<PAGE>

EXHIBIT 10.5

                               SECURITY AGREEMENT
                            (EQUIPMENT AND INVENTORY)

         THIS SECURITY AGREEMENT is dated as of October 15, 2002, and is entered
into by and between James W. Shires and Scott Crawford (together, "Lender"), and
Yamhill Valley Vineyards, Inc. ("Borrower").

         1.       Grant of Security Interest. To secure the payment when due of
any and all amounts due or to become due to Lender from Borrower under the loan
granted by Lender to Borrower pursuant to that certain Promissory Note from
Borrower to Lender of even date herewith (the "Note"), Borrower does hereby
grant, pledge, assign, transfer and set over unto Lender a security interest in
Borrower's right, title and interest in and to the following-described property
(the "Collateral"): all inventory and all equipment, furniture and fixtures now
owned or hereafter acquired by Borrower located on the real property described
on Exhibit A, including all proceeds and insurance proceeds of the foregoing. By
signing this Security Agreement), Borrower authorizes the filing of an initial
financing statement, and an amendment, covering the Collateral. Lender may cause
such statements to be recorded and filed, at such times and places as may be
required or permitted by law to so create, perfect and preserve Lender's
security interest.

         2.       Representations and Warranties. Borrower hereby represents and
warrants to Lender as follows:

                  2.1      Title to Collateral. Borrower is owner of all right,
title and interest in and to the Collateral, free and clear of all liens,
claims, encumbrances and rights of others, except for the security interest
granted to Lender hereby and the security interests of U.S. Bank National
Association and Farmer Mac (together, "Superior Secured Parties").

                  2.2      Other Agreements. The execution and performance of
this Agreement will not violate any provision of any applicable law and will not
conflict with or result in any breach of any of the terms, conditions or
provisions of, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the properties or assets of Borrower pursuant to the
terms of, or constitute a default under, and other indenture, contract,
mortgage, deed of trust or other agreement or instrument to which Borrower is a
party or by which it is bound.

                  2.3      Binding Effect. This Agreement constitutes a valid
obligation of Borrower which is binding and enforceable against Borrower in
accordance with its terms.

                  2.4      Legal Proceedings. There is no action, suit or
proceeding pending or, to the knowledge of Borrower, threatened, at law or in
equity or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which might result in any materially adverse change in Borrower's title
to any of the Collateral or its financial condition or operations, or which
would involve the probability of any judgment or liability not fully covered by
insurance.


                          PAGE 1 -- SECURITY AGREEMENT
<PAGE>

                  2.5      Compliance with Laws. Borrower complied with all
laws, regulations, and orders of which Borrower has knowledge and which affect
in any material respect Borrower's right to carry on its operations, perform its
obligations under this Agreement or meet its obligations in the ordinary course
of business.

                  2.6      Outstanding Debt. There exists no default under the
provisions of any instrument evidencing any indebtedness of Borrower or of any
agreement relating thereto.

                  2.7      Rights of Lender. All rights of Lender hereunder are
subordinate to the rights of the Superior Secured Parties and shall be subject
to the rights of the Superior Secured Parties.

                  2.8      Familiarity with Terms. Borrower is fully familiar
with all of the covenants, terms and conditions of this Agreement.

         3.       Affirmative Covenants.

                  3.1      Maintenance of Existence. Borrower shall cause to be
done all things necessary to maintain and preserve its existence and its rights
and franchises, and shall comply with all related laws applicable to Borrower in
such manner as its counsel shall advise.

                  3.2      Maintenance of Property and Leases. Borrower shall
keep its properties in good repair and condition, reasonable wear and tear
excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto. Borrower shall at all times
comply with the provisions of all leases to which it is a party so as to prevent
any loss or forfeiture thereof or thereunder.

