Exhibit 10.6

LEASE

THIS Lease (the “Lease”), between STECAR PROPERTIES, LLC, a California limited
liability company (the “Lessor”), and DIEDRICH COFFEE, INC., a Delaware
corporation (the “Lessee”), is effective on the date indicated in Paragraph 39
(the “Effective Date”) (i.e., January 1, 2006). This Lease is supplemented and
modified pursuant to that Addendum of Lease attached hereto as “Addendum to
Lease” (paragraphs 40 through 44) and incorporated herein by reference and made
a part of the Lease.

WITNESSETH:

1. Premises. For and in consideration of the rent herein received and of the
covenants, conditions, agreements, and stipulations of Lessee hereinafter
expressed, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor
the following described real property (collectively, the “Premises”): (i) the
tract of land in Castroville, California, with a street address of 11480
Industrial Parkway, Castroville, CA (the “Land”), more particularly described on
Exhibit “A” attached hereto, together with any and all easements, rights and
appurtenances appertaining to same, and (ii) those certain improvements thereon
(the “Buildings”), together with all structures, fixtures and other improvements
existing on the Land (the Building and such other structures, fixtures and
improvements collectively referred to as the “Improvements”).

2. Intentionally left blank.

3. Term - Option. Lessee is to have and to hold the Premises for a ten (10) year
term which shall expire upon December 31, 2015 (“Initial Term”), as extended or
renewed below (“Term”). Lessor shall deliver possession of the Premises to
Lessee on the Effective Date. The Lessee shall have the option to extend the
Initial Term of the Lease as provided in Section 40 of the Addendum to Lease.

4. Rent. Lessee shall pay to Lessor without demand and without deduction,
abatement or set-off (except as otherwise provided herein or permitted under
applicable law), on the first day of each month the Rent as described in this
Paragraph 4.

(a) Base Rental. Upon the Commencement Date, as defined in Paragraph 34 herein
(i.e., January 1, 2006), Lessee covenants to pay Lessor, in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts during the Term of this
Lease, the initial Base Rental of Three Hundred Thirty-Four Thousand Eight
Hundred Seventy-Two Dollars ($334,872.00) per Lease Year (as defined in
Paragraph 35 herein), payable in equal monthly installments of Twenty-Seven
Thousand Nine Hundred Six Dollars ($27,906.00).

(b) Adjustments. Base Rental shall be increased in accordance with the following
schedule:

Months 01-60: $27,906.00, per month, NNN

Months 61-90: $29,301.00, per month, NNN

Months 91-120: $30,766.00, per month, NNN

 

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(c) Option Periods. Base Rental For the Option Period(s), shall be increased in
accordance with the following schedule:

Months 121-150: $32,304.00, per month, NNN

Months 151-180: $33,919.00, per month, NNN

Months 181-300: 90% of fair market value or “Fair Market Rental Rate”

(as determined in accordance with Section 41 of the Addendum to Lease)

5. Additional Rent. Lessee shall pay one hundred percent (100%) of the taxes on
the Premises, the cost of insurance premiums on the Premises and additional
amounts as hereinafter provided in Subparagraph 5(c), as Additional Rent.

(a) Taxes. Lessee shall on or before the due date established by the taxing
authorities pay the real estate taxes and assessments levied during the Term
against the Premises and all business and occupation taxes relating to Lessee’s
business, sales tax on rentals and other governmental taxes levied against the
Premises or Lessee’s business ventures and activities conducted or permitted to
be conducted on the Premises by Lessee (“Taxes”). Nothing contained in this
Lease shall be construed to require Lessee to pay any federal or state income,
gift or inheritance taxes imposed on Lessor. The amount due for all partial
calendar years shall be prorated on a per diem basis. Lessee shall have the
right to contest any tax bill with the appropriate taxing authority, at Lessee’s
cost. Lessee may pay taxes directly to the taxing authority so long as Lessee is
not in default hereunder and Lessee provides timely proof of payment to Lessor
without delinquency or penalty. If Lessee failed to pay taxes directly to the
taxing authorities for a prior year resulting in penalties or interest being
assessed against the Premises by one or more of such taxing authorities, Lessee
shall be obligated to pay to Lessor each month on the first day thereof, as
Additional Rent, an estimated amount for the annual taxes assessed against the
Premises. Lessee shall pay to Lessor, or Lessor shall rebate to Lessee, any
difference between such estimated annual taxes and the actual taxes due for such
year.

(b) Insurance.

(i) Lessee shall, at Lessee’s sole cost, obtain and maintain in force during the
Term the following insurance coverages: (a) insurance against loss or damage by
risks included under “all risk” policies, at the time the policy is acquired, in
an amount equal to the actual replacement cost of the Improvements, subject to a
co-insurance clause of not less than ninety percent (90%); (b) commercial
general liability insurance against claims for personal injury, death, or
property damage occurring in, on or about the Premises or the adjacent streets
and sidewalks with the following minimum limits of liability for the Premises:
(i) $1,000,000.00 in respect of bodily injury or death to any one person,
(ii) $2,000,000.00 in respect of bodily injury or death to any number of persons
arising out of one accident or disaster, (iii) $2,000,000.00 in respect to
damage to or destruction of property arising out of any one accident, and
(c) loss of rents or business income coverage in an amount of not less than the
annual Base Rental provided for herein, increased as provided in Subparagraph
4(c).

 

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(ii) Lessee agrees that as to each of the above referenced insurance policies
the following conditions shall apply during the Term: (1) each policy of
insurance shall not be subject to cancellation or substantial modification
without at least thirty (30) days prior written notice to the Lessor and to
Lessor’s mortgagee, if any, provided Lessor has notified Lessee in writing of
such mortgagee’s name and address; (2) Lessee shall deposit with the Lessor
certificates of such insurance or other evidence reasonably satisfactory to the
Lessor that (i) the insurance required hereby has been obtained and is in full
force and effect, and (ii) all premiums thereon have been paid in full;
(3) Lessee shall furnish the Lessor with evidence satisfactory to the Lessor
that such insurance has been renewed or replaced and that all premiums thereon
have been paid in full, prior to the expiration of any such insurance, and all
insurance policies required hereby are in full force and effect; (4) Lessee
authorizes the Lessor to collect, adjust and compromise any claims under such
“all-risk” insurance policies and authorizes and directs the insurer to pay any
and all such proceeds directly to the Lessor, and not to the Lessee, and unless
this Lease shall have been terminated under Paragraph 10, Lessor shall use such
proceeds to reconstruct the Improvements as provided in Paragraph 10; (5) Lessor
shall be named an additional insured and a loss payee as its interest appears
under said policies; (6) upon Lessor’s request, Lessor’s mortgagee, if any,
shall be added as loss payee under said policies;, and (7) Lessee’s obligation
to carry the insurance required by this Lease may be brought within the coverage
of a so-called blanket policy or policies of insurance carried and maintained by
Lessee; provided, however, (A) Lessor will be named an additional insured and a
loss payee as its interest appears under such policies, (B) the coverage
afforded Lessor will not be reduced or diminished by reason of the use of such
blanket policy of insurance, and (C) all other requirements set forth in this
Paragraph 5 are otherwise satisfied.

(iii) All insurance required to be obtained or maintained pursuant to this Lease
shall be obtained from generally recognized, responsible insurance companies
qualified or licensed to transact such business in the State in which the
Premises is located and otherwise reasonably satisfactory to the Lessor.

