<PAGE>   1

                                                                   EXHIBIT 10.32

                                                              September 24, 1997

Mr. Kerry W. Coin
2144 Michelson Drive
Irvine, CA 92612

Dear Kerry:

        On April 25, 1997, the Compensation Committee of the Board of Directors
of Diedrich Coffee, Inc. (the "Company") approved certain changes to your
compensation and employment agreement with the Company. If you are in agreement
with the changes set forth below, please sign a copy of this letter (the
"Amendment Letter") and return it to me. Upon your execution of the Amendment
Letter, it shall amend your employment agreement with the company dated August
26, 1996 (the "Employment Agreement"). In the event of any conflict between the
terms of the Employment Agreement and the Amendment Letter, the Amendment Letter
shall supersede the Employment Agreement.

        1. Effective April 28, 1997, you shall assume the position of President
and Chief Operating Officer of the Company.

        2. Paragraph 2.1 of the Employment Agreement shall be revised in its
entirety to read as follows:

           "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 Sixty Thousand Dollars ($160,000)
        per year, payable in semi-monthly installments, less all amounts
        required by law to be withheld or deducted. During the term of this
        Agreement, the Board shall review the Employee's Base Salary from time
        to time and may, in its sole and absolute discretion, increase
        Employee's Base Salary."

        3. Upon the specific achievement of criteria set forth in the Financial
Plan dated August 7, 1997 and attached hereto as Exhibit A, you shall be
entitled to a "success bonus" in an amount up to 30% of your annual base salary.
You shall not be entitled to any bonus hereunder unless you fulfill the
requirements set forth in the Financial Plan for receiving the success bonus.

        4. The option exercise price with respect to the option shares granted
to you pursuant to Paragraph 2.2 of the Employment Agreement shall be (i) $3.00
with respect to the first 90,000 option shares to become exercisable pursuant to
the terms of such Paragraph and (ii) $4.50 with respect to the remaining 30,000
option shares granted pursuant to such Paragraph.

        5. Subparagraph 2.2(d) of the Employment Agreement shall be revised in
its entirety to read as follows:

           "(d) Unless terminated earlier pursuant to this subparagraph 2.2(d),
        the option shares shall terminate on August 26, 2006. If the Employee's
        employment with the Company is terminated for any reason whatsoever by
        the Company or the Employee prior to the expiration of the Term, any
        option shares that have not yet become exercisable shall not become
        exercisable after the effective date of Employee's termination of
        employment and such option shares shall terminate on such date. Any
        option shares which are exercisable as of the effective date of
        Employee's termination of employment shall remain exercisable for sixty
        (60) days following the effective date of such termination of employment
        and shall terminate on the sixtieth day following the effective date of
        employment termination. The option exercise price


<PAGE>   2

Mr. Kerry W. Coin
September 24, 1997
Page 2


        payable with respect to the option shares granted pursuant to this
        Agreement shall be payable only by delivery of legal tender of the
        United States in immediately available funds. This shall be the
        exclusive method of exercise with respect to the option shares and the
        Employee shall not be entitled to any net exercise rights, "cashless"
        exercise, exercise price loans, delivery of capital stock or option
        shares for the option exercise price or any other method of exercise."

        6. The first sentence of Subparagraph 4(d) of the Employment Agreement
shall be revised in its entirety as follows:

           "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 aggregate amount equal to $90,000 payable in equal monthly
        installments over a nine-month period and the Employee shall not be
        entitled to receive any other compensation or benefits hereunder."

        Congratulations and I look forward to working with you to build Diedrich
Coffee into a thriving and profitable company.

                                   Sincerely,


                                   Lawrence Goelman
                                   Chairman and Interim Chief Executive Officer


I have reviewed the foregoing and agree to the amendment of my Employment
Agreement as set forth herein. I have been advised to and have been given an
opportunity to consult with an attorney regarding this amendment to my
employment agreement. I further understand that the provisions of this Amendment
Letter revise material terms of my Employment Agreement and the stock options
granted thereunder and I agree to be bound by the terms hereof.


-------------------------------------------             ------------------------
Kerry W. Coin                                           Date