the Company shall have publicly approved, endorsed or recommended any Acquisition Proposal; (iv) the Company shall have entered into any letter of intent or Contract contemplating or providing for any Acquisition Proposal (other than a confidentiality agreement executed and delivered in accordance with clause “(3)” of Section 5.3(c) of the Agreement); or (v) a tender or exchange offer relating to securities of the Company shall have been commenced by a third party and the Company shall not have sent to its security holders, within ten (10) business days after the commencement of such tender or exchange offer, a statement disclosing that the Company recommends rejection of such tender or exchange offer.

Year-End Balance Sheet.  “Year-End Balance Sheet” shall mean the audited consolidated balance sheet of the Company and its consolidated Subsidiaries as of June 24, 2009, included in the Company’s Report on Form 10-K for the fiscal year then ended, as filed with the SEC on September 22, 2009.

Exhibit A – Page 10

Exhibit B

Conditions to the Offer

The obligation of Acquisition Sub to accept for exchange and deliver consideration for shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer is subject to the satisfaction of the Minimum Condition and the additional conditions set forth in clauses “(a)” through “(l)” below.  Accordingly, notwithstanding any other provision of the Offer or the Agreement to the contrary, Acquisition Sub shall not be required to accept for exchange or deliver consideration for, and may delay the acceptance for exchange or the delivery of consideration for, any tendered shares of Company Common Stock, if (i) the Minimum Condition shall not be satisfied by midnight, Eastern Time, on the expiration date of the Offer (taking into account any extensions made pursuant to Section 1.1(d)), or (ii) any of the following additional conditions shall not be satisfied or have been waived in writing by Parent:

(a)           each of the Designated Representations shall have been accurate in all material respects as of the date of the Agreement, and shall be accurate in all material respects at and as of the expiration time of the Offer with the same force and effect as if made at and as of such time (in each case, except for representations and warranties that by their terms are made only as of a specific date or time, which need only be accurate in all material respects as of such date or time); provided, however, that, for purposes of determining the accuracy of such representations and warranties, (x) all “Company Material Adverse Effect” and other qualifications based on the word “material” contained in such representations and warranties shall be disregarded, and (y) any update of or modification to the Disclosure Schedule made or purported to have been made on or after the date of the Agreement shall be disregarded;

(b)           each of the representations and warranties of the Company set forth in the Agreement (other than those referred to in clause “(a)” above) shall have been accurate in all respects as of the date of the Agreement, and shall be accurate in all respects at and as of the expiration time of the Offer with the same force and effect as if made at and as of such time (in each case, except for representations and warranties that by their terms are made only as of a specific date or time, which need only be accurate in all respects as of such date or time), except where the failure of such representations and warranties to be accurate, including the circumstances constituting or giving rise to such inaccuracies, considered in the aggregate, do not constitute a Company Material Adverse Effect; provided, however, that, for purposes of determining the accuracy of such representations and warranties, (x) all “Company Material Adverse Effect” and other qualifications based on the word “material” contained in such representations and warranties shall be disregarded, and (y) any update of or modification to the Disclosure Schedule made or purported to have been made on or after the date of the Agreement shall be disregarded;

(c)           each covenant set forth in the Agreement that the Company is required to comply with or to perform at or prior to the Acceptance Time shall have been complied with or performed in all material respects, or, if not complied with or performed in all material respects, such noncompliance or failure to perform shall have been cured;

Exhibit B – Page 1

(d)           since the date of the Agreement, no Company Material Adverse Effect shall have occurred and be continuing;

(e)           Parent and the Company shall have received a certificate executed by the Company’s Chief Executive Officer or Chief Financial Officer confirming that the conditions set forth in clauses “(a),” “(b),” “(c)” and “(d)” of this Exhibit B have been duly satisfied;

(f)           the waiting period applicable to the Offer under the HSR Act shall have expired or been terminated;

(g)           no temporary restraining order, preliminary or permanent injunction or other order preventing the acquisition of or payment for shares of Company Common Stock pursuant to the Offer or preventing consummation of the Merger shall have been issued by any court of competent jurisdiction or other Governmental Body having authority over Parent, Acquisition Sub or the Company and remain in effect, and there shall not be any applicable Legal Requirement enacted or deemed applicable to the Offer or the Merger by a Governmental Body having authority over Parent, Acquisition Sub or the Company that makes the acquisition of or payment for shares of Company Common Stock pursuant to the Offer or the consummation of the Merger illegal;

(h)           there shall not be pending, or threatened in writing, any Legal Proceeding by any Governmental Body having authority over Parent, Acquisition Sub or the Company challenging or seeking to restrain or prohibit the acquisition of or payment for shares of Company Common Stock pursuant to the Offer or the consummation of the Merger or any of the other Contemplated Transactions;

(i)           no Triggering Event shall have occurred; and

(j)           the Agreement shall not have been validly terminated.

The foregoing conditions are for the sole benefit of Parent and Acquisition Sub and may be waived by Parent, in whole or in part at any time and from time to time, in the sole discretion of Parent.

Exhibit B – Page 2

Exhibits

Exhibit A - Certain Definitions

Exhibit B - Conditions to the Offer

EX-2.2

Exhibit 2.2

EXECUTION COPY

STOCKHOLDER AGREEMENT

This Stockholder Agreement (this “Agreement”) is entered into as of November 2, 2009, by and between Peet’s Coffee & Tea, Inc., a Washington corporation (“Parent”), and the stockholder identified on the signature page hereto (“Stockholder”).

Recitals

A.           Stockholder is a holder of record and the “beneficial owner” (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of certain shares of common stock of Diedrich Coffee, Inc., a Delaware corporation (the“Company”).

B.           Parent, Marty Acquisition Sub, Inc., a Delaware corporation (“Acquisition Sub”), and the Company are entering into an Agreement and Plan of Merger of even date herewith (the “Merger Agreement”) which provides (on the terms and subject to the conditions set forth therein) for Parent to acquire the Company by (i) causing Acquisition Sub to make an exchange offer as contemplated by the Merger Agreement (the “Offer”) for all of the issued and outstanding common stock of the Company for the Per Share Consideration (as defined in the Merger Agreement) and (ii) as promptly as practicable after the closing of the Offer, causing Acquisition Sub to merge with and into the Company (the “Merger”).

C.           In the Merger, each outstanding share of common stock of the Company will be converted into the right to receive the same consideration payable pursuant to the Offer.

D.           Stockholder is entering into this Agreement in order to induce Parent to enter into the Merger Agreement.

Agreement

The parties to this Agreement, intending to be legally bound, agree as follows:

Section 1. Certain Definitions

For purposes of this Agreement:

(a)           “Company Common Stock” shall mean the common stock, par value $0.01 per share, of the Company.

(b)           Stockholder shall be deemed to “Own” or to have acquired “Ownership” of a security if Stockholder: (i) is the record owner of such security; or (ii) is the “beneficial owner” (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of such security.

(c)           “Subject Shares” shall mean: 1,832,580 shares of Company Common Stock Owned by Stockholder as of the date of this Agreement.

(d)           “Termination Date”shall mean the earlier of (i) the date upon which the Merger Agreement is terminated in accordance with its terms and (ii) the Effective Time of the Merger.

(e)           A Person shall be deemed to have a effected a “Transfer” of a security if such Person directly or indirectly: (i) sells, pledges, encumbers, grants an option with respect to, transfers or disposes of such security or any interest in such security to any Person other than Parent or Acquisition Sub; or (ii) enters into an agreement or commitment contemplating the possible sale of, pledge of, encumbrance of, grant of an option with respect to, transfer of or disposition of such security or any interest therein to any Person other than Parent or Acquisition Sub.

(f)           Capitalized terms used but not otherwise defined in this Agreement have the meanings assigned to such terms in the Merger Agreement.

Section 2. Transfer of Subject Shares and Voting Rights

2.1           Restriction on Transfer of Subject Shares.Subject to Section 2.3, during the period from the date of this Agreement through the Termination Date, Stockholder shall not cause or permit any Transfer if such Transfer would result in Stockholder’s failure to Own the Subject Shares or inability to comply with Stockholder’s obligations hereunder.

2.2           Restriction on Transfer of Voting or Disposition Rights.  During the period from the date of this Agreement through the Termination Date, Stockholder shall ensure that:

(a) none of the Subject Shares is deposited into a voting trust; (b) no proxy is granted, and no voting agreement or similar agreement is entered into, with respect to any of the Subject Shares; and (c) no Person other than Stockholder (or any other Person that is the record or beneficial owner of any of the Subject Shares as of the date of this Agreement) is granted dispositive power with respect to any of the Subject Shares.

2.3           Permitted Transfers.Section 2.1 shall not prohibit a Transfer of Subject Securities by Stockholder (a) if Stockholder is an individual (i) to any member of Stockholder’s immediate family, or to a trust for the benefit of Stockholder or any member of Stockholder’s immediate family, or (ii) upon the death of Stockholder, or (b) if Stockholder is a corporation, partnership or limited liability company, to one or more stockholders, partners or members of Stockholder or to an affiliated entity under common control with Stockholder; provided, however, that a Transfer referred to in this sentence shall be permitted only if, as a precondition to such Transfer, the transferee agrees in a writing, reasonably satisfactory in form and substance to Parent, to be bound by all of the terms of this Agreement.

Section 3. Agreement to Tender

3.1           Tender of Subject Shares.Prior to the Termination Date, Stockholder agrees to promptly (and, in any event, not later than five business days after receipt by Stockholder of all documents and instruments enabling Stockholder to do so) validly tender or cause to be validly tendered in the Offer, pursuant to and in accordance with the terms of the Offer and Rule 14d-2 under the Securities Exchange Act of 1934, all of the Subject Shares (free and clear of any encumbrances or restrictions).

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3.2           No Withdrawal.Prior to the Termination Date, Stockholder agrees not to withdraw or cause to be withdrawn any of the Subject Shares from the Offer unless and until the Offer expires without Acquisition Sub having accepted for exchange shares of Company Common Stock validly tendered in the Offer.

3.3           Conditional Obligation.Stockholder acknowledges and agrees that Acquisition Sub’s obligation to accept for exchange shares of Company Common Stock in the Offer, including any Subject Shares tendered by Stockholder, is subject to the terms and conditions of the Merger Agreement and the Offer.

Section 4. Voting of Shares

Stockholder hereby agrees that, prior to the Termination Date, at any meeting of the stockholders of the Company, however called, and in any action by written consent of stockholders of the Company, unless otherwise directed in writing by Parent, Stockholder shall cause any Subject Shares not acquired pursuant to the Offer to be voted:

(a)           in favor of the Merger and the adoption of the Merger Agreement and the terms thereof, in favor of each of the other actions contemplated by the Merger Agreement and in favor of any action in furtherance of any of the foregoing;

(b)           against any action or agreement that would result in a breach of any representation, warranty, covenant or obligation of the Company in the Merger Agreement; and

(c)           against any action that is intended, or that could reasonably be expected, to impede, interfere with, delay, postpone, discourage or adversely affect the Offer or the Merger or any of the other Contemplated Transactions or this Agreement.

Prior to the Termination Date, Stockholder shall not enter into any agreement or understanding with any Person to vote or give instructions in any manner inconsistent with clause “(a)”, clause “(b)” or clause “(c)” of the preceding sentence.  For the avoidance of doubt, nothing in this Agreement shall in any way limit Stockholder’s right to vote the Subject Shares in Stockholder’s sole discretion on any matters other than the foregoing matters that may be submitted to a stockholder vote, consent or other approval.

Notwithstanding the foregoing or any contrary provision hereof, no covenant or agreement herein of Stockholder, and no action taken or omitted to be taken by Stockholder pursuant to the terms of this Agreement or the Merger Agreement, is intended, nor shall it be deemed or construed, to constitute the consent or approval of Stockholder (whether in Stockholder's capacity as a stockholder, director or officer of the Company or otherwise) for any purpose under any employment, severance, change-in-control or similar agreement or arrangement to which Stockholder may be party.

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Section 5. Waiver of Appraisal Rights

Subject to the acceptance of the Subject Shares by Acquisition Sub in the Offer pursuant to the Merger Agreement, Stockholder hereby irrevocably and unconditionally waives, and agrees to cause to be waived and to prevent the exercise of, any rights of appraisal or dissenters’ rights relating to the Merger with respect to the Subject Shares.

Section 6. Representations and Warranties of Stockholder

Stockholder hereby represents and warrants to Parent as follows:

6.1           Authorization, etc.Stockholder has the absolute and unrestricted right, power, authority and capacity to execute and deliver this Agreement and to perform Stockholder’s obligations hereunder.  This Agreement has been duly executed and delivered by Stockholder and constitutes a legal, valid and binding obligation of Stockholder, enforceable against Stockholder in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.

6.2           Company Warrants.  Stockholder hereby covenants and agrees that until the Termination Date, Stockholder will not exercise or cause or permit to be exercised any Company Warrants owned of record or beneficially by Stockholder, and agrees and understands that any attempted or purported exercise of any such Company Warrants shall, unless such exercise shall have been consented to in advance by Parent in writing (which consent Parent may grant or withhold in its sole and absolute discretion), be null and void, and no shares of Company Common Stock shall be issued in connection therewith.  Stockholder has reviewed and consents to the treatment of Company Warrants owned of record or beneficially by Stockholder as provided in the Merger Agreement.