(c) Other Charges. Lessee agrees to pay to Lessor all charges for any services,
goods, or materials furnished by Lessor at Lessee’s request which are not
required to be furnished by Lessor under this Lease within thirty (30) days
after Lessor renders a written statement therefor to Lessee. (The Base Rent,
together with all such other sums paid to Lessor by Lessee under this Paragraph
5 as Additional Rent, is hereinafter collectively referred to as “Rent”). In the
event any payment of Rent, including but not limited to a monthly installment of
Base Rent, or other amounts as provided in Subparagraphs 5(c), 13(c) and
Paragraph 7 herein, are not received by Lessor within five (5) days after it is
due and payable, such delinquent payment of Rent will bear interest at a rate of
ten percent of the monthly payment following the expiration of such five (5) day
period until Lessee pays such Rent. Payment of such interest shall be made by
Lessee in accordance with the provisions of this Subparagraph 5(c).

 

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(d) Independent Obligation. Except with regard to a breach of the Covenant of
quiet enjoyment or as otherwise provided herein, the obligation of Lessee to pay
all Rent provided to be paid by Lessee and the obligations of Lessee to perform
Lessee’s other covenants and duties hereunder constitute independent and
unconditional obligations to be performed at all times provided for hereunder,
save and except only when an abatement thereof or reduction therein is herein
expressly provided for and not otherwise.

6. Maintenance of Premises. Responsibility for all repairs, replacements and
alterations to the Premises shall be as set forth in this Paragraph 6.

(a) Lessor’s Responsibility. Lessor shall not be required to furnish any service
or facilities to make any repairs or alterations in, on or about the Premises.

(b) Lessee’s Repairs and Replacements. Lessee agrees that it shall make all
repairs, replacements, and alterations to Premises, including, but not limited
to, the foundations, outside walls of the buildings, the interior and exterior
of the buildings, including all overhead doors, frames, and operating equipment
and all doors and door frames, all glass and window sashes, all plumbing,
sewerage, heating, air conditioning and the electrical system, including
ventilation, air conditioning, and heating units and systems, the exterior
lighting system, public areas, parking areas, landscaping, and sidewalks and
driveways suitably paved and marked for parking and traffic flow and reasonably
free of refuse and obstruction and reasonably free of snow and ice as may be
necessary to maintain said portions of the Premises in good repair and
condition, reasonable wear and tear excepted, or which may be required by any
laws, ordinances or regulations of any public authority or insurance underwriter
having jurisdiction, the validity of which Lessee shall be entitled to contest.
Lessor shall and does hereby assign to Lessee, to the extent they are
assignable, any warranties it may hold with respect to each item of real
property, personal property or fixture that Lessee is obligated hereunder to
repair, maintain or replace.

(c) Permits Required. Lessee agrees that it will procure all necessary permits
before making any repairs, alterations, other improvements and/or installations
for which it is responsible under this Lease. Lessee agrees to pay promptly when
due the entire cost of any work caused to be done by it upon the Premises, and
to at all times maintain the Premises free and clear from liens for labor or
materials. Lessee shall, within thirty (30) days from the filing of any such
lien, bond or discharge the same. Lessee shall not, by the exercise of its
rights or performance of its obligations hereunder or under any other provision
of this Lease be deemed to be performing any work on behalf of Lessor.

7. Alterations and Improvements. Lessee shall have the right, only with the
express written approval of Lessor which shall not be unreasonably withheld, to
make such alterations or improvements costing more than twenty-five thousand
dollars ($25,000) per project within the Premises at Lessee’s sole expense as
may be proper and necessary for use of the Premises as a coffee manufacturing
facility, provided that Lessee shall fully and completely indemnify Lessor
against any mechanic’s or other liens or claims in connection with the making of
such alterations

 

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or improvements. Lessee may make alterations or improvements costing twenty-five
thousand dollars ($25,000) or less without Lessor’s consent. No structural
changes, including, but not limited to changes to the roof, however, shall be
made by Lessee without on each occasion submitting to Lessor plans and
specifications for any proposed changes and obtaining the prior written consent
of Lessor, which shall not be unreasonably withheld, conditioned or delayed as
long as the structural integrity of the Premises is not diminished. In the event
Lessor’s property tax assessment for the Premises includes property owned by
Lessee, Lessee shall be liable for all taxes levied or assessed against such
property assessed against Lessor. If any such taxes for which Lessee is liable
are levied or assessed against Lessor or Lessor’s property or if the assessed
value of Lessor’s property is increased by inclusion of Lessee’s personal
property, furniture or fixtures in the Premises, and Lessor elects to pay the
taxes so assessed (or the results increase in tax by reason of such inclusion of
Lessee’s property), Lessee shall pay to Lessor upon demand that part of such
taxes for which Lessee is liable hereunder.

8. Assignment or Sublet. This Lease may be assigned and, a portion of the
Premises subleased only as permitted by this Paragraph 8.

(a) Lessee. This Lease may be assigned or all or a portion of the Premises
subleased by Lessee only with the express written consent of Lessor which
consent shall not be unreasonably withheld, conditioned or delayed.
Notwithstanding the foregoing, Lessee shall at all times after said assignment
or sublease remain responsible for the Lessee’s performance of this Lease,
including the payment of Rent and Additional Rent. Any attempt to do any of the
foregoing without the prior express written consent of Lessor, shall be void and
of no effect. Notwithstanding the foregoing restriction on Lessee’s right to
assign this Lease or sublease all or a portion of the Premises, (1) Lessee shall
have the right to assign this Lease or sublet the Premises (or any portion of
the Premises) to an entity controlling, controlled by, or under common control
with, Lessee, in which event Lessee will remain fully liable and responsible for
all Lessee’s obligations under this Lease, (2) if Lessee merges with another
entity or sells all or substantially all of Lessee’s assets to another entity,
Lessee may assign. this Lease to such successor entity, in which event Lessee
will remain fully liable and responsible for all Lessee’s obligations under this
Lease, and (3) Lessee may enter into one or more subleases to entities providing
services related to Lessee’s use of the Premises, in which event Lessee will
remain fully liable and responsible for all Lessee’s obligations under this
Lease, in all such instances without the necessity of Lessor’s prior consent. In
the event Lessee requests Lessor’s consent as to any assignment, sublease or
other transaction, a signed counterpart of all instruments relative thereto
(executed or to be executed by all parties to such transaction with the
exception of Lessor) shall be submitted by Lessee to Lessor prior to, or
contemporaneously with, the request for Lessor’s written consent (it being
understood that no such instrument shall be effective without the written
consent of Lessor). If Lessor elects to consent to a sublease, and if the amount
due and payable by a sub-lessee under any such permitted sublease (or a
combination of the rent payable under such sublease plus any bonus or other
consideration therefor less any costs to Lessee of the subletting (i.e.,
improvement allowance or commissions)) exceeds the Rent payable under this Lease
or, with respect to a permitted sublease, permitted license or other

 

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permitted transfer by Lessee, the consideration payable to Lessee by the
assignee, licensee or other transferee exceeds the Rent payable under this
Lease, then Lessee shall be bound and obligated to pay Lessor, as Rent
hereunder, fifty percent (50%) of such amount received which exceeds the Rent
and other amounts due hereunder, within ten (10) days following receipt thereof
by Lessee from such sub-lessee, assignee, licensee or other transferee, as the
case might be, unless the sub-lessee or assignee is an entity under common
control of the principals of Lessee.

