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Sample Business Contracts

Warrant - Diedrich Coffee Inc. and Virginia R. Cirica Trust

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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND THUS MAY NOT BE TRANSFERRED UNLESS REGISTERED UNDER THAT ACT OR SUCH
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS AVAILABLE.

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                                     WARRANT

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                                                                 August 29, 1997

         Diedrich Coffee, Inc., a Delaware corporation ("Company"), hereby
grants to The Virginia R. Cirica Trust, a trust organized under the laws of the
State of California ("Holder" or the "Trust"), or its registered assigns the
right to acquire the shares of Common Stock issuable upon exercise hereof,
subject to the terms and conditions set forth below:

         1. Definitions. As used in this Warrant, the following terms shall
mean:

            1.1 "Agreement" -- shall mean the Term Loan Agreement dated as the
date hereof, between Company and the Trust.

            1.2 "Common Stock" -- shall mean the Common Stock, $0.01 par value
issued by Company issuable on exercise of this Warrant.

            1.3 "Company" shall include Diedrich Coffee, Inc. and each successor
corporation or Diedrich Coffee, Inc. under this Warrant, whether such assumption
is express, implied, or by operation of law.

            1.4 "Determination Date" -- shall mean the date on which Company
receives Holder's written notice of an exercise of the stock purchase right
pursuant to Section 2.1 hereof.

            1.5 "Indemnified Person" -- shall have the meanings given in Section
3.7(a) and Section 3.7(b).

            1.6 "Issuance Date" -- shall mean the date of this Warrant.

<PAGE>   2

            1.7 "Note" -- shall mean the Secured Promissory Note issued by
Company to the Trust as further described in the Agreement.

            1.8 "Liability" -- shall have the meaning given in Section 3.7.

            1.9 "Purchase Price" -- shall mean initially $2.25 per share, as
adjusted in accordance with Section 5, depending upon the context.

            1.10 "Registration Expenses" -- shall have the meaning given in
Section 3.6.

            1.11 "SEC" -- shall mean the Securities Exchange Commission.

            1.12 "Securities Act" -- shall mean the Securities Act of 1933, as
amended.

            1.13 "Shares" -- shall mean the shares of Warrant Stock for which
this Warrant may be exercised pursuant to Section 2.1 hereof.

            1.14 "Subsidiary" -- shall mean any corporation, association or
other business entity at least fifty percent (50%) of the outstanding voting
stock of which is at the time owned or controlled directly or indirectly by
Company or by one or more of such subsidiary entities or both.

            1.15 "Warrant Amount" -- shall mean an amount equal to the initial
Purchase Price times 170,000 shares, as reduced by the exercise of rights
hereunder; provided however that if Company repays the Trust all amounts due
under the Note within 120 days of the date hereof, thereafter the term "Warrant
Amount" shall mean an amount equal to the initial Purchase price times 85,000
shares, as reduced by the exercise of rights hereunder.

            1.16 "Warrant Stock" -- shall mean the authorized and unissued
Common Stock reserved for issuance upon exercise of the Warrant.

         2. Right to Purchase.

            2.1 Exercise. Holder shall have the right to purchase for all or any
portion of the Warrant Amount that number of shares of fully paid and
nonassessable Warrant Stock of Company which is determined by dividing the
Warrant Amount by the Purchase Price. Such right shall be exercisable at any
time through and including August 19, 2003, or, if later, one year after the
final payment of all principal and accrued interest on the Secured Promissory 
Note issued to the Trust pursuant to the Agreement (the "Note"). Upon the 
surrender of this Warrant 


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to Company, accompanied by Holder's written notice of exercise and a payment of
the Purchase Price for the Shares identified in the notice, Company shall,
within ten (10) days from the date of Company's receipt of such notice (a) issue
and deliver to Holder certificates evidencing the Shares (as hereinafter set
forth) and (b) if any or all of rights to purchase evidenced by this Warrant
remain unexercised, return this Warrant or a substitute Warrant to Holder with
such notation thereon as appropriate to indicate that partial exercise has
occurred and to purchase rights. For the purpose of this Section 2, the purchase
shall be deemed to occur at the close of business on the Determination Date. In
the event that Holder shall elect to exercise its right with respect to less
than the entire number of shares covered by this Warrant, such partial exercise
shall not be interpreted to prevent Holder or its transferees, successors or
assignees from asserting the then unexercised rights or constitute a waiver of
such unexercised rights.

            2.2 Form of Payment: "Cashless" Exercise. Payment on exercise of
this Warrant may be in cash, by check payable to the order of the Company, by
surrender of one or more of the Company's promissory notes (or portion thereof),
securities, or other obligations (or portion thereof), or any combination of the
above. At Purchaser's option, exercisable in the notice delivered pursuant to
Section 2.1, all or a portion of the Purchase Price may be paid by surrendering
a portion of the Shares. The value attributed to any Shares so surrendered shall
be the closing bid price on the date of the notice.