6.3           No Conflicts or Consents.

(a)           The execution and delivery of this Agreement by Stockholder do not, and the performance of this Agreement by Stockholder will not: (i) conflict with or violate any Legal Requirements applicable to Stockholder; or (ii) result in or constitute a breach of, or give to any Person any right of termination, amendment, acceleration or cancellation of, or result in the creation of any encumbrance or restriction on any of the Subject Shares pursuant to any Contract to which Stockholder is a party.

(b)           The execution and delivery of this Agreement by Stockholder do not, and the performance of this Agreement by Stockholder will not, require any consent or approval of any Person.

6.4           Title to Securities.  As of the date of this Agreement, Stockholder holds of record (free and clear of any encumbrances or restrictions) the Subject Shares.

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Section 7. Additional Covenants of Stockholder

7.1           Stockholder Information.  Stockholder hereby agrees to permit Parent and Acquisition Sub to publish and disclose in the Schedule TO, the Form S-4 Registration Statement or other publicly-filed documents relating to the Offer and, if adoption of the Merger Agreement by the stockholders of the Company is required under the terms of the DGCL or other applicable law, the Proxy Statement, Stockholder’s identity and ownership of shares of Company Common Stock and the nature of Stockholder’s obligations under this Agreement.

7.2           Further Assurances.  From time to time and without additional consideration, Stockholder shall execute and deliver, or cause to be executed and delivered, such additional transfers, assignments, endorsements, proxies, consents and other instruments, and shall take such further actions, as Parent may reasonably request for the purpose of carrying out and fulfilling the obligations of Stockholder under this Agreement.

Section 8. Miscellaneous

8.1           Notices.  Any notice or other communication required or permitted to be delivered to either party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when received at the address or facsimile telephone number set forth beneath the name of such party below (or at such other address or facsimile telephone number as such party shall have specified in a written notice given to the other party):

if to Stockholder:

at the address set forth on the signature page hereof

with a copy (which shall not constitute notice) to:

Gibson Dunn & Crutcher LLP

3161 Michelson Drive, 12th Floor

Irvine, California 92612

Attention:  John M. Williams

Facsimile:  (949) 451-4220

if to Parent:

Peet’s Coffee & Tea, Inc.

1400 Park Avenue

Emeryville, CA 94608

Attention: Chief Financial Officer

Facsimile: 510-594-2180

8.2           Severability.  Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.  If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto agree that the court making such determination shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified.  In the event such court does not exercise the power granted to it in the prior sentence, the parties hereto shall replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term.

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8.3           Entire Agreement.  This Agreement and any other documents delivered by the parties in connection herewith constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings between the parties with respect thereto.  No addition to or modification of any provision of this Agreement shall be binding upon either party unless made in writing and signed by both parties.

8.4           Assignment; Binding Effect; Etc.  Except as provided herein, neither this Agreement nor any of the interests or obligations hereunder may be assigned or delegated by either party, and any attempted or purported assignment or delegation of any of such interests or obligations shall be void.  Without limiting any of the restrictions set forth in Section 2 or elsewhere in this Agreement, this Agreement shall be binding upon any Person to whom any Subject Shares are transferred.  Nothing in this Agreement, express or implied, is intended to or shall confer any right, benefit or remedy of any nature whatsoever upon any Person other than the parties hereto, provided that Acquisition Sub shall be a third party beneficiary with respect to all of Stockholder’s obligations under this Agreement.

8.5           Specific Performance.  The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached.  Stockholder agrees that, in the event of any breach or threatened breach by Stockholder of any covenant or obligation contained in this Agreement, Parent shall be entitled (in addition to any other remedy that may be available to it, including monetary damages) to seek and obtain (a) a decree or order of specific performance to enforce the observance and performance of such covenant or obligation, and (b) an injunction restraining such breach or threatened breach.

8.6           Applicable Law; Jurisdiction.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.  In any action between any of the parties arising out of or relating to this Agreement: (a) each of the parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the Court of Chancery of the State of Delaware; and (b) each of the parties irrevocably waives the right to trial by jury.

8.7           Counterparts.  This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument.

8.8           Captions.  The captions contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.

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8.9           Expenses.  All costs and expenses incurred in connection with this Agreement shall be paid by or on behalf of the party incurring such cost or expense, whether or not the transactions contemplated by this Agreement are consummated.

8.10           Waiver.  A party shall not be deemed to have waived any claim available to such party arising out of this Agreement, or any power, right, privilege or remedy of such party under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such party; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

8.11           Not Binding in Other Capacities.  Notwithstanding anything in this Agreement to the contrary, the parties acknowledge and agree that Stockholder is entering into this Agreement solely in his capacity as a stockholder of the Company and nothing in this Agreement shall be construed to prohibit or restrict Stockholder from taking any action in his capacity as an officer or member of the Board of Directors of the Company or, subject to the limitations (and consequences of such actions) set forth in the Merger Agreement, from taking any action with respect to any Acquisition Proposal as an officer or member of the Board of Directors of the Company to the extent permitted by the Merger Agreement.

8.12           Termination.  This Agreement shall automatically terminate and become void and of no further force or effect on the Termination Date.

[Remainder of page intentionally left blank.]

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In Witness Whereof, Parent and Stockholder have caused this Agreement to be executed as of the date first written above.

Peet’s Coffee & Tea, Inc.

/s/ Patrick O’Dea

By

President and Chief Executive Officer

Title

Stockholder

/s/ Paul L. Heeschen

Signature

Paul L. Heeschen

Printed Name

Address:   ___________________________

                   ___________________________

                   ___________________________

Facsimile:  ___________________________

Signature Page to Stockholder Agreement

EX-2.3

Exhibit 2.3

EXECUTION COPY

STOCKHOLDER AGREEMENT

This Stockholder Agreement (this “Agreement”) is entered into as of November 2, 2009, by and between Peet’s Coffee & Tea, Inc., a Washington corporation (“Parent”), and the stockholder identified on the signature page hereto (“Stockholder”).

Recitals

A.           Stockholder is a holder of record and the “beneficial owner” (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of certain shares of common stock of Diedrich Coffee, Inc., a Delaware corporation (the“Company”).

B.           Parent, Marty Acquisition Sub, Inc., a Delaware corporation (“Acquisition Sub”), and the Company are entering into an Agreement and Plan of Merger of even date herewith (the “Merger Agreement”) which provides (on the terms and subject to the conditions set forth therein) for Parent to acquire the Company by (i) causing Acquisition Sub to make an exchange offer as contemplated by the Merger Agreement (the “Offer”) for all of the issued and outstanding common stock of the Company for the Per Share Consideration (as defined in the Merger Agreement) and (ii) as promptly as practicable after the closing of the Offer, causing Acquisition Sub to merge with and into the Company (the “Merger”).

C.           In the Merger, each outstanding share of common stock of the Company will be converted into the right to receive the same consideration payable pursuant to the Offer.

D.           Stockholder is entering into this Agreement in order to induce Parent to enter into the Merger Agreement.

Agreement

The parties to this Agreement, intending to be legally bound, agree as follows:

Section 1. Certain Definitions

For purposes of this Agreement:

(a)           “Company Common Stock” shall mean the common stock, par value $0.01 per share, of the Company.

(b)           Stockholder shall be deemed to “Own” or to have acquired “Ownership” of a security if Stockholder: (i) is the record owner of such security; or (ii) is the “beneficial owner” (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of such security.

(c)           “Subject Securities” shall mean: (i) all equity securities of the Company (including all shares of Company Common Stock and all options, warrants and other rights to acquire shares of Company Common Stock) Owned by Stockholder as of the date of this Agreement; and (ii) all additional equity securities of the Company (including all additional shares of Company Common Stock and all additional options, warrants and other rights to acquire shares of Company Common Stock) of which Stockholder acquires Ownership during the period from the date of this Agreement through the Termination Date.

(d)           “Subject Shares” shall mean: (i) all shares of Company Common Stock Owned by Stockholder as of the date of this Agreement; and (ii) all additional shares of Company Common Stock of which Stockholder acquires Ownership during the period from the date of this Agreement through the Termination Date.

(e)           “Termination Date”shall mean the earlier of (i) the date upon which the Merger Agreement is terminated in accordance with its terms and (ii) the Effective Time of the Merger.

(f)           A Person shall be deemed to have a effected a “Transfer” of a security if such Person directly or indirectly: (i) sells, pledges, encumbers, grants an option with respect to, transfers or disposes of such security or any interest in such security to any Person other than Parent or Acquisition Sub; or (ii) enters into an agreement or commitment contemplating the possible sale of, pledge of, encumbrance of, grant of an option with respect to, transfer of or disposition of such security or any interest therein to any Person other than Parent or Acquisition Sub.

(g)           Capitalized terms used but not otherwise defined in this Agreement have the meanings assigned to such terms in the Merger Agreement.

Section 2. Transfer of Subject Securities and Voting Rights

2.1           Restriction on Transfer of Subject Securities.Subject to Section 2.3, during the period from the date of this Agreement through the Termination Date, Stockholder shall not cause or permit any Transfer of any of the Subject Securities.

2.2           Restriction on Transfer of Voting or Disposition Rights.  During the period from the date of this Agreement through the Termination Date, Stockholder shall ensure that:

(a) none of the Subject Securities is deposited into a voting trust; (b) no proxy is granted, and no voting agreement or similar agreement is entered into, with respect to any of the Subject Securities; and (c) no Person other than Stockholder (or any other Person that is the record or beneficial owner of any of the Subject Securities as of the date of this Agreement, but only with respect to such Subject Securities) is granted dispositive power with respect to any of the Subject Securities.

2.3           Permitted Transfers.Section 2.1 shall not prohibit a Transfer of Subject Securities by Stockholder (a) if Stockholder is an individual (i) to any member of Stockholder’s immediate family, or to a trust for the benefit of Stockholder or any member of Stockholder’s immediate family, or (ii) upon the death of Stockholder, or (b) if Stockholder is a corporation, partnership or limited liability company, to one or more stockholders, partners or members of Stockholder or to an affiliated entity under common control with Stockholder; provided, however, that a Transfer referred to in this sentence shall be permitted only if, as a precondition to such Transfer, the transferee agrees in a writing, reasonably satisfactory in form and substance to Parent, to be bound by all of the terms of this Agreement.

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Section 3. Agreement to Tender

3.1           Tender of Subject Shares.Prior to the Termination Date, Stockholder agrees to promptly (and, in any event, not later than five business days after receipt by Stockholder of all documents and instruments enabling Stockholder to do so) validly tender or cause to be validly tendered in the Offer, pursuant to and in accordance with the terms of the Offer and Rule 14d-2 under the Securities Exchange Act of 1934, all of the Subject Shares Owned by Stockholder as of the date of this Agreement (free and clear of any encumbrances or restrictions), and if Stockholder acquires Ownership of any additional Subject Shares after the date of this Agreement, to promptly (and, in any event, not later than the later of (x) two business days after Stockholder acquires Ownership of such additional Subject Shares and (y) receipt by Stockholder of all documents and instruments enabling Stockholder to do so) validly tender or cause to be validly tendered in the Offer, pursuant to and in accordance with the terms of the Offer, all of such additional Subject Shares (free and clear of any encumbrances or restrictions).

3.2           No Withdrawal.Prior to the Termination Date, Stockholder agrees not to withdraw or cause to be withdrawn any of the Subject Shares from the Offer unless and until the Offer expires without Acquisition Sub having accepted for exchange shares of Company Common Stock validly tendered in the Offer.

3.3           Conditional Obligation.Stockholder acknowledges and agrees that Acquisition Sub’s obligation to accept for exchange shares of Company Common Stock in the Offer, including any Subject Shares tendered by Stockholder, is subject to the terms and conditions of the Merger Agreement and the Offer.

Section 4. Voting of Shares

Stockholder hereby agrees that, prior to the Termination Date, at any meeting of the stockholders of the Company, however called, and in any action by written consent of stockholders of the Company, unless otherwise directed in writing by Parent, Stockholder shall cause any Subject Shares not acquired pursuant to the Offer to be voted:

(a)           in favor of the Merger and the adoption of the Merger Agreement and the terms thereof, in favor of each of the other actions contemplated by the Merger Agreement and in favor of any action in furtherance of any of the foregoing;

(b)           against any action or agreement that would result in a breach of any representation, warranty, covenant or obligation of the Company in the Merger Agreement; and

(c)           against any action that is intended, or that could reasonably be expected, to impede, interfere with, delay, postpone, discourage or adversely affect the Offer or the Merger or any of the other Contemplated Transactions or this Agreement.

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Prior to the Termination Date, Stockholder shall not enter into any agreement or understanding with any Person to vote or give instructions in any manner inconsistent with clause “(a)”, clause “(b)” or clause “(c)” of the preceding sentence.  For the avoidance of doubt, nothing in this Agreement shall in any way limit Stockholder’s right to vote the Subject Shares in Stockholder’s sole discretion on any matters other than the foregoing matters that may be submitted to a stockholder vote, consent or other approval.