(b) Lessor. Lessor shall have the right to transfer, assign and convey, in whole
or in part, the Premises and any and all of its rights under this Lease. Should
Lessor assign its rights under this Lease, Lessor shall thereby be released from
any further obligations hereunder, arising after the date of such assignment.
Lessee agrees to look solely to such successor-in-interest of the Lessor for
performance of obligations arising after such assignment. Subsequent to any such
assignment, Lessee shall have the right to make a claim against the proceeds
from the sale or assignment to the extent such proceeds exceed the amount
required to satisfy any liens against the Premises. Any such claim shall be
limited to the valid and binding financial obligations of Lessor in existence
prior to such transfer or assignment. The term “Lessor” as used in this Lease
shall mean the owner of the Premises, at the time in question, and in the event
of the transfer by such owner of its interest in the Premises, such owner shall
thereupon be released and discharged from all covenants and obligations of the
Lessor thereafter accruing, but such covenants and obligations shall be binding
during the Term upon each new owner for the duration of such owner’s ownership.

9. Use. Lessee will use and occupy the demised Premises in a careful, safe and
proper manner and will comply with the directions of all public officers and
governmental agencies having jurisdiction thereof respecting the use of the
demised Premises to the extent that it is Lessee’s obligation hereunder to
maintain the condition of the demised Premises. Lessee shall use the demised
Premises as a coffee manufacturing and distribution facility and all uses
reasonably related thereto.

10. Total or Partial Destruction. Continuation or termination of this Lease upon
total or partial destruction of the Building from fire or other casualty shall
be as provided in this Paragraph 10.

(a) Definition. For the purpose of this paragraph “Totally Destroyed” shall mean
a destruction of more than thirty-three percent (33%) of the Improvements on the
Land, and “Partially Destroyed” shall mean any lesser degree of destruction.

(b) Total Destruction. In the event the Premises shall be Totally Destroyed by
fire or other casualty, Lessor and Lessee shall each have the option to
terminate this Lease. Such option shall be exercised by providing to the other
party hereto written notice of such election within thirty (30) days after such
fire or other casualty. Such 30 day period following the casualty during which
notice to terminate may be given shall not begin until Lessor, or Lessee, as
applicable has received actual notice that the Premises have been Totally
Destroyed.

 

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(c) Partial Destruction. In the event the Premises shall be Partially Destroyed
by fire or other casualty (or Totally Destroyed and the parties have not elected
to terminate this Lease under Paragraph 10(b) above), Lessor shall repair the
Building to substantially its condition immediately prior to said damage. Lessor
shall commence such repairs promptly after notice of said damage and expiration
of a reasonable period for adjustment of insurance claims. Lessor shall use its
best efforts to complete such repairs as expeditiously as possible. If repairs
have not been completed due to reasons within Lessor’s control, within six
(6) months from the date of which the Premises was Totally Destroyed or
Partially Destroyed, Lessee may terminate the Lease by giving written notice to
Lessor within fifteen (15) days of the expiration of said 6-month period.

(d) Fixtures. Nothing contained in this Paragraph 10 shall require Lessor to
replace any fixtures or other work paid for and installed by Lessee pursuant to
the provisions of this Lease, except Lessor shall be obligated to replace any
such work or return the proceeds to Lessee to the extent such fixtures were
covered by insurance proceeds delivered to Lessor and this Lease has not
terminated in accordance with the provisions of this Paragraph 10. In the event
of Lease termination, Lessor shall return proceeds to Lessee to the extent such
fixtures were covered by insurance proceeds delivered to Lessor.

(e) Intentionally deleted.

(f) Lessee’s Negligence. If the Premises or any portion of the Building is
damaged by fire or other casualty resulting from the gross negligence or willful
misconduct of Lessee or any of Lessee’s agents, employees or invites, the Rent
hereunder shall not be diminished during the repair of such damage and Lessee
shall be liable to Lessor for the cost and expense of the repair and restoration
of the Building caused thereby to the extent such costs and expenses are not
covered by insurance proceeds.

11. Condemnation Clause. If, after the execution of this Lease and prior to the
expiration of its Term, the whole of the demised Premises (or such part as shall
cause the remaining part to be unsuitable for use by Lessee, as determined by
Lessee in its reasonable discretion) shall be appropriated by right of an
eminent domain, the Term of this Lease shall cease as of the time of any
appropriation, and Lessee shall have no obligation to pay Rent and Additional
Rent for periods after the time of appropriation.

(a) Right to Damages. Lessor reserves to itself, and Lessee assigns to Lessor
except as otherwise hereinafter expressly provided, all right to damages
accruing on account of any appropriation by right of eminent domain. Lessor does
not reserve to itself and Lessee does not assign to Lessor any damages payable
to Lessee by the public authority for trade fixtures and other personal property
(which part shall not have become part of the realty) installed by Lessee

 

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at its own cost and expense or any so-called moving expenses, or any lost
profits or loss of goodwill, if paid by the condemning authority.
Notwithstanding the foregoing, Lessee shall not be entitled to any damages for
loss of the unexpired portion of the term of this Lease, or the value of the
leasehold.

(b) Partial Condemnation. If, after the execution of this Lease and prior to the
expiration of its Term, such part of the demised Premises as shall cause the
remaining part to be still suitable for use by Lessee shall be appropriated by
right of eminent domain, then Lessor shall proceed with all reasonable diligence
to repair any damage to the Premises caused by the partial appropriation and
Lessee shall be entitled to a reasonable adjustment in Base Rental accruing
hereunder from the date of appropriation, proportionate to that part of the
Premises or Improvements so taken.

12. Utilities. Lessee shall pay all water, sewer, gas, and electricity consumed
or used by Lessee at the Premises.

13. Default Clause. Defaults by Lessee and Lessor’s remedies therefor shall be
as provided in this Paragraph 13.

(a) Actions Constituting Default by Lessee. If Lessee at any time during the
Term hereof (and regardless of the pendency of any bankruptcy, reorganization,
receivership, insolvency, or other proceedings in law, in equity or before any
administrative tribunal, which prevent or might prevent Lessee from complying
with the terms of this Lease):

(i) shall fail to make payment of any installment of Rent or any other sum
specifically to be paid by Lessee hereunder and such default shall not have been
cured within ten (10) days after Lessee received written notice from Lessor of
such failure; or

(ii) shall fail in the observance or performance of any of Lessee’s covenants,
agreements or obligations hereunder, other than the covenant to pay Rent or any
other sum herein specified to be paid by Lessee, and such default shall not have
been cured within ten (10) days after Lessee shall have received written notice
from Lessor specifying such default; or if said default cannot by its nature be
cured within ten (10) days, if Lessee shall not have commenced the curing
promptly within such period and does not thereafter diligently proceed to cure
the same.

(iii) shall (1) be adjudicated bankrupt or insolvent, or (2) have a receiver or
trustee appointed for all or substantially all of its business or assets on the
ground of Lessee’s insolvency, or (3) suffer an order to be entered approving a
petition filed against Lessee seeking reorganization of Lessee under the Federal
Bankruptcy Laws or any other applicable law or statutes of the United States or
any state thereof and such adjudication, appointment or order has not been
vacated within ninety (90) days; or

 

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(iv) shall make an assignment for the benefit of its creditors or file a
voluntary petition in bankruptcy or a petition or answer seeking reorganization
or arrangement under the Federal Bankruptcy Laws or any other applicable law or
statute of the United States, or of any state thereof, or shall file a petition
to take advantage of any insolvency act;

then, Lessee shall be in default of its obligations under this Lease unless
Lessee has timely cured the failure giving rise to such default.

