Diedrich Coffee, the nation's second largest retailer in the specialty coffee market, today announced that it expects to record substantial non-cash charges related to its Gloria Jean's operation.

These charges will be reflected in Diedrich Coffee's fourth quarter and year-end results for fiscal year ended June 28, 2000. The company expects to quantify these charges by the end of July, 2000 in a press release.

The charges relating to the Gloria Jean's operation will primarily be reflected as reductions in the amount of intangibles carried on the balance sheet. The charges will reflect the closure of 39 Gloria Jean's store locations and other operating shortfalls experienced by Diedrich in its Gloria Jean's operating division.

In addition, Diedrich Coffee had previously announced it would not achieve profitability this year due to delays in opening of franchise units and the addition of management staff in the sales and development areas. Diedrich Coffee expects to record a substantial loss for its fourth quarter and fiscal year.

Due to the problems at Gloria Jean's, Diedrich expects to be in violation of its bank covenants as of June 30, 2000 and is currently negotiating with its lender to amend the terms of its credit agreements. The Company's lender has contractually committed to refrain from exercising its enforcement rights for 30 days during the re-negotiation of Diedrich's credit agreement terms.

John Martin, Chairman of Diedrich Coffee, said, "We are building a stronger Gloria Jean's and are implementing a number of initiatives to improve Gloria Jean's performance. Among them is the re-positioning of the concept we previously announced, which will be operational at our Thousand Oaks, California location this summer. Throughout the chain, we are also continuing to increase focus on higher-margin coffee bean and beverage sales in preference to our porcelain, kitchen and giftware sales. We are accomplishing this in part by continuing to emphasize and promote new products in the freshly brewed, espresso-based, and iced drink specialty coffee categories. To help carry out these and other product changes we are planning, we have promoted Lisa Steere, formerly Vice-President of Marketing, to the position of Executive Vice-President of Sales. Lisa will lead the development and implementation of these new product initiatives."

Tim Ryan, President and CEO, added, "The company's other operating Division, our Diedrich Coffee brand coffeehouses, continues to show great promise. Comparable store sales continue their positive trend. Franchisees are beginning to open new Diedrich Coffee brand coffeehouses, and our store- level operating margins are strong. The management team is experienced and effective. Our growth plans include the national expansion of the Diedrich Coffee brand coffeehouse operations over both the long and short term. Our immediate efforts are centered on addressing the company's current concerns, which reside primarily in Gloria Jean's operating division, and successfully opening the Diedrich Coffee brand coffeehouse operating division's franchised units already under development. Over the longer term, we view a successful repositioning of the Gloria Jean's chain, combined with our national expansion of the Diedrich Coffee brand coffeehouse chain, resulting in two major nationwide operations.

About Diedrich Coffee

Diedrich Coffee, Inc. is the nation's second largest retailer in the specialty coffee market with annual system-wide revenues in excess of $150 million annually through 360 retail locations in 38 states and nine foreign countries. The company's primary brands are Diedrich Coffee coffeehouses and Gloria Jean's Coffees, the nation's leading chain of mall-based coffee stores. Headquartered in Irvine, Calif., Diedrich Coffee specializes in sourcing and custom roasting the world's highest quality coffees and offering them to customers through its coffeehouses and mall stores and via wholesale, mail order and its website. For more information about Diedrich Coffee, call (800) 354-5282, or visit the company's website at www.diedrich.com.

Statements in this news release that relate to future plans, financial results or projections, events or performance are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and fall under the safe harbor. Actual results and financial position could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including, but not limited to, the magnitude of the asset impairment charges related to the Gloria Jean's operation; the financial and operating performance of the Gloria Jean's division; the ability of the company to regain profitability; the company's ability to renegotiate its credit agreements and to perform within those agreements; the viability of its repositioning program in the Gloria Jean's division; the success of the higher margin Gloria Jean's products; the successful execution of Diedrich Coffee's growth strategy, the impact of competition, the availability of working capital and other risks and uncertainties described in detail under "Risk Factors and Trends Affecting Diedrich Coffee and its Business" in the Company's annual report on form 10-K for the fiscal year ended Jan. 27, 1999.