Notwithstanding the foregoing or any contrary provision hereof, no covenant or agreement herein of Stockholder, and no action taken or omitted to be taken by Stockholder pursuant to the terms of this Agreement or the Merger Agreement, is intended, nor shall it be deemed or construed, to constitute the consent or approval of Stockholder (whether in Stockholder's capacity as a stockholder, director or officer of the Company or otherwise) for any purpose under any employment, severance, change-in-control or similar agreement or arrangement to which Stockholder may be party.

Section 5. Waiver of Appraisal Rights

Subject to the acceptance of the Subject Shares by Acquisition Sub in the Offer pursuant to the Merger Agreement, Stockholder hereby irrevocably and unconditionally waives, and agrees to cause to be waived and to prevent the exercise of, any rights of appraisal or dissenters’ rights relating to the Merger with respect to any shares of Company Common Stock Owned by Stockholder.

Section 6. Representations and Warranties of Stockholder

Stockholder hereby represents and warrants to Parent as follows:

6.1           Authorization, etc.Stockholder has the absolute and unrestricted right, power, authority and capacity to execute and deliver this Agreement and to perform Stockholder’s obligations hereunder.  This Agreement has been duly executed and delivered by Stockholder and constitutes a legal, valid and binding obligation of Stockholder, enforceable against Stockholder in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.

6.2           No Conflicts or Consents.

(a)           The execution and delivery of this Agreement by Stockholder do not, and the performance of this Agreement by Stockholder will not: (i) conflict with or violate any Legal Requirements applicable to Stockholder; or (ii) result in or constitute a breach of, or give to any Person any right of termination, amendment, acceleration or cancellation of, or result in the creation of any encumbrance or restriction on any of the Subject Securities pursuant to any Contract to which Stockholder is a party.

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(b)           The execution and delivery of this Agreement by Stockholder do not, and the performance of this Agreement by Stockholder will not, require any consent or approval of any Person.

6.3           Title to Securities.  As of the date of this Agreement: (a) Stockholder holds of record (free and clear of any encumbrances or restrictions) the number of outstanding shares of Company Common Stock set forth under the heading “Shares Held of Record” on the signature page hereof; (b) Stockholder holds (free and clear of any encumbrances or restrictions) the options, warrants and other rights to acquire shares of Company Common Stock set forth under the heading “Options and Other Rights” on the signature page hereof; (c) Stockholder Owns the additional equity securities of the Company set forth under the heading “Additional Securities Beneficially Owned” on the signature page hereof; and (d) Stockholder does not directly or indirectly Own any shares of capital stock or other equity securities of the Company, or any option, warrant or other right to acquire (by purchase, conversion or otherwise) any shares of capital stock or other equity securities of the Company, other than the shares and options, warrants and other rights set forth on the signature page hereof.

Section 7. Additional Covenants of Stockholder

7.1           Stockholder Information.  Stockholder hereby agrees to permit Parent and Acquisition Sub to publish and disclose in the Schedule TO, the Form S-4 Registration Statement or other publicly-filed documents relating to the Offer and, if adoption of the Merger Agreement by the stockholders of the Company is required under the terms of the DGCL or other applicable law, the Proxy Statement, Stockholder’s identity and ownership of shares of Company Common Stock and the nature of Stockholder’s obligations under this Agreement.

7.2           Further Assurances.  From time to time and without additional consideration, Stockholder shall execute and deliver, or cause to be executed and delivered, such additional transfers, assignments, endorsements, proxies, consents and other instruments, and shall take such further actions, as Parent may reasonably request for the purpose of carrying out and fulfilling the obligations of Stockholder under this Agreement.

Section 8. Miscellaneous

8.1           Notices.  Any notice or other communication required or permitted to be delivered to either party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when received at the address or facsimile telephone number set forth beneath the name of such party below (or at such other address or facsimile telephone number as such party shall have specified in a written notice given to the other party):

if to Stockholder:

at the address set forth on the signature page hereof

with a copy (which shall not constitute notice) to:

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Gibson Dunn & Crutcher LLP

3161 Michelson Drive, 12th Floor

Irvine, California 92612

Attention:  John M. Williams

Facsimile:  (949) 451-4220

if to Parent:

Peet’s Coffee & Tea, Inc.

1400 Park Avenue

Emeryville, CA 94608

Attention: Chief Financial Officer

Facsimile: 510-594-2180

8.2           Severability.  Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.  If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto agree that the court making such determination shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified.  In the event such court does not exercise the power granted to it in the prior sentence, the parties hereto shall replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term.

8.3           Entire Agreement.  This Agreement and any other documents delivered by the parties in connection herewith constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings between the parties with respect thereto.  No addition to or modification of any provision of this Agreement shall be binding upon either party unless made in writing and signed by both parties.

8.4           Assignment; Binding Effect; Etc.  Except as provided herein, neither this Agreement nor any of the interests or obligations hereunder may be assigned or delegated by either party, and any attempted or purported assignment or delegation of any of such interests or obligations shall be void.  Without limiting any of the restrictions set forth in Section 2 or elsewhere in this Agreement, this Agreement shall be binding upon any Person to whom any Subject Securities are transferred.  Nothing in this Agreement, express or implied, is intended to or shall confer any right, benefit or remedy of any nature whatsoever upon any Person other than the parties hereto, provided that Acquisition Sub shall be a third party beneficiary with respect to all of Stockholder’s obligations under this Agreement.

8.5           Specific Performance.  The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached.  Stockholder agrees that, in the event of any breach or threatened breach by Stockholder of any covenant or obligation contained in this Agreement, Parent shall be entitled (in addition to any other remedy that may be available to it, including monetary damages) to seek and obtain (a) a decree or order of specific performance to enforce the observance and performance of such covenant or obligation, and (b) an injunction restraining such breach or threatened breach.

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8.6           Applicable Law; Jurisdiction.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.  In any action between any of the parties arising out of or relating to this Agreement: (a) each of the parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the Court of Chancery of the State of Delaware; and (b) each of the parties irrevocably waives the right to trial by jury.

8.7           Counterparts.  This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument.

8.8           Captions.  The captions contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.

8.9           Expenses.  All costs and expenses incurred in connection with this Agreement shall be paid by or on behalf of the party incurring such cost or expense, whether or not the transactions contemplated by this Agreement are consummated.

8.10           Waiver.  A party shall not be deemed to have waived any claim available to such party arising out of this Agreement, or any power, right, privilege or remedy of such party under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such party; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

8.11           Not Binding in Other Capacities.  Notwithstanding anything in this Agreement to the contrary, the parties acknowledge and agree that Stockholder is entering into this Agreement solely in his capacity as a stockholder of the Company and nothing in this Agreement shall be construed to prohibit or restrict Stockholder from taking any action in his capacity as an officer or member of the Board of Directors of the Company or, subject to the limitations (and consequences of such actions) set forth in the Merger Agreement, from taking any action with respect to any Acquisition Proposal as an officer or member of the Board of Directors of the Company to the extent permitted by the Merger Agreement.

8.12           Termination.  This Agreement shall automatically terminate and become void and of no further force or effect on the Termination Date.

[Remainder of page intentionally left blank.]

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In Witness Whereof, Parent and Stockholder have caused this Agreement to be executed as of the date first written above.

Peet’s Coffee & Tea, Inc.

By

Title

Stockholder

Signature

Printed Name

Address:    ___________________________

                    ___________________________

                    ___________________________

Facsimile:   ___________________________

Shares Held of Record Options and Other Rights Additional Securities Beneficially Owned

Signature Page to Stockholder Agreement

EX-10.1

Exhibit 10.1

 

Wells Fargo Bank, National Association

One Kaiser Plaza, Suite 850

Oakland, California 94162

Wells Fargo Securities, LLC

600 California Street, 20th Floor

San Francisco, CA 94108

CONFIDENTIAL

November 2, 2009

Peet’s Coffee & Tea, Inc.

1400 Park Avenue

Emeryville, California 94608

Attention:  Tom Cawley, Chief Financial Officer

Re:  Commitment Letter-Peet’s Coffee & Tea, Inc./Diedrich Acquisition

$140,000,000 Senior Secured Credit Facilities

Ladies and Gentlemen:

You have advised Wells Fargo Bank, National Association (“Wells Fargo Bank”), and Wells Fargo Securities, LLC (“Wells Fargo Securities” and, together with Wells Fargo Bank, the “Wells Fargo Parties” or “we” or “us”) that Peet’s Coffee & Tea, Inc. (the “Borrower” or “you”) seeks financing for the proposed acquisition of all of the shares of common stock, $0.01 par value per share (the “Shares”), of Diedrich Coffee, Inc. (the “Acquired Company” or “Diedrich”) from the shareholders of Diedrich (collectively, the “Seller”) by means of a tender offer for such Shares followed by a merger of a newly formed acquisition entity (“Newco”) with and into the Acquired Company pursuant to an agreement and plan of merger, dated as of the date hereof, between you, Newco, and the Acquired Company (as amended, supplemented or otherwise modified in accordance with paragraph (b) of the Conditions Annex (as defined below), the “Acquisition Agreement”), to refinance certain existing indebtedness (if any) of the Borrower and its subsidiaries and the Acquired Company and its subsidiaries (the “Refinancing”), to pay fees, commissions and expenses incurred in connection with the Transactions (as defined below)

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PAGE 1

and for ongoing working capital requirements and other general corporate purposes, all as more fully described in the Summary of Proposed Terms and Conditions attached hereto as Annex A (the “Term Sheet”).  This Commitment Letter (as defined below) describes the general terms and conditions for senior secured credit facilities of up to $140,000,000to the Borrowerconsisting of (a) a term loan facility of up to $100,000,000 (the “Term Loan Facility”) and (b) a revolving credit facility of up to $40,000,000 (the “Revolving Credit Facility” and, collectively with the Term Loan Facility, the “Credit Facilities”).  Except as the context otherwise requires, references to the “Borrower and its subsidiaries” shall not include the Acquired Company and its subsidiaries prior to the consummation of the Merger.

As used herein, the terms “Offer” and “Merger” have the meanings ascribed to such terms in the Acquisition Agreement, the term “Acquisition” means the collective reference to the Offer (including any extensions and subsequent offering periods and all purchases of shares pursuant thereto), the exercise, if any, of the Top-Up Option (as defined in the Acquisition Agreement) and the Merger, and the term “Transactions” means, collectively, the Acquisition, the Refinancing, the borrowings under the Credit Facilities and the payment of fees, commissions and expenses in connection with the foregoing.  This letter, including the Term Sheet and the Conditions Annex attached hereto as Annex B (the “Conditions Annex”), is referred to herein as the “Commitment Letter”.  The date on which the Credit Facilities are closed is referred to as the “Closing Date”.

1.           Commitments.

(a)           You have requested that Wells Fargo Bank commit to provide the Credit Facilities.  Wells Fargo Bank is pleased to advise you of its commitment to provide to the Borrower 100%of the principal amount of the Credit Facilities (the “Commitments”), upon the terms and subject to the conditions set forth in this Commitment Letter.

(b)           Wells Fargo Securities reserves the right to secure commitments for the Credit Facilities from a syndicate of banks, financial institutions and other entities (such banks, financial institutions and other entities committing to the Credit Facilities, including Wells Fargo Bank, the “Lenders”) upon the terms and subject to the conditions set forth in this Commitment Letter.The Commitments of Wells Fargo Bank hereunder shall be reduced on a dollar for dollar basis by the amount of any corresponding commitments received through syndication from the other Lenders; provided that any commitments received on or prior to the Closing Date shall not relieve Wells Fargo Bank of its obligations to fund 100% of the principal amount of the Credit Facilities to be funded on the Closing Date upon the terms and subject to the conditions set forth in this Commitment Letter.  Wells Fargo Securities, acting alone or through or with affiliates selected by it, will act as the sole lead bookrunner and sole lead arranger (in such capacities, the “Lead Arranger”) in arranging and syndicating the Credit Facilities.  Wells Fargo Bank will act as the sole administrative agent (in such capacity, the “Administrative Agent”) for the Credit Facilities.  No additional agents, co-agents or arrangers will be appointed and no other titles will be awarded without the prior written approval of the Lead Arranger.The Lead Arranger shall have the right, in consultation with you, to award the titles to other co-agents or arrangers who are Lenders that provide (or whose affiliates provide) commitments in respect of the Credit Facilities; provided, that no other agent, co-agent or arranger other than the Lead Arranger shall have rights in respect of the management of the syndication of the Credit Facilities (including, without limitation, in respect of “flex” rights under the Fee Letter, over which the Lead Arranger shall have sole control).

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(c)           Effective upon your agreement to and acceptance of this Commitment Letter and continuing through the earlier of the completion of a Successful Syndication (as defined in the Fee Letter) and June 1, 2010, except as expressly permitted by Section 4(b) of the Fee Letter, you will not solicit, initiate, entertain or permit, or enter into any discussions with any other bank, investment bank, financial institution, person or entity in respect of any structuring, arranging, underwriting, offering, placing, or syndicating of all or any portion of the Credit Facilities or any other bank or other financing similar to, or as a replacement of, all or any portion of the Credit Facilities.