(b) Lessor’s Remedies. At any time Lessee is in default of its obligations under
this Lease, Lessor may take one or more of the following actions:

(i) without further notice to Lessee and without further demand for Rent due or
for the observance or performance of any of said terms, conditions, covenants or
agreements, terminate this Lease and re-enter said Premises. If this Lease shall
be terminated before its expiration by reason of Lessee’s default, the same may
be re-rented by Lessor for such rent and upon such terms as Lessor may deem
advisable;

(ii) sue to collect any and all sums which may accrue to Lessor by virtue of the
provisions of this Lease and/or for any and all damage that may accrue by virtue
of the breach of this Lease, Lessee hereby waiving all demand for rent;

(iii) sue to restrain by injunction any violation or threatened violation of the
covenants, conditions or provisions of this Lease;

(iv) after three (3) days written notice to Lessee and in compliance with
applicable law, alter locks and other security devices; and

(v) avail itself of any other remedy at law or in equity available to Lessor.

(c) Lessor’s Right to Remedy. If Lessee shall at any time be in default in
fulfilling any of the covenants of this Lease as set forth in Subparagraph 13
(a) (other than the covenants for the payment of Rent or other charges payable
by Lessee to Lessor hereunder), Lessor may, but shall not be obligated to do so,
and without notice to or demand upon Lessee, take or cause to be taken such
action or make such payment, as may be required by such covenants, at Lessee’s
risk and expense, and all reasonable expenses, costs and liabilities of Lessor
incurred in taking such action or making such payment shall be deemed Additional
Rent hereunder and shall be payable to Lessor on demand with interest at the
rate of eighteen percent (18%) per annum. In case of re-entry, or of the
termination of this Lease, whether by summary proceedings or otherwise, Lessee
shall remain liable for the balance of said Term, whether Premises be relet or
not, and for reasonable expenses to which Lessor may be put in re-entering,
including preservation of the demised Premises, less however, the amounts
received under the re-let after deducting brokers’ commissions of the reletting.
Any such reletting may be for a term exceeding or less than the period of this
Lease or the existing renewal term. Lessor shall not be liable for failure to
relet the Premises, and in the event of reletting, for failure to collect the
rent under such reletting; provided, however, Lessor shall use diligent efforts
to mitigate its damages.

 

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14. Indemnification. Lessee and Lessor agree to indemnify and save harmless each
other against and from any and all claims by or on behalf of any person, firm,
corporation, or entity, arising from any accident, injury or damages of
whatsoever cause, including any environmental conditions caused by indemnitor,
its agents or employees, suits brought against indemnitor or indemnitee (except,
however, to the extent any of the foregoing are caused by negligence or willful
misconduct of the indemnitee, its agents, contractors, servants, employees or
licensees) occurring during the Term, in, on or about the demised. Premises, and
from and against all costs, reasonable counsel fees, expenses and liabilities
incurred in or about any such claim or action or proceeding brought thereon; and
in case any action or proceeding be brought against the indemnitee by reason of
any such claim, the indemnitor upon notice from the indemnitee covenants to
resist or defend such action or proceeding. Indemnification by the indemnitor
hereunder shall not extend to any matter against which, and to the extent which,
the indemnitee has been indemnified from insurance. . Except as set forth above,
Lessor shall have no liability to Lessee or its shareholders, officers,
directors, employees, affiliates or subsidiaries, and Lessee hereby waives any
claims to damages against Lessor for any and all losses, claims, liabilities,
damages, demands, fines, costs and expenses (including reasonable legal
expenses) of whatever kind and nature resulting from any accident, occurrence or
condition caused by the release of any toxic or hazardous substance or waste in,
on, under, about or affecting the Premises, occurring prior to Lessor’s
acquisition of the Premises or occurring during Lessee’s occupation of the
Premises, including without limitation, the existence removal, remediation,
leaking of spills and overfills related to underground storage tanks on or under
the Premises, which results in any injury or death to any person or damage to
any property or which required the removal or treatment of such hazardous or
toxic substance or waste or underground storage tanks (including without
limitation, removals, remediation, leaking, spills or overfills related to
underground storage tanks), or any other remedial action or fine under the terms
of any applicable law, regulation, rule or direction of any federal state or
local government authority. The provisions of this paragraph shall survive the
termination or expiration of this Lease and the surrender of the Premises by
Lessee.

15. Right to Inspect and to Show the Premises. Lessee agrees that Lessor or its
representatives shall have the right during normal business hours upon at least
twenty-four (24) hours prior notice to enter upon and to inspect the Premises to
ascertain that Lessee is carrying out the terms, conditions and provisions
hereof Lessor shall have the right to show the Premises to prospective
purchasers during normal business hours upon at least twenty-four (24) hours
prior notice during the Term of the Lease and to prospective tenants during the
last six (6) months of the Term. Notwithstanding the foregoing, such inspections
and showings shall not unreasonably interfere with Lessee’s use and enjoyment of
the Premises.

 

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16. Condition of the Premises at Termination. Lessee agrees that upon the
termination of its tenancy by expiration or otherwise, it will leave the
Premises in good condition, ordinary wear and tear, damage by fire or other
casualty and conditions not the responsibility of Lessee under this Lease,
excepted. All trade fixtures installed by Lessee that are not replacements or
part of realty shall be removed at the expiration of the Term, and Lessee shall
repair any damage by reason of the said removal. All carpeting, signs, kitchen
hood systems, plumbing systems, seating booths, ventilation systems and other
improvements installed by Lessee shall remain the property of Lessor, provided,
however, that other trade fixtures shall remain the property of the Lessee.

17. Subordination, Attornment and Nondisturbance. Lessor shall, within thirty
(30) days after the date of the Lease, provide Lessee with a nondisturbance
agreement in form and substance reasonably satisfactory to Lessee pursuant to
which Lessor’s lenders with respect to the Building and ground lessors, if any,
each agree that Lessee’s rights to possession of the Premises pursuant to the
terms of the Lease shall not be disturbed, so long as Lessee is not in default
of its obligations under the Lease beyond any applicable notice and cure
periods. Such subordination, nondisturbance and attornment agreement shall be in
recordable form and shall be substantially in Lessor’s lenders form attached
hereto at Exhibit “B”.

18.(a) Delivery of Estoppel Certificates. Lessee shall from time to time, upon
not less than ten (10) days’ prior written notice from Lessor, execute,
acknowledge and deliver to Lessor a statement in writing certifying such
information as Lessor may reasonably request including, but not limited to, the
following: (i) that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect), (ii) the date to which the
Base Rent and other charges are paid in advance and the amounts so payable,
(iii) that there are not, to Lessee’s knowledge, any uncured defaults or
unfulfilled obligations on the part of Lessor, or specifying such defaults or
unfulfilled obligations, if any are claimed, (iv) that all Lessee improvements
to be constructed by Lessor, if any, have been completed in accordance with
Lessor’s obligations, and (v) that Lessee has taken possession of the Premises.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Property.

(b) Failure to Deliver Certificate. At Lessor’s option, the failure of Lessee to
deliver such statement within such time as provided hereunder, it shall be
conclusive upon Lessee that (i) this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) there are no uncured
defaults in Lessor’s performance, (iii) not more than one month’s Base Rent has
been paid in advance, (iv) all improvements to be constructed by Lessor, if any,
have been completed in accordance with Lessor’s obligations, and (v) Lessee has
taken possession of the Premises.

