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                                                                   EXHIBIT 10.25


                           1997 NON-EMPLOYEE DIRECTOR
                         STOCK OPTION PLAN AND AGREEMENT

         This 1997 Non-Employee Director Stock Option Plan and Agreement, dated
as of April 25, 1997 (the "AGREEMENT") is entered into by and among Diedrich
Coffee, Inc., a Delaware corporation (the "COMPANY"), on the one hand, and Peter
Churm and Paul C. Heeschen (individually, the "GRANTEE" and collectively, the
"GRANTEES") on the other hand.

                                    RECITALS

         A. Messrs. Churm and Heeschen have served as independent directors of
the Company since the Company's initial public offering in September 1996. In
light of the operational challenges and management transition that the Company
has experienced this year, the independent directors have been called upon to
work closely with the Company's officers providing invaluable advice and
direction beyond that which would ordinarily be expected from members of the
Board of Directors.

         B. In appreciation of the service rendered by the independent directors
and for the purpose of encouraging and rewarding their continuing contributions
to the performance of the Company and further aligning their interests with the
interests of the Company's stockholders, the Company believes that it is in the
best interests of the Company and its stockholders to grant to each of the
Grantees options to purchase 10,000 shares of common stock, $0.01 par value per
share (the "COMMON STOCK"), of the Company .

                                    AGREEMENT

         NOW, THEREFORE, to evidence the grant of options by the Company and to
set forth the terms and conditions of the grant of options, the Company and
Grantees hereby agree as follows:

         1. DEFINITIONS. The following terms, as used in this Agreement, have
the meanings ascribed to them in this Section 1.

            (a) "BOARD" means the Board of Directors of the Company.

            (b) "CLOSING PRICE" means the closing price on any given trading day
of the Common Stock on the Nasdaq National Market (or any subsequent exchange or
market system upon which the Company's Common Stock is principally traded) as
reported in the Transaction Index of the Wall Street Journal.

            (c) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

            (d) "EXERCISE DATE" means any date on which Grantee exercises
Options.


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            (e) "EXERCISE DATE VALUE" means the product of: (i) the number of
shares of Common Stock delivered to the Company and (ii) the Closing Price of
the Common Stock on the Exercise Date.

            (f) "EXERCISE SHARES" means those shares of Common Stock with
respect to which Options are being exercised.

            (g) "NON-EMPLOYEE DIRECTOR" means a duly elected or appointed member
of the Company's Board of Directors who is not and has not since the beginning
of the Company's most recently completed fiscal year been an employee of or a
compensated consultant to the Company or any of its affiliates.

            (h) "OPTIONS" means options to purchase shares of Common Stock
granted under this Agreement.

            (i) "SECURITIES ACT" means the Securities Act of 1933, as amended.

         2. GRANT OF OPTIONS. The Company hereby grants options to Grantees
as follows:

            (a) The Company grants to Mr. Churm, effective as of the date
hereof, Options to purchase up to 10,000 shares of Common Stock on the terms and
subject to the conditions set forth herein; and

            (b) The Company grants to Mr. Heeschen, effective as of the date
hereof, Options to purchase up to 10,000 shares of Common Stock on the terms and
subject to the conditions set forth herein.

         3. EXERCISABILITY AND EXERCISE PRICES. The Options will become
exercisable at an option exercise price of $2.75 per share of Common Stock on
April 25, 1998, if the Grantee has remained a Non-Employee Director for the
entire period from the date hereof to April 25, 1998. Any Options that have not
become exercisable at the time the Grantee ceases to be a Non-Employee Director
shall terminate.

         4. TERMINATION OF OPTIONS.

            (a) Unless an earlier termination date occurs as specified in
Section 4(b), the Options will expire and become unexercisable (whether or not
then exercisable) on the tenth (10th) anniversary of the date hereof
("EXPIRATION DATE").

            (b) If a Grantee ceases to be a Non-Employee Director for any reason
prior to the Expiration Date: (i) all Options that have not otherwise become
exercisable, as of the date Grantee ceases to be a Non-Employee Director, will
immediately terminate and become unexercisable; and (ii) all Options that have
become exercisable will terminate and become unexercisable on and after the date
one hundred eighty (180) days following the date of Grantee's termination of
employment.


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         5. REGISTRATION OF OPTIONS. After execution of this Agreement, the
Company, at its expense, shall file a registration statement on Form S-8 to
register the issuance and exercise of the Options.

