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                             [DIEDRICH LETTERHEAD]

                                 April 23, 1997

Mr. Lawrence Goelman
Diedrich Coffee, Inc.
2144 Michelson Drive
Irvine, CA 92715

Dear Larry:

        This letter shall set forth the understanding between you and the other
members of the Board of Directors of Diedrich Coffee, Inc., a Delaware
corporation (the "Company") regarding your role as interim President and Chief
Executive Officer (the "Agreement"). Subject to the terms and conditions set
forth herein, we agree as follows:

        1.      You are hereby appointed and agree to serve as the Company's
interim President and Chief Executive Officer for the near term period which is
not anticipated to exceed six months from the date hereof.

        2.      As compensation for serving as the Company's interim President
and Chief Executive Officer, you shall be entitled to the following:

               (a)     $10,000 per month (less all amounts required by law to be
        withheld or deducted) payable on the last day of each month (or any pro
        rata portion thereof for any month of partial service) for so long as
        you continue in the role of interim Chief Executive Officer and/or
        Chairman. 

               (b)     The Company shall grant options to you pursuant to the
        Company's 1996 Stock Incentive Plan in accordance with the following
        terms and conditions: (i) you shall receive an option to purchase 25,000
        shares of the Company's common stock, which shall become exercisable on
        April 23, 1997 at an exercise price of $2.75, which represents the
        closing price for the stock on the date hereof and (ii) you shall
        receive options to purchase an additional 75,000 shares of the Company's
        common stock which shall become exercisable in increments of 15,000
        shares commencing on May 23, 1997 and on the 23rd day of each month
        thereafter for so long as you continue in the role of interim Chief
        Executive Officer and/or Chairman at an exercise price of $2.75, which
        represents the closing price for the stock on the date hereof. In the
        event that you cease to serve as the Company's interim President and
        Chief Executive Officer and/or Chairman, all of the options that have
        not otherwise become exercisable shall terminate on the effective date
        of your cessation of employment with the Company. All of the options
        that have become exercisable shall terminate on the date five years
        following the date of your cessation of employment with the Company.

        3.      The Company shall pay or reimburse you for all reasonable and
necessary travel and other business expenses incurred or paid by you in
connection with the performance of your services under this Agreement
consistent with the Company's policies for other senior executives of the
Company. 
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        4.      This Agreement is "at will" and it may be terminated, with or
without cause, at any time, by either you or the Company.

        Thank you for your assistance to the Company at this important time. If
the provisions of this letter are consistent with your understanding of our
agreement, please sign and return the enclosed counterpart copy of this letter
to me at your earliest convenience.

                                        Sincerely,


                                        Martin R. Diedrich
                                        Chairman of the Board of Directors

Accepted and agreed to:


-------------------------------
Lawrence Goelman


Date:  April 23, 1997