19. Non-waiver. Neither acceptance of Rent by Lessor nor failure by either party
to complain of any action, omission or default of the other party, whether
singular or repetitive, shall constitute a waiver of any of Lessor’s or
Lessee’s, as applicable, rights hereunder. Waiver

 

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by either party of any remedy for any default of the other party shall not
constitute a waiver of any remedy for either a subsequent default of the same
obligation or any other default. No act or thing done by Lessor or its agents
shall be deemed to be an acceptance of surrender of the Premises. No agreement
to accept a surrender of the Premises shall be valid unless it is in writing and
signed by a duly authorized officer or agent of Lessor.

20. Entire Agreement. This Lease embodies the entire agreement between the
parties hereto relative to the subject matter hereof and Lessee acknowledges
that Lessor has made no representations or warranties in connection with the
demised Premises except as set forth in this Lease. This Lease shall not be
modified, changed or altered in any respect, except in writing executed by the
parties hereto.

21. Notices. Any notice, communication, request, demand, reply or advice
(severally and collectively referred to as “Notice”) in this Agreement required
or permitted to be given, made or accepted must be in writing. Notice may,
unless otherwise provided herein, be given or served by depositing the same in
the United States Mail, postage paid, registered or certified, and addressed to
the party to be notified, with return receipt requested. Notice shall be
effective at the time of receipt thereof by the addressee or any agent of the
addressee, except that to the extent the addressee or an agent of the addressee
shall refuse to receive any notice given by registered mail or certified mail as
above provided or there shall be no person available at the time of the delivery
thereof to receive any notice, the time of the giving of such notice shall be
the time of such refusal or the time of such delivery, as the case may be.
Notice given in any other manner shall be effective only if and when received by
the party to be notified (except in the case of a facsimile transmission
received after normal business hours, which notice shall be effective the next
day). For the purposes of notice, the addresses of the parties shall, until
changed as provided below, be as follows:

 

Lessor:

 

Stecar Properties, LLC

1 Northwood Drive

Orinda, CA 94563

Lessee:

 

Diedrich Coffee, Inc.

28 Executive Park

Suite 200

Irvine, CA 92614

Attn: Real Estate

The parties hereto shall have the right from time to time to change their
respective addresses, and each shall have the right to specify as its address
any other address within the United States of America, by not less than ten
(10) days prior written notice to the other party.

 

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22. Waiver of Subrogation. Lessor and Lessee each do hereby waive all rights of
recovery and causes of action against the other and their respective employees,
servants, agents, and all parties claiming through or under such party for any
damage to the demised Premises and/or the building in which they are located, or
the personal property of Lessee, as the case may be, caused by any of the perils
which are included in an “all-risk” property insurance policy, notwithstanding
the fact that said damages to or destruction of said building and/or the demised
Premises, or the personal property of Lessee, as the case may be, shall be due
to the negligence of either party hereto or their respective employees,
servants, agents or any parties claiming through such party. Such waivers shall
be null and void if the foregoing waiver causes the invalidation of such
insurance policy. Lessor and Lessee each hereby agree and covenant immediately
to give any insurance company, which has issued to it such policies of
insurance, written notice of the terms of said waiver, and have said insurance
policies properly endorsed, if necessary, to recognize such waiver and prevent
the invalidation of said insurance coverages by reason of said waiver. Any and
all increases in insurance premiums attributed to such waiver shall be paid by
the beneficiary of such waiver.

23. Liability for Damage to Lessee’s Property. All personal property of the
Lessee whatsoever kept in the Premises shall be at Lessee’s sole risk, unless
damaged by the negligence or actionable fault of Lessor, its agents or
contractors.

24. Material Annexed. It is expressly agreed that all material attached to this
Lease as Exhibit “A”, Exhibit “B”, and “Addendum to Lease” shall be incorporated
in this Lease by reference thereto.

25. Signs. Lessee if it so desires may place, erect, and maintain or use a sign
on the front of the Premises advertising Lessee’s business. The said sign shall
be erected and maintained in compliance of applicable laws, shall be subject to
approval by Lessor which shall not be unreasonably conditioned, delayed or
withheld. Upon expiration of the term of the Lease, said sign shall remain the
property of Lessor. However, Lessee may remove its sign facia on the condition
that Lessee properly cover the sign with plastic panel inserts. In addition, all
existing signs can be used and maintained at Lessee’s sole expense.

26. Real Estate Commission. The parties each represent to the other that no real
estate broker was involved in presenting or arranging for the consummation of
this Lease and will indemnify each other for claims presented through the
indemnifying party.

27. Captions and Parties. The captions in this Lease are for convenience only
and are not part of this Lease and do not in any way limit or amplify the terms
or provisions of this Lease. Wherever the word “Lessor” or “Lessee” is used in
this Lease, it shall be considered as meaning “Lessors” or “Lessees,”
respectively wherever the context permits or requires, and when the singular,
the masculine, or the neuter pronouns are used herein, the same shall be
construed as including all persons and corporations designated, respectively as
Lessor or Lessee in the heading of this instrument wherever the context
requires.

28. Quiet Enjoyment. Lessor covenants and agrees that Lessee, Upon paying the
Rent and all other charges herein provided for and observing and keeping the
covenants, agreements and conditions of this Lease on its part to be kept, shall
lawfully and quietly hold, occupy and enjoy said demised Premises during the
Term of this Lease without hindrance or molestation.

 

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29. Binding Lease. This Lease shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors and assigns; provided,
however, that there shall be no liability on any Lessor following transfer of
title for acts or matters related to the period following such transfer of
title, so long as such transferee agrees in writing to be so liable.

30. Holding Over. In the event of Lessee’s continued occupancy of the Premises
after the expiration of the Term or any renewal or extension thereof, or after
any earlier termination provided or permitted by this Lease, either with or
without the consent of Lessor, such tenancy shall be month to month and in no
event from year to year, and such continued occupancy shall not defeat Lessor’s
right to possessions of the Premises. All other covenants, provisions,
obligations and conditions of the within Lease shall remain in full force and
effect during such hold-over period with the exception of rental which shall be
one hundred fifty percent (150%) of the then current Rent under Paragraph 4.

31. Choice of Law. This Lease shall be deemed to have been signed and delivered
in the State of California, and shall be construed in accordance with the laws
of the State of California.

32. Enforceability of Agreement. Lessor warrants to Lessee and Lessee warrants
to Lessor that the person executing this Agreement for or on behalf of the
warranting party was fully authorized to act in their behalf and that this
Agreement is valid and enforceable against the warranting party.

33. Intentionally left blank.

34. Commencement Date. The “Commencement Date” of the term shall be the
Effective Date of this Lease which shall be January 1, 2006.

35. Lease Year. The term “Lease Year” as used herein shall mean each consecutive
twelve (12) month period beginning with the Commencement Date and each
anniversary date thereof.

36. Relationship of Lessee and Lessor. This Lease does not create the
relationship of principal and agent or of partnership or of joint venture or any
association between Lessor and Lessee; the sole relationship between Lessor and
Lessee is that of lessor and lessee.

 

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37. Environmental Provisions. Responsibility for protecting the Premises from
contamination by Hazardous Substances, as defined in this Paragraph 37, and
compliance with Environment Law shall be as set forth in this Paragraph 37.