         6. RESTRICTIONS ON EXERCISE. All options granted under the Plan shall
be subject to the requirement that, if at any time the Company shall determine,
in its discretion, that the listing, registration or qualification of the shares
subject to options granted under the Plan upon any securities exchange or under
any state or federal law, or the consent or approval of any government or
regulatory body or authority, is necessary or desirable as a condition of, or in
connection with, the granting of such an option or the issuance, if any, or
purchase of shares in connection therewith, such option may not be exercised in
whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company. Unless the shares of stock to be issued upon exercise
of an option granted under the Plan have been effectively registered under the
Securities Act of 1933, as amended (the "Securities Act") as now in force or
hereafter amended, the Company shall be under no obligation to issue any shares
of stock covered by any option unless the person who exercises such option, in
whole or in part, shall give a written representation and undertaking to the
Company satisfactory in form and scope to counsel to the Company and upon which,
in the opinion of such counsel, the Company may reasonably rely, that he or she
is acquiring the shares of stock issued to him or her pursuant to such exercise
of the option for his or her own account as an investment and not with a view
to, or for sale in connection with, the distribution of any such shares of
stock, and that he or she will make no transfer of the same except in compliance
with any rules and regulations in force at the time of such transfer under the
Securities Act, or any other applicable law or regulation, and that if shares of
stock are issued without such registration, a legend to this effect may be
endorsed upon the securities so issued and the Company may order its transfer
agent to stop transfer of such shares.

         7. NON-TRANSFERABILITY OF OPTIONS. None of the Options are assignable
or transferable, in whole or in part, and may not, directly or indirectly, be
offered, transferred, sold, pledged, assigned, alienated, hypothecated or
otherwise disposed of or encumbered (including without limitation by gift,
operation of law or otherwise) other than by will or by the laws of descent and
distribution to the estate of Grantee upon his death, provided that the deceased
Grantee's beneficiary or the representative of his estate acknowledge and agree
in writing, in a form reasonably acceptable to the Board of Directors to be
bound by this Agreement as if such beneficiary or the estate were Grantee.

         8. WITHHOLDING. Whenever shares of Common Stock are to be issued
pursuant to the exercise of Options, the Board of Directors may require the
recipient of the shares of Common Stock to remit to the Company an amount
sufficient to satisfy any applicable federal, state and local tax withholding
requirements. Upon request by Grantee, the Company may also withhold shares of
Common Stock to satisfy applicable withholding requirements, subject to any
rules adopted by the Board of Directors regarding compliance with applicable
law, including, but not limited to, Section 16(b) of the Exchange Act.


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         9. MANNER OF EXERCISE.

            (a) To the extent that the Options have become and remain
exercisable as provided in Sections 3 and 4, and subject to such reasonable
administrative regulations as the Board of Directors may adopt, the Options may
be exercised, by written notice to the Board of Directors, specifying the number
of Exercise Shares and the Exercise Date. On or before the Exercise Date,
Grantee shall deliver to the Company full payment for the Options being
exercised in cash, or cash equivalent satisfactory to the Board of Directors,
and in an amount equal to the aggregate purchase price for the Exercise Shares.

            (b) Subject to the discretion of the Board of Directors, Grantee
may, in lieu of cash, either: (i) deliver shares of Common Stock having an
Exercise Date Value equal to the purchase price of the Exercise Shares; or (ii)
deliver a combination of cash and shares of Common Stock with an aggregate value
and Exercise Date Value equal to the purchase price of the Exercise Shares,
subject to such rules and regulations as may be adopted by the Board of
Directors to provide for the compliance of such payment procedure with
applicable law, including Section 16(b) of the Exchange Act.

            (c) The Board of Directors may require Grantee to furnish or execute
such other documents as the Board of Directors reasonably deems necessary: (i)
to evidence such exercise and (ii) to comply with or satisfy the requirements of
the Securities Act, applicable state securities laws or any other law.

         10. NO RIGHTS AS STOCKHOLDER. Grantee will have no voting or other
rights as a stockholder of the Company with respect to any shares of Common
Stock covered by the Options until the exercise of such Options and the issuance
of a certificate or certificates to him for such shares of Common Stock. No
adjustment will be made for dividends or other rights for which the record date
is prior to the issuance of such certificate or certificates.

         11. CAPITAL ADJUSTMENTS. The number and any applicable option price of
the shares of Common Stock covered by the Options will be proportionately and
appropriately adjusted by the Board of Directors to reflect any stock dividend,
stock split or share combination of the Common Stock or any recapitalization of
the Company. Subject to any required action by the stockholders of the Company,
in any merger, consolidation, reorganization, exchange of shares, liquidation or
dissolution, the Options will pertain to the securities and other property, if
any, that a holder of the number of shares of Common Stock covered by the
Options would have been entitled to receive in connection with such event.

