February 25, 2000

Greg MacIsaac
1522 N.W. 44th Ave
Camas, WA  98607

Dear Greg:

        We are pleased to offer you the position of Senior Vice President and
Chief Operating Officer of Diedrich Coffee. This is a critical position that
will take responsibility for all Company run operations for the Diedrich Coffee
concept. Current concepts include Diedrich Coffee, Diedrich Coffee People
(Oregon) and Diedrich Coffee Plantation (Arizona). As you know, we are currently
the second largest specialty coffee company in the United States with plans to
expand significantly in the near future.

Our offer is as follows:

-   Base salary - $3,365.38 per week (paid on a bi-weekly basis) which equates
    to $175,000 annually at the completion of one full year of employment. Wages
    are reviewed annually as anniversary dates are reached.

-   Incentive/Bonus plan - You will be eligible to participate in our vice
    presidents incentive plan, up to 25% of your annual base salary, which is
    paid based upon achievement of fiscal year budgeted income targets for the
    company and the successful completion of mutually agreed on individual
    objectives. Because your employment will not span our full fiscal year, we
    will prorate any award based on the amount of fiscal year remaining as you
    come on board.

-   Stock Options - The Company will issue you options to purchase 50,000 shares
    of Diedrich Coffee. The strike price of the shares will be the trailing 5
    day average of the price of the shares from the day you begin employment.
    These options vest over 2 years at a rate of 50% per year. The Board reviews
    issuance of additional stock options annually.

-   Relocation - The Company will pay for all reasonable relocation expenses to
    the Irvine area (e.g. real estate fees, professional movers, closing costs,
    agreed on duplicate living expenses, 1.5 points on new loan origination,
    license/hook-up fees etc.). Additionally, the Company will address tax
    implications associated with the relocation.

-   Vacation - You will be entitled to 2 weeks of vacation during your first
    year of employment. Additional vacation time will be earned as plan
    eligibility requirements are met.

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-   Benefits - You will participate in the company's executive benefits plan. A
    copy is attached. The benefit program may be modified from time to time.

-   401(k) participation based on eligibility criteria as plan is developed.

-   You are making a commitment to work for Diedrich Coffee for at least 2 years

-   Employment at will - Diedrich Coffee may terminate your employment at any
    time, with or without cause or notice.

-   Termination not for cause - Should your employment be terminated for reasons
    other than cause (cause meaning willful misconduct, repeated failure to
    perform duties, fraud or dishonesty, felonious, or criminal acts), you will
    be entitled to a one-time payment equal to twelve month's salary.

-   Position reports directly to Tim Ryan - Chief Executive Officer of Diedrich
    Coffee.

-   Start date on or before March 27, 2000.

We look forward to your early response in becoming part of our team and feel you
will enjoy your return to Orange County. Please confirm your acceptance of this
offer by signing and returning an executed copy to Matt Kimble.

Very truly yours,


Tim Ryan
Chief Executive Officer, Diedrich Coffee

I accept the position of Senior Vice President, Chief Operating Officer,
Diedrich Coffee on the above terms and conditions.



/s/ Greg MacIsaac                                 March 1, 2000
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Greg MacIsaac                                     Date

Source: OneCLE Business Contracts.