1

Agenda• Business description

– Segment breakdowns• Industry overview• Catalyst - sale of retail segment

– New segment breakdowns• Pro forma financials

2

Understanding the Business Segments

What are the drivers of profitability?

Overview• Diedrich sells coffee and coffee products• Three segments:

– Retailer (i.e. Starbucks)• Gloria Jean’s, Diedrich Coffee, Coffee People

– Wholesaler– Franchisor

3

Revenue & EBITDA Breakdown

LTM EBITDA (before corporate) = $6.5MM

Retail16%

Wholesale54%

Franchise30%

LTM Revenue = $60.7MM

Retail56%

Wholesale38%

Franchise6%

Retail Segment (13% PF ’06 Rev)• Three types of company operated stores:

– Gloria Jean’s (5 stores)• Offer a variety of the finest quality flavored whole bean coffees, as

well as an assortment of coffee related merchandise, accessories, porcelain novelties and gift items, in addition to coffee-based beverages

– Diedrich Coffee (26 Stores)• Offer a warm, friendly environment specifically designed to

encourage guests to enjoy their favorite beverages. Many of ourcoffeehouses feature local musicians who provide live entertainment from time to time during the week.

– Coffee People (21 Stores)• A popular ‘local’ coffee shop based primarily in Portland, Oregon

4

Retail Segment Store GrowthCompany Operated Store Growth

108

5

2327 26

23 2421

5659

52

0

10

20

30

40

50

60

70

2004 2005 2006

Gloria Jean's

Diedrich Coffee

Coffee People

Total

Franchise Segment (13% ’06 PF Rev)

• 140 Stores in 33 States

• Sold rights to 338 international franchises in early 2005

• Collect fees based on a percentage of franchisee revenues (~5% of revenue)

5

Franchise Store Growth

Franchise Store Growth

430

139 140

7 7 80 0 10

50

100

150

200

250

300

350

400

450

500

2004 2005 2006

Gloria Jean'sDiedrich CoffeeCoffee People

Franchise/Retail Visual

6

Wholesale Segment (74% of PF ’06 Rev)

• Two sales “buckets”– K-Cups– Roasts

• The most successful segment of DDRX• Driver of growth & value

Let’s try to understand this segment…

What’s a K-Cup?• Have you seen these things before?

K-Cups

7

Wholesale – Examples of “Roasts”

• 37% of wholesale revenue are from roasts• Roasts are sold to food service and offices

Wholesale Revenue Mix

2004 Wholesale Revenue = $14.9MM

All Other Wholesale

57%

K-Cup revenue43%

LTM Wholesale Revenue = $22.7MM

All Other Wholesale

37%

K-Cup63%

8

CatalystSale of Retail Segment

Retail Sale – September 14, 2006

The Company announced on September 14, 2006 that it entered into an agreement to sell up to 40 of its 47 company-owned Diedrich Coffee and Coffee People locations to Starbucks Coffee Company for up to approximately $13.5 million

9

Price of the Business

Price 3.40Shares Outstanding 5,358,770Market Cap 18,219,818(-) Cash 1,706,000(+) Debt 0Enterprise Value 16,513,818(-) Post tax retail sale 12,170,000Enterprise Value 2 4,343,818

Pro Forma FinancialsNew Segment Breakdowns

10

Revenue Breakdown After Transaction

LTM Revenue = $60.7MM

Retail56%

Wholesale38%

Franchise6%

PF 2006 Revenue = $28.9MM

Retail13%

Wholesale74%

Franchise13%

WHOLESALE SEGMENT NOW DRIVES THE BUSINESS!

PF Historical RevenuePF Historical Revenue

0

5,000

10,000

15,000

20,000

25,000

2004 2005 2006

RetailWholesaleFranchise

19.6% CAGR

11

Segment Performance - EBITDA

Segment EBITDA

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2004 2005 2006 LTM

(thou

sand

s) RetailWholesaleFranchise

Pitch for DiedrichCompelling Short-term

Opportunity

12

Investment Thesis• There is no hiding it – this is a distressed

business• HOWEVER, this investment provides an

interesting opportunity…– Growing wholesale business– Strong management incentives in place– Attractive entry point– Clean financials– Favorable industry fundamentals

Growing Wholesale Segment

13

Rapidly Growing Wholesale Segment

K-Cup Revenue & Growth

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2004 2005 2006

$

49.0%

50.0%

51.0%

52.0%

53.0%

54.0%

55.0%

56.0%

57.0%

%

K-Cup RevenueGrowth

K-Cup Growth Leads the Way

Wholesale Revenue

8,495 8,125 8,292 8,503

6,366

8,357

12,952

14,290

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2004 2005 2006 LTM

(thou

sand

s)

