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                                                                   EXHIBIT 10.40

                              EMPLOYMENT AGREEMENT


        THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as
of April 8, 1998, by and between DIEDRICH COFFEE, INC., a Delaware corporation
(the "Company") and ANN WRIDE ("the Employee").

                                R E C I T A L S:

        The Company and the Employee desire to enter into this Agreement to
establish the terms and conditions of the Employee's employment by the Company
during the term hereof.

                               A G R E E M E N T:

        NOW, THEREFORE, in consideration of the foregoing recital, and subject
to the conditions and covenants set forth herein, the parties agree as follows:

        1.     Employment and Term.

                      (a) The Company hereby employs the Employee as its Chief
Financial Officer and the Employee hereby accepts such employment upon the terms
and subject to the conditions set forth in this Agreement. Unless earlier
terminated as provided in this Agreement, the term of the Employee's employment
under this Agreement shall commence on the date hereof and shall continue for a
period of two (2) years from the date hereof (the "Term").

                      (b) The Employee shall perform such duties and functions
consistent with her role as Chief Financial Officer as may from time to time be
assigned to her by the President and Chief Executive Officer (CEO). The Employee
agrees that during the course of the Company's business hours throughout the
Term, she will devote the whole of her time, attention and efforts to the
performance of her duties and obligations hereunder. The Employee shall not,
during the Term, without the written approval of the Board, and obtained in each
instance, directly or indirectly (i) accept employment or receive any
compensation for the performance of services from any business enterprise other
than the Company or (ii) enter into or be concerned or interested in any trade
or business or public or private work (whether for profit or otherwise and
whether as partner, principal, shareholder or otherwise), which may, in the
absolute discretion of the CEO, hinder or otherwise interfere with the
performance by the Employee of her duties and obligations hereunder, except as a
holder of not more than five percent (5%) of any class of stock or other
securities in any company which is listed and/or traded on any securities
market.

        2.     Compensation.

               2.1 Salary. For all services to be rendered by the Employee under
this Agreement, the Company agrees to pay the Employee a salary (the "Base
Salary") equal to One Hundred Fifty Five Thousand Dollars ($155,000) per year,
payable in bi-weekly installments,




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less all amounts required by law to be withheld or deducted. During the Term of
this Agreement, the CEO shall review the Employee's Base Salary with the
Compensation Committee on or about each anniversary date of the date of this
Agreement. The Compensation Committee, in its sole and absolute discretion from
time to time, may increase (but not decrease without the Employee's written
consent) the Employee's Base Salary.

               2.2 Stock Options. Contemporaneously with the execution of this
Agreement, the Company and Employee shall enter into a Stock Option Agreement,
under the Company's 1996 Stock Incentive Plan, pursuant to which the Company
will grant Employee, upon the terms and other conditions set forth therein,
options to purchase 50,000 shares of the Company's Common Stock.

        3. Employee Benefits. During the Term of the Employee's employment
hereunder:

               (a) The Employee shall be entitled to three weeks annual vacation
leave consistent with the Company's policies for other senior executives of the
Company.

               (b) The Company shall pay or reimburse the Employee for all
reasonable and necessary travel and other business expenses incurred or paid by
the Employee in connection with the performance of her services under this
Agreement consistent with the Company's policies for other senior executives of
the Company.

               (c) Commencing three weeks after the date of this Agreement the
Company shall provide and pay for the annual cost of premiums for health, dental
and medical insurance coverage for the Employee and the Employee's dependents
consistent with the coverage generally made available by the Company to senior
executives of the Company and providing benefits at least as favorable to the
Employee as the coverage that is in effect at the date of this Agreement.

               (d) In addition to the benefits set forth above, the Employee
shall be entitled to participate in any other policies, programs and benefits
which the Company may, in its sole and absolute discretion, make generally
available to its other senior executives from time to time including, but not
limited to, life insurance, disability insurance, pension and retirement plans,
stock plans and other similar programs.