            2.3 Fractional Shares. No fractional shares of Warrant Stock, or
other class of capital stock, will be issued in connection with any exercise
hereunder, but in lieu of such fractional shares, Company shall make a cash
payment therefor upon the basis of the fair market value of each Share as of the
Determination Date, as determined in good faith by the Board of Directors of
Company less the Purchase Price.

            2.4 Interest Adjustment. The parties agree that if the Note was not
accompanied by this Warrant, the interest rate would be not more than one
percent (1%) higher.

            2.5 Surrender Warrant Following Kickout. If Company repays the Trust
all amounts due under the Note within 120 days of the date hereof, the Trust
shall immediately surrender this Warrant to Company and Company shall reissue to
the Trust a replacement Warrant reflecting the change in the Warrant Amount.

         3. Registration Rights; Transfer of Securities. This Warrant and the
Warrant Stock to be issued pursuant to exercise of this Warrant is not
transferable except, to the extent such transfers would not violate the
provisions of the Securities Act or any applicable state securities laws, (a) to
affiliates (as such term is defined 

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<PAGE>   4
in Rule 144 of the Securities Act) of the Holder who are accredited investors
within the meaning of Regulation D of the Securities Act, (b) such other persons
upon the prior written consent of Company, which consent shall not be
unreasonably be withheld, or (c) upon the conditions specified in this Section
3, which conditions are intended to assure compliance with the provisions of the
Securities Act and state securities laws in respect of the transfer of any such
Warrants or Warrant Stock.

            3.1 Restrictive Legends. Unless and until they are registered under
the Securities Act, this Warrant (and any replacement therefor) and the Shares
issued upon the exercise of this Warrant shall be stamped or otherwise imprinted
with legends in substantially the following form:

            THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
            REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
            AMENDED, OR ANY STATE SECURITIES LAWS AND THUS MAY NOT BE
            TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER THAT ACT OR SUCH
            LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS
            AVAILABLE.

            Company may cause its transfer agent to stop the transfer of such
Warrants or Warrant Stock if Holder or the owner of Warrant Stock wishing to
make the transfer fails to provide the Company with such a written opinion of
counsel.

            3.2 Notice of Proposed Transfers. Subject to Section 3.1, prior to
any transfer or attempted transfer of this Warrant (or any Warrant Stock)
bearing the legend described in Section 3.1, Holder (or the owner of Warrant
Stock) shall give the Company written notice of its intention so to do,
describing briefly the nature of any such proposed transfer. If, in the written
opinion of counsel for Holder (or the owner of Warrant Stock), in form and
substance reasonably satisfactory to the Company or its counsel, addressed to
the Company or Holder (or the owner of Warrant Stock), the proposed transfer may
be effected without registration of this Warrant (or such Warrant Stock), this
Warrant (or the Warrant Stock proposed to be transferred) may be transferred in
accordance with the terms of said notice and in compliance with applicable state
securities laws and regulations. Company shall not be required to effect any
such transfer prior to the receipt of such favorable opinion; provided that if
the proposed transfer is governed by Rule 144 promulgated by the SEC, or any
successor rule, such opinion shall not be required, but Company may prevent such
transfer until it receives evidence satisfactory to it and its counsel that the
transfer complies with Rule 144. Each transfer shall comply with all applicable
state securities laws and regulations.


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<PAGE>   5

            3.3 Piggyback Registration. If Company at any time prior to August
19, 2003 proposes to register any of its securities under the Securities Act
(other than a registration effected solely to implement an employee benefit
plan, a transaction to which Rule 145 of the SEC is applicable or any other form
or type of registration in which the Warrant Stock cannot be included pursuant
to SEC rule or practice), it will give a written notice to Holder and the
registered owners of Warrant Stock of its intention to do so. If such
registration is proposed on a form which permits inclusion of the Warrant Stock,
upon the written request of Holder or any owner of Warrant Stock given within 30
days after the transmittal by Company to such Holder or owner of such notice,
the Company will, subject to the limits contained in this Section 3.3, use its
best efforts to cause all Warrant Stock which said requesting Holder or owner
identifies in its request (including Warrant Stock to be issued upon exercise of
this Warrant) to be registered under the Securities Act and qualified for sale
under any state blue sky law, all to the extent requisite to permit such sale or
other disposition by such Holder or owner. Notwithstanding the above, however,
if the underwriter managing such registration gives a written notice to the
person requesting registration pursuant to this Section 3.3 that market or
economic conditions limit the amount of securities of the Company which may
reasonably be expected to be sold, the underwriter shall first exclude from the
proposed registration the shares of Common Stock which persons other than (a)
such requesting Holder or owners of Warrant Stock, (b) the holders of the
warrants issued pursuant to the Other Agreements (as that term is defined in the
Agreement) or (c) Company have requested to be registered. If, after such
exclusion, the total number of shares of Common Stock to be registered still
exceeds the number of shares of Common Stock which the underwriter will permit
to be registered, each requesting Holder or owner will be allowed to register
Warrant Stock pro rata according to the proportion which the number of shares of
Warrant Stock held (including shares issuable upon exercise of this Warrant) by
such requesting Holder or owner bears to the total number of shares of Common
Stock which were proposed to be sold by the underwriter. Company may for any
reason determine not to proceed with a proposed registration of its securities
even though Holder or one or more owners of Warrant Stock has requested the
inclusion of Warrant Stock in such proposed registration. However, if Company
determines not to proceed and withdraws the Company's registration statement,
Company shall pay all fees and expenses reasonably incurred by the requesting
Holder or owner(s) in connection with the proposed registration.