RoastsK-cup

14

High Double Digit Growth Rates YoY

Sep-06 Jun-06 Mar-06 Dec-05 Sep-05 Jun-05 Mar-05 Dec-04 Sep-04K-Cup revenue 3,388 4,174 3,394 3,334 2,051 2,677 1,994 2,058 1,628

growth YoY 65.20% 55.88% 70.20% 62.00% 26.00% 51.61% 26.20% 17.20% 28.80%Roasts 1,732 2,574 1,708 2,489 1,520 2,431 1,433 2,661 1,600

growth YoY 13.93% 5.92% 19.20% -6.46% -5.02% 12.32% -12.84% -13.52% -0.62%Total Wholesale Sales 5,120 6,748 5,102 5,823 3,571 5,108 3,427 4,719 3,228

growth YoY 43.38% 32.11% 48.88% 23.39% 10.63% 29.97% 6.30% -2.36% 12.32%

Strong, Incentivized Management Team

15

• Hired Stephen V. Coffey as its Chief Executive Officer in December 2005

• Founder of Coffey Management Company, an advisory and management services company specializing in turnarounds– Former President & CEO of Edwards Theaters, a

company he took out of Chapter 11 bankruptcy– Edwards Theaters was named “Turnaround of the

Year” by the National Turnaround Management Association

– Senior executive at Chevys, Inc

New CEO & CFO

Incentive-Based Compensation• Diedrich’s agreement with Coffey

– Coffey Management Company paid annual salary of only $60,000

– One-time bonus of 5% of increase in total market capitalization or 5% of buyout premium

– Bonus paid in 60% stock, 40% cash

16

Large Management OwnershipName Number of shares Percent

Sequoia Enterprises, LP 1,322,594 23.6Westcliff Capital Management, LLC 1,163,560 20.9Peninsula Capital Management, Inc. 545,000 10.1

San Francisco, CA 94104D.C.H., L.P. 355,290 6.6Paul C. Heeschen 1,792,033 31.7Richard S. Spencer, III 1,197,310 21.4Lawrence Goelman 66,925 1.2Timothy J. Ryan 7,500 *Greg Palmer 7,500 *Stephen V. Coffey — *Sean M. McCarthy 13,333 *Matthew C. McGuinness 83,250 1.5Pamela J. Britton 55,000 1Steven G. Heyman 13,333 *Total (10 persons) 3,236,184 52.8

Out of the Money Options

Shares Strike Price Value

Options outstanding at September 20, 2006 715,000 4.81 3,439,150Options exercisable at September 20, 2006 560,000 4.86 2,721,600

Reminder: Market cap only ~$18MM!

17

Attractive Entry PointReal and “Free” Catalysts

Visible Short-term Catalyst• With prices at 52-week lows, share price

may respond to any positive news

• Closing of the sale to Starbucks expected in early December

Diedrich will receive $12.1MM in cash, MC only $18MM!!!

18

2-Year Stock Performance

1-Year Stock Performance

19

Potential Buyout Target?• Green Mountain

(GMCR)– DDRX has distribution

capabilities on West Coast

• Starbucks (SBUX)

• CEO would receive 5% of total buyout premium

New England 2,517 46.30%Mid-Atlantic 1,499 27.58%South 868 15.97%Midwest 260 4.78%West 253 4.65%International 39 0.72%Totals 5,436

Region Q3 Shipments (lbs)

Green Mountain (GMCR)

Clean Financials

20

PF Balance Sheet AdjustmentsJune 28, 2006 P ro Fo rma P ro Fo rma

Adjus tme nts June 28, 2006

AssetsCurrent assets:Cash 2,593,000 12,170,000 14,763,000Restricted cash 583,000 — 583,000Accounts receivable, net 2,829,000 — 2,829,000Other receivable — 1,350,000 1,350,000Inventories 3,846,000 (764,000) 3,082,000Income tax refund 516,000 — 516,000Current portion of notes receivable 1,137,000 — 1,137,000Advertising fund assets, restricted 217,000 — 217,000Prepaid expenses 426,000 — 426,000

Total current assets 12,147,000 12,756,000 24,903,000Property and equipment, net 9,088,000 (5,024,000) 4,064,000Goodwill

8,179,000 (1,347,000) 6,832,000Notes receivable 3,972,000 — 3,972,000Cash surrender value of life insurance policy

