EXHIBIT 10.16

                               SECURITY AGREEMENT


         THIS SECURITY AGREEMENT ("Security  Agreement") made as of February 27,
1997 by and between CYANOTECH  CORPORATION,  a Nevada  corporation  (hereinafter
called the "Debtor"), and FIRST HAWAIIAN BANK, a Hawaii corporation (hereinafter
called the "Secured Party"),

                                 WITNESSETH THAT

         To secure  the  repayment  of a loan made by the  Secured  Party to the
Debtor in the principal sum of ONE MILLION AND NO/000  DOLLARS  ($1,000,000.00),
which loan is evidenced by that certain promissory note of even date herewith in
that amount,  executed by the Debtor,  as maker, and made payable to the Secured
Party, the provisions of such note and any renewals, extensions or modifications
thereof being incorporated  herein by reference,  being secured hereby and being
hereinafter referred to as the "Note";

         AND ALSO to secure the observance and  performance by the Debtor of all
covenants,  agreements,  obligations and conditions  required to be observed and
performed  by the  Debtor  under this  Security  Agreement,  including,  but not
limited to, the payment by the Debtor to the Secured  Party of all sums expended
or advanced by the Secured  Party  pursuant to the  provisions  of this Security
Agreement;

         AND ALSO to secure the observance and  performance by the Debtor of all
covenants,  agreements,  obligations and conditions  required to be observed and
performed  by the Debtor  under that certain  Credit  Agreement  executed by the
Debtor and the Secured Party concurrently  herewith (the "Credit Agreement") and
under all of the "Loan Documents", as defined therein;

         AND ALSO to secure the  payment by the Debtor to the  Secured  Party of
all other sums now or hereafter  loaned or advanced by the Secured  Party to the
Debtor,  expended  by the  Secured  Party  for the  account  of the  Debtor,  or
otherwise  owing by the  Debtor to the  Secured  Party on any and every  account
whatsoever;

         THE DEBTOR DOES HEREBY grant, assign,  convey,  transfer,  deliver, and
set over to the Secured  Party,  its  successors  and  assigns,  absolutely  and
forever, all of the property set forth in Exhibit "1" attached hereto and made a
part hereof  (hereinafter  called the  "Collateral"),  TOGETHER  WITH a security
interest,  as that term is defined in the Uniform  Commercial Code (Chapter 490,
Hawaii  Revised  Statutes,  as amended),  in such  property,  upon the terms and
conditions hereinafter set forth.

         TOGETHER  WITH all right,  title and  interest of the Debtor in, and to
use, lease or dispose of, the  Collateral as well as any proceeds  deriving from
such Collateral;

         TO HAVE AND TO HOLD the same unto the Secured Party and its  successors
and assigns, absolutely and forever, as security as aforesaid; 
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         UPON  CONDITION  that if the  Debtor  shall  well and  truly pay to the
Secured Party the principal amount of the Note, with interest, fees, charges and
premium, if any, according to its provisions and effect, and if the Debtor shall
discharge any and all obligations  that now or hereafter may be or become owing,
directly or  contingently,  by the Debtor to the Secured  Party on any and every
account,  whether or not the same are mature,  of which obligations the books of
the Secured Party shall be prima facie evidence, and if the Debtor shall observe
and perform all of the covenants,  agreements,  obligations and conditions to be
observed and performed by the Debtor under this Security Agreement and the other
Loan  Documents,  and if the Debtor shall pay the costs of release,  the Secured
Party will, upon request of the Debtor, release the Collateral from the security
interest created by this Security Agreement and these presents shall be void, it
being understood,  however, that an affidavit,  certificate, letter or statement
of any officer of the Secured  Party  showing that any part of the  indebtedness
remains unpaid or any covenants,  agreements,  obligations or conditions  remain
unperformed shall constitute conclusive evidence of the validity,  effectiveness
and continuing force of this Security Agreement.

         Subject  to the  terms  hereof,  until  the  happening  of an  Event of
Default,  as  hereinafter  defined,  the Debtor  shall be entitled to use and to
possess the Collateral.

         BUT, if any one or more of the  following  events,  hereinafter  called
"Events of Default" shall occur:

         (a)  Default  shall  be made by the Debtor in the payment of principal,
interest, fees or charges when due on the Note; or

         (b)  Default  shall  be made  by the  Debtor  in the  due and  punctual
observance  or  performance  of any other  covenant,  agreement,  obligation  or
condition required to be observed or performed by the Debtor under this Security
Agreement  or any of the other  Loan  Documents  and such  default  shall not be
remedied  within twenty (20) days after the Secured Party notifies the Debtor of
such default; or

         (c)  The Debtor shall become voluntarily or involuntarily  dissolved or
become insolvent, or the Debtor shall admit in writing the Debtor's inability to
meet the Debtor's  debts as they become due, or shall file a voluntary  petition
in bankruptcy, or make an assignment for the benefit of creditors, or consent to
the  appointment  of a receiver or trustee for all or a substantial  part of the
Debtor's properties,  or file a petition,  answer or other instrument seeking or
acquiescing to the  arrangement of the Debtor's debts, or other relief under the
federal  bankruptcy  laws or any other  applicable  law of the United  States of
America or any state or territory thereof for the relief of debtors; or

         (d)  A decree or order of a court having  jurisdiction  in the premises
shall be entered (i) adjudging  the Debtor to be bankrupt or insolvent,  or (ii)
appointing a receiver or trustee or assignee in  bankruptcy or insolvency of the
Debtor  or the  Debtor's  properties,  or  (iii)  directing  the  winding  up or
liquidation of the Debtor's affairs; or

         (e)  Any representation  or  warranty  made by the Debtor  herein or in
connection with the Loan Documents shall be untrue in any material  respect;  or