            3.4 Demand Registration. Company shall use its best efforts to
qualify and remain qualified for registration of the Warrant Stock on Form S-3
(or a similar short-form registration statement). If singly or in combination,
the Holder, holders of any other warrant issued pursuant to the Agreement or the
Other Agreements, or owners of Common Stock issued pursuant to this Warrant or
any other warrant issued pursuant to the Agreement or the Other Agreements
request


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<PAGE>   6

to have 255,000 or more of their shares of Common Stock (or shares of Warrant
Stock which they are entitled to acquire under this or such other warrants)
registered, Company will use its best efforts to promptly register such shares
on Form S-3 (or a similar short-form registration statement). Such request(s)
shall be in writing and shall state the number of shares of Warrant Stock to be
registered and the intended method of disposition of such Warrant Stock in
sufficient detail to permit a description in a registration statement and shall
contain a statement of a good-faith intention to sell the Warrant Stock proposed
to be registered. The Company may delay registration pursuant to this Section
3.4 if, in the good-faith judgment of the Company, such registration will hinder
or interfere with a concurrent or proposed security issuance of, or acquisition
by, the Company; provided that the Company shall use its best efforts to effect
the registration following the completion of the transaction or transactions
involving such issuance or acquisition. The Company shall give notice to Holder
and all registered owners of Warrant Stock of the receipt of a request for
registration pursuant to this Section 3.4 and shall provide a reasonable
opportunity for such persons to participate in the registration. If any
requesting Holder or owner of Warrant Stock determines not to proceed with a
registration requested pursuant to this Section 3.4 and the registration is not
completed (or is completed but less than 255,000 shares of Warrant Stock are
registered), such withdrawing Holder or owner shall pay its proportionate share
of the expenses reasonably incurred by Company pursuant to the registration
request, unless the decision not to proceed is:

                (a) based upon a material adverse fact or condition relating to
Company which was not disclosed to such Holder or owner of Warrant Stock prior
to the request for registration;

                (b) based upon a written opinion of such Holder or owner's
counsel that one or more specific statements or omissions in the proposed
registration statement are materially misleading without changes which Company
declines to make after written request therefor; or

                (c) followed by a decision by Company or other holders of
Company's Common Stock (or holders of rights to such stock) to proceed with the
registration in question, which results in the proposed registration statement
becoming effective with respect to shares of Common Stock to be issued by the
Company or held by others.

            3.5 Registration Procedures. If and whenever Company proposes the
registration of any of its securities under the Securities Act, or is in receipt
of a request pursuant to Section 3.3 or 3.4, Company will, as expeditiously as
possible, subject in all cases to the right of Company to withdraw a proposed
registration as described in Section 3.3 or delay the registration as described
in Section 3.4.


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<PAGE>   7

                (a) prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period provided for in Section
3.5(g);

                (b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period provided for in Section 3.5(g) and to otherwise comply with the
provisions of the Securities Act with respect to the sale or other disposition
of the securities covered by such registration statement;

                (c) furnish to Holder and the owners of Warrant Stock whose
securities are to be included in the registration such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as Holder or such
owners may reasonably request to facilitate the sale or other disposition of the
Warrant Stock to be covered by such registration statement;

                (d) use every reasonable effort to register or qualify the
securities covered by such registration statement under such other securities or
state blue sky laws of such jurisdictions as Holder or the owners of Warrant
Stock participating in such registration shall reasonably request and do any and
all other acts and things which may be necessary under such securities or blue
sky laws to enable such Holder or owners to consummate the sale or other
disposition in such jurisdictions of the securities owned by them which are
covered by the registration statement in question, except that the Company shall
not for any such purpose be required to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;

                (e) before filing the registration statement or prospectus or
amendments or supplements thereto, furnish to one counsel selected by Holder and
the owners of Warrant Stock who have requested registration copies of such
documents proposed to be filed which shall be subject to the reasonable approval
of such counsel; and

                (f) furnish to Holder and each requesting owner of Warrant Stock
a signed counterpart, addressed to such Holder or owner, of (i) an opinion of
counsel for Company, dated the effective date of the registration statement, and
(ii) a "comfort" letter signed by the independent public accountants who have
certified Company's financial statements included in the registration statement,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in case of the accountants'


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<PAGE>   8

letter with respect to events subsequent to the date of the financial
statements, as are customarily covered (at the time of such registration) in
opinions of Company's counsel and in accountants' letters delivered to the
underwriters in underwritten public offerings of securities; and

                (g) notwithstanding any other provision of this Section 3,
Company shall not in any event be required to us its best efforts to maintain
the effectiveness of any such registration statement for a period in excess of
90 days (or at the request of Holder or any owner of Warrant Stock who so
requests, an additional 90 days).