391,000 — 391,000Other assets 353,000 (197,000) 156,000

Total assets 34,130,000 6,188,000 40,318,000

June 28, 2006 P ro Fo rma P ro Fo rma

Adjus tme nts June 28, 2006

Liabilities and Stockholders’ EquityCurrent liabilities:Current installments of obligations under capital leases 19,000 (19,000) — Accounts payable 2,929,000 — 2,929,000Accrued compensation 2,481,000 — 2,481,000Accrued expenses 1,779,000 3,010,000 4,789,000Franchisee deposits 599,000 — 599,000Deferred franchise fee income 104,000 — 104,000Advertising fund liabilities 217,000 — 217,000Accrued provision for store closure 401,000 — 401,000

Total current liabilities 8,529,000 2,991,000 11,520,000Obligations under capital leases, excluding current installments 309,000 (309,000)Deferred rent 603,000 (351,000) 252,000Deferred compensation 422,000 — 422,000

Total liabilities 9,863,000 2,331,000 12,194,000

Commitments and contingenciesStockholders’ equity:Common stock 53,000 — 53,000Additional paid-in capital 59,022,000 — 59,022,000Accumulated deficit (34,808,000) 3,857,000 (30,951,000)

Total stockholders’ equity 24,267,000 3,857,000 28,124,000

Total liabilities and stockholders’ equity 34,130,000 6,188,000 40,318,000

PF Balance Sheet Adjustments

21

PF Income Statement AdjustmentsYe ar Ende d P ro Fo rma P ro Fo rma

June 28, 2006 Adjus tme nts Ye ar Ende d

June 28, 2006

Net revenue:Retail sales 34,428,000 (30,539,000) 3,889,000Wholesale and other 21,244,000 — 21,244,000Franchise revenue 3,775,000 — 3,775,000

Total net revenue 59,447,000 (30,539,000) 28,908,000

Costs and expenses:Cost of sales and related occupancy costs 32,440,000 (13,434,000) 19,006,000Operating expenses 19,947,000 (15,191,000) 4,756,000Depreciation and amortization 2,601,000 (1,547,000) 1,054,000General and administrative expenses 13,546,000 (5,103,000) 8,443,000Gain on asset disposals (58,000) — (58,000)

Total costs and expenses 68,476,000 (35,275,000) 33,201,000

Operating loss from continuing operations (9,029,000) 4,736,000 (4,293,000)Interest expense (116,000) 26,000 (90,000)Interest and other income, net 548,000 — 548,000

Loss from continuing operations before income tax benefit (8,597,000 4,762,000 (3,835,000Income tax benefit (801,000) 443,000 (358,000)

Net loss (7,796,000) 4,319,000 (3,477,000)

CF Statement Improves

Jun-05 Jun-06 LTM

Cash Flow from Operations (2,706,000) (4,707,000) (6,219,000)(-) CapEx 3,665,000 3,826,000 3,527,000Free Cash Flow (6,371,000) (8,533,000) (9,746,000)

2006 2005 2004Cash flow from operating activities (2,512,000) (152,000) 603,000 Cash flow from investing activities (2,125,000) (2,052,000) (1,417,000)

Free Cash Flow (4,637,000) (2,204,000) (814,000)

This is CF from discontinued retail segment

This is actual CF before retail segment sale

22

Industry FundamentalsSupporting the Long-term Thesis

Industry Overview• Two distinct categories

– commercial ground roast– specialty coffees, which include gourmet

• Gourmet coffee a growing segment:– greater consumer awareness of gourmet coffee – increased quality differentiation over commercial

grade – ease of preparation of gourmet coffees resulting from

the increased use of automatic drip coffee makers

23

Valuation Methodology & Assumptions

I’d never thought I’d say this…• Valuation is not a driver of this thesis

– Short-term catalysts make this investment interesting

• That being said, we valued DDRX based upon…– DCF analysis w/sensitivities– Forward multiples

• DDRX is undervalued if it can:– A) produce positive FCF– B) sustain itself perpetually

24

Key DCF Assumptions• Xx• Xx• Xx• Xx

Wake up and smell the coffee

Andrew Yeh, Stephanie Landry

25

Can you trust management?

Sept. 2000: Timothy Ryan retires. J. Michael Jenkins replaces him. March 2002: Jenkins steps downAugust 2002: Philip Hirsch appointed after five months as interim CEO. Dec. 2002: Hirsch resigns and is replaced by Roger LavertyApril 2003: Roger Laverty moved to serve as CEO of Farmer BrothersDecember 2005: Laverty resigns; replaced by Stephen Coffey

Sold Gloria Jean’s International franchise for $16 million in 2005. As of the announcement of the sale, there were 316 international Gloria Jean’s franchise units.