                  3.3      Insurance. With respect to the Collateral, Borrower
shall maintain insurance in amounts and covering risks as is customary among
prudent persons engaged in businesses similar to that of Borrower. Unless
otherwise specified herein or agreed to in writing by Lender, each casualty
insurance policy referred to in the preceding sentence shall name Lender as a
named assured and a loss payee as its interest may appear, the parties agreeing
that such interest of Lender shall be equal to the total of all amounts owed
under the Note.

                  3.4      Compliance with Laws. Borrower shall duly observe and
conform to all valid requirements of governmental authorities relating to the
conduct of its business or to its property or assets.

         4.       Impairment of Security. Borrower shall not without the prior
written consent of Lender (a) sell or relocate the Collateral (except that
Borrower may sell its inventory in the ordinary course of its business), or
assign, pledge or otherwise grant any security interest in the whole or any part
of the Collateral to anyone other than Lender and the Superior Secured Parties
so long as the Note remains unpaid or (b) take any action which might result in
an alteration or impairment of any rights of Lender created by this Agreement.

         5.       Handling of Collateral. Lender shall not be required,
except at its option, to realize upon the Collateral, to exercise any rights or
options of the Borrower pertaining thereto, to keep the Collateral insured, or
to do any other thing for the protection, enforcement or


                          PAGE 2 -- SECURITY AGREEMENT
<PAGE>
collection of the Collateral. Under no circumstances shall Lender in any way be
responsible for failure to act in Borrower's behalf.

         6.       Events of Default.

                  6.1      Default. The occurrence of one or more of the
following events (herein called "Events of Default") shall constitute a default
under this Agreement:

                           (a)      Borrower's failure to duly and punctually
perform any covenant, condition or agreement to be performed or observed by
Borrower contained in this Agreement or the Note; or

                           (b)      Any representation or warranty made by
Borrower in this Agreement proves to be or becomes untrue.

                  6.2      Acceleration. Upon the occurrence of any Event of
Default, any amounts owed to Lender by Borrower shall then or any time
thereafter, at the option of Lender, become immediately due and payable without
notice or demand, and Lender shall have an immediate right to pursue the
remedies provided herein and under applicable law.

         7.       Remedies. Should there occur an Event of Default hereunder,
Lender shall have all remedies provided by law. Without limiting the generality
of the foregoing, Lender shall be entitled to transfer the Collateral or cause
it to be transferred to Lender or to any purchaser acceptable to Lender upon
terms and conditions acceptable to Lender and to assert such other rights and
remedies of a secured party under the laws of the United States or the state of
Oregon.

         8.       Cumulative Rights. The security and the rights provided for in
this Agreement are cumulative, and are in addition to any rights or security or
remedies of Lender under any other instruments or agreements, or under
applicable law.

         9.       Expenses. Borrower shall pay the cost of filings a UCC
Financing Statement in connection with this Agreement and all expenses,
including reasonable fees and out of pocket expenses of legal counsel, which
Lender may incur in protecting, defending, or realizing on any part of the
Collateral, or in protecting or defending the priority of the security interest
created hereby, or in connection with the enforcement of Lender's rights under
this Agreement.

         10.      Miscellaneous.

                  10.1     Modifications, Consents, and Waivers. No failure or
delay on the part of Lender in exercising any power or right under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right or power preclude any other or further exercise thereof or
the exercise of any other right or power. No amendment, modification or waiver
of any provision to this Agreement, nor consent to any departure therefrom,
shall in any event be effective unless the same shall be in writing and
consented to by Lender and Borrower, and then such amendment, modification,
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.


                          PAGE 3 -- SECURITY AGREEMENT
<PAGE>

                  10.2     Notices. All notices and requests in connection with
this Agreement shall be in writing and may be given by personal delivery,
registered or certified mail, or by private courier, in each case addressed to
the parties at their addresses set forth below or to such other address as the
party to receive the notice or request shall designate by notice to the other.
The effective date of any notice or request shall be three (3) days from the
date on which it is deposited in the mail, if mailed, upon delivery if
personally delivered, or on the date the courier warrants that delivery will
occur, if sent by private courier. Borrower hereby agrees that such notice shall
be deemed to meet any requirements of reasonable notice contained in the UCC.