            3.6 Expenses. All expenses incurred in effecting all registrations
provided for above, including without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for Company, expenses
of any audits incident to or required by any such registration and expenses of
complying with the securities or blue sky laws of any jurisdictions relating to
a registration pursuant to Section 3.3 or 3.4 hereof (all of such expenses
referred to as "Registration Expenses") shall be paid by Company; provided,
however, that Company shall bear the Registration Expenses for no more than two
registrations pursuant to Section 3.4 for all holders of this Warrant and the
warrants issued in connection with the Other Agreements. The Company shall not
pay any fees or expenses of counsel for Holder or the owners of Warrant Stock or
any counsel for underwriters or any fees or commissions due to any underwriter
with respect to any Warrant Stock.

            3.7 Indemnification.

                (a) In the event of any registration of any of its securities
under the Securities Act pursuant to Section 5, Company shall indemnify and hold
harmless the seller of such securities, each underwriter (as defined in the
Securities Act), and each other person, if any, who controls (within the meaning
of the Securities Act) such seller, underwriter or participating seller
(individually and collectively the "Indemnified Person") against any losses,
claims, damages or liabilities (collectively the "liability"), joint or several,
to which such Indemnified Person may become subject under the Securities Act or
any other statute or at common law, insofar as such liability (or action in
respect thereof) is caused by (i) any untrue statement of material fact
contained on the effective date thereof, in any registration statement under
which such securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein or any amendment or supplement
thereto, or (ii) any omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading.
Except as otherwise provided in Section 3.7(d), Company shall reimburse each
such Indemnified Person in connection with investigating or 


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<PAGE>   9

defending any such liability, provided, however, that Company shall not be
liable to any Indemnified Person in any such case to the extent that any such
liability is caused by any untrue statements or omissions made in such
registration statement, preliminary or final prospectus, or amendment or
supplement thereto in reliance upon and in conformity with information furnished
to Company by such Indemnified Person specifically for use therein; and provided
further, that Company shall not be required to indemnify any Indemnified Person
against any liability caused by any untrue or misleading statement or omission
contained in any preliminary prospectus if such deficiency is corrected in the
final prospectus or for any lability which is caused by the failure of any
person other than Company to deliver a prospectus as required by the Securities
Act. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Person and shall survive
transfer of such securities by such seller.

                (b) If, at the request of Holder or any owner of Warrant Stock,
Company shall register any of the Warrant Stock of such requesting Holder or
owner, that requesting Holder or owner shall indemnify and hold harmless
Company, Company's directors and officers, each underwriter and each other
person, if any,who controls (within the meaning of the Securities Act) Company
or such underwriter (individually and collectively also the "Indemnified
Person") against any liability (or actions in respect thereof) was caused by (i)
the disposition of this Warrant or Warrant Stock by such Holder or owner in
violation of the provisions of Section 3.2; (ii) an untrue statement of material
fact contained in, on the effective date thereof, any registration statement of
material fact contained in, on the effective date thereof, any registration
statement under which such securities were registered, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, which untrue statement was included therein in good faith reliance on
and in conformity with information furnished to Company in writing by such
Holder or owner specifically for use in such registration statement, preliminary
or final prospectus, or amendment or supplement thereto, or (iii) an omission of
material fact required to be stated in any registration statement under which
such securities were registered, an preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, which omission was
the result of the Indemnified Person's good-faith reliance on and in conformity
with information furnished to Company in writing by such Holder or owner
specifically for use in such registration statement, preliminary or final
prospectus, or amendment or supplement thereto. Notwithstanding the above,
however, no Holder or owner of Warrant Stock shall be required to indemnify any
Indemnified Person if any untrue statement or omission of material fact was made
in reliance on the advise, conclusions, calculations, determinations, or
authority of an expert so long as Holder or such owner of Warrant Stock had no
reasonable ground to disbelieve, and did not in fact disbelieve, the accuracy or
completeness of the information provided by the Holder or owner in reliance on
such expert. A 


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<PAGE>   10

Holder or owner of Warrant Stock otherwise required to provide indemnification
pursuant to this Section 3.7(b) shall reimburse any Indemnified Person for any
legal fees incurred in investigating or defending any such liability,
provided,however, that no such Holder or owner of Warrant Stock shall be
required to indemnify any person against any liability arising form any untrue
or misleading statement or omission contained in any preliminary prospectus if
such deficiency is corrected in the final prospectus or for any liability which
arises out of thee failure of any person other than Holder (or the indemnity
obligation shall apply to the benefit of the Company, the Company's directors
and officers, each underwriter and each other person, if any, who controls the
Company or such underwriter and to no other persons or entities.