        4.     Termination of Employment.

               (a) Notwithstanding any other provision of this Agreement, the
Employee's employment under this Agreement may be terminated as follows:

                      (i) Upon the death of the Employee, this Agreement and the
        Employee's employment hereunder shall terminate immediately and without
        notice by the Company; or

                      (ii) In the event of the inability of the Employee to
        perform her duties or responsibilities hereunder, as a result of mental
        or physical ailment or incapacity, for an aggregate of ninety (90)
        calendar days during any calendar year (whether or not consecutive) (a
        "Disability") during which period of Disability the Employee shall be


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        entitled to her compensation pursuant to this Agreement, this Agreement
        and the Employee's employment hereunder shall terminate upon delivery of
        written notice to the Employee; or

                      (iii) By the Company for Cause (as defined below) in
        accordance with the provisions of Section 4(b) hereof

               (b) The parties agree that for purposes of this Agreement, the
term "Cause" shall mean the following:

                      (i) The Employee's willful and repeated failure to
        satisfactorily perform her job duties under this Agreement;

                      (ii) Failure by the Employee to comply with all material
        applicable laws in performing her job duties or in directing the conduct
        of the Company's business, or

                      (iii) Commission by the Employee of any felony or
        intentionally fraudulent act against the Company, or its employees,
        agents or customers.

               (c) With respect to events described in subparagraph 4(b)(i) and
(ii) above, the Company shall give written notice to the Employee of any such
event and the Employee shall have thirty (30) days beginning on the date of
delivery of such written notice to cure same, or if such event cannot be cured
within said thirty (30) day period, the Employee shall commence her efforts to
cure the event within the thirty (30) day period and diligently work to cure
such event within a reasonable time period. If the Employee within said thirty
(30) day period or within a reasonable time period, as applicable, does not cure
the event for which notice has been provided under subparagraphs 4(b)(i) or (ii)
above, then the Employee's employment under this Agreement may be terminated by
the Company by delivery to the Employee of written notice of termination and
such termination will be effective as of the date of delivery of such written
notice. With respect to events described in subparagraph 4(b)(iii) above, the
Employee's employment under this Agreement may be terminated by the Company by
delivery to the Employee of written notice of termination and such termination
will be effective as of the date of delivery of such written notice. Upon the
effectiveness of termination pursuant to subparagraph 4(a), the Employee shall
not be entitled to receive any further compensation or benefits pursuant to this
Agreement except for payment within ten days after her termination date of all
accrued but unpaid Base Salary.

               (d) In addition to its rights to terminate the Employee's
employment under this Agreement pursuant to subparagraph 4(a), the Company may
also terminate the Employee's employment under this Agreement for any other
reason, provided that, in such event, the Employee shall be entitled to receive
an amount equal to fifty percent of the Employee's Base Salary on the
termination date and the Employee shall not be entitled to receive any other
compensation or benefits hereunder, except with respect to accrued vacation. The
Employee acknowledges and agrees that the provisions of this paragraph 4 state
her entire and exclusive rights, entitlements, and remedies against the Company,
its successors, assigns, affiliates,


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officers, directors, employees and representatives for termination without any
cause shown by the Company.

               (e) The Employee may terminate her employment for good cause or
without any cause. In the event the Employee terminates her employment for "good
cause" (as defined below), she shall be entitled to receive the severance
benefits described in subparagraph 4(d) above. If she terminates her employment
for any other reason, she shall not be entitled to receive any compensation
except for payment within ten days after her termination date of all accrued but
unpaid Base Salary. For purposes of this Agreement, "good cause" for termination
of employment by the Employee shall mean failure to maintain the Employee in the
position of an officer of the Company or a material breach of the provisions of
this Agreement by the Company. The Employee acknowledges and agrees that the
provisions of this subparagraph 4(e) state her entire and exclusive rights and
remedies under this Agreement against the Company, its successors, assigns,
affiliates, officers, directors, employees and representatives if she terminates
this Agreement.

        5. Assignment of Rights and Duties. Neither the Employee nor the Company
may assign their rights or duties under this Agreement without prior written
consent of both parties, which consent may be withheld for any reason. Any
attempted assignment, transfer, conveyance, or other disposition of any interest
of either party in this Agreement shall be void. Notwithstanding the foregoing,
the Company may make such assignment to any affiliated company, but its
assignment of this Agreement to an affiliate does not relieve it of its
obligations under this Agreement if that affiliate fails to perform the
Company's obligations under this Agreement. In the event of the sale of all or
substantially all of the assets of the Company or other transaction in which the
Company will not continue as a surviving corporate entity engaged in a
substantially similar business as it is engaged in prior to such transaction,
the Company will use commercially reasonable efforts to obtain from the
acquiring person or entity, before the succession takes place, an agreement to
assume and perform all of the terms and conditions of this Agreement.