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         (f)  All or a  material  part  of the  Collateral  shall  substantially
decrease in value and, after demand by the Secured Party,  the Debtor shall fail
to furnish additional security satisfactory to the Secured Party; or

         (g)  There  shall be any  attachment,  execution,  forfeiture  or other
seizure of, or affecting, the Collateral, or any part thereof, unless the Debtor
sets  aside,  dissolves,  bonds off or  otherwise  eliminates  such  attachment,
execution or seizure within thirty (30) days after its occurrence; or

         (h)  There shall be entered against the Debtor a final  judgment  which
alone or with other  outstanding  final judgments  against the Debtor exceeds in
the aggregate $100,000.00,  and within thirty (30) days after entry thereof such
judgment or judgments shall not have been discharged or execution thereof stayed
pending appeal, or within thirty (30) days after the expiration of any such stay
such judgment or judgments shall not have been discharged; or

         (i)  Any other "Event of Default",  as defined in the Credit Agreement,
shall have  occurred and such default  shall not have been  remedied  within the
applicable grace period, if any, therefor.

         THEN, AND IN ANY SUCH EVENT, the Secured Party,  without  obligation to
do so and without releasing or waiving any of its rights,  shall have the right,
power,  and authority,  without  notice,  presentment or demand,  to declare the
unpaid principal amount of the Note and any interest thereon accrued and unpaid,
and all fees,  charges,  and other  sums due  under  the Loan  Documents,  to be
immediately  due and payable,  whereupon such principal  amount and interest and
all such fees,  charges and other sums,  shall become and be immediately due and
payable,  and  shall  thereafter  bear  interest  until  fully  paid at the rate
specified in the Note to be paid in the event of default,  and the Secured Party
may, at its option,  without notice and  irrespective of whether  declaration of
default is required to be delivered to any party named in the Loan  Documents or
other  instrument  or  obligations  securing  the Note or secured  hereunder  or
whether remedies under other security instruments have been exercised,  exercise
all rights and remedies contained in the Loan Documents, including this Security
Agreement, and shall have all rights and remedies available to the Secured Party
under the Uniform Commercial Code or other applicable laws.

         Without  limiting the generality of the foregoing,  upon the occurrence
of an Event of Default:

     (a)  The Secured  Party  may,  at the  Secured  Party's  option  and at the
Debtor's expense,  either in the Secured Party's own right or in the name of the
Debtor and in the same  manner  and to the same  extent  that the  Debtor  might
reasonably so act if this Security  Agreement had not been made, (i) demand, sue
for, collect, recover, receive and otherwise enforce payment of all proceeds and
other sums due and payable from the Collateral, the Debtor hereby requesting and
instructing all other parties to the accounts and contract  rights  described in
paragraph  (a) of  Exhibit  "1" (the  "Contracts")  or liable  to the  Debtor in
connection  with the  Collateral  to make  all  payments  then due or which  may
thereafter  become due thereunder or thereby  directly to the Secured Party, and
the Debtor  further

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agreeing  that the receipt by the Secured Party of any such payments  shall be a
complete release and  discharge of the obligor or obligors thereof to the extent
of the  payment or  payments so made;  (ii) do all things requisite, convenient,
or necessary to  enforce the  performance  and  observance  of any and all other
covenants, agreements, conditions, terms and provisions of the Contracts, and to
exercise all the rights, remedies and privileges of the Debtor  contained in the
Contracts or arising from the Collateral,  or any part thereof,  including,  but
not  limited  to,  the  making,  modifying,  amending,  enforcing,  canceling, 
surrendering or accepting the surrender of, terminating or  extending any of the
Contracts  now or hereafter  in effect,  and also  including  the  compromising,
waiving,  excusing, or in any manner releasing or discharging of any  obligation
of any party to  or arising from the  Collateral;  (iii) take  possession of the
books,  papers, and accounts of the Debtor,  wherever located,  relating  to the
Collateral;  (iv)  receive,  and  the  Debtor  will  forthwith  surrender to the
Secured Party,  the possession of the  Collateral,  and, to the extent permitted
by law,  the Secured  Party may itself  or by such  officers or agents as it may
appoint  (A)  manage or operate the Collateral or any part thereof,  (B) exclude
the Debtor, its  agents  and servants therefrom,  (C)  make, enforce, modify and
accept the surrender of any Contracts, and (D) do all acts, including the making
of contracts, which the Secured Party deems necessary for the care or management
of the property or the Contracts described in Exhibit "1";  (v) sue or otherwise
collect and receive moneys;  and (vi) do all other things requisite,  convenient
or necessary to require the other parties to the Contracts to perform  the same,
or which the Secured Party deems proper to protect the security given hereunder.

     (b)  The Secured Party may foreclose this Security  Agreement in the manner
now or  hereafter  provided or  permitted  by law,  including  treatment  of the
Collateral as real property subject to judicial  foreclosure pursuant to Chapter
667, Hawaii Revised Statutes,  as amended, and shall have the immediate right to
receivership  on ex parte order and without  bond pending  foreclosure,  and may
sell,  assign,  transfer or  otherwise  dispose of the  Collateral  at public or
private sale, in whole or in part, and the Secured Party may, in its own name or
as the irrevocably appointed  attorney-in-fact of the Debtor, effectually assign
and transfer the Collateral,  or any part thereof,  absolutely,  and execute and
deliver all necessary assignments,  deeds, conveyances,  bills of sale and other
instruments  with power to substitute one or more persons or  corporations  with
like power; and, if the Secured Party so instructs the Debtor,  the Debtor shall
assemble,  without  expense to the Secured  Party,  all of the  Collateral  at a
convenient  place on the island  where the  Property is located,  and the Debtor
shall  ratify and confirm any such sale or  transfer  by  delivering  all proper
instruments  to such persons or  corporations  as may be  designated in any such
request. Any such foreclosure sale,  assignment or transfer shall, to the extent
permitted  by law, be a perpetual  bar,  both at law and in equity,  against the
Debtor and all persons and entities  claiming by or through or under the Debtor.
Any such sale may be  adjourned  from time to time.  Upon any sale,  the Secured
Party may bid for and purchase the  Collateral,  or any part  thereof,  and upon
compliance  with the terms of sale, may hold,  retain and possess and dispose of
the Collateral,  in its absolute right without further  accountability,  and the
Secured Party, at any such sale may, if permitted by law, after allowing for the
proportion of the total purchase price required to be paid in cash for the costs
and expenses of the sale,  commissioner's  compensation and other charges, apply
as a credit  against the purchase  price,  in lieu of cash, all amounts owing by
the Debtor under the Note and the other Loan Documents, to the extent required.