                (c) Subject to such modifications as the context may require,
indemnification similar to that specified in Section 3.7(a) above shall be given
by Holder and owners of Warrant Stock who have indemnity obligations (but only
to the extent of such Holder or owner's obligations thereunder) with respect to
any required registration or other qualification of Warrant Stock under any
federal or state law or regulation of governmental authority other than the
Securities Act.

                (d) If Company, Holder, or any owner of Warrant Stock receives a
complaint, claim or other notice of any liability or action, giving rise to a
claim for indemnification under Section 3.7(a), 3.7(b), or 3.7(c), the person
claiming indemnification under such sections shall promptly notify the person
against whom indemnification is sought of such complaint, notice, claim or
action and such indemnifying person shall have the right to investigate and
defend any such loss, claim, damage, liability, or action. The person claiming
indemnification shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses
sought unless the indemnifying party fails to promptly defend (in which case the
fees and expenses of such separate counsel shall be borne by the person against
whom indemnification is sought). In no even shall a person against whom
indemnification is sought be obligated to indemnify any person for any
settlement of any claim or action effecting without indemnifying person's prior
written consent.

            3.8 Contribution. If the indemnification by Company as provided for
in Sections 3.7(a) or 3.7(c) is unavailable or insufficient to hold harmless the
Indemnified Persons in respect of any liability, then Company shall contribute
to the amount paid or payable by such Indemnified Persons as a result of such
liability in such proportion as is appropriate to reflect the relative fault of
Company on the one hand and the Indemnified Person(s) on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities, expenses or actions as well as any other relevant
equitable considerations, including the failure 


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<PAGE>   11

to file the notice required hereunder. The relative fault of Company and the
Indemnified Person(s) shall be determined by reference to, among other things,
whether the untrue statement of material fact relates to the information
supplied by Company or the Indemnified Person(s) and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. Company agrees that it would not be just and
equitable if contributions pursuant to this Section 3.8 were determined by pro
rata allocation or by any other method of allocation which did not take account
of the equitable considerations referred to above.

            3.9 Registration Rights Do not Necessarily Follow the Warrant Stock.
Notwithstanding the provisions of this Section 3, if Holder causes Company to
issue any Warrant Stock to a third party, or if Holder transfers any Warrant
Stock issued to it to a third party, Holder shall retain the right to have those
shares registered as set forth in this Section 3, and the third-party owner of
such Warrant Stock shall not have any registration rights under this Warrant,
unless the Company shall give its written consent to the transfer of such
registration rights.

            3.10 Termination of Registration Rights. Notwithstanding the
provisions of this Section 3, the rights to registration of the Warrant Stock
shall terminate, as to any particular Warrant Stock, when such Warrant Stock
shall have been lawfully sold by the holder pursuant to a registration statement
or Rule 144 or may be sold pursuant to Rule 144 during any three month period
or, if earlier, the later of August 19, 2003 and one year after the final
payment of all principal and accrued interest on the Note.

            3.11 Compliance with Rule 144. At the request of Holder or any owner
of Warrant Stock who proposes to sell Warrant Stock in compliance with Rule 144
of the SEC, Company shall forthwith furnish to Holder or such owner a written
statement of compliance with the filing requirements of the SEC as set forth in
such Rule, as such Rule may be amended from time to time and make available to
the public and Holder or such owner such information as will enable holder of
the owner to make sales of Warrant Stock pursuant to Rule 144.

            3.12 Consent to Be Bound. Each subsequent Holder and each transferee
of any Warrant Stock must consent in writing to be bound by the terms and
conditions of this Section 3 in order to acquire the registration rights granted
pursuant to this Section.

            3.13 Investment Intent. Holder represents and warrants that this
Warrant and the Warrant Stock issuable upon exercise of the Warrant are being
acquired by Holder solely for Holder's own account, for investment purposes
only,


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<PAGE>   12

and with no present intention of distributing, selling or otherwise disposing of
the Warrant or the Warrant Stock issuable upon exercise of the Warrant.

            3.14 Sophistication. Holder represents and warrants that Holder is
able to bear the economic risk of the investment required pursuant to this
Warrant and the Warrant Stock issuable upon exercise of the Warrant and can
afford to sustain a total loss on such investment, and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the proposed investment and therefore has the capacity
to protect its own interests in connection with the Warrant.