        6.     Confidential Information and Nonsolicitation.

               (a) The Employee acknowledges and agrees that the Company has
developed and uses certain proprietary and confidential information, data,
processes, business methods, computer software, data bases, customer lists and
know-how ("Confidential Information"). The Employee agrees that the Confidential
Information is a trade secret of the Company which shall remain the sole
property of the Company notwithstanding that the Employee, as an employee of the
Company, may participate in the development of the Confidential Information.
During the term of this Agreement and at all times thereafter the Employee shall
not disclose any Confidential Information to any person or entity for any reason
or purpose whatsoever, nor shall the Employee make use of any Confidential
Information for the Employee's own benefit or for the benefit of any other
person or entity. Upon termination of this Agreement for any reason, the
Employee will promptly surrender to the Company all Confidential Information in
the Employee's possession or under the Employee's control, whether prepared by
the Employee or by others.


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        7.     Miscellaneous.

               7.1 Modification and Waiver of Breach. No waiver or modification
of this Agreement or any term hereof shall be binding unless it is in writing
signed by the parties hereto. No failure to insist upon compliance with any
term, provision or condition to this Agreement, whether by conduct or otherwise,
in any one or more instances, shall be deemed to be or construed as a waiver of
any such term, provision or condition or as a waiver of any other term,
provision or condition of this Agreement.

               7.2 Notices. All notices, requests, demands and other
communications under this Agreement must be in writing and shall be deemed given
upon personal delivery, facsimile transmission (with confirmation of receipt),
delivery by a reputable overnight courier service or five (5) days following
deposit in the United States mail (if sent by certified or registered mail,
postage prepaid, return receipt requested), in each case duly addressed to the
party to whom such notice or communication is to be given as follows:

        To the Company:      Diedrich Coffee, Inc.
                             2144 Michelson Drive
                             Irvine, California 92612
                             Attention: Chairman of the Board
                             Telecopy Number: (714) 260-1610

        To the Employee:     Ann Wride
                             516 13th St
                             Huntington Beach CA 92648

        Any party may change its address for the purpose of this subparagraph
7.2 by giving the other party written notice of the new address in the manner
set forth above.

               7.3. Enforceability. If any of the covenants contained in this
Agreement, for any reason and to any extent, are construed to be invalid or
unenforceable, the remainder of this Agreement, and the application of the
remaining covenants to other persons or circumstances shall not be affected
hereby, but rather shall be enforced to the greatest extent permitted by law.

               7.4. Entire Agreement. This Agreement contains the entire
agreement between the Company and the Employee with respect to the subject
matters hereof and supersedes all prior or contemporaneous agreements,
arrangements or understandings, written or oral, with respect to the subject
matters hereof.

               7.5. Legal Fees; Arbitration. The parties hereto expressly agree
that in the event of any dispute, controversy or claim by any party regarding
this Agreement, the prevailing party shall be entitled to reimbursement by the
other party to the proceeding of reasonable attorney's fees, expenses and costs
incurred by the prevailing party. Any controversy, dispute or claim arising out
of, in connection with, or in relation to the interpretation, performance or
breach of this Agreement or otherwise arising out of the execution hereof,
including any claim based on contract, tort or statute, shall be resolved, at
the request of any party, by submission to


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binding arbitration at the Orange County, California offices of Judicial
Arbitration & Mediation Services, Inc. ("JAMS"), and any judgment or award
rendered by JAMS shall be final, binding and unappealable, and judgment may be
entered by any state or federal court having jurisdiction thereof. Any party can
initiate arbitration by sending written notice of intention to arbitrate (the
"Demand") by registered or certified mail to all parties and to JAMS. The Demand
shall contain a description of the dispute, the amount involved, and the remedy
sought. The arbitrator shall be a retired or former judge agreed to between the
parties from the JAMS' panel. If the parties are unable to agree, JAMS shall
provide a list of three available judges and each party may strike one. The
remaining judge shall serve as the arbitrator. Each party hereto intends that
the provisions to arbitrate set forth herein be valid, enforceable and
irrevocable. In her award, the arbitrator shall allocate, in her discretion,
among the parties to the arbitration all costs of the arbitration, including the
fees of the arbitrator and reasonable attorneys' fees, costs and expert witness
expenses of the parties. The parties hereto agree to comply with any award made
in any such arbitration proceedings that has become final and agree to the entry
of a judgment in any jurisdiction upon any award rendered in such proceeding
becoming final.

               7.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.

               7.7. Counterparts. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

        "THE COMPANY"              DIEDRICH COFFEE, INC., a California
                                   corporation


                                  By:________________________________________
                                     Tim J. Ryan
                                     President & CEO



        "THE EMPLOYEE"               ________________________________________
                                     ANN WRIDE


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