                  10.3     Binding Effect and Assignment. This Agreement shall
be binding upon and inure to the benefit of Borrower, Lender and their
respective successors and assigns, except that Borrower may not assign its
rights or delegate its obligations under this Agreement without the prior
written consent of Lender.

                  10.4     Headings. Paragraph headings used in this Agreement
are for convenience of reference only and shall not affect the constructions of
this Agreement.

                  10.5     Severability. The unenforceability or invalidity of
any provision or provisions of this Agreement shall not render any other
provision or provisions of this Agreement unenforceable or invalid.

                  10.6     Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.

                  10.7     Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the state of Oregon.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                          PAGE 4 -- SECURITY AGREEMENT
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first written above.

LENDER:                                     BORROWER:

JAMES W. SHIRES and SCOTT CRAWFORD          YAMHILL VALLEY VINEYARDS, INC.

                                            By:
-----------------------------------            ---------------------------------
James W. Shires                                    Denis Burger, President

-----------------------------------
Scott Crawford


                          PAGE 5 -- SECURITY AGREEMENT
<PAGE>

                                    EXHIBIT A
                                LEGAL DESCRIPTION

PARCEL I:

Beginning at the Southeast corner of the Southeast Quarter of the Northwest
Quarter of Section 10, Township 5 South, Range 5 West of the Willamette
Meridian, Yamhill County, Oregon. Said point being also the most Southerly
Southwest corner of land owned by Lloyd Bennett and E.E. Goucher and running
thence East 15.00 chains to the West line of the John Boyd Donation Land Claim
and Southeast corner of said Bennett and Goucher land; thence North along the
West line of said Boyd Donation Land Claim and along the extension of said line
16-2/3 chains; thence West 15.00 chains; thence South 16-2/3 chains to the place
of beginning, and being a part of the Southeast Quarter of the Northwest Quarter
of said Section 10.

PARCEL II:

A tract of land being a portion of the Ralph W. Macy tract as described in deed
recorded October 5, 1951 in Book 163, Page 224, Yamhill County Deed Records,
being more particularly described as follows, to-wit:

Commencing at the Northwest corner of the Donation Land Claim of John Boyd and
wife, Notification No. 2417, Claim No. 58 in Township 5 South, Range 5 West of
the Willamette Meridian, Yamhill County, Oregon; thence North 89(degree)54'20"
East along the North line of said Macy tract, a distance of 1340.77 feet to an
iron pipe and the true POINT OF BEGINNING of the tract being described herein;
thence South 0(degree)33'30" West on a line which is parallel to the West line
of said Macy tract, a distance of 1318.66 feet to an iron pipe; thence South
60(degree)28' East a distance of 153.26 feet to an iron pipe; thence South
64(degree)44' East a distance of 102.50 feet to an iron pipe; thence South
62(degree)11'30" East a distance of 924.43 feet to an iron pipe set in the
Westerly right of way line of County Road No. 431; thence North 21(degree)22'
East along said Westerly right of way line a distance of 847.46 feet to an iron
pipe; thence along the arc of a 602.96 foot radius curve (the long chord of
which bears North 27(degree)14'20" East 123.38 feet) a distance of 123.59 feet
to an iron pipe; thence North 0?(degree)02' West a distance of 313.40 feet to an
iron pipe set in CSP 4945; thence South 89(degree)23'15" West a distance of
648.02 feet to an iron pipe set in CSP 6231; thence North 0(0)03'20" East a
distance of 670.01 feet, more or less, to an iron pipe set on the North line of
said Macy tract; thence South 89(degree)16'48" West along the North line of said
Macy tract a distance of 458.09 feet to an iron pipe; thence South
89(degree)54'20" West continuing along the North line of said Macy tract a
distance of 290.51 feet to the true point of beginning.