         4. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to Company of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and (in the case of loss, theft or destruction) upon
delivery of an indemnity agreement in an amount reasonably satisfactory to
Company, or (in the case of mutilation) upon surrender and cancellation of the
mutilated Warrant, Company will execute and deliver, in lieu thereof, a new
Warrant of like tenor.

         5. Protection Against Dilution.

            5.1 Adjustment for Stock Splits and Combinations. If Company at any
time or from time to time after the Issuance Date effects a subdivision of the
outstanding Warrant Stock, the Purchase Price then in effect immediately before
the subdivision shall be proportionately decreased, and conversely, if Company
at any time or from time to time after the Issuance Date combines the
outstanding shares of Warrant Stock, the Purchase Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this Section 5.1 shall become effective as of the date and time
the subdivision or combination becomes effective.

            5.2 Adjustment for Certain Dividends and Distributions. If Company
at any time or from time to time after the Issuance Date makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Purchase Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Purchase Price then in effect by a fraction (1) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number


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<PAGE>   13

of shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, that if such record date is fixed and such dividend is not
fully paid, or if such distribution is not fully made on the date fixed
therefor, the Purchase Price shall be recomputed to reflect that such dividend
was not fully paid or that such distribution was not fully made as of the close
of business on such record date and thereafter the Purchase Price shall be
adjusted pursuant to this Section 5.2 as of the time of actual payment of such
dividends or distributions.

            5.3 Adjustments for Other Dividends and Distributions. In the event
Company at any time or from time to time after the Issuance Date makes, or fixes
a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of Company other
than shares of Common Stock, then and in each such event provision shall be made
so that Holder shall receive upon exercise of this Warrant, in addition to the
number of shares of Common Stock receivable thereupon, the amount of securities
of Company which Holder would have received had the Warrant been fully exercised
for Common Stock on the date of such event and had Holder thereafter, during the
period from the date of such event to and including the date of exercise,
retained such securities receivable by it as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 5 with respect to the rights of Holder.

            5.4 Adjustment for Reclassification, Exchange and Substitution. If
the Warrant Stock issuable upon the exercise of this Warrant is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets, provided for elsewhere in this Section 5),
then, and in any such event, Holder shall have the right thereafter, upon
exercise of this Warrant to receive the kind and amount of stock and other
securities and property receivable upon such reorganization, reclassification or
other change, in an amount equal to the amount that Holder would have been
entitled to had it immediately prior to such reorganization, reclassification or
change exercised Holder's rights to purchase under this Warrant, but only at
such time and to the extent this Warrant is actually exercised, all subject to
further adjustment as provided herein.

            5.5 Reorganizations, Mergers, Consolidations or Sales of Assets. If
at any time or from time to time there is a capital reorganization of the
Warrant Stock (other than a recapitalization, subdivision, combination,
reclassification or exchange of the Warrant Stock provided for elsewhere in this
Section 5) or merger or consolidation of Company with or into another entity, or
the sale of all or substantially all of Company's properties and assets to any
other person then, as a part of such reorganization, merger, consolidation or
sale, provision shall be made


                                      -13-


<PAGE>   14

so that Holder shall thereafter be entitled to receive, upon exercise of rights
to purchase under this Warrant (but only to the extent such rights are
exercised), the number of shares of stock or other securities or property of
Company, or of the successor entity resulting from such merger or consolidation
or sale, to which a holder of Warrant Stock, or other securities, deliverable
upon the exercise of purchase rights under this Warrant would otherwise have
been entitled on such capital reorganization, merger, consolidation, or sale. In
any such case, appropriate adjustments shall be made in the application of the
provisions of this Section 5 (including adjustment of the Purchase Price then in
effect and number of shares purchasable) which shall be applicable after such
events; provided, however, that any such adjustments shall be made so as to
ensure that the provisions of this Section 5 applicable after such events shall
be as equivalent as may be practicable to the provisions of this Section 5
applicable before such events.

            5.6 Officer's Certificate of Adjustment. In any case of an
adjustment or readjustment of the Purchase Price, the number of shares of
Warrant Stock or other securities issuable upon exercise of this Warrant, the
Company's chief financial officer at its expense shall compute such adjustment
or readjustment in accordance with the provisions hereof and shall prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to Holder at Holder's address
as shown in Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based including a statement of (a) the consideration received or
deemed to be received by Company for any Warrant Stock issued or sold or deemed
to have been issued or sold, (b) the Purchase Price at the time in effect, and
(c) the type and amount, if any, of other property which at the time would be
received upon exercise of this Warrant. Notwithstanding the above, the Holder
may select and cause independent public accountants of recognized standing also
to compute such adjustment or readjustment in accordance with the provisions
hereof and to prepare a certificate showing such adjustment or readjustment. If,
by such computation, the Holder shall determine that the computation performed
by the Company's chief financial officer was incorrect by five percent (5%) and
such inaccuracy was prejudicial to the Holder, then, at the option of Holder,
the cost of Holder's computation and certificate preparation shall be borne by
Company and shall be due and owing upon demand.