2.           Conditions to Commitments.  The Commitments of Wells Fargo Bank and the undertakings of Wells Fargo Securities hereunder are subject to the satisfaction of each of the following conditions precedent:

(a)           your written acceptance, and compliance with the terms and conditions, of (i) a letter dated the date hereof from the Wells Fargo Parties to you (the “Fee Letter”) pursuant to which you agree to pay, or cause to be paid, to the Wells Fargo Parties certain fees and expenses and to fulfill certain other obligations in connection with the Credit Facilities and (ii) in all material respects, this Commitment Letter;

(b)           after the date hereof and until the earlier of the completion of a Successful Syndication (as defined in the Fee Letter) and 180 days after the date the Merger is consummated, none of the Borrower, the Acquired Company nor any of its/their respective subsidiaries shall have announced, offered, arranged, syndicated or issued any debt securities (including convertible securities) or bank financing (other than the Credit Facilities) without our prior written consent;

(c)           from and after the date hereof, there not having occurred a Company Material Adverse Effect (as defined in the Acquisition Agreement); and

(d)           the satisfaction of all other conditions described herein, in the Term Sheet and in the Conditions Annex.

3.           Syndication.

(a)           The Lead Arranger intends and reserves the right to syndicate the Credit Facilities and you acknowledge and agree that the Lead Arranger intends to commence syndication efforts promptly following your acceptance of this Commitment Letter and the Fee Letter.  The Lead Arranger may, at its option, conduct or conclude such syndication before or after the closing of the Credit Facilities.

(b)           You agree to, and will use your commercially reasonable efforts to cause appropriate members of management of the Acquired Company to, actively assist us in achieving a syndication of the Credit Facilities that is satisfactory to us and you.  To assist us in our syndication efforts, you agree that you will, and will cause your representatives and non-legal advisors to, and will use your commercially reasonable efforts to cause appropriate members of management of the Acquired Company to, (i) promptly provide the Wells Fargo Parties and the other Lenders upon request with all information reasonably deemed necessary by the Lead Arranger to assist the Lead Arranger and each Lender in their evaluation of the Transactions and to complete the syndication, (ii) make available to prospective Lenders senior management of the Borrower and (to the extent reasonable and practical) appropriate members of management of the Acquired Company on reasonable prior notice and at reasonable times and places, (iii) host, with the Lead Arranger, one or more meetings with prospective Lenders, (iv) assist, and cause your affiliates and advisors to assist, the Lead Arranger in the preparation of one or more confidential information memoranda and other marketing materials to be used in connection with the syndication, and (v) use your reasonable best efforts to ensure that the syndication efforts of the Lead Arranger benefit materially from the existing lending relationships of the Borrower and the Acquired Company.

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PAGE 3

(c)           The Lead Arranger and/or one or more of its affiliates, in consultation with you, will exclusively manage all aspects of the syndication of the Credit Facilities, including decisions as to the selection and number of potential Lenders to be approached, when they will be approached, whose commitments will be accepted, any titles offered to the Lenders and the final allocations of the commitments and any related fees among the Lenders, and the Lead Arranger will exclusively perform all functions and exercise all authority as is customarily performed and exercised in such capacities.  No Lender shall receive compensation from the Borrowerwith respect to the Credit Facilities outside the terms contained herein and in the Fee Letter in order to obtain its commitment to participate in the Credit Facilities and the Lead Arranger shall have sole discretion with respect to the allocation and distribution of fees among the Lenders.

4.           Information.

(a)           You represent, warrant and covenant that (i) all information (other than the Projections, as defined below) concerning the Borrower and its subsidiaries and, to the best of your knowledge, the Acquired Company and its subsidiaries, and the Transactions that has been or will be made available to the Wells Fargo Parties or the Lenders by you, or any of your representatives, subsidiaries or affiliates (or on your or their behalf) (the “Information”) is, and in the case of Information made available after the date hereof, will be complete and correct in all material respects and does not, and in the case of Information made available after the date hereof, will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading and (ii) all financial projections concerning the Borrower, the Acquired Company and their respective subsidiaries that have been or will be made available to the Wells Fargo Parties or the Lenders by you, or any of your representatives, subsidiaries or affiliates (or on your or their behalf) (the “Projections”) have been and will be prepared in good faith based upon assumptions believed by you to be reasonable at the time made, it being understood that actual results may vary materially from the Projections.  You agree to furnish us with such Information and Projections as we may reasonably request and to supplement, or cause to be supplemented, the Information and the Projections from time to time until the Closing Date and, if requested by the Lead Arranger, after the Closing Date through the completion of a Successful Syndication (as defined in the Fee Letter) of the Credit Facilities so that the conditions and representations and warranties contained in the preceding sentence remain correct.  We will be entitled to use and rely upon, without responsibility to independently verify, the Information and the Projections.  You acknowledge that, subject to Section 7 hereof, the Wells Fargo Parties may share with any of their respective affiliates (it being understood that such affiliates will be subject to the confidentiality agreements between you and us), and such affiliates may share with the Wells Fargo Parties, any information related to the Borrower, the Acquired Company, or any of their respective subsidiaries or affiliates (including, without limitation, in each case, information relating to creditworthiness) and the transactions contemplated hereby.  You represent and warrant as of the date hereof that no material litigation is pending or to your knowledge, threatened against you or your subsidiaries or Diedrich and its subsidiaries other than as disclosed in public SEC filings made prior to the date hereof.

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PAGE 4

(b)           You acknowledge that (i) the Wells Fargo Parties on your behalf will make available the Information, Projections and other marketing materials and presentations, including confidential information memoranda (collectively, the “Informational Materials”), to the potential Lenders by posting the Informational Materials on DXSyndicateTM or by other similar electronic means (collectively, the “Electronic Means”) and (ii) certain prospective Lenders (“Public Lenders”) may not wish to receive material non-public information (within the meaning of the United States federal securities laws, “MNPI”) with respect to the Borrower, the Acquired Company or their respective affiliates or any of their respective securities, and who may be engaged in investment and other market-related activities with respect to such entities’ securities.  At the request of the Lead Arranger, (A) you will assist, and cause your affiliates, advisors, and to the extent possible using your reasonable best efforts, appropriate representatives of the Acquired Company to assist, the Lead Arranger in the preparation of Informational Materials to be used in connection with the syndication of the Credit Facilities to Public Lenders, which will not contain MNPI (the “Public Informational Materials”), (B) you will identify and conspicuously mark any Public Informational Materials “PUBLIC”, and (C) you will identify and conspicuously mark any Informational Materials that include any MNPI as “PRIVATE AND CONFIDENTIAL”.  Notwithstanding the foregoing, you agree that the Wells Fargo Parties may distribute the following documents to all prospective Lenders (including the Public Lenders) on your behalf , unless you advise the Wells Fargo Parties in writing (including by email) within a reasonable time prior to their intended distributions that such material should not be distributed to Public Lenders:  (x) administrative materials for prospective Lenders such as lender meeting invitations and funding and closing memoranda, (y) notifications of changes to Credit Facilities’ terms and (z) other materials intended for prospective Lenders after the initial distribution of the Informational Materials, including drafts and final versions of the Financing Documentation.  If you advise us that any of the foregoing items (other than the Financing Documentation) should not be distributed to Public Lenders, then the Wells Fargo Parties will not distribute such materials to Public Lenders without further discussions with you.

5.           Indemnification.

You agree to indemnify and hold harmless the Wells Fargo Parties and each of their respective affiliates, directors, officers, employees, partners, representatives, advisors and agents and each of their respective heirs, successors and assigns (each, an “Indemnified Party”) from and against any and all actions, suits, losses, claims, damages, liabilities and expenses of any kind or nature, joint or several, to which such Indemnified Party may become subject or that may be incurred or asserted or awarded against such Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (i) any matters contemplated by this Commitment Letter, the Fee Letter, the Transactions or any related transaction (including, without limitation, the execution and delivery of this Commitment Letter, the Financing Documentation (as defined in the Term Sheet) for the Credit Facilities and the closing of the Transactions) or (ii) the use or the contemplated use of the proceeds of the Credit Facilities, and will reimburse each Indemnified Party for all out-of-pocket expenses (including reasonable attorneys’ fees, expenses and charges) on demand as they are incurred in connection with any of the foregoing; provided that no Indemnified Party shall have any right to indemnification for any of the foregoing to the extent resulting from such Indemnified Party’s own gross negligence, bad faith or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction.  In the case of an investigation, litigation or proceeding to which the indemnity in this paragraph applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by you, your equityholders or creditors or an Indemnified Party, whether or not an Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated.  You also agree that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort, or otherwise) to you or your affiliates or to your or their respective equity holders or creditors arising out of, related to or in connection with any aspect of the transactions contemplated hereby, except to the extent such liability is determined in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence, bad faith or willful misconduct.  The Wells Fargo Parties shall only have liability to you (as opposed to any other person), and Wells Fargo Bank shall be liable solely in respect of its own Commitment to the Credit Facilities on a several, and not joint, basis with any other Lender. No Indemnified Party shall be liable to you, your affiliates or any other person for any indirect, consequential or punitive damages that may be alleged as a result of this Commitment Letter or any element of the Transactions.  No Indemnified Party shall be liable to you, your affiliates or any other person for any damages arising from the use by others of Informational Materials or other materials obtained by Electronic Means.  You shall not, without the prior written consent of each Indemnified Party affected thereby (which consent will not be unreasonably withheld), settle any threatened or pending claim or action that would give rise to the right of any Indemnified Party to claim indemnification hereunder unless such settlement (a) includes a full and unconditional release of all liabilities arising out of such claim or action against such Indemnified Party and (b) does not include any statement as to or an admission of fault, culpability or failure to act by or on behalf of any Indemnified Party.

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If any action, suit, proceeding or investigation is commenced, as to which any of the Indemnified Party proposes to demand indemnification, it shall notify you with reasonable promptness; provided, however, that any failure by any of the Indemnified Parties to so notify you shall not relieve you from your obligations hereunder and shall not result in any liability of any Indemnified Party.  In connection with any such action, suit, proceeding or investigation to which an Indemnified Party is a party, the Wells Fargo Parties (as applicable), on behalf of the Indemnified Parties, shall have the right to retain counsel of its choice to represent the Indemnified Parties, and you shall pay the fees, expenses, and disbursement of such counsel, and such counsel shall, to the extent consistent with its professional responsibilities, cooperate with you and any counsel designated by you.  For the avoidance of doubt, it is understood that you shall not be required to reimburse, or indemnify and hold harmless for, the reasonable and documented legal fees and expenses of more than one outside counsel (in addition to up to one local counsel in each applicable local jurisdiction and one regulatory counsel) for all Indemnified Parties unless representation of all such Indemnified Parties would be inappropriate due to the existence of an actual, perceived or potential conflict of interest.  You shall not be liable for any settlement of any claim against any of the Indemnified Parties made without your prior written consent, which consent shall not be unreasonably withheld or delayed.  Without the prior written consent of the Wells Fargo Parties, you shall not settle or compromise any claim of any Indemnified Party, permit a default or consent to the entry of any judgment in respect thereof except for settlements that include an unconditional release of such Indemnified Party from all liability and claims that are the subject matter of such claim and that do not include any statement as to admission on the part of such Indemnified Party.

6.           Expenses.  You shall reimburse each of the Wells Fargo Parties, from time to time on demand for all reasonable out-of-pocket costs and expenses (including, without limitation, (i) reasonable legal fees and expenses, (ii) due diligence expenses and (iii) expenses incurred in connection with appraisals (including, without limitation, equipment and real estate appraisals), environmental reports and an Agribusiness Consultant’s Report) of the Wells Fargo Parties and all reasonable printing, reproduction, document delivery, travel, CUSIP, DXSyndicateTM and communication costs incurred in connection with the syndication and execution of the Credit Facilities and the preparation, review, negotiation, execution and delivery of this Commitment Letter, the Fee Letter and the Financing Documentation (as defined in the Term Sheet).  You shall also reimburse each of the Wells Fargo Parties, from time to time on demand for all out-of-pocket costs and expenses (including, without limitation, legal fees and expenses) of the Wells Fargo Parties incurred in connection with the enforcement of this Commitment Letter and the Fee Letter.

7.           Confidentiality.

(a)           This Commitment Letter and the Fee Letter (collectively, the “Commitment Documents”) and the existence and contents hereof and thereof shall be confidential and may not be disclosed by you in whole or in part to any person without our prior written consent, except for (i) the disclosure hereof or thereof on a confidential basis to your directors, officers, employees, accountants, attorneys and other professional advisors who have agreed to maintain the confidentiality of the Commitment Documents for the purpose of evaluating, negotiating or entering into the Transactions, (ii) the disclosure hereof and the Fee Letter (with fee information redacted) to the directors, officers, employees, accountants, attorneys and other professional advisors of the Acquired Company on a confidential basis for the purpose of evaluating, negotiating or entering into the Transactions, or (iii) as otherwise required by law; provided that you may disclose, after your acceptance of the Commitment Documents, (A) this Commitment Letter, but not the Fee Letter, in any required filings with the Securities and Exchange Commission and other applicable regulatory authorities and stock exchanges and (B) the Term Sheet to any ratings agency in connection with the Transactions.