PARCEL III:

A tract of land in Section 10, Township 5 South, Range 5 West of the Willamette
Meridian in Yamhill County, Oregon, and being a portion of the Ralph W. Macy
tract as described in Deed recorded October 5, 1951 in Book 163, Page 224,
Yamhill County Deed Records, more particularly described as follows:


                              PAGE 1 -- EXHIBIT A
<PAGE>

Beginning at the Northwest corner of the John Boyd and wife Donation Land Claim
No. 58, Notification No. 2417, in Township 5 South, Range 5 West of the
Willamette Meridian in Yamhill County, Oregon; thence South 0(degree)33'30" West
along the West line of said John Boyd Donation Land Claim, 882.61 feet to a
point; thence North 85(degree)29' East 314.29 feet; thence North 88(degree)06'
East 117.54 feet; thence South 70(degree)36' East 142.63 feet; thence South
60(degree)57' East 146.50 feet; thence South 59(degree)57' East 226.36 feet;
thence South 63(degree)21' East 244.08 feet; thence South 60(degree)28' East
265.71 feet to an iron pipe; thence North 0(degree)33'30" East 1318.66 feet to
an iron pipe on the North line of the John Boyd Donation Land Claim; thence
South 89(degree)54'20" West along the North line of said Claim, 1340.77 feet to
the point of beginning.

EXCEPTING THEREFROM the following tract: Beginning at the Northwest corner of
the John Boyd and wife Donation Land Claim No. 58, Notification 2417 in Township
5 South, Range 5 West of the Willamette Meridian in Yamhill County, Oregon;
Thence North 89(degree)54'20" East 1340.77 feet to an iron pipe; thence South
0(degree)33'30" West 888.66 feet to the true POINT OF BEGINNING of the tract
described herein; thence South 0(degree)33'30" West 430 feet to an iron pipe;
thence North 60(degree)28' West 265.71 feet to a point; thence North
38(degree)12'34" East 380.53 feet to the true POINT OF BEGINNING.

PARCEL IV:

A tract of land in Section 10, Township 5 South, Range 5 West of the Willamette
Meridian in Yamhill County, Oregon and being a portion of the Ralph W. Macy
tract as described in Deed recorded October 5, 1951 in Book 163, Page 224, Deed
Records of Yamhill County, Oregon, and being more particularly described as
follows:

Beginning at the Northwest corner of the John Boyd and wife Donation Land Claim
No. 58, Notification No. 2417, in Township 5 South, Range 5 West of the
Willamette Meridian in Yamhill County, Oregon; thence North 89(degree)54'20"
East 1340.77 feet to an iron pipe; thence South 0(degree)33'30" West 888.66 feet
to the true POINT OF BEGINNING of the tract described herein; thence South
0(degree)33'30" West 430 feet to an iron pipe; thence North 60(degree)28' West
265.71 feet to a point; thence North 38(degree)12'34" East 380.53 feet to the
true POINT OF BEGINNING.

TOGETHER WITH an easement to be used in common with others for ingress and
egress and utility purposes over and across a strip of land 60 feet wide, the
South line of said easement strip being described as follows:

Beginning at the Northwest corner of the John Boyd Donation Land Claim No. 58,
Notification No. 2417, in Township 5 South, Range 5 West of the Willamette
Meridian in Yamhill County, Oregon; thence South 0(degree)33'30" West along the
West line of said John Boyd Donation Land Claim No. 58 a distance of 942.61 feet
to the true POINT OF BEGINNING of the South line being described; thence North
85(degree)29' East 314.29 feet; thence North 88(degree)06' East 117.54 feet;
thence South 70(degree)36 East 142.63 feet; thence South 60(degree)57' East
146.50 feet; thence South 59(degree)57' East 226.86 feet; thence South
63(degree)21' East 244.08 feet; thence South 60(degree)28' East 384.98 feet;
thence South 64(degree)44' East 103.31 feet; thence South 62(degree)11'30" East
929.88 feet to a point on the Westerly right of way line of County Road No. 431
and the terminus of the South line herein described.