            5.7 No Change in Warrant Required. The form of this Warrant need not
be changed because of any adjustment in the Purchase Price or in the number of
shares of Warrant Stock purchasable on its exercise. A Warrant issued after any
such adjustment on any partial exercise or in replacement may continue to
express the same Purchase Price and the same number of shares of Warrant Stock
(appropriately reduced in the case of partial exercise) as are stated on the
face of 


                                      -14-
<PAGE>   15

this Warrant as initially issued, and that Purchase Price and number of shares
shall be considered to have been so changed as of the close of business on the
date of adjustment.

            5.8 Reservation of Shares. Company recognizes that since the Warrant
Amount is a fixed number, the adjustments provided in this Section will alter
the number of shares subject to purchase rights and agrees to adjust the
appropriate number(s) of shares reserved pursuant to Section 7.1 for issuance
upon exercise of purchase rights.

         6. Transfer of Securities.

            6.1 Transfer. Subject to the restrictions on transfer contained in
the Agreement, this Warrant and all rights hereunder are transferable on the
books of Company maintained for such purpose at its principal office referred to
above by Holder in person or by duly authorized attorney, upon surrender of this
Warrant properly endorsed and upon payment of any necessary transfer tax or
other governmental charge imposed upon such transfer. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees that this
Warrant when endorsed in blank shall be deemed negotiable and that when this
Warrant shall have been so endorsed, Holder hereof may be treated by Company and
all other persons dealing with this Warrant, as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of Company, any notice to the
contrary notwithstanding; but until such transfer on such books, Company may
treat the registered Holder hereof as the owner for all purposes.

            6.2 Rights Under Agreement. The Shares issuable upon the exercise of
this Warrant are subject to the terms, conditions and limitations set forth in
the Agreement.

            6.3 Payment of Taxes. All Shares issued upon the exercise of rights
under this Warrant shall be validly issued, fully paid and nonassessable, and
Company shall pay all taxes and other governmental charges that may be imposed
in respect of the issue or delivery thereof. Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issuance of any certificate for Shares in any name other than
that of Holder surrendered in connection with the purchase of such Shares, and
in such case Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to Company's satisfaction that no tax or other charge is due.


                                      -15-
<PAGE>   16

            7. Affirmative Duties of Company.

               7.1 Reservation of Warrant Stock. Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the exercise of the purchase
rights under this Warrant, such number of shares of Warrant Stock as shall be
issuable upon the exercise hereof. Company covenants and agrees that, upon such
exercise all Shares issuable upon such exercise shall be duly and validly
issued, fully paid and nonassessable.

               7.2 No Dilution or Impairment. Company will not, by amendment of
its certificate of incorporation or through reorganization, consolidation,
merger, dissolution, sale of assets or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms of this Warrant.
Without limiting the generality of the foregoing, Company will take all such
action as may be necessary or appropriate in order that Company may validly and
legally issue fully paid and nonassessable Warrant Stock upon the exercise of
the purchase rights in this Warrant.

            8. Notices to Warrant Holder.

               8.1 Notices to be Given. Nothing contained in this Warrant shall
be construed as conferring upon Holder hereof the right to vote or to consent or
to receive notice as a shareholder in respect of any meetings of shareholders
for the election of directors or any other matter or as having any rights
whatsoever as a shareholder of Company. If, however, at any time prior to the
expiration (by lapse of time or complete exercise) of the purchase right under
this Warrant, any of the following events shall occur:

                   (a) Company shall take a record of the holders of its
shares of Warrant Stock for the purpose of entitling them to receive a dividend
or distribution; or

                   (b) Company shall offer to the holders of its Common Stock
generally any additional shares of capital stock of Company or securities
convertible into or exchangeable for shares of capital stock of Company, or any
option, right or warrant to subscribe therefor; or

                   (c) Company shall reclassify its Common Stock; or

                   (d) Company shall engage in or enter into any capital
reorganization, consolidation or merger; or


                                      -16-


<PAGE>   17

                (e) A dissolution, liquidation or winding up of Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; then Company shall give written notice of such event to Holder at
least fifteen (15) days prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the shareholders entitled to
receive such dividend, distribution, convertible or exchangeable securities or
subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.

            8.2 Listing on Stock Exchange. The Common Stock is currently listed
on NASDAQ. If the Company at any time lists any Common Stock or other securities
of the same class as those issuable on exercise of this Warrant on any national
securities (other than NASDAQ), the Company will, at its sole expense,
simultaneously list on that exchange, an official notice of issuance on exercise
of this Warrant and maintain such listing or inclusion of all shares of Warrant
Stock or other securities from time to time issuable on exercise of this
Warrant.