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                  In case of any Event of Default, neither the Debtor nor anyone
claiming by, through or under the Debtor,  to the extent the Debtor may lawfully
so  agree,  shall or will set up,  claim  or  seek  to  take  advantage  of  any
appraisement,  valuation,  stay, extension or redemption law now or hereafter in
force in any  locality  where  any of the  Collateral  is  situated  in order to
prevent or hinder the  enforcement of this Security  Agreement,  or the absolute
sale of the  Collateral,  or the  final and  absolute  putting  into  possession
thereof,  immediately after such sale, of the purchasers thereof; and the Debtor
in the  Debtor's  own right and for all who may claim under the  Debtor,  hereby
waives,  to the full extent  that the Debtor may  lawfully do so, the benefit of
all  such  laws  and any and all  right to have  the  estates  comprised  in the
security  intended to be created hereby  marshalled  upon any enforcement of the
lien hereof and agrees that the Secured  Party or any court having  jurisdiction
to foreclose such lien may sell the  Collateral in parts or as an entirety.  The
Secured  Party  may  apply the  proceeds  of any such sale in such  order as the
Secured Party shall  choose,  (i) to the costs and expenses of such sale and all
proceedings in connection therewith, including counsel fees; (ii) to the payment
of any  unreimbursed  disbursements  made by the  Secured  Party  for  taxes  or
assessments or other charges affecting the Collateral; (iii) to the repayment of
all other  unreimbursed  disbursements  and expenses and unpaid charges and fees
due and  owing to the  Secured  Party  under  the  provisions  of this  Security
Agreement  or any of the other Loan  Documents;  and (iv) to the  payment of the
unpaid  principal of and interest on the Note, and all other  obligations of the
Debtor under the Loan Documents;  and the remainder,  if any, shall be paid over
to the Debtor.  If such proceeds shall be  insufficient  to discharge the entire
indebtedness  under the Loan  Documents,  the  Secured  Party may have any other
legal recourse against the Debtor for the deficiency.

         Nothing in this Security  Agreement,  the Note or any of the other Loan
Documents shall affect or impair the right, which is unconditional and absolute,
of the holder of the Note to enforce  payment of the  principal of, and interest
and other  charges on, the Note at or after the date  therein  expressed  as the
date when the same shall become due, or the  obligation of the Debtor,  which is
likewise unconditional and absolute, to pay such amounts at the respective times
and places therein expressed.

         A.  DEBTOR'S  WARRANTIES.  The  Debtor  warrants and  represents to the
Secured  Party as  follows:

             1.  The  Debtor  is  a  party to each of the  Contracts  and is the
absolute and sole owner of the interest in and to the Contracts  subject to this
Security Agreement,  with full right and title to assign the same to the Secured
Party and  to grant the Secured  Party a security  interest  in the same and the
sums  due  or  to  become  due  thereunder;  the  Debtor  has  to date fully and
faithfully observed and performed all  of  the  terms,  obligations,  covenants,
conditions,   and  warranties  to  be  observed  and  performed  by  the  Debtor
thereunder,  and no event  has occurred and is continuing which constitutes,  or
with notice or the passage of time would constitute, a default  thereunder;  the
Contracts  are  genuine,  valid,  subsisting  and  enforceable  upon all parties
thereto  according  to  their  terms;  the Debtor has not  alienated,  assigned,
pledged,  transferred,  mortgaged  or otherwise  encumbered any of the rights or
interests of the Debtor therein or thereto,  including the sums due or to become
due thereunder;  there have been no  amendments  or  modifications to any of the
Contracts;  no financing  statement or  any other lien or  encumbrance  covering
any of the Collateral is on file
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in the Bureau of Conveyances of the State of Hawaii, or is otherwise outstanding
(other  than in favor of Secured  Party);  nothing in any of the Contracts would
prevent the Secured Party from enforcing any of the rights and remedies that the
Debtor might have if this Security  Agreement had not been executed;  and, other
than in the ordinary course of business,  (i) the other parties to the Contracts
have no offsets,  counterclaims or defenses against the Debtor,  whether arising
out of the  Contracts  or  otherwise;  (ii) no  payments  of any  kind  required
thereunder have been  anticipated,  discounted,  waived,  released,  or set-off;
(iii) no parties thereto have been  discharged,  excused,  or released;  (iv) no
claims  under  the  Contracts  have been  compromised;  (v) the  Debtor  has not
accepted any  payments  under any of the  Contracts,  except as permitted by the
terms thereof; and (vi) all payments thereunder are current.

         2.  The Debtor is the lawful owner of the  Collateral and has the right
to the use and  possession  of the  Collateral  and has  good  right to grant or
convey the same as security  under this Security  Agreement;  the  Collateral is
free and  clear of any  lien or right  prior to or on a parity  with the lien of
this Security  Agreement,  except as noted above;  the Debtor will, on behalf of
the Secured Party,  defend forever against any claims or demands thereon made by
all  persons;  and there  exist no  offsets,  counterclaims  or  defenses to the
Debtor's rights therein or thereto.