(a) Applicable Definitions. The term “Hazardous Substances” means all explosive
or radioactive substances or wastes, petroleum or petroleum distillates,
asbestos or asbestos-containing materials, polychlorinated biphenyls, and any of
the following: (i) any ‘hazardous substances,’ as defined under the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
§§9601 et seq.; (ii) any ‘extremely hazardous substance,’ ‘hazardous chemical’
or ‘toxic chemical,’ each as defined under the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. §§ 1101 et seq.; (iii) any ‘hazardous waste,’ as
defined under the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq.; (iv) any ‘pollutant,’
as defined under the Clean Water Act, 33 U.S.C. §§ 1251 et seq.; and (v) any
regulated substance or waste under any Environmental Law. For purposes of this
Lease, “Environmental Law” means all laws relating to Hazardous Substances,
pollution or protection of the environment and any judgment, decree, injunction,
order or ruling of any federal, state, or local court, governmental authority or
any arbitrator that are applicable to the Premises and binding on Lessee’s use
or occupancy of the Premises.

(b) Lessee’s Responsibility. During the Term of this Lease, Lessee shall not
permit to occur, to the extent it is within the reasonable knowledge and control
of Lessee, or cause any violation of Environmental Law on, under, or about the
Premises, or the use, generation, release, manufacture, refining, production,
processing, storage, or disposal of any Hazardous Substances on, under, or about
the Premises, or the transportation to or from the Premises of any Hazardous
Substance other than customary quantities of such Hazardous Substances
customarily used in the operation of Lessee’s business and then only in
accordance with Environmental Law.

(c) Intentionally left blank.

(d) Environmental Indemnity. Lessee shall indemnify, defend, and hold harmless
Lessor, the manager of the Premises, and their respective officers, directors,
beneficiaries, shareholders, partners, agents, and employees from all fines,
suits, procedures, claims, and actions of every kind and all costs associated
therewith (including reasonable attorneys’ and consultants’ fees) arising out of
or in any way connected with any deposit, spill, discharge, or other release of
Hazardous Substances in violation of Environmental Law that occurs during the
Term of the Lease and which results from Lessee’s use or occupancy of the
Premises, including occurrences resulting from acts by third parties during
Lessee’s occupancy or from Lessee’s failure to provide all information, make all
submissions, or take all actions required of Lessee under Environmental Law.
Lessee’s obligations and liabilities under this Section shall survive the
expiration or earlier termination of the Lease.

38. Intentionally left blank.

 

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39. Effective Date. Lessor and Lessee acknowledge that the Effective Date of
this Lease shall be January 1, 2006.

IN WITNESS WHEREOF, this Lease has been duly executed by the parties as of the
17th day of October, 2005.

 

LESSOR:

STECAR PROPERTIES, LLC,

a California limited liability company

By its member:

/s/Steven L. Ruegg

Steven L. Ruegg By its member:

 

Name:  

 

LESSEE:

DIEDRICH COFFEE, INC.,

a Delaware corporation

By:  

/s/Matthew C. McGuinness

Its:  

Executive Vice President

ATTACHMENTS:

Exhibit A – Description of the Land

Exhibit B – Lessor’s Lenders form of Subordination, Non-Disturbance Agreement

Addendum to Lease – Sections 40 through 44

 

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ADDENDUM TO LEASE

DATED AUGUST 1, 2005

BY AND BETWEEN STECAR PROPERTIES, LLC (“LESSOR”)

AND DIEDRICH COFFEE, INC. (“LESSEE”)

THIS ADDENDUM TO LEASE (“Addendum” or “Addendum to Lease”) is hereby
incorporated into the Lease (with an Effective Date of January 1, 2006) and made
a part thereof as though fully set forth at length therein. To the extent any of
the provisions of this Addendum conflict with any other portions of the Lease,
the provisions of this Addendum shall control. Unless otherwise defined herein,
all capitalized terms used herein shall have the same meaning in this Addendum
as defined in the Lease.

40. Option to Extend. Lessee shall have the option to extend the Term of the
Lease (“Option” or “Option to Extend”) for one (1) period of sixty (60) months
and one (1) period of ten (10) years, provided Lessee is not in default beyond
any applicable notice and cure period at the time the exercise of the Option to
Extend, and provided Lessee gives Lessor written notice of its election to
exercise the Option to Extend at least ninety (90) days prior to the expiration
of the Term.

41. Determination of Fair Market Value – Option Periods. In determining the Base
Rental for Months 181-300 of the Option Period (as referenced in Section 4(c)
above), Lessor and Lessee shall negotiate in good faith to arrive at a mutually
agreeable “Fair Market Rental Rate (the Base Rental for such period is to be
“90% of the Fair Market Rental Rate) one hundred twenty (120) days prior to the
commencement of such time period. If the parties cannot agree within thirty
(30) thereafter, then the Fair Market Rental Rate shall be determined as
follows: (1) Lessor and Lessee shall each select one (1) independent
unaffiliated real estate appraiser with at least five (5) years full-time
experience appraising commercial properties; (ii) within five (5) days after
agreement upon this list of appraisers, the selected appraisers shall meet and
shall select a third appraiser (“Appraiser”); (iii) within thirty (30) days
after the appointment of the Appraiser, the Appraiser shall independently
determine the Fair Market Rental Rate. Each party shall pay one-half of the
Appraiser’s fee and costs. The determination of the Appraiser in accordance with
this Section shall be final and binding on the parties and a judgment may be
rendered in a court of competent jurisdiction.

42. Memorandum of Lease. The parties shall execute and acknowledge, and cause to
be recorded in the Official Records of Monterey County, California, a short form
memorandum of the Lease in the form attached hereto as Exhibit “C”.

43. Eminent Domain Awards. Notwithstanding anything to the contrary in
Section 11 of the Lease, Lessee shall be entitled to the amount of any award
with respect to its Lessee improvements, moving expenses, and personal property,
including, but not limited to, Lessee’s furniture, fixtures, equipment and
goodwill, if paid by the condemning authority.

44. Counterparts. The Lease (including the Addendum to Lease) may be executed in
several counterparts, and/or by the execution of counterpart signature pages
that may be attached to one or more counterparts of the Lease, and all so
executed shall constitute one agreement

 

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binding on the parties hereto, notwithstanding that all of the parties are not
signatory to the original or the same counterpart. In addition, any counterpart
signature page may be executed by any party wherever such party is located, and
may be delivered by telephone facsimile transmission, and any such facsimile
transmitted signature pages may be attached to one or more counterparts of the
Lease (including this Addendum to Lease), and such faxed signature(s) shall have
the same force and effect, and be as binding, as if original signatures had been
executed and delivered in person.

IN WITNESS WHEREOF, this Addendum to the Lease has been duly executed by the
parties as of the      day of             , 2005.

 

LESSOR:

STECAR PROPERTIES, LLC,

a California limited liability company

By its member:

 

Steven L. Ruegg LESSEE:

DIEDRICH COFFEE, INC.,

a Delaware corporation

By:  

 

Its:  

 

 

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EXHIBIT “A”

Legal Description

Parcel A as said parcel is shown and so designated on that certain Parcel Map
filed February 3, 1992 in Volume 18 of “Parcel Maps” at Page 147, Monterey
County Records, and more particularly described as follows:

Beginning at the Southwesterly corner of said Parcel A, said point being on the
Easterly line of Commercial Parkway as shown on said Map; thence along the said
Easterly line N. 14° 00’ 00” W., 399.32 feet and along a tangent curve to the
left thru a central angle of 5° 47’ 57” with a radius of 460.00 feet for an arc
length of 46.56 feet; thence leaving said Easterly line N. 70° 12’ 03” E.,
342.23 feet; thence S. 14° 04’ 00” E., 480.38 feet; thence S. 76° 00’ 00” W.,
338.68 feet to the point of beginning.