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Each of the Wells Fargo Parties agrees that material, non-public information regarding the Borrower, the Acquired Company and their respective subsidiaries, their operations, assets, and existing and contemplated business plans shall be treated by such person in a confidential manner, and shall not be disclosed by such person to persons who are not parties to this Commitment Letter, except for (i) the disclosure of such information on a confidential basis to potential Lenders and our and their directors, officers, employees, auditors, examiners, accountants, attorneys and other professional advisors who have agreed or are otherwise under a duty to maintain the confidentiality thereof in connection with the Transactions, (ii) disclosure of such information to regulatory officials having jurisdiction over us (to the extent such disclosure is requested by or otherwise required to be provided to such regulatory official), (iii) after any breach or default by you under the Commitment Documents, to the extent we determine disclosure is necessary or appropriate for enforcement or protection of our rights and remedies, or (iv) as otherwise required by law, court or administrative order; provided that the Wells Fargo Parties shall be permitted to use information related to the syndication and arrangement of the Credit Facilities in connection with obtaining a CUSIP number, marketing, press releases or other transactional announcements or updates provided to investor or trade publications, subject to confidentiality obligations or disclosure restrictions reasonably requested by you.  Notwithstanding the foregoing, this paragraph does not limit the use of Electronic Means as set forth in Section 4(b) above.  Our obligations under this paragraph will be superseded by the confidentiality provisions in the Financing Documentation (as defined in the Term Sheet) effective upon the Closing Date.

(b)           The Wells Fargo Parties hereby notify you that pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the “Patriot Act”), each of them is required to obtain, verify and record information that identifies you and your subsidiaries, which information includes your and their name and address and other information that will allow the Wells Fargo Parties and the other Lenders to identify you and your subsidiaries in accordance with the Patriot Act.

8.           Other Services.

(a)           Nothing contained herein shall limit or preclude the Wells Fargo Parties or any of their affiliates from carrying on any business with, providing banking or other financial services to, or from participating in any capacity, including as an equity investor, in any party whatsoever, including, without limitation, any competitor, supplier or customer of you, the Seller, the Acquired Company or any of your or their respective affiliates, or any other party that may have interests different than or adverse to such parties.

(b)           You acknowledge that the Lead Arranger and its affiliates (the term “Lead Arranger” as used in this paragraph being understood to include such affiliates) (i) may be providing debt financing, equity capital or other services (including financial advisory services) to other companies with which you, the Seller, the Acquired Company or your or their respective affiliates may have conflicting interests regarding the Transactions and otherwise, (ii) may act, without violation of its contractual obligations to you, as it deems appropriate with respect to such other companies, and (iii) have no obligation in connection with the Transactions to use, or to furnish to you, the Seller, the Acquired Company or your or their respective affiliates or subsidiaries, confidential information obtained from other companies or entities.  In particular, you acknowledge that the Wells Fargo Parties and their respective affiliates may be arranging or providing (or contemplating arranging or providing) a committed form of acquisition financing to other potential purchasers of the Acquired Company and that, in such capacity, the Wells Fargo Parties may acquire information about the Acquired Company, the sale thereof, and such other potential purchasers and their strategies and proposals, but the Wells Fargo Parties shall have no obligation to disclose to you the substance of such information or the fact that the Wells Fargo Parties are in possession thereof.

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(c)           In connection with all aspects of the Transactions, you acknowledge and agree that: (i) the Credit Facilities and any related arranging or other services described in this Commitment Letter is an arm’s-length commercial transaction between you and your affiliates, on the one hand, and the Wells Fargo Parties, on the other hand, and you are capable of evaluating and understanding and understand and accept the terms, risks and conditions of the Transactions, (ii) in connection with the process leading to the Transactions, each of the Wells Fargo Parties is and has been acting solely as a principal and not as a financial advisor, agent or fiduciary, for you or any of your affiliates, stockholders, creditors or employees or any other party, (iii) no Wells Fargo Party has assumed or will assume an advisory, agency or fiduciary responsibility in your or your affiliates’ favor with respect to any of the Transactions or the process leading thereto (irrespective of whether any Wells Fargo Party has advised or is currently advising you or your affiliates on other matters) and no Wells Fargo Party has any obligation to you or your affiliates with respect to the Transactions except those obligations expressly set forth in this Commitment Letter, (iv) the Wells Fargo Parties and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from yours and your affiliates and no Wells Fargo Party shall have any obligation to disclose any of such interests, and (v) no Wells Fargo Party has provided any legal, accounting, regulatory or tax advice with respect to any of the Transactions and you have consulted your own legal, accounting, regulatory and tax advisors to the extent you have deemed appropriate.  You hereby waive and release, to the fullest extent permitted by law, any claims that you may have against any Wells Fargo Party with respect to any breach or alleged breach of agency or fiduciary duty.

9.           Acceptance/Expiration of Commitments.

(a)           This Commitment Letter and the Commitments and agreements of Wells Fargo Bank and the undertakings of Wells Fargo Securities set forth herein, shall automatically terminate at 5:00 p.m. (Eastern Time, Standard or Daylight, as applicable) on November 2, 2009 (the “Acceptance Deadline”), without further action or notice unless signed counterparts of this Commitment Letter and the Fee Letter shall have been delivered to the Lead Arranger by such time.

(b)           In the event this Commitment Letter is accepted by you as provided in the last paragraph hereof, the Commitments and agreements of Wells Fargo Bank and the undertakings of Wells Fargo Securities set forth herein shall automatically terminate without further action or notice upon the earliest to occur of (i) consummation of the Offer, (ii) termination of the Acquisition Agreement, (iii) 5:00 p.m. (Eastern Time, Daylight or Standard, as applicable) on November 6, 2009, if the Borrower has failed to execute and deliver a copy of the Acquisition Agreement to Wells Fargo Securities by such time, (iv) April 1, 2010, if Newco shall not have accepted for purchase Shares pursuant to the Offer representing more than 50% of the Adjusted Outstanding Share Number (as defined in the Acquisition Agreement) on or prior to March 31, 2010, (v) the Additional Termination Date (as defined in the Fee Letter) and (vi) 5:00 p.m. (Eastern Time, Daylight or Standard, as applicable) on April 15, 2010.  You agree to promptly notify us of the occurrence of the circumstances described in clause (ii) in the prior sentence.

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10.           Survival.  The sections of this Commitment Letter relating to Indemnification, Expenses, Confidentiality, Other Services, Survival and Governing Law shall survive any termination or expiration of this Commitment Letter or the Commitments of Wells Fargo Bank or the undertakings of Wells Fargo Securities set forth herein (regardless of whether definitive Financing Documentation is executed and delivered), and the Sections relating to Syndication and Information shall survive until completion of a Successful Syndication.  The Fee Letter shall survive any termination or expiration of the Commitment Letter and the closing of the Credit Facilities.

11.           Governing Law.  This Commitment Letter and the Fee Letter shall be governed by, and construed in accordance with, the laws of the State of New Yorkwithout regard to principles of conflicts of law to the extent that the application of the laws of another jurisdiction will be required thereby.  The parties hereby waive any right to trial by jury with respect to any claim or action arising out of this Commitment Letter or the Fee Letter.  The parties hereto hereby agree that any suit or proceeding arising in respect of this Commitment Letter or the Fee Letter or any of the matters contemplated hereby or thereby will be tried exclusively in the U.S. District Court for the Southern District of New York or, if such court does not have subject matter jurisdiction, in any state court located in the City and County of New York, and the parties hereto hereby agree to submit to the exclusive jurisdiction of, and venue in, such court.  The parties hereto hereby agree that service of any process, summons, notice or document by registered mail addressed to you or each of the Wells Fargo Parties shall be effective service of process against such party for any action or proceeding relating to any such dispute.  The parties hereto irrevocably and unconditionally waive any objection to venue of any such action or proceeding brought in any such court and any claim that any such action or proceeding has been brought in an inconvenient forum.  A final judgment in any such action or proceeding may be enforced in any other courts with jurisdiction over you or each of the Wells Fargo Parties.

12.           Miscellaneous.  This Commitment Letter and the Fee Letter embody the entire agreement among the Wells Fargo Parties and you and your affiliates with respect to the specific matters set forth above and supersede all prior agreements and understandings relating to the subject matter hereof.  Those matters that are not covered or made clear herein, in the Term Sheet, in the Conditions Annex or the Fee Letter are subject to mutual agreement of the parties.  No person has been authorized by any of the Wells Fargo Parties to make any oral or written statements inconsistent with this Commitment Letter and the Fee Letter.  This Commitment Letter and the Fee Letter shall not be assignable by you without the prior written consent of the Wells Fargo Parties, and any purported assignment without such consent shall be void.  This Commitment Letter and the Fee Letter are not intended to benefit or create any rights in favor of any person other than the parties hereto, the Lenders and, with respect to indemnification, each Indemnified Party.  This Commitment Letter and the Fee Letter may be executed in separate counterparts and delivery of an executed signature page of this Commitment Letter and the Fee Letter by facsimile or electronic mail shall be effective as delivery of manually executed counterpart hereof; provided that, upon the request of any party hereto, such facsimile transmission or electronic mail transmission shall be promptly followed by the original thereof.  Except as set forth in Section 7 of the Fee Letter, this Commitment Letter and the Fee Letter may only be amended, modified or superseded by an agreement in writing signed by each of you and the Wells Fargo Parties that specifically provides such with reference to this Commitment Letter or the Fee Letter, as applicable.  The obligations of the Wells Fargo Parties are several and not joint.

[This Space Intentionally Left Blank]

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If you are in agreement with the foregoing, please indicate acceptance of the terms hereof by signing the enclosed counterpart of this Commitment Letter and returning it to the Lead Arranger, together with executed counterparts of the Fee Letter, by no later than the Acceptance Deadline.

Sincerely,

WELLS FARGO BANK, NATIONAL ASSOCIATION

By:  /s/ Todd Tajiri

Name:  Todd Tajiri

Title: Vice President

WELLS FARGO SECURITIES, LLC

By:   /s/ Kevin J. Sanders

Name:  Kevin J. Sanders

Title:  Vice President

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Agreed to and accepted as of the date first

above written:

PEET’S COFFEE & TEA, INC.

By:  /s/ Tom Cawley

Name: Tom Cawley

Title: Chief Financial Officer

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ANNEX A

$140,000,000

SENIOR SECURED CREDIT FACILITIES

SUMMARY OF PROPOSED TERMS AND CONDITIONS

Capitalized terms not otherwise defined herein have the same meanings as specified therefor in the Commitment Letter to which this Summary of Proposed Terms and Conditions is attached.

Borrower:	Peet’s Coffee & Tea, Inc. (the “Borrower”).  After understanding the corporate organization structure of Peet’s Coffee & Tea, Inc. and its subsidiaries following the Merger, the Lead Arranger may require additional co-borrowers.
Sole Lead Arranger and Sole Lead Bookrunner:	Wells Fargo Securities, LLC will act as sole lead arranger and sole lead bookrunner (in such capacity, the “Lead Arranger”).
Lenders:	Wells Fargo Bank, National Association (“Wells Fargo Bank”) and a syndicate of financial institutions and other entities (each a “Lender” and, collectively, the “Lenders”).
Administrative Agent, Issuing Bank and Swingline Lender:	Wells Fargo Bank, National Association(in such capacity, the “Administrative Agent”, the “Issuing Bank” or the “Swingline Lender”, as the case may be).
Credit Facilities:	Senior secured credit facilities (the “Credit Facilities”) in an aggregate principal amount of $140,000,000, such Credit Facilities to consist of:
	(a)	Revolving Credit Facility.  A five-year revolving credit facility in an aggregate principal amount of $40,000,000 (the “Revolving Credit Facility”) (with optional subfacilities for standby letters of credit (each, a “Letter of Credit”) and swingline loans (each, a “Swingline Loan”), each in a maximum amount to be mutually determined and on customary terms and conditions (including with regard to Defaulting or Deteriorating Lenders) with compensation to be agreed).  Letters of Credit will, at the sole discretion of the Issuing Bank, be issued bythe Issuing Bank and Swingline Loans will, at the sole discretion of the Swingline Lender, be made available by the Swingline Lender and each Lender will purchase an irrevocable and unconditional participation in each Letter of Credit and Swingline Loan extended.