         3.  The Debtor is a corporation duly organized and validly existing and
in good  standing  under the laws of the State of Nevada,  is  authorized  to do
business and is in good  standing in the State of Hawaii,  and has all requisite
corporate power and authority to carry on the business and own the property that
it now carries on and owns.

         4.  The Debtor have all requisite  power and  authority to execute this
Security  Agreement,  to secure the payment of the Note by the execution of this
Security  Agreement and to carry out the provisions of this Security  Agreement.
The execution and delivery of this Security  Agreement have been duly authorized
by the Board of Directors  of the Debtor and, to the extent  required by law, by
the  stockholders of the Debtor,  and no other corporate action of the Debtor is
requisite to the execution and delivery of this Security Agreement.

         5.  All tax returns  and  reports of the Debtor  required  by law to be
filed have been duly filed, and all taxes, assessments,  contributions, fees and
other  governmental  charges (other than those currently payable without penalty
or interest and those  currently  being contested in good faith) upon the Debtor
or upon the Debtor's properties, assets or income which are due and payable have
been paid.

         6.  There  are no  actions,  suits or  proceedings  pending  or, to the
knowledge  of the  Debtor,  threatened  against or  affecting  the Debtor or the
Collateral  in any court at law or in equity,  or before or by any  governmental
department,  commission,  board, bureau,  agency or instrumentality,  an adverse
decision in which might  materially  affect the Debtor's  ability to perform the
Debtor's obligations under this Security Agreement.

         7.  The Debtor is not in violation of or in default with respect to any
provision of its articles of incorporation or bylaws or any mortgage, indenture,
contract,

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agreement or  instrument  applicable  to the Debtor,  or by which the  Debtor is
bound, and the execution,  delivery,  performance of and  compliance  with  this
Security  Agreement will not result in any such violation or be in conflict with
or constitute a default under any such provision,  or result in the creation  of
any mortgage,  lien,  security  interest or charge  on  any of the properties or
assets of the Debtor not contemplated by this Security  Agreement;  and there is
no  provision  of its  articles  of  incorporation  or  bylaws  or any mortgage,
indenture,  contract,  agreement  or instrument  applicable to the Debtor  or by
which the Debtor is bound which materially adversely  affects,  or in the future
(so far as the Debtor can now foresee)  will  materially  adversely affect,  the
business or prospects or condition  (financial or other) of the Debtor or of any
of its properties or assets.

         8.  Any financial statements  heretofore delivered to the Secured Party
by the  Debtor are true and  correct  in all  respects,  have been  prepared  in
accordance with generally accepted accounting  principles,  and fairly represent
the respective financial conditions of the subjects thereof as of the respective
dates  thereof;  no  materially  adverse  change has  occurred in the  financial
conditions  reflected  therein  since  the  respective  dates  thereof;  and  no
additional borrowings have been made by the Debtor since the date thereof.

     B.  DEBTOR'S  COVENANTS.  The Debtor  hereby  covenants and agrees with the
Secured Party as follows:

         1.  Payment  of  Taxes,  Assessments,  etc.  The Debtor will punctually
pay  and discharge,  or cause to be paid and discharged from time to time as the
same shall become due,  other than those which the Debtor is then  contesting in
good  faith  and  which  are  not  in  excess  of  five hundred thousand dollars
($500,000.00)  or for which  reserves have been  established by the Debtor,  all
taxes,  rates,  assessments,  impositions,  duties  and  other  charges of every
description to which the Collateral, or any part thereof,  may  during  the term
of this Security Agreement become liable by  authority  of law,  the  payment of
which  shall  be  secured  by  this  Security  Agreement.  The Debtor will, upon
request, deposit copies of the receipts therefor with the Secured Party no later
than  five  (5)  days  prior to the final date such taxes,  rates,  assessments,
impositions, duties and other charges may be paid without penalty.

         2.  Preservation  of  Contracts.  Except with the prior written consent
of  the Secured  Party, or in the ordinary  course of business,  the Debtor will
not: (a)  modify,  change,  alter,  extend,  terminate, cancel, tender or accept
surrender of any of the  Contracts;  (b)  reduce, discount, compromise,  settle,
waive,  release,  or set-off the amount of any sums payable thereunder, vary the
terms of payment  or  otherwise  change,  alter or modify  the same, or  consent
to the subordination of interest of any part thereto, or waive, excuse, condone,
or in  any  manner  release  or  discharge any party thereunder of or from their
respective  obligations,  covenants,  conditions,  and agreements required to be
performed;  (c) execute any agreement which would prevent the Secured Party from
acting as the Debtor,  as provided herein;  nor  (d) alienate,  assign,  pledge,
transfer, or encumber any of the rights or interests  of the Debtor  therein  or
thereto, including the sums due or to become due thereunder.

         3.  Performance.  The  Debtor  will  fully  and  faithfully  abide  by,
observe,  discharge,  perform  and  enforce  the  performance  of  the  terms,  
obligations, covenants,  

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conditions,  agreements and  warranties  required  to be observed and  performed
under  each  of  the  Contracts,  and under the Loan Documents,  including  this
Security  Agreement,  and any other instrument secured hereunder,  and will give
prompt  notice to the Secured  Party of any default  thereunder,  whether by the
Debtor or by any party thereto,  together with an accurate  and complete copy of
any notice either received or sent by the Debtor.  Other  than  in  the ordinary
course  of  business,  the Debtor  will not  anticipate,  discount,  compromise,
settle,  waive,  release,  or  set off  any  sums  due under the Contracts or in
respect of the rights and property described in paragraphs  (b)  through  (d) of
Exhibit "1"  (the "Personal  Property")  or  receive  any  sums  in  any  manner
inconsistent with the provisions of the Contracts or this Security Agreement.