A.P.No.: 133491-040

 

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EXHIBIT “B”

Estoppel, Subordination and Non-Disturbance Agreement

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When Recorded Mail To:

CENTENNIAL BANK

18837 Brookhurst Street

Suite 100

Fountain Valley, CA 92708

LOAN NO.: 0011-004579-06

 

LEASE SUBORDINATION,

ATTORNMENT AND

NON-DISTURBANCE AGREEMENT

NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN THE LEASEHOLD ESTATE IN THE
PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER
OR LATER SECURITY INSTRUMENT.

THIS LEASE SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE AGREEMENT (“Agreement”)
is made as of of September 7 2005_, by and among Stecar Properties, LLC, a
California Limited Liability Company (“Lessor”), Diedrich Coffee, Inc., A
Delaware Corporation (“Lessee”), and CENTENNIAL BANK (“Lender”).

RECITALS

 

  A. Lender made a loan to Lessor, which loan is to be evidenced by a Promissory
Note (“Note”) in the principal sum of One Million Seven Hundred Twenty Five
Thousand Dollars ($ 1,725,000.00 ) executed by Lessor, dated as of October 17,
2001. The Note is to be secured by a Deed of Trust, Assignment of Leases and
Rents and Security Agreement of even date therewith (“Deed of Trust”), which
Deed of Trust is to be recorded prior to or concurrently wherewith and which
Deed of Trust encumbers Lessor’s estate in the real property (“Subject
Property”) in Monterey County County, California described as follows:

Parcel A as said parcel is shown and so designated on that certain Parcel Map
filed February 3, 1992 in Volume 18 of “Parcel Maps” at Page 147, Monterey
County Records, and more particularly described as follows:

Beginning at the Southwesterly corner of said Parcel A, said point being on the
Easterly line of Commercial Parkway as shown on said Map; thence along the said
Easterly line N. 14° 00’ 00” W., 399.32 feet and along a tangent curve to the
left thru a central angle of 5° 47’ 57” with a radius of 460.00 feet for an arc
length of 46.56 feet; thence leaving said Easterly line N. 70° 12’ 03” E.,
342.23 feet; thence S. 14° 04’ 00” E., 480.38 feet; thence S. 76° 00’ 00” W.,
338.68 feet to the point of beginning.

A.P.No.: 133-491-040

 

  B. Lessee and Lessor entered into a lease (“Lease”), dated and amended by
amendment(s) dated (if non, so indicate), by which Lessee leased certain
premises (“Leased Premises”) constituting all or a portion of the Subject
Property.

 

  C. Lessee desires to be assured of continued occupancy of the Leased Premises
under the terms of the Lease and subject to the terms of the Deed of Trust
subject to the terms hereof.

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  D. Lenders is willing to make the Loan provided the Deed of Trust is a lien
and charge upon the Leased Premises prior and superior to the Lease and provided
that Lessee specifically subordinates the Lease to the lien and charge of the
Deed of Trust subject to the terms hereof.

 

  E. Lessee is willing that the Deed of Trust shall constitute a lien or charge
upon the Leased Premises which is prior and superior to the Lease subject to the
terms hereof and is willing to attorn to Lender provided Lender grant Lessee a
nondisturbance agreement as provided herein.

NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants
and conditions set forth hereinbelow, and in order to induce Lender to make the
loan referred to above, the parties hereto agree as follows;

1. As used in this Agreement, “Lease” includes, without limitation, all right,
title and interest that Lessee may have in all or any portion of the Leased
Premises, whether granted by the terms of the Lease, by a separate written or
oral agreement or otherwise.

2. Lender hereby consents to the Lease and all the provisions thereof.

3. Except as permitted by the Lease, Lessee shall not assign the Lease, nor
sublet any portion of the Leased Premises, and Lessor shall not consent to any
such assignment, or subletting other than as permitted by the terms of the
Lease, without the prior written consent of Lender, which consent shall not be
unreasonably withheld.

4. The Deed of Trust and any amendments, modifications, renewals and extensions
thereof shall be and remain at all times a lien and charge on the Leased
Premises, prior and superior to the Lease, to the leasehold estate created
thereby and to all rights and privileges of Lessee or any other Lessee
thereunder, subject to the terms hereof, and the Lease, the leasehold estate
created thereby and all rights and privileges of Lessee or any other lessee
thereunder are hereby subjected and made subordinate to the lien and charge of
the Deed of Trust in favor of Lender, subject to the terms hereof.

5. Lender would not make the Loan without this Agreement.

6. Lender in making disbursements pursuant to any agreement with Lessor is under
no obligation or duty to, nor has Lender represented that it will, see to the
application of the proceeds of the loan by Lessor or any other persons to whom
Lender disburse the proceeds of the loan. Any application or use of such
proceeds for purposes other than those provided for in any agreement between
Lender and Lessor shall not defeat the subordination made in this Agreement, in
whole or in part.

7. Lessee intentionally subjects and subordinates the Lease, the leasehold
estate created thereby together with all rights and privileges or Lessee or any
other lessee thereunder in favor of the lien and charge upon the Leased Premises
of the Deed of Trust, subject to the terms hereof, and understands that in
reliance upon and in consideration of this subjection and subordination,
specific loans and advances are being and will be made and specific monetary and
other obligations are being undertaken and will be entered into which would not
be made or entered into but for said reliance upon this subjection and
subordination.

8. Lender agrees that, in the event of foreclosure or other right asserted under
said Deed of Trust by the holder thereof, said Lease and the rights of Lessee
thereunder shall continue in full force and effect and shall not be terminated
or disturbed (whether by a foreclosure, deed in lieu of foreclosure or
otherwise), except for a default continuing after notice and beyond any
applicable grace period and otherwise in accordance with the provisions of said
Lease.

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9. If Lender or any subsequent holder of said Deed of Trust, or any person
claiming under said holder, including any purchaser upon foreclosure (any of
which being referred to as a “Successor”), whether by a foreclosure, deed in
lieu of foreclosure or otherwise, then such successor shall succeed to the
interest of the Lessor in said Lease, Lessee will recognize, and attorn to such
Successor, or such other person as its Landlord under the terms of said Lease
and be bound to such Successor under the terms of the Lease for the balance of
the term thereof and any extensions or renewals thereof. Said attornment is to
be effective and self-operative without the execution of any other instruments
on the part of either party hereto immediately upon Successor’s succeeding to
the interest of the lessor under the Lease; provided, however, that Lessee
agrees to provide written confirmation of its attornment within ten (10) days
after receipt of a written request for such confirmation by such Successor. In
any such event as described above, the Lease shall continue in accordance with
its terms between Lessee as tenant and such Successor as Lessor; provided,
however, that such Successor shall not be:

(i) liable for any act or omission of any prior landlord (including Lessor)
under the Lease (without limiting any rights of Lessee under the Lease for
non-monetary defaults of any prior landlord which continues and which such
Successor fails to cure within a reasonable time after such Successor acquires
Lessor’s interest under the Lease);

(ii) subject to any offsets or abatements against rent which Lessee may have
against any prior landlord (including Lessor) except for the exercise of rights
expressly set forth in the Lease;

(iii) bound by any rent or other charges with Lessee might have paid for more
than the current month to any prior landlord (including Lessor) except as
expressly required under the Lease;

(iv) bound by any amendment or modification of the Lease made without its
consent, which consent shall not be unreasonably withheld or delayed; or

(v) such Successor shall only be liable for the Lessor’s obligations under the
Lease accruing during the period of time that such Successor is the owner of the
Subject Property, except as otherwise provided herein.