         12. REORGANIZATIONS; MERGERS; CHANGES IN CONTROL. Subject to the other
provisions of this Section 12, if the Company shall consummate any
reorganization or merger or consolidation in which holders of shares of the
Company's Common Stock are entitled to receive in respect of such shares any
other consideration (including, without limitation, a different number of such
shares), each option outstanding under this Agreement shall thereafter be
exercisable, in accordance with the Agreement, only for the kind and amount of
securities, cash and/or other property receivable upon such reorganization or
merger or consolidation by a holder of the same number of shares of Common Stock
as are subject to that option immediately prior to


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such reorganization or merger or consolidation, and any appropriate adjustments
will be made to the exercise price thereof. In addition, if a Change in Control
occurs and in connection with such Change in Control any recipient of an option
granted under the Plan ceases to be a director of the Company, then such
recipient shall have the right to exercise his or her options granted under the
Plan in whole or in part during the applicable time period provided in Section 4
without regard to any vesting requirements. For purposes hereof, but without
limitation, a director will be deemed to have ceased to be a director of the
Company in connection with a Change in Control if such director (i) is removed
by or resigns upon request of a Person (as defined in paragraph (a) below)
exercising practical voting control over the Company following the Change in
Control, or a person acting upon authority or at the instruction of such Person,
or (ii) is willing and able to continue as a director of the Company but is not
re-elected to or retained on the Company's Board of Directors by the Company's
stockholders through the stockholder vote or consent action for election of
directors that precedes and is taken in connection with, or next follows, the
Change of Control. For purposes hereof, a "Change in Control" means the
following and shall be deemed to occur if any of the following events occur:

            (a) Any person, entity or group, within the meaning of Section 13(d)
or 14(d) of the Exchange Act, but excluding the Company and its subsidiaries and
any employee benefit or stock ownership plan of the Company or its subsidiaries
and also excluding an underwriter or underwriting syndicate that has acquired
the Company's securities solely in connection with a public offering thereof
(such person, entity or group being referred to herein as a "Person"), becomes
the beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of either the then outstanding shares of Common
Stock or the combined voting power of the Company's then outstanding securities
entitled to vote generally in the election of directors; or

            (b) Individuals who, as of the effective date hereof, constitute the
Board of Directors of the Company (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board of Directors of the Company,
provided that any individual who becomes a director after the effective date
hereof whose election, or nomination for election by the Company's stockholders,
is approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered to be a member of the Incumbent Board
unless that individual was nominated or elected by any Person having the power
to exercise, through beneficial ownership, voting agreement and/or proxy, 20% or
more of either the then outstanding shares of Common Stock or the combined
voting power of the Company's then outstanding voting securities entitled to
vote generally in the election of directors, in which case that individual shall
not be considered to be a member of the Incumbent Board unless such individual's
election or nomination for election by the Company's stockholders is approved by
a vote of at least two-thirds of the directors then comprising the Incumbent
Board; or

            (c) Consummation by the Company of the sale or other disposition by
the Company of all or substantially all of the Company's assets or a
reorganization or merger or consolidation of the Company with any other person,
entity or corporation, other than


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                (i) a reorganization or merger or consolidation that would
result in the voting securities of the Company outstanding immediately prior
thereto (or, in the case of a reorganization or merger or consolidation that is
preceded or accomplished by an acquisition or series of related acquisitions by
any Person, by tender or exchange offer or otherwise, of voting securities
representing 5% or more of the combined voting power of all securities of the
Company, immediately prior to such acquisition or the first acquisition in such
series of acquisitions) continuing to represent, either by remaining outstanding
or by being converted into voting securities of another entity, more than 50% of
the combined voting power of the voting securities of the Company or such other
entity outstanding immediately after such reorganization or merger or
consolidation (or series of related transactions involving such a reorganization
or merger or consolidation), or

                (ii) a reorganization or merger or consolidation effected to
implement a recapitalization or reincorporation of the Company (or similar
transaction) that does not result in a material change in beneficial ownership
of the voting securities of the Company or its successor; or

            (d) Approval by the stockholders of the Company or an order by a
court of competent jurisdiction of a plan of liquidation of the Company.

         13. NOTICES. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be deemed to have
been given if delivered personally or sent by certified or express mail, return
receipt requested, postage prepaid, or by any recognized international
equivalent of such delivery, to the Company, or Grantee, as the case may be, at
the address of the Company's principal executive office. All such notices and
communications shall be deemed to have been received on the date of delivery or
on the third business day after the mailing thereof.

         14. BINDING EFFECT; BENEFITS. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors and assigns. Nothing in this Agreement, express or implied, is
intended or shall be construed to give any person other than the parties to this
Agreement or their respective successors or assigns any legal or equitable
right, remedy or claim under or in respect of any agreement or any provision
contained herein.

         15. AMENDMENT. This Agreement may be amended, modified or supplemented
only by a written instrument executed by Grantees and the Company.

         16. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the law of the State of Delaware, regardless of the law that
might be applied under principles of conflict of laws.

         17. SECTION AND OTHER HEADINGS. The section and other headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.


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         18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.

         IN WITNESS WHEREOF, the Company and Grantees have executed this
Agreement as of the date first above written.

                                             DIEDRICH COFFEE, INC.,
                                             a Delaware corporation



                                             BY: /s/ MARTIN DIEDRICH
                                                 -------------------------------
                                             NAME: MARTIN DIEDRICH
                                             TITLE: VICE CHAIRMAN


                                             THE GRANTEES

                                             /s/ PETER CHURM
                                             -----------------------------------
                                             PETER CHURM


                                             /s/ PAUL C. HEESCHEN
                                             -----------------------------------
                                             PAUL C. HEESCHEN


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