         4.  Indemnification.  The Debtor will  indemnify  and hold and save the
Secured Party harmless from and against any and all liability,  loss,  damage or
expense of whatever kind or nature, including attorneys' fees, which the Secured
Party may at any time sustain or incur hereunder, including, but not limited to,
any claims or demands whatsoever which may be asserted against the Secured Party
as a result of any  failure  on the part of the  Debtor to  perform,  observe or
discharge  its  obligations  under any of the  Contracts or involving any of the
Collateral.  Prior to actual entry and taking  possession of any property by the
Secured Party, this Security Agreement shall not operate to place responsibility
upon the  Secured  Party  for the  control,  care,  management  or repair of any
property constituting security hereunder.

         5.  Enforcement  and  Collection.  The Debtor will,  at  no cost to the
Secured Party,  diligently  enforce and secure the performance and observance of
each and  every  obligation,  covenant,  condition  and  agreement  of the other
parties under all of the Contracts.

         6.  Duplicate  Originals.  At the request of  the  Secured  Party,  the
Debtor will  furnish to the Secured Party a duplicate original of each  Contract
now existing or hereafter executed by the Debtor.

         7.  Litigation.  The  Debtor  will  appear in and  defend any action or
proceeding  at law or in  equity  affecting  in any  manner  all or  part of the
Collateral;  and in such event (except where the purported  defect affecting the
security  hereof  arises or  results  from any act or  omission  of the  Secured
Party), the Debtor will pay all costs,  charges and expenses,  including cost of
evidence of title and  attorneys'  fees incurred,  and will fully  indemnify the
Secured  Party  from  and  against  any  loss,  damage,  or  expense,  including
attorneys'  fees,  sustained or incurred by the Secured Party as a result of any
failure  on the part of the  Debtor to comply  with its  obligations  under this
paragraph.

          8. Liens. The Debtor will maintain the valid security  interest of the
Secured Party in the Collateral and the sums due  thereunder,  free and clear of
all liens,  claims,  and encumbrances that may be, or are threatened to be, made
prior to or on a parity with the security  interest of the Secured Party herein,
except liens for taxes or assessments not yet payable or payable without penalty
so long as payable.  The Debtor will not claim any credit on interest payable on
the Note or on any other  payment  secured  hereby for any  portion of the taxes
assessed  against the  Collateral,  and the  provisions of any law entitling

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the Debtor to such creditare hereby expressly waived by the Debtor to the extent
they may be lawfully waived.

          9.  Further Assurances.  The Debtor will assist in the  preparation of
and execute and acknowledge  from time to time, alone or with the Secured Party,
and  deliver,  file  or  record  any  further  instruments,  including  security
agreements,   financing    or   continuation  statements,   mortgages  or  other
instruments,  and do such  further  acts as the  Secured  Party may  request  to
confirm, establish,  continue, maintain and perfect the security interest of the
Secured Party created by this Security  Agreement and to subject the  Collateral
to  the  lien  hereof,   including  all  renewals,   additions,   substitutions,
replacements or betterments thereto and all proceeds therefrom, and otherwise to
protect  the same  against the rights and  interests  of third  parties,  and to
execute all  documents  and perform all acts  necessary to enforce the Contracts
and to make the same binding,  the Debtor agreeing to pay the cost of preparing,
filing and recording the same.

          10. Acknowledgment  of  Debt.  The Debtor,  within five (5) days after
request by the Secured Party in writing,  will furnish to the Secured Party,  or
to any proposed  assignee of this Security  Agreement,  a written statement duly
acknowledged  of the amount due under this Security  Agreement and the Note, and
whether any off-sets, counterclaims or defenses exist against the secured debt.

          11. Personal  Property.  The  Debtor agrees:  (a) to keep all Personal
Property  reasonably  intact and in good condition, order and repair; (b) at the
Debtor's  own  expense  to  replace  any  portion thereof which may be broken or
become obsolete or worn out or unfit for use; (c) to comply with all laws, rules
and regulations made by governmental authority  and applicable thereto;  (d) not
to commit or suffer any strip or waste of the Personal Property;  and (e) not to
alienate, assign, pledge, transfer, or encumber any of the  rights  or interests
of the Debtor therein and thereto.

          12. Insurance. The Debtor will, in the name and for the benefit of the
Secured  Party,  during  the term of this  Security  Agreement,  keep all of the
Personal  Property  insured  against  hazards  of such type or types and in such
amount or amounts and form of policy as the Secured  Party may from time to time
reasonably  require and will deposit the policies  with the Secured  Party.  The
Debtor  further  agrees to keep paid in advance  all  premiums  and costs of all
insurance required hereunder and, upon demand of the Secured Party, will furnish
evidence of payment of such  premiums.  The Debtor,  not less than ten (10) days
prior to the expiration date of each policy,  shall deliver to the Secured Party
a renewal policy or policies, accompanied by evidence of payment satisfactory to
the Secured  Party.  All insurance  required  hereunder  shall be effected under
valid and enforceable  policies issued by insurance  companies  authorized to do
business  in the State of Hawaii,  the Debtor  hereby  acknowledging  receipt of
written  notice from the Secured  Party that the Secured  Party may not make the
granting of the loan evidenced by the Note contingent upon the Debtor  procuring
any required  insurance  with an  insurance  company  designated  by the Secured
Party.  The Secured Party shall not be responsible for such insurance or for the
collection  of any  insurance  moneys,  or for the  insolvency of any insurer or
insurance  underwriter.  The amount  collected from any fire or other  insurance
policy may be applied by the Secured Party upon any indebtedness  secured hereby
and in such order as the Secured