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	(b)	Term Loan Facility.  A five-year term loan facility in an aggregate principal amount of $100,000,000 (the “Term Loan Facility”).
Use of Proceeds:	The proceeds of the Credit Facilities will be used to (a) provide a portion of the financing for the Acquisition and the Refinancing and (b)pay fees, commissions and expenses incurred in connection with the Transactions.  The proceeds of the Revolving Credit Facility will be used to provide for the ongoing working capital and other general corporate purposes of the Borrower and its subsidiaries and the Acquired Company and its subsidiaries; provided that prior to the Merger (i) at all times the Borrower must maintain the aggregate amount of Deposited Proceeds (as defined below) and availability under the Revolving Credit Facility in an amount sufficient to consummate the Acquisition and (ii) in no event shall the outstandings under the Revolving Credit Facility used for working capital and other general corporate purposes exceed $10,000,000. The Borrower shall be required to deposit any Term Loan proceeds advanced on the Closing Date, but not used in connection with the Acquisition on the Closing Date in a separate collateral account maintained at Wells Fargo Bank and such funds shall be used solely for the Acquisition until the day after the Merger occurs (such deposited amount, plus any other amounts voluntarily deposited by the Borrower (including revolving loan proceeds) in such account are referred to herein as the “Deposited Proceeds”). If the Merger does not occur by June 30, 2010, the Term Loan proceeds in such account shall be applied to the Term Loan as a mandatory prepayment.
Closing Date:	The date on which the Credit Facilities are closed (the “Closing Date”).
Availability:	The Revolving Credit Facility will be available on a revolving basis from and after the Closing Date until the Revolving Credit Maturity Date (as defined below). The Term Loan Facility will be available only in a single draw of the full amount of the Term Loan Facility on the Closing Date.
Documentation:	The documentation for the Credit Facilities will include, among other items, a credit agreement, guarantees and appropriate pledge, security, mortgage and other collateral documents (collectively, the “Financing Documentation”), all consistent with this Term Sheet.

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Guarantors:	The obligations of the Borrower under the Credit Facilities, under any hedging agreements entered into between any Loan Party (as defined below) and any counterparty that is a Lender (or any affiliate thereof) at the time such hedging agreement is executed and under any treasury management arrangements between any Loan Party and a Lender (or any affiliate thereof) will be unconditionally guaranteed, on a joint and several basis, by each existing and subsequently acquired or organized direct and indirect subsidiary of the Borrower (each a “Guarantor”; and such guarantee being referred to herein as a “Guarantee”); provided that (a) the Acquired Company and its subsidiaries shall not be required to become Guarantors prior to the Merger or prior to, or as a condition to, the making of any of the credit extensions used to fund the Acquisition, provided that the Acquired Company and its subsidiaries (to the extent specified herein) shall become Guarantors no later than 10 days after the Merger and (b) Guarantees by foreign subsidiaries will be required only to the extent such Guarantees would not have material adverse tax consequences for the Borrower. All Guarantees shall be guarantees of payment and not of collection.  The Borrower and the Guarantors are herein referred to as the “Loan Parties” and, individually, as a “Loan Party.”
Security:	There will be granted to the Administrative Agent, for the benefit of the Lenders, any counterparty to any hedging agreement that is a Lender (or any affiliate thereof) at the time such hedging agreement is executed and any Lender (or any affiliate thereof) with treasury management arrangements with any Loan Party, valid and perfected first priority (subject to exceptions set forth in the Conditions Annex and subject to certain customary exceptions satisfactory to the Administrative Agent and set forth in the Financing Documentation) liens and security interests in all of the following (collectively, the “Collateral”):
	(a)	All present and future capital stock or other membership, equity, ownership or profit interests (collectively, “Equity Interests”) owned or held by each of the Loan Parties, and 66% of the voting stock (and 100% of the non-voting stock) of all present and future first-tier foreign subsidiaries of any Loan Party (to the extent, and for so long as, the pledge of any greater percentage would have material adverse tax consequences for the Borrower); provided that any first-tier foreign subsidiary that is disregarded for tax purposes shall not be deemed to be a foreign subsidiary;

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	(b)	substantially all of the tangible and intangible properties and assets of the Loan Parties, now owned or hereafter acquired (including, without limitation, all equipment, inventory, accounts, deposit accounts and all other accounts, licenses, contract and other intangible rights, investment property, fixtures, cash,owned real property interests, leased real property interests and intellectual property; and
	(c)	all products and proceeds of the foregoing.
	All such security interests will be created pursuant to, and will comply with, Financing Documentation reasonably satisfactory to the Administrative Agent.  On the Closing Date, such security interests will have become perfected (or arrangements for the perfection thereof reasonably satisfactory to the Administrative Agent will have been made) (subject to exceptions set forth in the Conditions Annex).
	The Administrative Agent may, in its reasonable discretion, agree to exclude such other Collateral as is not material to the Collateral taken as a whole to the extent that the burden to the Borrower or relevant Guarantor of delivering such Collateral outweighs the benefits of obtaining such Collateral that would be provided to the Lenders.
Final Maturity:	The final maturity of the Revolving Credit Facility will occur on the fifth anniversary of the Closing Date (the “Revolving Credit Maturity Date”) and the commitments with respect to the Revolving Credit Facility will automatically terminate on such date. The final maturity of the Term Loan Facility will occur on the fifth anniversary of the Closing Date (the “Term Loan Maturity Date”).
Amortization:	The Term Loan Facility will amortize in equal quarterly installments on the last business day of each fiscal quarter of the Borrower, commencing with the second quarter of FY 2010, in an amount equal to $3,703,703.70, with the then unpaid principal amount due on the Term Loan Maturity Date.
Interest Rates and Fees:	Interest rates and fees in connection with the Credit Facilities will be as specified in the Fee Letter and on Schedule I attached hereto.

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Mandatory Prepayments and Commitment Reductions:	Subject to the next paragraph, the Credit Facilities will be required to be prepaid with:
	(a)	100% of the net cash proceeds of the issuance or incurrence of debt by the Borrower or any of its subsidiaries, subject to baskets and other exceptions to be mutually agreed upon;
	(b)	25% of the net cash proceeds from any issuance of equity securities of, or from any capital contribution to the Borrower or any of its subsidiaries, subject to exceptions to be mutually agreed upon; and
	(c)	100% of the net cash proceeds of any asset sale, insurance or condemnation recovery or other asset disposition with a value in excess of $1,000,000 by the Borrower or any of its subsidiaries, subject to baskets and other exceptions to be mutually agreed upon; provided that such proceeds may be reinvested: (i) for any proceeds from any insurance or condemnation recovery with respect to the Borrower’s or the Acquired Company’s roasting facility, within 365 days so long as such reinvestment commences within 180 days and (ii) with respect to all other proceeds under this clause (c), within 180 days, in each case subject to customary reinvestment provisions.
	All such mandatory prepayments will be applied first, to prepay outstanding loans under the Term Loan Facility and second, to prepay outstanding loans under the Revolving Credit Facility (with, when no loans are outstanding under the Term Loan Facility, a permanent reduction in the aggregate commitment under the Revolving Credit Facility).  All such mandatory prepayments of the Term Loan Facility will be applied to the remaining scheduled amortization payments on a pro rata basis.
Optional Prepayments and Commitment Reductions:	Loans under the Credit Facilities may be prepaid and unused commitments under the Revolving Credit Facility may be reduced at any time, in whole or in part, at the option of the Borrower, upon notice and in minimum principal amounts and in multiples to be agreed upon, without premium or penalty (except LIBOR breakage costs).  Any optional prepayment of the Term Loan Facility will be applied to the remaining scheduled amortization payments on apro rata basis.

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Conditions to Initial Extensions of Credit:	The making of the initial extensions of credit under the Credit Facilities will be subject to satisfaction of the conditions precedent set forth in Section 2 of the Commitment Letter and in the Conditions Annex attached hereto as Annex B.
Conditions to All Extensions of Credit (other than on the Closing Date):	Each extension of credit under the Credit Facilities for working capital purposes and all other extensions of credit under the Credit Facilities that will not be used to fund the Acquisition will be subject to satisfaction of the following conditions precedent: (a) all of the representations and warranties in the Financing Documentation shall be true and correct in all material respects (except to the extent that such representation and warranty is qualified by materiality) as of the date of such extension of credit, (b) no event of default under the Credit Facilities or unmatured default shall have occurred and be continuing or would result from such extension of credit, (c) no material adverse change in the business, operations, condition (financial or otherwise), assets, liabilities (whether actual or contingent) or prospects of the Borrower and its subsidiaries having occurred since December 31, 2008.
Representations and Warranties:	Usual and customary for facilities of this type and such others as may be reasonably requested by the Lead Arranger based on information received after November 1, 2009, including, without limitation, the following (which will be applicable to the Borrower and its subsidiaries and not the Acquired Company or its subsidiaries prior to the Merger): corporate status; financial statements; capital structure; corporate power and authority; no default; no conflict with laws or material agreements; enforceability; absence of material litigation, environmental regulations and liabilities; ERISA; necessary consents and approvals; compliance with all applicable laws and regulations including, without limitation, Regulations T, U and X, Investment Company Act, the Patriot Act, environmental laws and Office of Foreign Assets Control; payment of taxes and other obligations; ownership of properties; intellectual property; liens; insurance; solvency; absence of any material adverse effect; senior debt status; collateral matters including, without limitation, perfection and priority of liens (including an express representation and warranty that after the Merger, the Administrative Agent’s lien on the K-Cup License is a first priority perfected lien); labor matters; material contracts; no burdensome restrictions; and accuracy of disclosure.
Affirmative Covenants:	Usual and customary for facilities of this type and such others as may be reasonably requested by the Lead Arranger based on information received after November 1, 2009, including, without limitation, the following (which will be applicable to the Borrower and its subsidiaries and not the Acquired Company or its subsidiaries prior to the Merger): use of proceeds; payment of taxes and other indebtedness; continuation of business and maintenance of existence and rights and privileges; maintenance of all material contracts; necessary consents, approvals, licenses (including the K-Cup license) and permits; compliance with laws and regulations (including environmental laws, ERISA and the Patriot Act); maintenance of property and insurance (including hazard and business interruption insurance); maintenance of books and records; right of the Administrative Agent and the Lenders to inspect property and books and records; notices of defaults, litigation and other material events; financial and collateral reporting (including annual audited consolidated and consolidating financial statements within 90 days after the end of each fiscal year (together with the unqualified opinion of Borrower’s independent certified public accountants of recognized national standing acceptable to the Required Lenders) and quarterly unaudited consolidated and consolidating financial statements within 45 days after the end of each quarter (in each case, accompanied by covenant compliance certificates), annual updated budgets and projections within 30 days after the beginning of the applicable fiscal year, the sales and operating profit of each store of the Borrower and its subsidiaries for each quarter within 45 days after the end of such quarter, copies of all SEC and related filings within five days after filing and other information reasonably requested by any Lender); management letters; additional Guarantors and Collateral; other collateral matters; and further assurances (including, without limitation, with respect to security interests in after-acquired property); the Loan Parties shall use commercially reasonable efforts to consummate the Merger as soon as possible and in any event cause the Merger to be consummated no later than June 30, 2010; the Loan Parties shall use commercially reasonable efforts to cause the Acquired Company and its subsidiaries to comply with the terms of the Credit Documents.

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Negative Covenants:	Usual and customary for facilities of this type and such others as may be reasonably requested by the Lead Arranger based on information received after November 1, 2009, including, without limitation, the following (which will be applicable to the Borrower and its subsidiaries and not the Acquired Company or its subsidiaries prior to the Merger): limitation on debt; limitation on liens; limitation on negative pledges; limitation on loans, advances, acquisitions and other investments, including with respect to foreign subsidiaries; limitation on dividends, distributions, issuances of equity interests, redemptions and repurchases of equity interests; limitation on fundamental changes and asset sales (including, without limitation, sale-leaseback transactions); limitation on prepayments, redemptions and purchases of subordinated and certain other debt; limitation on transactions with affiliates; limitation on dividend and other payment restrictions affecting subsidiaries; limitation on changes in line of business, fiscal year and accounting practices; limitation on amendment of organizational documents and material contracts; and limitation on capital expenditures.
	The credit agreement governing the Credit Facilities will contain the following financial covenants (which, subject to Section 7 of the Fee Letter, will be the only financial covenants):
	(a)	Maximum Total Leverage Ratio: initially not to exceed 4.25:1.00 at any time with quarterly step downs to be determined (however such step downs to be no more than 0.25 per quarter in 2010) and annual step downs as of the first day of the last fiscal quarter of each year as follows:
			Maximum Total
		Period	Leverage Ratio
		Q4 2010	3.50:1.00
		Q4 2011	2.25:1.00
		Q4 2012 and thereafter	1.75:1.00
Financial Covenants:	“Total Leverage Ratio” means, at any time, (a) Total Funded Debt at such timeto (b) EBITDAR for the four fiscal quarter period most recently ended.
	“Total Funded Debt” means, at any time, without duplication, the sum of the following with respect to Borrower and its subsidiaries: (a) obligations evidenced by notes, bonds, debentures or similar instruments and obligations for borrowed money including but not limited to senior bank debt and subordinated debt; (b) obligations for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business and not more than 60 days past due and time-based licenses); (c) obligations under conditional sale or other title retention agreements with respect to acquired property; (d) capital lease obligations and all off-balance sheet financing; (e) obligations under or with respect to surety instruments; (f) unfunded pension liabilities; (g) obligations arising under acceptance facilities or under facilities for the discount of accounts receivable; (h) obligations with respect to issued and outstanding letters of credit; (i) contingent obligations; (j) last twelve month (1) operating lease expenses (excluding any operating leases of Diedrich existing as of the Closing Date) and (2) lease rent expenses (including common area maintenance expenses), in each case multiplied by a factor of six; (k) guarantees of the foregoing; and (l) all obligations of the type described above to the extent secured by a lien on any property of any such person, even if such person has not assumed or become liable for the payment of such obligation (to the extent of the greater of such obligation and the value of such property).

