EXHIBIT 10.34

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the "Security Agreement") is made and dated as of the 3rd day of September, 2002 by and between DIEDRICH COFFEE, INC., a Delaware
corporation ("Company"), and BANK OF THE WEST, doing business as UNITED CALIFORNIA BANK (the "Lender").

RECITALS

A.    Pursuant
to that certain Credit Agreement dated of even date herewith by and between Company and the Lender (as amended, extended and replaced from time to time, the
"Credit Agreement," and with capitalized terms not otherwise defined herein used with the meanings given such terms in the Credit Agreement) the Lender has agreed to extend credit to Company from time
to time.

B.    As
a condition precedent to the Lender's obligation to extend credit under the Credit Agreement and as security for the payment and performance of the Obligations,
Company is required to execute and deliver this Security Agreement, and to grant to the Lender and to create a security interest in certain property of Company, as hereinafter provided.

NOW,
THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby
agree as follows:

AGREEMENT

1.Grant of Security Interest.Company hereby pledges, assigns and grants to the Lender a security interest in
the property described in Paragraph 2 below (collectively and severally, the "Collateral") to secure payment and performance of the Obligations.

2.Collateral.The Collateral shall consist of all right, title and interest of Company in and to the following:



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Notwithstanding
anything herein to the contrary, in no event shall the Collateral include, and the Company shall not be deemed to have granted a security interest in, any of the Company's rights or
interests in any license, permit, contract or agreement (or in any Equipment leased or financed thereunder) to which the Company is a party or any of its rights or interests thereunder to the extent,
but only to the extent, that such a grant would, under the terms of such license, permit, contract or agreement or otherwise, result in a breach of the terms of, or constitute a default under any
license, permit, contract or agreement (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-401, 9-406(d), 9-407,
9-408 or 9-409 under the Code or any other applicable law (including the Bankruptcy Code) or principles of equity);provided,
that immediately upon the ineffectiveness, lapse or termination of any such provision, the Collateral shall include, and the Company shall be deemed to have granted a security interest in, all such
rights and interest as if such provision had never been in effect.

3.Obligations.The obligations secured by this Security Agreement shall consist of all Obligations of Company
under the Credit Agreement and each other Loan Document, in each case whether now existing or hereafter arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect,
absolute or contingent, liquidated or unliquidated, and whether or not from time to time decreased or extinguished and later increased, created or incurred.

4.Representations and Warranties.In addition to all representations and warranties of Company set forth in the
other Loan Documents, which are incorporated herein by this reference, Company hereby represents and warrants that:



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5.Covenants and Agreements of Company.In addition to all covenants and agreements of Company set forth in the
other Loan Documents, which are incorporated herein by this reference, Company hereby agrees, at no cost or expense to the Lender:



6.Authorized Action by Secured Party.Company hereby agrees that following the occurrence and during the
continuance of an Event of Default, without presentment, notice or demand, and without

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affecting or impairing in any way the rights of the Lender with respect to the Collateral, the obligations of Company hereunder or the Obligations, the Lender may, but shall not be obligated to and
shall incur no liability to Company or any third party for failure to, take any action which Company is obligated by this Security Agreement to do and to exercise such rights and powers as Company
might exercise with respect to the Collateral, and Company hereby irrevocably appoints the Lender as its attorney-in-fact to exercise such rights and powers, including without
limitation, to:



Company
hereby grants to the Lender an exclusive, irrevocable power of attorney, with full power and authority in the place and stead of Company to take all such action permitted under this
Paragraph 6; provided, however, that the Lender agrees that it shall not exercise such power of attorney unless there shall have occurred and be continuing an Event of Default. Company agrees
to reimburse the Lender upon demand for any costs and expenses, including, without limitation, reasonable attorneys' fees, the Lender may incur while acting as Company's
attorney-in-fact hereunder, all of which costs and expenses are included in the Obligations secured hereby. It is further agreed and understood between the parties hereto that
such care as the Lender gives to the safekeeping of its own property of like kind shall constitute reasonable care of the Collateral when in the Lender's possession; provided, however, that the Lender
shall not be required to make any presentment, demand or protest, or give any notice and need not take any action to preserve any rights against any prior party or any other person in connection with
the Obligations or with respect to the Collateral.