Gloria Jean’s Transaction1Q06 1Q05

Retail sales 7,888,000 7,129,000Wholesale & other revenues 3,571,000 3,364,000Franchise revenue 721,000 1,767,000Total net revenue 12,180,000 12,260,000

Cost of sales & related occupancy costs 6,447,000 5,607,000Operations management - -Operating expenses 4,350,000 3,906,000Depreciation & amortization 545,000 545,000General & administrative expenses 2,863,000 2,634,000Gain (loss) on asset disposals 5,000 15,000Total cost & expenses 14,200,000 12,677,000

Operating income (EBIT) -2,020,000 -417,000Interest expense/income 152,000 -2,000Earnings before Taxes -1,900,000 -461,000Taxes -348,000 7,000Net income -1,552,000 -468,000

Comments by CEO in 2005:

"The sale of our international Gloria Jean's trademarks has provided us with a unique opportunity to focus all our attention on the growth of our domestic operations…we continue to believe that the specialty-coffee market in the United States is a terrific growth opportunity."

LOSS MORE THAN TRIPLES!

26

Gloria Jean’s Transaction

9/20/2006 9/20/2005

AssetsCurrent assets:Cash 1,706,000 9,423,000Restricted cash 587,000 -Accounts receivable, less allowance for doubtful accounts of $1,839,000 at September 20, 2006 and $1,863,000 at June 28, 2006 3,446,000 2,117,000Inventories 3,716,000 3,637,000Assets held for sale 6,182,000 -Income tax refund 506,000 1,562,000Current portion of notes receivable 1,206,000 676,000Advertising fund assets, restricted 98,000 259,000Prepaid expenses 787,000 865,000

Total current assets 18,234,000 18,539,000Property and equipment, net 4,192,000 8,825,000Goodwill 6,832,000 8,179,000Notes receivable 3,509,000 4,634,000Cash surrender value of life insurance policy 436,000Other assets 147,000 385,000

Total assets 33,350,000 40,562,000

LOSES $7 M in CASH!

Buying a real loserFY06 FY05 FY04 FY03 FY02 FY01 FY00

Retail sales 34,428,000 31,890,000 31,617,000 33,034,000 38,658,000 46,924,586 48,857,304Wholesale & other revenue 21,244,000 16,482,000 15,466,000 15,336,000 16,681,000 18,544,815 18,788,369Franchise revenue 3,775,000 4,166,000 7,542,000 6,409,000 6,868,000 6,770,192 6,812,690Total revenue 59,447,000 52,538,000 54,625,000 54,779,000 62,207,000 72,239,593 74,458,363

Cost of sales & related occupancy costs 32,440,000 26,765,000 25,112,000 26,275,000 30,439,000 35,704,827 38,112,813Operating expenses 19,947,000 17,449,000 16,707,000 16,875,000 17,625,000 20,826,484 24,708,039Depreciation & amortization expenses 2,601,000 2,372,000 2,289,000 1,944,000 2,384,000 4,444,974 4,330,671General & administrative expenses 13,546,000 11,178,000 9,813,000 9,233,000 9,772,000 11,232,244 10,439,759Provision for asset impair & restructuring co - - 94,000 2,231,000 547,000 2,867,167 16,370,201Loss (gain) on asset disposals 58,000 4,000 2,000 868,000 423,000 173,420 -Other operating expenses - - - - - - 1,836,798Total costs & expenses 68,476,000 57,760,000 54,013,000 55,690,000 60,344,000 74,902,276 95,798,281

Operating income (loss) -9,029,000 -5,222,000 612,000 -911,000 1,863,000 -2,662,683 -21,339,918Interest 548,000 279,000 30,000 47,000 63,000 52,650 251,001EBT -8,597,000 -5,166,000 294,000 -1,169,000 1,326,000 -3,951,742 -22,405,008Taxes -801,000 -1,851,000 28,000 54,000 57,000 36,528 18,569Income continuing operations -7,796,000 -3,315,000 - - - - -

Income from discontinued operations, net - 2,143,000 - - - - -Gain on sale of discontinued operations, net - 15,795,000 - - - - -

Net income (loss) -7,796,000 14,623,000 266,000 -1,223,000 1,269,000 -3,988,270 -22,423,577

5 years of losses over 7 years!

27

How much cash in the bank?