10. Lessor agrees that, except as expressly provided herein, this Agreement does
not constitute a waiver by Lender of any of its rights under the Deed of Trust
or related documents, and that the Deed of Trust and any related documents
remain in full force and effect and shall be complied with in all respects by
the Lessor.

11. Lessee agrees with Lender that from and after the date hereof, Lessee will
not terminate or seek to terminate the Lease by reasons of any act or omission
of the lessor thereunder or for any other reason until Lessee shall have given
written notice and opportunity to cure (as hereafter provided), by registered or
certified mail, return receipt requested, of said act or omission to Lender,
which notice shall be addressed to:

Centennial Bank

18837 Brookhurst, Suite 100

Fountain Valley, CA 92708

Attn: Real Estate Loan Administration

 

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Lender shall have a period of time equal to the greater of: (i) the time allowed
Lessor under the Lease, or (ii) ten (10) days after receipt by Lender of such
notice, during which period Lender shall have the right, but not be obligated,
to remedy such act, omission or other matter.

12. This Agreement shall be the whole and only agreement with regard to the
subjection and subordination of the Lease and the leasehold estate created
thereby together with all rights and privileges of Lessee or any other lessee
thereunder to the lien and charge of the Deed of Trust, and shall supersede and
cancel (but only insofar as would affect the priority between the Deed of Trust
and the Lease) any prior agreements as to such subjection or subordination,
including, without limitation, those provisions, if any, contained in the Lease
which provide for the subjection or subordination of the Lease and the leasehold
estate created thereby to a deed or deeds of trust or to a mortgage or
mortgages.

13. This Agreement shall inure to the benefit of and shall be binding upon
Lessee, Lessor and Lender, and their respective heirs, personal representatives,
successors and assigns. This Agreement may not be materially altered, modified
or amended except in writing signed by all of the parties hereto. In the event
any one or more of the provisions contained in this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.

14. This Agreement shall be governed by and construed according to the laws of
the State of California.

15. This instrument may be executed in multiple counterparts, and the separate
signature pages and notary acknowledgments may then be combined into a single
original document for recordation.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.

 

LESSEE: Diedrich Coffee, Inc. A Delaware Corporation By:  

 

By:  

 

LESSOR:

BORROWER: Stecar Properties, LLC, a California Limited

Liability Company

By:  

 

  Steven L. Ruegg, Trustee of the Steve and Amy Ruegg   Revocable Trust, Member

 

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LENDER: CENTENNIAL BANK By:  

 

  Marianne Zarcone, SVP

(Notary Acknowledgements must be attached)

NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE
PERSON OBLIGATED ON YOUR LEASE TO OBTAIN A LOAN A PORTION OF WHICH MAY BE
EXPENDED FOR OTHER PURPOSES THAN IMPROVEMENT OF THE LAND.

 

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EXHIBIT “C”

Memorandum of Lease

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When Recorded Mail to:

Diedrich Coffee, Inc.

28 Executive Park

Suite 200

Irvine, CA 92614

Attn: Real Estate

Space above for Recorder’s Use

MEMORANDUM OF LEASE

THIS MEMORANDUM OF LEASE dated this 20th day of September, 2005, is by and
between STECAR PROPERTIES, LLC, a California limited liability company,
hereinafter called the “Lessor, whose address is 1 Northwood Drive., Orinda, CA
94563, and DIEDRICH COFFEE, INC., a Delaware corporation, hereinafter called the
“Lessee, whose principal place of business is located at 28 Executive Park,
Suite 200, Irvine, CA 92614, Attn: Real Estate.

Lessor does hereby lease to Lessee that certain premises with improvements and
appurtenant easments, if any, situated in the City of Castroville, County of
Monterey, State of California, more particularly described in Exhibit A attached
hereto and made a part hereof.

TO HAVE AND TO HOLD for a term commencing as of January 1, 2006, and ending ten
(10) years from the date thereof.

Further, Lessor does hereby grant to Lessee, the right of option to extend term
of this Lease upon the expiration of the original term for one additional sixty
(60) month period; and thereafter for one additional one hundred twenty
(120) month period.

The rentals to be paid by Lessee and all of the obligations and rights of Lessor
and Lessee in respect to the above described rental for the original term and
the extension thereof are set forth in that certain Lease dated             ,
2005 executed by the parties hereto. This instrument is merely a memorandum of
the aforesaid Lease and is subject to all fot he terms, conditions, and
provisions thereof. In the event of any inconsistency between the terms of Lease
and this instrument, the terms of said Lease shall prevail as between the
parties hereto. This memorandum is binding upon and shall inure to the benefit
of the heirs, sucessors, assigns and executors and administrators of the parties
hereto.

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IN WITNESS WHEREOF, the parties have executed this memorandum as of the date and
year first above written.

 

LESSOR:  

STECAR PROPERTIES, LLC,

a California limited liability company

    LESSEE:  

DIEDRICH COFFEE, INC.,

a Delaware corporation

By:  

 

    By:  

 

Name:  

 

    Name:  

 

Title:  

 

    Title:  

 

ACKNOWLEDGMENT

 

STATE OF CALIFORNIA    )    ) ss. COUNTY OF CONTRA COSTA    )

On this      day of         , 2005, before me,              Notary Public,
personally appeared Steven Ruegg, ¨ personally known to me or ¨ proved to me
based upon satisfactory evidence to be the person whose name is subscribed to
the within instrument, and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the person or
the entity upon behalf of which the person acted, executed the instrument.

In witness whereof, I have hereunto set my hand and affixed my official seal the
day and year first written above.

 

(SEAL)

  

 

  

ACKNOWLEDGMENT - CORPORATE

 

STATE OF CALIFORNIA    )    ) ss. COUNTY OF                         )

On this      day of         , 2005, before me,              Notary Public,
personally appeared                                 , ¨ personally known to me
or ¨ proved to me based upon satisfactory evidence to be the person whose name
is subscribed to the within instrument, and acknowledged to me that he executed
the same in his authorized capacity, and that by his signature on the instrument
the person or the entity upon behalf of which the person acted, executed the
instrument.

In witness whereof, I have hereunto set my hand and affixed my official seal the
day and year first written above.

(SEAL)

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EXHIBIT “A”

Legal Description

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EXHIBIT “A”

Legal Description

Parcel A as said parcel is shown and so designated on that certain Parcel Map
filed February 3, 1992 in Volume 18 of “Parcel Maps” at Page 147, Monterey
County Records, and more particularly described as follows:

Beginning at the Southwesterly corner of said Parcel A, said point being on the
Easterly line of Commercial Parkway as shown on said Map; thence along the said
Easterly line N. 14° 00’ 00” W., 399.32 feet and along a tangent curve to the
left thru a central angle of 5° 47’ 57” with a radius of 460.00 feet for an arc
length of 46.56 feet; thence leaving said Easterly line N. 70° 12’ 03” E.,
342.23 feet; thence S. 14° 04’ 00” E., 480.38 feet; thence S. 76° 00’ 00” W.,
338.68 feet to the point of beginning.

A.P.No.: 133-491-040

 

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