                              PAGE 2 -- EXHIBIT A
<PAGE>

PARCEL V:

Part of the John Boyd Donation Land Claim No. 58 in Section 10, Township 5
South, Range 5 West of the Willamette Meridian in Yamhill County, Oregon, being
further described as follows:

Commencing at the Northwest corner of said John Boyd Claim; thence South
00(degree)33'30" West along the West line of said Claim, 942.61 feet to an iron
pipe on the South line of a 60 foot wide right of way, being the POINT OF
BEGINNING; thence South 00(degree)33'30" West along the West line of said Claim
1115.93 feet; thence South 89(degree)52' East 2314.61 feet to the Westerly right
of way line of County Road No. 431; thence North 21(degree)22' East along said
road line, 151.08 feet to an iron pipe; thence North 62(degree)11'30" West
929.88 feet to an iron pipe; thence North 64(degree)44' West 103.31 feet to an
iron pipe; thence North 60(degree)28' West 384.98 feet to an iron pipe; thence
North 63(degree)21' West 244.08 feet to an iron pipe; thence North 59(degree)57'
West 226.86 feet to an iron pipe; thence North 60(degree)57' West 146.50 feet to
an iron pipe; thence North 70(degree)36' West 142.63 feet to an iron pipe;
thence South 88(degree)06' West 117.54 feet to an iron pipe; thence South
85(degree)29' West 314.29 feet to said point of beginning.

PARCEL VI:

A part of the John Boyd Donation Land Claim No. 58 in Section 10, Township 5
South, Range 5 West or the Willamette Meridian in Yamhill County, Oregon, being
further described as follows:

Commencing at the Northwest corner of the John Boyd Donation Land Claim No. 58,
Notification No. 2417, in Township 5 South, Range 5 West of the Willamette
Meridian, County of Yamhill, State of Oregon; thence South 0(degree)33'30" West
along the West line of said John Boyd Donation Land Claim No. 58 a distance of
942.61 feet to the true POINT OF BEGINNING; thence North 85(degree)29' East
314.29 feet; thence North 88(degree)06' East 117.54 feet; thence South
70(degree)36' East 142.63 feet; thence South 60(degree)57' East 146.50 feet;
thence South 59(degree)57' East 226.86 feet; thence South 63(degree)21' East
244.08 feet; thence South 60(degree)28' East 384.98 feet; thence South
64(degree)44' East 103.31 feet; thence South 62(degree)11'30" East 929.88 feet
to a point on the Westerly right of way line of County Road No. 431; thence
Northeasterly along the right of way line of County Road No. 431, 60 feet, more
or less, to the most Easterly Northeast corner of that tract of land conveyed to
Eugene J. Schmidt, et ux, by Deed recorded January 25, 1979 in Film Volume 136,
Page 1461, Deed and Mortgage Records; thence along the North line of the Schmidt
tract, North 62(degree)11'30" West 924.43 feet to an iron pipe; thence North
64(degree)44' West 102.50 feet to an iron pipe; thence North 60(degree)28' West
153.26 feet to an angle corner of the Schmidt tract; thence North 60(degree)28'
West 265.71 feet; thence North 63(degree)21' West 244.08 feet; thence North
59(degree)57' West 226.86 feet; thence North 60(degree)57' West 146.50 feet;
thence North 70(degree)36' West 142.63 feet; thence South 88(degree)06' West
117.54 feet; thence South 85(degree)29' West 314.29 feet to the West line of the
John Boyd Donation Land Claim; thence South 0(degree)33'30" West along the
Donation Land Claim line 60 feet, more or less, to the true POINT OF BEGINNING.


                              PAGE 3 -- EXHIBIT A