June 4, 1997

Mr. Jonathan Eddison
227 S. Norton Avenue
Los Angeles, CA 90004

Dear Jonathan:

On behalf of Diedrich Coffee (Company), it is with great pleasure that we offer
you the position as Vice President and General Counsel. In this role, you will
have responsibility for legal guidance in areas such as contract development,
trademark infringement, labor law compliance, and various other legal

Your cash compensation in this position will consist of a base of $100,000 per
annum earned and paid ratably on a biweekly basis, and an annual incentive
component of up to $20,000 or 20% of your base pay. Payment of the incentive
component of your compensation will be based upon financial performance of the
Company and the Company's assessment of your performance versus specific
objectives set for your areas of responsibility.

In addition to the cash compensation defined above, you will be granted stock
options under the Company's 1996 Stock Incentive Plan. Your initial grant is for
35,000 shares at market closing price on the date that you accept this offer is
subject to approval of the Compensation Committee of the Board of Directors.
These options will vest 33 1/3% annually over the next three years. During
subsequent years, you will qualify for an additional annual stock option grant
for 5,000 shares at the then current price. Subsequent option awards will
likewise vest over a 3 years period at 33 1/3% per year. The award of these
subsequent year options will be based upon the Company's assessment of your
performance versus specific objectives set for your areas of responsibility.

As part of your employment, the Company will provide for accelerated vesting of
your stock options in the event of a change of control. Furthermore, you will be
entitled to standard insurance coverages equal to those provided to other
members of senior management. If Diedrich Coffee terminates your employment for
any reason other than fraud or other illegal acts, you will be eligible for a
severance package equivalent to three months of your annual salary. This will be
paid in a lump sum at the time of separation.

<PAGE>   2

Jonathan Eddison
Page 2

Jonathan, you know that I am personally excited about the prospects of you
joining the Diedrich Coffee team. I truly feel that you can make a material
difference in taking our Diedrich Coffee to the next level. Further, I trust
that you would grow personally and professionally with these responsibilities.
It would be a pleasure to have the opportunity to work with you. Please sign
this letter and mail it back to me at your earliest convenience. Congratulations
and welcome aboard!


Kerry Coin
President, Chief Operating Officer

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Jonathan Eddison                        Date

Source: OneCLE Business Contracts.