7.Collection of Collateral Payments.



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8.Additional Covenants Regarding Intellectual Property Collateral.



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9.Administration of the Pledged Shares.In addition to any provisions of this Security Agreement which govern
the administration of the Collateral generally, the following provisions shall govern the administration of the Pledged Shares:



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10.Remedies.Upon the occurrence and during the continuance of an Event of Default, the Lender may, without
notice to or demand on Company and in addition to all rights and remedies available to the Lender with respect to the Obligations, at law, in equity or otherwise, do any one or more of the following:



Company
shall be given five (5) Business Days' prior notice of the time and place of any public sale or of the time after which any private sale or other intended disposition of Collateral is
to be made, which notice Company hereby agrees shall be deemed reasonable notice thereof. Upon any sale or other disposition pursuant to this Security Agreement, the Lender shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral or portion thereof so sold or disposed of. Each purchaser at any such sale or other disposition (including the Lender) shall hold
the Collateral free

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from any claim or right of whatever kind, including any equity or right of redemption of Company and Company specifically waives (to the extent permitted by law) all rights of redemption, stay or
appraisal which it has or may have under any rule of law or statute now existing or hereafter adopted.

11.Chief Place of Business; Collateral Location; Records Location.Company represents that the state in which
it was organized and its chief place of business are as set forth onSchedule 4attached hereto; that the only trade name(s) or style(s) used by
Company are set forth on saidSchedule 4; and that, except as otherwise disclosed to the Lender in writing prior to the date hereof, the
Collateral and Company's records concerning the Collateral are located at its chief place of business.

12.Waiver of Hearing.Company expressly waives to the extent permitted under applicable law any constitutional
or other right to a judicial hearing prior to the time the Lender takes possession or disposes of the Collateral upon the occurrence and during the continuance of an Event of Default.

13.Cumulative Rights.The rights, powers and remedies of the Lender under this Security Agreement shall be in
addition to all rights, powers and remedies given to the Lender by virtue of any statute or rule of law, the Credit Agreement or any other agreement, all of which rights, powers and remedies shall be
cumulative and may be exercised successively or concurrently without impairing the Lender's security interest in the Collateral.

14.Waiver.Any forbearance or failure or delay by the Lender in exercising any right, power or remedy shall not
preclude the further exercise thereof, and every right, power or remedy of the Lender shall continue in full force and effect until such right, power or remedy is specifically waived in a writing
executed by the Lender. Company waives any right to require the Lender to proceed against any person or to exhaust any Collateral or to pursue any remedy in the Lender's power.

15.Setoff.Company agrees that the Lender may exercise its rights of setoff with respect to the Obligations in
the same manner as if the Obligations were unsecured.

16.Intellectual Property Collateral.For purposes of this Security Agreement, the following capitalized terms
shall have the following meanings:



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17.Financing Statements.The Company hereby acknowledges and agrees that the Lender, in connection with the
filing of any UCC financing statements necessary to perfect or maintain the perfection of its Lien in the Collateral hereunder, may utilize a general description of the Collateral, such as "all now
owned and hereafter acquired personal property of the Company."

18Governing Law.This Security Agreement shall be governed by and construed in accordance with the internal
laws of the State of California.

IN
WITNESS WHEREOF, this Security Agreement is executed as of the day and year first above written.

| |  | DIEDRICH COFFEE, INC.,
a Delaware corporation             
| |  | ----------------------------------------------------------
| |  | By:                                                       
| |  | Name:                                                     
| |  | Its:                                                      
| |  | By:                                                       
| |  | Name:                                                     
| |  | Its:                                                      
| |  | BANK OF THE WEST, doing business as
UNITED CALIFORNIA BANK
| |  | By:                                                       
| |  | Name:                                                     
| |  | Its:                                                      

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