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“EBITDAR” means, for any period, net income for such period plus, to the extent deducted in determining net income for such period, the sum of the following for such period: (a) extraordinary losses (minus, to the extent added in determining net income for such period, extraordinary gains), (b) interest expense, (c) provisions for income taxes, (d) depreciation and amortization, (e) operating lease expenses (excluding any operating leases of Diedrich existing as of the Closing Date), (f) lease rent expenses (including common area maintenance expenses), (g) to the extent incurred during Q4 2009, Q1 2010 or Q2 2010, costs and expenses incurred in connection with the Transactions (including a stock appreciation payment to the chief financial officer of Diedrich) in an aggregate amount not to exceed $10,000,000 and (h) to the extent incurred during Q4 2009, Q1 2010 or Q2 2010, restructuring costs and expenses in an aggregate amount not to exceed $2,000,000; provided, that the EBITDAR of the Borrower for the fiscal quarter ended December 28, 2008, March 29, 2009, June 28, 2009 and September 27, 2009, was $15,351,000, $13,890,000, $14,521,000 and $13,396,000, respectively and, subject to adjustment as set forth in the following sentence, the EBITDAR of the Acquired Company for the fiscal quarter ended December 10, 2008, March 4, 2009, June 24, 2009 and September 16, 2009, was $-40,000, $2,370,000, $2,418,000 and $1,403,000, respectively.
Notwithstanding the foregoing, the net income and EBITDAR attributable to a non-wholly-owned subsidiary shall only be included in the calculation of EBITDAR at no greater than the lesser of (i) the amount of the EBITDAR of such non-wholly-owned subsidiary times the Borrower’s direct or indirect percentage ownership interest in such non-wholly-owned subsidiary and (ii) the aggregate amount of distributions such non-wholly-owned subsidiary made or could have made to the Borrower or a Guarantor during the applicable period after giving effect to all contractual and legal restrictions applicable to such non-wholly-owned subsidiary; provided that this sentence shall not apply to any non-wholly-owned subsidiary that is a Guarantor and that has pledged collateral as contemplated herein.
(b)	Minimum Fixed Charge Coverage Ratio as of the last day of any fiscal quarter: initially 1.25:1.00 with quarterly step ups, beginning March 31, 2011 to be determined and annual step ups as follows:
		Minimum Fixed Charge
	Fiscal Year	Coverage Ratio
	At the end of FY 2010	1.35:1.00
	At the end of FY 2011 and thereafter	1.75:1.00
“Fixed Charge Coverage Ratio” means, as of the last day of any fiscal quarter, (a) EBITDAR for the four quarter period ending thereon plus (without duplication) lease expenses resulting from operating leases of Diedrich existing as of the Closing Date minus provisions for income taxes, distributions and maintenance capital expenditures to (b) interest expense plus scheduled principal payments (including capital leases) plus operating lease expenses plus lease rent expenses (including common area maintenance expenses).
(c)	Minimum Adjusted Net Income as of the last day of any fiscal quarter for the four quarter period ending thereon: initially $11,400,000, with quarterly step ups to be determined and annual step ups (or step downs) as follows:
	Fiscal Year Ending	Minimum Adjusted Net Income
	At the end of FY 2010	$18,600,000
	At the end of FY 2011	$40,000,000
	At the end of FY 2012 (and thereafter)	$60,000,000

Annex A – Term Sheet

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	“Adjusted Net Income” means, for any period, net income plus, to the extent deducted in determining net income for such period, the sum of the following for such period: (i) for fiscal year 2010 and each fiscal year thereafter, an add back for amortization of any amortizable intangible assets acquired in the Acquisition (excluding capitalized transaction fees and expenses related to the Acquisition), adjusted for taxes using the applicable tax rate for such period, (ii) to the extent incurred during Q4 2009, Q1 2010 or Q2 2010, costs and expenses incurred in connection with the Transactions (including a stock appreciation payment to the chief financial officer of Diedrich) in an aggregate amount not to exceed $10,000,000 and (iii) to the extent incurred during Q4 2009, Q1 2010 or Q2 2010, restructuring costs and expenses in an aggregate amount not to exceed $2,000,000.
	(d)	In no event shall the Borrower permit quarterly net income to be negative for any two consecutive fiscal quarters.
	The financial covenants, including for purposes of paragraph (f) of the Conditions Annex, will apply to the Borrowerand its subsidiaries on a consolidated basis after giving pro forma effect to the portion of the Transactions consummated during such period or any acquisition or any disposition of business or assets consummated during such period, in each case as if such portion of the Transactions or such transaction occurred on the first day of such period.  Components measured on a four quarter basis shall not be annualized.
	Notwithstanding the foregoing, all financial covenants and other financial calculations contained herein shall be calculated without giving effect to any election made by any applicable person to value its financial liabilities or indebtedness at the fair value thereof pursuant to the Statement of Financial Accounting Standards No. 159 (or any similar accounting principle).
Required Interest Rate Hedging:	The Borrower will obtain interest rate protection from one or more Lenders or others acceptable to the Lead Arranger in respect of not less than 50% of the Term Loan Facility.
Events of Default:	Usual and customary for facilities of this type, including, without limitation, the following (which, except as expressly noted below, will not apply to the Acquired Company and its subsidiaries prior to the Merger and certain of which will be subject to materiality thresholds, exceptions and grace or cure periods to be mutually agreed upon): non-payment of obligations; inaccuracy of representation or warranty; non-performance of covenants and obligations; default on other material debt (including hedging agreements); change of control; bankruptcy or insolvency; impairment of security; ERISA; material judgments; actual or asserted invalidity or unenforceability of any Financing Documentation or liens securing obligations under the Financing Documentation; material uninsured loss; termination of the License and Distribution Agreement dated as of July 29, 2003 between Keurig, Incorporated and the Acquired Company as in effect on the date hereof (the “Keurig License Agreement”) (provided that prior to the earlier of the consummation of the Merger and June 30, 2010, such termination shall not permit the Administrative Agent or the Lenders to prevent the Borrower from withdrawing the Deposited Proceeds to the extent necessary to consummate the Merger); and from and after the Merger, any material breach under the Keurig License Agreement that entitles Keurig, Incorporated to terminate the Keurig License Agreement.

Annex A – Term Sheet

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Defaulting Lender Provisions, Yield Protection and Increased Costs:	Customary for facilities of this type, including, without limitation, in respect of breakage or redeployment costs incurred in connection with prepayments, cash collateralization for Letters of Credit or Swingline Loans in the event any lender under the Revolving Credit Facility becomes a Defaulting Lender or Deteriorating Lender (as such terms shall be defined in the definitive financing documentation), changes in capital adequacy and capital requirements or their interpretation, illegality, unavailability, reserves without proration or offset and payments free and clear of withholding or other taxes.
	The Borrower shall have customary rights to replace a Lender (a) for availing itself of yield maintenance and tax gross up provisions for a reason not applicable to all Lenders, (b) for being a Defaulting Lender (as such term shall be defined in the Financing Documentation), and (c) for being a non-consenting Lender in a scenario where only the consent of the Required Lenders has been obtained but unanimous Lender consent is required.
Assignments and Participations:	(a)	Revolving Credit Facility:  Subject to the consents described below (which consents will not be unreasonably withheld or delayed), each Lender will be permitted to make assignments to eligible financial institutions in respect of the Revolving Credit Facility in a minimum amount equal to $5,000,000.
	(b)	Term Loan Facility:  Subject to the consents described below (which consents will not be unreasonably withheld or delayed), each Lender will be permitted to make assignments to eligible financial institutions in respect of the Term Loan Facility in a minimum amount equal to $5,000,000.
	(c)	Consents:  The consent of the Borrower will be required for any assignment unless (i) an Event of Default has occurred and is continuing, (ii) the assignment is to a Lender or an affiliate of a Lender or (iii) a Successful Syndication (as defined in the Fee Letter) of the Credit Facilities has not occurred.  The consent of the Administrative Agent will be required for any assignment.  The consent of the Issuing Bank and the Swingline Lender will be required for any assignment under the Revolving Credit Facility.  Participations will be subject to customary conditions.
	(d)	No Assignment or Participation to Certain Persons.  No assignment or participation may be made to natural persons or the Borrower or any of its affiliates or subsidiaries.
Required Lenders:	On any date of determination, two or more Lenders who collectively hold more than 50% of the outstanding commitments under the Credit Facilities, or if the commitments under Credit Facilities have been terminated, those Lenders who collectively hold more than 50% of the aggregate outstandings under the Credit Facilities (the “Required Lenders”); provided, however, that if any Lender shall be a Defaulting Lender (to be defined in the Financing Documentation) at such time, then the outstanding loans and unfunded commitments under the Credit Facilities of such Defaulting Lender shall be excluded from the determination of Required Lenders.

Annex A – Term Sheet

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Amendments and Waivers:	Amendments and waivers of the provisions of the Financing Documentation will require the approval of the Required Lenders, except that (a) the consent of all Lenders directly adversely affected thereby will be required with respect to (i) increases in the commitment of such Lenders, (ii) reductions of principal, interest or fees, (iii) extensions of scheduled maturities or times for payment and (iv) reductions in the voting percentages and (b) the consent of all Lenders will be required with respect to (i) releases of all or substantially all of the Collateral or of any of the Guarantees (other than in connection with transactions permitted pursuant to the Financing Documentation) and (ii) any increase in the aggregate principal amount of the Credit Facilities.
Indemnification:	The Loan Parties will indemnify the Lead Arranger, the Administrative Agent, each of the Lenders and their respective affiliates, partners, directors, officers, agents and advisors and hold them harmless from and against all liabilities, damages, claims, costs, expenses (including reasonable fees, disbursements, settlement costs and other charges of counsel) relating to the Transactions or any transactions related thereto and the Borrower’s use of the loan proceeds or the commitments; provided that such indemnity will not, as to any indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence, bad faith or willful misconduct of such indemnitee.  This indemnification shall survive and continue for the benefit of all such persons or entities.
Expenses:	The Loan Parties will reimburse the Lead Arranger and the Administrative Agent for all reasonable out-of-pocket costs and expenses in connection with the syndication, negotiation, preparation, due diligence, execution, delivery and administration of the Financing Documentation and any amendment or waiver with respect thereto (including, without limitation, (i) reasonable fees and expenses of counsel, (ii) out of pocket syndication expenses and IntraLinks, The Debt Exchange, Inc. or similar fees, and (iii) expenses incurred in connection with appraisals (including, without limitation, equipment and real estate appraisals), environmental reports and an Agribusiness Consultant’s Report).  The Loan Parties will also pay all documentary taxes of the Lead Arranger, the Administrative Agent and the Lenders.  The Loan Parties will also pay all costs and expenses of the Lead Arranger, the Administrative Agent and the Lenders in connection with the enforcement of any loan documentation for the Credit Facilities, including, without limitation, the legal fees and expenses of each counsel to the Administrative Agent and the Lenders.
Governing Law and Forum:	New York.
Waiver of Jury Trial and Punitive and Consequential Damages:	All parties to the Financing Documentation waive the right to trial by jury and the right to claim punitive or consequential damages.
Counsel for the Lead Arranger and the Administrative Agent:	Orrick, Herrington & Sutcliffe LLP
Other:	This Term Sheet is intended as an outline of certain of the material terms of the Credit Facilities and does not purport to summarize all of the conditions, covenants, representations, warranties and other provisions which would be contained in Financing Documentation for the Credit Facilities; provided that no additional conditions precedent to closing the Credit Facilities will be added and, subject to Section 7 of the Fee Letter, no additional financial covenants will be added.

Annex A – Term Sheet

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SCHEDULE I

INTEREST AND FEES

Interest:	At the Borrower’s option, loans (other than Swingline Loans) will bear interest based on the Base Rate or LIBOR, as described below:
	A.	Base Rate Option
	Interest will be at the Base Rate plus the applicable Interest Margin (as described below).  The “Base Rate” is defined as the highest of (a) the Federal Funds Rate, as published by the Federal Reserve Bank of New York plus 1.50%, (b) the prime commercial lending rate of the Administrative Agent, as established from time to time at its principal U.S. office (which such rate is an index or base rate and will not necessarily be its lowest or best rate charged to its customers or other banks) and (c) the daily LIBOR (as defined below) for a one month Interest Period (as defined below) plus 1.50%.   Interest shall be payable quarterly in arrears and (i) with respect to Base Rate Loans based on the Federal Funds Rate and LIBOR, shall be calculated on the basis of the actual number of days elapsed in a year of 360 days and (ii) with respect to Base Rate Loans based on the prime commercial lending rate of the Administrative Agent, shall be calculated on the basis of the actual number of days elapsed in a year of 365/366 days.  Any loan bearing interest at the Base Rate is referred to herein as a “Base Rate Loan”.
	Base Rate Loans will be made on same day notice and will be in minimum amounts to be agreed upon.
	B.	LIBOR Option
	Interest will be determined for periods (“Interest Periods”) of three or six monthsas selected by the Borrower and will be at an annual rate equal to the London Interbank Offered Rate (“LIBOR”) for the corresponding deposits of U.S. dollars plus the applicable Interest Margin (as described below).  LIBOR will be determined by the Administrative Agent at the start of each Interest Period and, other than in the case of LIBOR used in determining the Base Rate, will be fixed through such period.  Interest will be paid at the end of each Interest Period or, in the case of Interest Periods longer than three months, quarterly, and will be calculated on the basis of the actual number of days elapsed in a year of 360 days.  LIBOR will be adjusted for maximum statutory reserve requirements (if any).  Any loan bearing interest at LIBOR (other than a Base Rate Loan for which interest is determined by reference to LIBOR) is referred to herein as a “LIBOR Rate Loan”.