                                       9

<PAGE>
Party may  determine, or, at the option of the Secured Party, the entire  amount
so  collected,  or any part  thereof,  may be  applied to the restoration of the
Personal Property,  or released to the Debtor, without being deemed a payment on
any of the indebtedness  secured hereby.  Such application  or release shall not
cure or waive any default  or notice of default hereunder or invalidate  any act
done pursuant to such notice.   No lien upon any  of such policies of insurance,
or upon any refund or return premium which may be payable on the cancellation or
termination  thereof,  shall  be given to anyone  other than the Secured  Party,
except by proper  endorsement affixed to such policy and approved by the Secured
Party.  In  the event of loss or physical  damage to the Personal Property,  the
Debtor shall give immediate notice thereof  by mail  to the Secured  Party,  and
the Secured Party may make proof of loss if the same is not made promptly by the
Debtor.  In  the  event of  foreclosure of this  Security  Agreement,  or  other
transfer of title  to the  Collateral  in the extinguishment of the indebtedness
secured hereby,  all right,  title  and interest of the Debtor  in  and  to  any
insurance  policies then in force shall pass to the  purchaser  or the  grantee.
All  such  policies  or  other  contracts  for  such  insurance issued  by  the 
respective insurers shall,  to the extent obtainable,  be  without  contribution
and contain an agreement by the insurer that the policy or other contract  shall
not be canceled or  materially changed  without at least thirty (30) days' prior
written notice to the Secured Party.

     C.    MUTUAL COVENANTS.  The Debtor and the Secured Party mutually covenant
and agree each with the other as follows:

           1.  Secured  Party  Not Obligated to Perform.  Neither the acceptance
of this Security Agreement by the Secured Party,  nor the exercise of any rights
hereunder by the Secured  Party,  shall be construed in any way as an assumption
by the  Secured  Party of any  obligations,  responsibilities  or  duties of the
Debtor  arising from the  Collateral  assigned  hereunder or otherwise  bind the
Secured Party to the performance of any of the terms and provisions contained in
any of the Contracts or of any obligations  respecting the Personal Property, it
being  expressly  understood  that the Secured  Party shall not be  obligated to
perform, observe or discharge any obligation, responsibility, duty, or liability
of the  Debtor  under any of the  Collateral,  including,  but not  limited  to,
appearing  in or defending  any action,  expending  any money or  incurring  any
expenses in connection therewith.

           2.  Right of Secured Party to Defend Action Affecting  Security.  The
Secured Party may, at the Debtor's  expense,  appear in and defend any action or
proceeding at law or in equity purporting to affect the Secured Party's security
interest under this Security Agreement.

           3.  Right  of  Secured  Party  to Prevent or Remedy Default.  If  the
Debtor  shall  fail  to perform any of the covenants,  conditions  or agreements
required to  be  performed  and observed by the Debtor under the Loan Documents,
including  this  Security  Agreement,  the Contracts,  or  any other instruments
secured hereby,  or in respect of the Personal Property,  the Secured Party  (a)
may but shall not be obligated to take action the Secured Party deems  necessary
or desirable to prevent or remedy any such default by the Debtor or otherwise to
protect  the  security  interest  of  the  Secured  Party  under  this  Security
Agreement, and  (b)  shall have the absolute and immediate right to enter in and
upon the Property in order to take  possession  of  the  Collateral  or any part
thereof to such extent and as often as

                                       10

<PAGE>
the Secured Party, in its sole discretion, deems necessary or desirable in order
to prevent  or to cure any such default  by the Debtor,  or otherwise to protect
the security of this Security  Agreement.  The  Secured  Party  may  advance  or
expend such sums of money for the account of the Debtor, as the Secured Party in
its sole discretion deems necessary for any such purpose.

           4.  Secured Party's Expenses.  All advances, costs, expenses, charges
and reasonable  attorneys'  fees which the Secured  Party may make, pay or incur
under  any  provision  of this  Security  Agreement  for the  protection  of its
security  or  for  the  enforcement  of  any  of  its  rights  hereunder,  or in
foreclosure  proceedings commenced and subsequently abandoned, or in any dispute
or  litigation  in which the Secured  Party or the holder of the Note may become
involved  by reason of or  arising  out of the Loan  Documents,  including  this
Security Agreement, or any other instrument secured hereby, or the Collateral or
the care and  management of the  Collateral,  shall be paid by the Debtor to the
Secured  Party,  upon  demand,  and shall bear  interest  until paid at the rate
specified  by the Note to be paid in the  event of  default  thereunder,  all of
which obligations shall be additional charges upon the Collateral and be equally
secured hereby.

           5.  Secured Party's Right of Set-Off. Upon the happening of any event
entitling  the Secured  Party to pursue any remedy  provided  herein,  or if the
Secured Party shall be served with  garnishee  process in which the Debtor shall
be named as defendant,  whether or not the Debtor shall be in default  hereunder
at the time,  the Secured  Party may,  but shall not be required to, set off any
indebtedness  owing by the Secured Party to the Debtor against any  indebtedness
secured hereby,  without first  resorting to the security  hereunder and without
prejudice to any other  rights or remedies of the Secured  Party or its security
interest herein.

           6.  No Waiver.  In case the Secured  Party  shall have  proceeded  to
enforce  any right or remedy  hereunder  and such  proceedings  shall  have been
discontinued  or abandoned for any reason,  then in every such case,  the Debtor
and the Secured  Party shall be restored to their  former  positions  and rights
hereunder with respect to the Collateral, and all rights, remedies and powers of
the Secured Party shall  continue as if no such  proceeding  had been taken.  No
failure  or delay on the part of the  Secured  Party in  exercising  any  right,
remedy or power under this  Security  Agreement or in giving or  insisting  upon
strict  performance by the Debtor  hereunder or in giving notice hereunder shall
operate  as a waiver of the same or any other  power or right,  and no single or
partial  exercise of any such power or right shall preclude any other or further
exercise  thereof or the exercise of any other such power or right.  The Secured
Party,  notwithstanding  any such  failure,  shall have the right  thereafter to
insist upon the strict performance by the Debtor of any and all of the terms and
provisions  of this  Security  Agreement  to be  performed  by the  Debtor.  The
collection  and  application  of proceeds,  the  entering  onto the Property and
taking  possession  of the  Collateral,  and the  exercise  of the rights of the
Secured  Party  contained  in  the  Loan  Documents,   including  this  Security
Agreement, shall not cure or waive any default, or affect any notice of default,
or invalidate  any acts done  pursuant to such notice.  No waiver by the Secured
Party of any breach or default of or by any party hereunder,  shall be deemed to
alter or affect the Secured  Party's rights  hereunder with respect to any prior
or subsequent defaults.