            8.3 Methods; Addresses. Except as otherwise provided herein, any
notice or demand which, by the provisions hereof, is required or which may be
given to or served upon the parties hereto shall be in writing and, if by
telegram, telecopy or telex, shall be deemed to have been validly served, given
or delivered when delivery is confirmed electronically, if by personal delivery,
shall be deemed to have been validly served, given or delivered upon actual
delivery and, if mailed, shall be deemed to have been validly served, given or
delivered three (3) business days after deposit in the United States mails, as
registered or certified mail, with proper postage prepaid and addressed to the
party or parties to be notified, at the following addresses (or such other
address(es) as a party may designate for itself by like notice):


                (a) If to Holder:

                    Virginia R. Cirica Trust
                    c/o Virginia R. Cirica

                    ------------------------------

                    ------------------------------
                    Facsimile: (714) 
                                     -------------


                                      -17-
<PAGE>   18

                With copy to: _________________________
                              _________________________
                              _________________________
                              _________________________
                              _________________________

                          (b) If to Company:

                              Diedrich Coffee, Inc.
                              Attention: President
                              2144 Michelson Drive
                              Irvine, California 92612
                              Facsimile: (714) 756-1144

                With copy to: Paul, Hastings, Janofsky & Walker LLP
                              Attention: Peter J. Tennyson
                              Seventeenth Floor
                              695 Town Center Drive
                              Costa Mesa, California 92626
                              Facsimile: (714) 979-1921

            8.4 Warrant Agent. The Company may, on written notice to the Holder,
appoint an agent for the purposes of issuing Warrant Stock or other securities
on the exercise of this Warrant and/or replacing or exchanging this Warrant. If
any such appointment is made, any issuance, replacement, or exchange shall be
made at that office by that agent.

            8.5 No Right as Shareholder. No Holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be considered a shareholder of
the Company for the purposes, nor shall anything in this Warrant be construed to
confer on any Holder of this Warrant, as such, any rights of a shareholder of
the Company or any right to vote, to give or withhold consent to corporate
action, to receive notice of meetings of shareholders, or to receive dividends
or subscription rights or otherwise.

         9. Miscellaneous.

            9.1 Survival of Covenants. All agreements and covenants made herein
shall survive the execution and delivery hereof.

            9.2 Failure or Indulgence Not Waiver. No failure or delay on the
part of Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any one or more of such failures or
delays 


                                      -18-
<PAGE>   19

constitute a course of performance or dealing on which Company is entitled to
rely, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercises thereof or of any other right,
power or privilege. All rights and remedies existing hereunder are cumulative
to, and not exclusive of, any rights or remedies otherwise available.

            9.3 Cost of Enforcement. If any default is made in the fulfillment
of Company's duties under this Warrant, Company shall pay Holder all costs of
enforcement, including, without limitation, reasonable attorneys' and
accountants' fees and costs of appeals and interest on any sums actually
disbursed at the rate set forth herein.

            9.4 Governing Law. This Warrant has been executed in and shall be
governed by the laws of the State of California. As part of the consideration
for Holder's investment herein, Company and Holder hereby agree that all actions
or proceedings arising directly or indirectly hereunder, whether instituted by
Holder or Company, may, at the option of Holder, be litigated in courts having
situs within the State of California, County of Orange and Company hereby
expressly consents to the jurisdiction of any local, state or federal court
located within said state and county, and consents that any service of process
in such action or proceeding may be made by personal service upon Company
wherever Company may be located, or by certified or registered mail directed to
Company at its last known address. Company and Holder waive trial by jury, any
objection based on forum non conveniens, and any objection to venue of any
action instituted hereunder.

            9.5 Modification. Neither this Warrant nor any provision hereof may
be amended, modified, waived, discharged or terminated with respect to Holder
unless agreed to by the Holder.

            9.6 Severability. Whenever possible, each provision of this Warrant
will be interpreted in such manner as to be effective and valid under applicable
law, but, if any provision of this Warrant is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Warrant.

            9.7 Further Assurance. At any time or from time to time upon the
request of Holder, Company will execute and deliver such further documents and
do such other acts and things as Holder may reasonably request in order fully to
effectuate the purposes of this Warrant, the exercise of Holder's purchase
right.

            9.8 Successors. All the covenants, agreements, representations and
warranties contained in this Note shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.


                                      -19-
<PAGE>   20

            9.9 Headings. The section headings in this Warrant are inserted for
purposes of convenience only and shall have no substantive effect.

            9.10 Construction. Both of the parties have participated in the
drafting of this Warrant. Consequently, no provision of this Warrant shall be
construed in favor of or against any party by reason of his or its attorney
having drafting it.


                            [Signature Page Follows]



                                      -20-
<PAGE>   21

                           [SIGNATURE PAGE - WARRANT]

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


                                         DIEDRICH COFFEE, INC.

                                         By: ____________________________
                                         Name: __________________________
                                         Its: ___________________________


                                         THE VIRGINIA R. CIRICA TRUST


                                         By: ____________________________
                                             Virginia R. Cirica, Trustee



                                      -21-