“Pursuant to the Asset Purchase Agreement, Starbucks will pay us up to $13,520,000 in cash …The actual amount paid by Starbucks under the Asset Purchase Agreement is dependent upon which and how many of the Leasehold Interests are ultimately transferred to Starbucks. Some of the Leasehold Interests have been assigned comparatively high values and, if these locations are not actually transferred to Starbucks, the purchase price would be reduced significantly.”

How much cash in the bank?Is it really $13.5 million in cash?

Purchase price - Cash 12,170,000Transaction expenses -2,308,000Taxes -773,000Cash Increase 9,089,000

Purchase price - Cash 12,170,000Purchase price - Future payment 1,350,000Inventories -709,000Fixed Assets -4,642,000Goodwill -1,347,000Other Assets -193,000Current capital lease obligations 19,000Deferred rent 378,000Capital lease obligations 304,000Transaction related expenses -2,308,000Estimated book gain 5,022,000* 15% Tax Rate -773,000After-tax gain 4,249,000

28

Restating historicalsJune 29, 2005 Adjustments Year Ended

June 29, 2005

Net revenue:Retail sales 31,890,000 -28,448,000 3,442,000Wholesale and other 16,482,000 — 16,482,000Franchise revenue 4,166,000 — 4,166,000

Total net revenue 52,538,000 -28,448,000 24,090,000

Costs and expenses:Cost of sales and related occupancy costs 26,765,000 -12,114,000 14,651,000

51% 61%Operating expenses 17,449,000 -13,458,000 3,991,000

33% 17%Depreciation and amortization 2,372,000 -1,384,000 988,000

5% 4%General and administrative expenses 11,178,000 -3,852,000 7,326,000

21% 30%Gain on asset disposals -4,000 — -4,000

Total costs and expenses 57,760,000 -30,808,000 26,952,000110% 112%

June 28, 2006 Adjustments Year EndedJune 28, 2006

Net revenue:Retail sales 34,428,000 -30,539,000 3,889,000Wholesale and other 21,244,000 — 21,244,000Franchise revenue 3,775,000 — 3,775,000

Total net revenue 59,447,000 -30,539,000 28,908,000

Costs and expenses:Cost of sales and related occupancy costs 32,440,000 -13,434,000 19,006,000

55% 66%Operating expenses 19,947,000 -15,191,000 4,756,000

34% 16%Depreciation and amortization 2,601,000 -1,547,000 1,054,000

4% 4%General and administrative expenses 13,546,000 -5,103,000 8,443,000

23% 29%Gain on asset disposals -58,000 — -58,000

Total costs and expenses 68,476,000 -35,275,000 33,201,000115% 115%

Still losing money after restructuring!

Wake up and smell the coffee

Diedrich has had a supplier deal with Keurig since 2000, but the company hasn'tmade it clear when that contract might expire. When it does, it could spell the endfor this lucrative segment, because rival coffee roaster Green Mountain CoffeeRoasters (Nasdaq: GMCR) bought Keurig outright over the summer. There is noguarantee that an outright competitor will feel compelled to renew the licensingdeal.

3 mo 3 mo 3 mo 3 mo 3 mo1Q06 2Q06 3Q06 4Q06 1Q07

9/21/2005 12/14/2005 3/8/2006 6/1/2006 9/21/2006

Retail revenues 7,888,000 8,145,000 7,975,000 10,420,000 536,000% YoY growth 11% 8% 12% 3% -93%Wholesale revenues 3,571,000 5,823,000 5,102,000 6,748,000 5,120,000% YoY growth 6% 23% 49% 36% 43%Franchise revenue 721,000 975,000 972,000 1,107,000 768,000% YoY growth -16% -16% -10% 4% 7%Total net revenue 12,180,000 14,943,000 14,049,000 18,275,000 6,424,000

Keurig’s K-Cup Coffemaker is responsible for $4.9M in sales!

29

Additional Risks

Economic slowdownShort term volatility in dairy or coffee pricesCompetitive industry with low barriers to entryChance of delisting

Valuation AssumptionsConservative

COGS: 64% => 60%

1Q07: 64%; FY06: 66%

OpExp: 15% => 14%

1Q07: 24%; FY06: 16%

G&A: 28% => 25%

1Q07: 28%; FY06: 29%

Optimistic

COGS: 62% => 58%

1Q07: 64%; FY06: 66%

OpExp: 14% => 12%

1Q07: 24%; FY06: 16%

G&A: 25% => 25%

1Q07: 28%; FY06: 29%