                                       11

<PAGE>
           7.  Remedies. No right or remedy herein reserved to the Secured Party
is intended  to be  exclusive  of any other right or remedy,  but each and every
such remedy shall be cumulative, and not in lieu of but in addition to any other
rights or  remedies  given  under this  Security  Agreement.  Any and all of the
Secured  Party's  rights and remedies may be exercised  from time to time and as
often as such exercise is deemed necessary or desirable by the Secured Party.

           8.  Right of Secured  Party to Extend  Time of  Payment,  Substitute,
Release Security, etc. Without affecting the liability of any person,  including
the Debtor,  for the payment of any  indebtedness  secured hereby, r the lien of
this Security  Agreement on the Collateral,  or the remainder  thereof,  for the
full amount of any indebtedness unpaid, the Secured Party may from time to time,
without  notice and without  affecting or impairing  any of the Secured  Party's
rights  under this  Security  Agreement:  (a) release any person  liable for the
payment of any of the  indebtedness,  (b) extend the time or otherwise alter the
terms of payment of any of the indebtedness or accept a renewal note or notes to
evidence  such an  extension  or  alteration,  (c)  accept  additional  security
therefor  of any  kind,  including  (but  not  limited  to)  deeds  of  trust or
mortgages,  (d) alter,  ubstitute or release from any security  interest or lien
held by the Secured Party any property securing the indebtedness, (e) resort for
the  payment  of the  indebtedness  secured  hereby  to its  several  securities
therefor in such order and manner as it may deem fit,  (f) join in granting  any
easement or creating  any  restriction  thereon,  or (g) join in any  extension,
subordination or other agreement  affecting this Security  Agreement or the lien
or charge thereof.

     D.    MISCELLANEOUS.

           1.  Terms  Commercially  Reasonable.   The  terms  of  this  Security
Agreement shall be deemed commercially  reasonable  within  the  meaning  of the
Uniform Commercial Code.

           2.  Definitions.  The terms "advances", "costs", and "expenses" shall
include,  but shall not be limited to,  attorneys' fees whenever  incurred.  The
terms  "indebtedness" and "obligations" shall mean and include, but shall not be
limited to, all claims, demands, obligations and liabilities whatsoever, however
arising,  whether owing by the Debtor  individually or as a joint  venturer,  or
jointly or in common with any other party,  and whether  absolute or contingent,
and whether owing by the Debtor as principal debtor or as accommodation maker or
as endorser,  liquidated or unliquidated,  and whenever  contracted,  accrued or
payable.  In this  Security  Agreement,  whenever the context so  requires,  the
neuter gender  includes the masculine or feminine,  and singular number includes
the plural and vice versa.

           3.  Paragraph   Headings.  The  headings  of  paragraphs  herein  are
inserted only for convenience and shall in no way define, describe  or limit the
scope or intent of any provisions of this Security Agreement.

           4.  Change,  Amendment,  etc.   No  change,  amendment, modification,
cancellation or discharge of any provision of this Security  Agreement  shall be
valid unless consented to in writing by the Secured Party.

                                       12

<PAGE>
           5.  Assignment of Secured Party's Interest.   The Secured Party shall
have  the  right  to  assign  its  interest  in  this  Security Agreement to any
subsequent holder of the Note.

           6. Parties in Interest.  As and when used herein,  the term  "Debtor"
shall  mean  and  include   the  Debtor  and  the   Debtor's   heirs,   personal
representatives,  successors, successors in trust and permitted assigns, and the
term  "Secured  Party" shall mean and include the Secured Party herein named and
its  successors and assigns,  and all covenants and  agreements  herein shall be
binding upon  and inure  to the benefit  of the Debtor,  the Secured Party,  and
their respective successors and permitted assigns.

           7. Applicable Laws;  Severability.  This Security  Agreement shall be
governed by and shall be  construed  and  interpreted  under and pursuant to the
laws of the State of Hawaii. If any provision of this Security Agreement is held
to be invalid or  unenforceable,  the  validity or  enforceability  of the other
provisions of this Security Agreement shall remain unaffected.

           8.  Notices.  All notices, demands or documents which are required or
permitted  to be given or served  hereunder  shall be in writing and  personally
delivered, or sent by registered or certified mail addressed as follows:

               To DEBTOR at:          Hawaiian Ocean Science and Technology Park
                                      73-4460 Queen Kaahumanu Hwy., #102
                                      Kailua-Kona, Hawaii 96740
                                      Attn:  Executive Vice President,
                                                  Finance and Administration

               To SECURED PARTY at:   999 Bishop Street, 11th Floor
                                      Honolulu, Hawaii 96813
                                      Attention: Corporate Banking Division

Such  addresses  may be changed  from time to time by the  addressee  by serving
notice as  provided  above.  Service  of such  notice or demand  shall be deemed
complete upon the earlier of the date of actual delivery or the second day after
the date of mailing if mailed in Hawaii.

           9.  Counterparts.  This Security  Agreement may be executed in two or
more counterparts,  each of which shall be deemed to be an original,  but all of
which shall constitute one and the same instrument,  and in making proof of this
Security  Agreement,  it  shall  not be necessary to produce or account for more
than one such counterpart.