Schedule I to Annex A

PAGE 1

	LIBOR Rate Loans will be made on three business days’ prior notice and, in each case, will be in minimum amounts to be agreed upon.
	Swingline loans will bear interest at the Base Rate plus the applicable Interest Margin.
Default Interest:	(a) Automatically upon the occurrence and during the continuance of any payment event of default or upon a bankruptcy event of default of the Borrower or any other Loan Party or (b) at the election of the Required Lenders, upon the occurrence and during the continuance of any other event of default, all outstanding principal, fees and other obligations under the Credit Facilities shall bear interest at a rate per annum of four percent (4.00%) in excess of the rate then applicable to such loan or other obligation including the applicable Interest Margin (or if no interest rate is stated, four percent (4.00%) in excess of the Base Rate plus the highest Interest Margin applicable to Base Rate Loans) and shall be payable on demand of the Administrative Agent.
Interest Margins:	The initial applicable Interest Margin shall be based on the Total Leverage Ratio as of the Closing Date after giving pro forma effect to the Transactions pursuant to the Pricing Grid set forth below until the first calculation date following the receipt by the Administrative Agent and the Lenders of the financial information and related compliance certificate for the firstfull fiscal quarter ending after the Closing Date.
Commitment Fee:	A commitment fee (the “Commitment Fee”) will accrue on the unused amounts of the commitments under the Revolving Credit Facility.  Swingline loans will, for purposes of the Commitment Fee calculations only, not be deemed to be a utilization of the Revolving Credit Facility.  Such Commitment Fee will initially be based on the Total Leverage Ratio as of the Closing Date after giving pro forma effect to the Transactions pursuant to the Pricing Grid set forth below until the first calculation date following the receipt by the Administrative Agent and the Lenders of the financial information and related compliance certificate for the firstfull fiscal quarter ending after the Closing Date.  All accrued Commitment Fees will be payable quarterly in arrears (calculated on a 360-day basis) for the account of the Lenders under the Revolving Credit Facility and will accrue from the Closing Date.

Schedule I to Annex A

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Letter of Credit Fees:	The Borrower will pay to the Administrative Agent, for the account of the Lenders under the Revolving Credit Facility, letter of credit participation fees equal to the Interest Margin for LIBOR Rate Loans under the Revolving Credit Facility, in each case, on the undrawn amount of all outstanding letters of credit.  Fronting, issuance, presentation, documentation, amendment, transfer, negotiation and other fees will also be payable by Borrower for the account of the Issuing Bank as determined in accordance with the Issuing Bank’s then current fee policy.
Other Fees:	The Lead Arranger and the Administrative Agent will receive such other fees as will have been agreed in a fee letter between them and the Borrower.
Pricing Grid:	The applicable Interest Margins and the Commitment Fee with respect to the Credit Facilities shall be based on the Total Leverage Ratio pursuant to the following grid:

Level	Total Leverage Ratio	Interest Margin for LIBOR Rate Loans	Interest Margin for Base Rate Loans	Commitment Fee
I	Greater than 4.00 to 1.00	3.750%	2.750%	0.500%
II	Greater than or equal to 3.50 to 1.00 but less than 4.00 to 1.00	3.500%	2.500%	0.500%
III	Greater than or equal to 3.00 to 1.00 but less than 3.50 to 1.00	3.250%	2.250%	0.375%
IV	Greater than or equal to 2.50 to 1.00 but less than 3.00 to 1.00	3.000%	2.000%	0.375%
V	Less than 2.50 to 1.00	2.750%	1.750%	0.250%

Schedule I to Annex A

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ANNEX B

$140,000,000

SENIOR SECURED CREDIT FACILITIES

SUMMARY OF PROPOSED TERMS AND CONDITIONS

Capitalized terms not otherwise defined herein have the same meanings as specified therefor in the Commitment Letter to which this Summary of Proposed Terms and Conditions is attached.

Conditions to Closing and Initial Extensions of Credit:	Closing and the making of the initial extensions of credit are subject to the satisfaction of each of the following conditions precedent:
	(a)	(i) Financing Documentation reflecting and consistent with the terms and conditions set forth herein and otherwise reasonably satisfactory to the Borrower and the Lenders, will have been executed and delivered (including, to the extent applicable, subordination agreements), (ii) the Administrative Agent will have received (A) such customary legal opinions (including, without limitation, opinions of special counsel and local counsel as may be reasonably requested by the Administrative Agent) which such opinions shall permit reliance by permitted assigns of each of the Administrative Agent and the Lenders, (B) flow of funds and organizational documents, (C) notice of loan borrowing and (D) closing documents, certificates (including, but not limited to secretary’s and incumbency certificates), good standing certificates and other instruments as are customary for transactions of this type including, without limitation, a certificate of the chief financial officer of the Borrower as to the solvency of  each of the Borrower individually, Peet’s Operating Company individually, and the Borrower and its subsidiaries on a consolidated basis, in each case after giving effect to the Transactions, (iii) evidence that the Administrative Agent shall have a valid and perfected first priority security interest (subject to certain exceptions to be set forth in the Financing Documentation) in the Collateral (which shall have been executed, delivered and/or in proper form for filing, to the extent applicable, and which shall include: all certificates evidencing pledged capital stock with accompanying executed stock powers, and all promissory notes and similar instruments with accompanying executed allonges/indorsements, UCC and other lien searches, intellectual property filings, title reports and policies (including ALTA indorsements insuring the first priority of the lien subject to customary exceptions), UCC financing statements, deeds of trust or mortgages for fee owned real property, a collateral assignment agreement for all leased real property (it being understood that no landlord consents or real property recordings will be required with respect to such leased real property, margin stock shall not be pledged to the extent the pledge of such margin stock would violate Regulation U and no DMV filings or similar filings will be required for motor vehicles), (iv) there shall not have occurred a Company Material Adverse Effect (as defined in the Acquisition Agreement) as of the Closing Date and the funding of the initial loans, (v) delivery of insurance certificates in compliance with the Financing Documentation (with endorsements naming the Administrative Agent as loss payee and mortgagee and the Administrative Agent and the Lenders as additional insureds and with a lenders loss payable endorsement), (vi) each of the Borrower and the Guarantors shall have obtained all governmental authorizations and board, shareholder and third party consents necessary or advisable to have been obtained prior to the Closing Date in connection with the transactions under the Financing Documentation, and each such governmental authorization or consent shall be in full force and effect except in a case where failure to obtain or maintain any such authorization or consent either individually or in the aggregate could not have a material adverse effect, (vii) all representations and warranties made by the Acquired Company in the Acquisition Agreement shall be true and correct other than any breaches thereof that do not, individually or in the aggregate, relieve the Borrower or Newco from their respective obligations with respect to the initial funding, to accept for exchange and deliver consideration for Shares validly tendered (and not withdrawn) pursuant to the Offer, (viii) the representations and warranties set forth in the Financing Documents of the Borrower and the Guarantors (but not the Acquired Company and its subsidiaries) relating to (A) due formation, organization, existence and good standing, (B) power and authority, (C) due authorization, execution, delivery and enforceability of the Financing Documentation and the Acquisition Agreement, (D) non-contravention with respect to the Financing Documentation, the borrowing of the loans and granting of liens, (E) all approvals and consents with respect to the Financing Documentation, (F) solvency, (G) Federal Reserve Bank margin regulations, (H) the Investment Company Act, (I) no violation or default of the Financing Documentation, (J) financial statements, (K) accuracy of information furnished, (L) foreign assets control and anti-terrorism laws, (M) consummation of transactions under the Financing Documentation in compliance with applicable law and (N) the priority and perfection of the security interest granted in the Collateral securing the Credit Facilities, (ix) no event of default under the Credit Facilities or unmatured default shall have occurred and be continuing or would result from such extension of credit, (x) to the extent applicable, all principal, interest and other amounts outstanding in connection with existing debt for borrowed money of the Loan Parties shall have been paid in full and all liens securing such debt shall be released other than debt for borrowed money in an amount not to exceed $1,000,000 and indebtedness of the Acquired Company and its subsidiaries not to exceed $1,000,000and (xi) all fees and expenses due to the Lenders, the Lead Arranger, the Administrative Agent and counsel to the Lead Arranger and the Administrative Agent under the Commitment Letter and as otherwise set forth in the Financing Documentation shall have been paid.  The Borrower shall use its commercially reasonable efforts to provide the following items prior to the Closing Date, but in any event shall provide all such items no later than 60 days after the Closing Date: (i) control agreements with respect to each deposit, securities and similar account of the Loan Parties (excluding health care reimbursement accounts and payroll accounts), (ii) surveys, (iii) appraisals (including, without limitation, equipment and real estate appraisals), (iv) environmental reports and (v) an Agribusiness Consultant’s Report.

Annex B

PAGE 1

(b)	The definitive agreement relative to the Acquisition and all other documentation associated with the Acquisition (collectively, as amended or modified in accordance with this paragraph (b), the “Acquisition Documentation”) shall be in the form of the Acquisition Agreement (including schedules thereto) delivered to the Administrative Agent prior to signing the Commitment Letter on  November 2, 2009, as such Acquisition Documentation, including the Acquisition Agreement, may be amended, supplemented or otherwise modified from time to time or for which provisions thereof may be consented to or waived; provided that any such amendment, supplement or other modification or any consent or waiver with respect thereto that materially adversely affects the interest of the Lenders or that increases the proportional amount of the Cash Component above 70% in relation to the share consideration under the Acquisition Agreement shall , in each case, require the prior written consent of the Lead Arranger, not to be unreasonably withheld; provided, further that on the proposed closing date of the Offer, any waiver of any of the conditions precedent to Newco’s obligations to accept for exchange and deliver consideration for Shares validly tendered (and not withdrawn) pursuant to the Offer set forth in the Acquisition Documentation shall require the prior written consent of the Lead Arranger, not to be unreasonably withheld. The Acquisition Agreement shall be in full force and effect.
(c)	The conditions to Newco’s obligations to purchase the Shares pursuant to the Offer in accordance with the Acquisition Agreement shall have been satisfied except to the extent the failure to so satisfy such conditions do not relieve the Borrower or Newco from their respective obligations to close the transactions under the Acquisition Agreement, with no waiver, modification or consent thereunder without the prior written consent of the Lead Arranger, except as otherwise provided pursuant to paragraph (b) of this Conditions Annex.
(d)	Newco shall have accepted for purchase Shares pursuant to the Offer representing more than 50% of the Adjusted Outstanding Share Number (as defined in the Acquisition Agreement), and to the extent the exercise of the Top-Up Option would result in Newco owning Shares sufficient to allow a short form merger to be consummated, Newco shall have exercised its Top-Up Option for Shares sufficient in number to allow a short form merger to be consummated immediately upon issuance thereof (after giving effect to any preemptive rights and contractual or other restrictions) (the “Requisite Number of Shares”) and shall have delivered its note in respect of such purchase and Diedrich shall have the Requisite Number of Shares authorized but unissued and shall be obligated to comply with the Top-Up Option.

Annex B

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(e)	The Lead Arranger will have received a balance sheet, income statement, and statement of cash flows for each of the Borrower and its subsidiaries and the Acquired Company and its subsidiaries, in each case for any fiscal year that has ended at least 90 days prior to the Closing Date and for any fiscal quarter (other than the fourth quarter of any fiscal year) since the most recently ended fiscal year that has ended at least 45 days prior to the Closing Date.
(f)	The Lead Arranger will be reasonably satisfied that, after giving proforma effect to the Transactions (to the extent consummated as of the Closing Date) (i) the ratio of Total Funded Debt of the Borrower and its subsidiaries as of the Closing Date to consolidated EBITDAR of the Borrower and its subsidiaries will not exceed 4.25:1.00 and (ii) consolidated EBITDAR of the Borrower and its subsidiaries will be at least $55,900,000 for the twelve months ended as of the most recent fiscal quarter end for which financial statements are available prior to the Closing Date.
(g)	To the extent not previously satisfied, the Loan Partiesshall have provided the documentation and other information to the Lenders that is required by regulatory authorities under applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the Patriot Act.
(h)	No temporary restraining order, preliminary or permanent injunction or other order preventing the Credit Facilities from closing or any extensions of credit thereunder shall have been issued by any court of competent jurisdiction or other governmental authority having authority over any of the parties to the Financing Documentation and remains in effect, and no applicable legal requirement shall be enacted or deemed applicable to the Credit Facilities by a governmental authority having authority over any of the parties to the Financing Documentation that makes the closing of the Credit Facilities or any extensions of credit thereunder illegal.

Annex B

PAGE 3