           10. Terms and Conditions of this Security  Agreement Supplement Other
Loan  Documents.  The  terms  and conditions of this Security  Agreement and the
covenants,  representations  and  warranties  of the Debtor  under this Security
Agreement shall not be deemed to supersede,  amend or modify the obligations and
duties of the Debtor or other  parties under the Loan  Documents.  The terms and
conditions of this Security  Agreement and the  covenants,  representations  and
warranties of the Debtor  hereunder  merely  supplement,
                                       13

<PAGE>
and do not supplant or supersede provisions of similar effect or subject  matter
in the other Loan Documents.

          IN WITNESS  WHEREOF,  the Debtor and the Secured  Party have  executed
these presents on the day and year first above written.

                                       FIRST HAWAIIAN BANK
                                       ------------------------------
                                       By /s/Kathryn Anderson
                                           Its Vice President
                                                             Lender

                                       CYANOTECH CORPORATION
                                       ------------------------------
                                       By /s/ Ronald P. Scott
                                           Its Exec. V.P./CFO
                                                             Borrower





                                       14
<PAGE>
STATE OF HAWAII                        )
                                       ) SS:
CITY AND COUNTY OF HONOLULU            )


     On this 27th day of February, 1997, personally appeared Ronald P. Scott, to
me personally  known,  who, being by me duly sworn or affirmed did say that such
person(s)  executed the  foregoing  instrument  as the free act and deed of such
person(s), and if applicable, in the capacity shown, having been duly authorized
to execute such instrument in such capacity.

                                                  /s/Lei T. Cabilin
                                                  ------------------------------
                                                  Notary Public, State of Hawaii

                                                  My commission Expires: 7/03/99



<PAGE>



STATE OF HAWAII                        )
                                       ) SS:
COUNTY OF HAWAII                       )


     On this 27th day of February, 1997, personally appeared Ronald P. Scott, to
me personally  known,  who, being by me duly sworn or affirmed did say that such
person(s)  executed the  foregoing  instrument  as the free act and deed of such
person(s), and if applicable, in the capacity shown, having been duly authorized
to execute such instrument in such capacity.

                                                  /s/Lei T. Cabilin
                                                  ------------------------------
                                                  Notary Public, State of Hawaii

                                                  My commission Expires: 7/03/99



<PAGE>



STATE OF HAWAII                       )
                                      ) SS:
COUNTY OF HAWAII                      )


     On this 27th day of February, 1997, personally appeared Ronald P. Scott, to
me personally  known,  who, being by me duly sworn or affirmed did say that such
person(s)  executed the  foregoing  instrument  as the free act and deed of such
person(s), and if applicable, in the capacity shown, having been duly authorized
to execute such instrument in such capacity.

                                                  /s/Lei T. Cabilin
                                                  ------------------------------
                                                  Notary Public, State of Hawaii

                                                  My commission Expires: 7/03/99



<PAGE>


                                   EXHIBIT "1"


                  (a)  Accounts.  All  accounts,   accounts  receivable,   other
receivables,  contract  rights,  chattel paper,  instruments and documents,  and
notes;  any other  obligations or indebtedness  owed to the Debtor from whatever
source  arising;  all  rights of the Debtor to receive  any  performance  or any
payments  in  money  or kind;  all  guaranties  of the  foregoing  and  security
therefor; all of the right, title and interest of the Debtor in and with respect
to the goods,  services,  or other property that gave rise or that secure any of
the foregoing  and insurance  policies and proceeds  relating  thereto,  and all
rights of the Debtor as an unpaid seller of goods and services,  including,  but
not limited to, the rights to stoppage in transit,  replevin,  reclamation,  and
resale;  and all of the  foregoing  whether now owned or  existing or  hereafter
created  or  acquired.   The  word  "Accounts"  as  used  herein  also  includes
"documents,"  "instruments" and "chattel paper" as such terms are defined in the
Uniform Commercial Code.

                  (b) Equipment. All of Debtor's now owned or hereafter acquired
machinery, equipment, furniture,  furnishings and fixtures, together with tools,
aircraft and motor vehicles of every kind and  description,  all parts therefor,
all other  tangible  personal  property of the Debtor which is not  Inventory or
Farm  Products  or used by the  Debtor  as  consumer  household  goods,  and all
improvements, accessions or appurtenances thereto.

                  (c)  General  Intangibles.  All choses in action and causes of
action and all other  intangible  personal  property of Debtor of every kind and
nature  (other  than  Accounts)  now  owned or  hereafter  acquired  by  Debtor,
including, without limitation,  corporate or other business records, inventions,
designs,  blueprints,  plans,  specifications,   patents,  patent  applications,
trademarks,  trade names, trade secrets,  goodwill,  copyrights,  registrations,
licenses, franchises, beneficial interests in trusts, partnership interests, tax
refund  claims,  insurance  proceeds  thereof,   including  without  limitation,
insurance covering the lives of key employees on which the Debtor is beneficiary
and any letter of credit, guarantee,  claim, security interest or other security
held by or  granted to Debtor to secure  payment by an account  debtor of any of
the Accounts.

                  (d)  Inventory.  Any and all now owned or  hereafter  acquired
goods, merchandise,  or other personal property, raw materials, parts, supplies,
work-in-process  and  finished  products  intended  for sale,  of every kind and
description,  in the custody or possession,  actual or constructive,  of Debtor,
including  insurance  proceeds from  insurance on any of the above,  any returns
upon any Accounts and other proceeds,  resulting from the sale or disposition of
any  of  the   foregoing,   including   without   limitation,   raw   materials,
work-in-process, and finished goods.

                  (e)  Farm Products. All of Debtor's crops, livestock, supplies
used  or  produced  in farming operations,  unmanufactured  products  of  crops,
livestock or aquaculture.


                                   EXHIBIT "1"