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                               SECURITY AGREEMENT


                  THIS SECURITY AGREEMENT (the "Security Agreement"), dated as
of May 1, 2000, is made by ML MACADAMIA ORCHARDS, L.P., a Delaware limited
partnership, and ML RESOURCES, INC., a Hawaii corporation ("Grantor"), in favor
of PACIFIC COAST FARM CREDIT SERVICES, ACA, ("Lender").


                                    RECITALS

         A. Pursuant to that certain Credit Agreement dated as of May 1, 2000,
by and among Grantor, as borrower, and Lender, Lender is agreeing to extend
financial accommodations to Borrower on the terms set forth therein. Lender is
willing to do so, but only upon the condition, among others, that Grantor shall
execute this Security Agreement.

                  NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and in order to induce
Lender to make the Loan pursuant to the Credit Agreement, Grantor agrees, for
the benefit of Lender, as follows:


                                    AGREEMENT

                  1. DEFINED TERMS. Unless otherwise defined herein, (i) terms
defined in the Credit Agreement are used herein as therein defined except that
the defined terms that refer to the "Borrower" shall refer herein to Grantor,
and (ii) the following terms shall have the following meanings (such meanings
being equally applicable to both the singular and plural forms of the terms
defined):

                  "ACCOUNT DEBTOR" means any "account debtor," as such term is
         defined in the UCC.

                  "ACCOUNTS" has the meaning assigned to it in Exhibit A hereto.

                  "CHATTEL PAPER" has the meaning assigned to it in Exhibit A
         hereto.

                  "COLLATERAL" has the meaning assigned to it in Section 2 of
         this Security Agreement.

                  "CONTRACTS" has the meaning assigned to it in Exhibit A
         hereto.

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                  "DOCUMENTS" has the meaning assigned to it in Exhibit A
         hereto.

                  "EQUIPMENT" has the meaning assigned to it in Exhibit A
         hereto.

                  "FARM PRODUCTS" has the meaning assigned to it in Exhibit A
         hereto.

                  "FIXTURES" has the meaning assigned to it in Exhibit A hereto.

                  "GENERAL INTANGIBLES" has the meaning assigned to it in
         Exhibit A hereto.

                  "GRANTOR" means ML Macadamia Orchards, L.P., a Delaware
         limited partnership, and ML Resources, Inc., a Hawaii corporation.

                  "HEREBY," "HEREIN," "HEREOF," AND "HEREUNDER" and words of
         similar import refer to this Security Agreement as a whole (including
         any amendments, attachments, and schedules hereto) and not merely to
         the specific section, paragraph or clause in which the respective word
         appears.

                  "INSTRUMENTS" has the meaning assigned to it in Exhibit A
         hereto.

                  "INVENTORY" has the meaning assigned to it in Exhibit A
         hereto.

                  "INVESTMENT PROPERTY" has the meaning assigned to it in
         Exhibit A hereto.

                  "LENDER" has the meaning assigned to them in the preamble
         hereto.

                  "LICENSE" means any Patent License, Trademark License or other
         license of rights or interests now held or hereafter acquired by
         Grantor.

                  "LOAN" has the meaning assigned to it in Recital A.

                  "PATENT LICENSE" means rights under any written agreement now
         owned or hereafter acquired by Grantor granting any right with respect
         to any invention on which a Patent is in existence.

                  "PATENTS" means all of the following in which Grantor now
         holds or hereafter acquires any interest: (i) all letters patent of the
         United States or any other country, all registrations and recordings
         thereof, and all

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         applications for letters patent of the United States or any other
         country, including registrations, recordings and applications in the
         United States Patent and Trademark Office or in any similar office or
         agency of the United States, any State or Territory thereof, or any
         other country, and (ii) all reissues, continuations,
         continuations-in-part or extensions thereof.

                  "PROCEEDS" has the meaning assigned to it in Exhibit A hereto.

                  "CREDIT AGREEMENT" has the meaning assigned to it in Recital
         A.

                  "SECURED OBLIGATIONS" means all obligations of Grantor to
         Lender under the Credit Agreement or any other Loan Document.

                  "SECURITY AGREEMENT" means this Security Agreement, as the
         same may from time to time be amended, modified or supplemented.

                  "TRADEMARK LICENSE" means rights under any written agreement
         now owned or hereafter acquired by Grantor granting any right to use
         any Trademark or Trademark registration.

                  "TRADEMARKS" means all of the following now owned or hereafter
         acquired by Grantor: (i) all trademarks, trade names, corporate names,
         business names, trade styles, service marks, logos, other source or
         business identifiers, prints and labels on which any of the foregoing
         have appeared or appear, designs and general intangibles of like
         nature, now existing or hereafter adopted or acquired, all
         registrations and recordings thereof, and all applications in
         connection therewith, including registrations, recordings and
         applications in the United States Patent and Trademark Office or in any
         similar office or agency of the United States, any State or Territory
         thereof, or any other country or any political subdivision thereof, and
         (ii) all reissues, extensions or renewals thereof.

                  "UCC" means the Uniform Commercial Code as the same may, from
         time to time, be in effect in the State of California; PROVIDED,
         HOWEVER, in the event that, by reason of mandatory provisions of law,
         any or all of the attachment, perfection or priority of Lender's
         security interest in any Collateral is governed by the Uniform
         Commercial Code as in effect in a jurisdiction other than the State of
         California, the term "UCC" shall mean the Uniform Commercial Code as in
         effect in such other jurisdiction for purposes of the provisions hereof
         relating

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         to such attachment, perfection or priority and for purposes of
         definitions related to such provisions.

                  2. GRANT OF SECURITY INTEREST.

                           a. To secure the prompt and complete payment and
performance when due (whether at stated maturity, by acceleration or otherwise)
of all the Secured Obligations, and to induce Lender to enter into the Credit
Agreement and to make the Loan in accordance with the terms thereof, Grantor
hereby grants to Lender, a lien on and security interest in all of the property
described on EXHIBIT A hereto, whether now owned by or owing to, or hereafter
acquired by or arising in favor of Grantor (including under any trade names,
styles or divisions thereof), and whether owned or consigned by, or leased to
Grantor, and regardless of where located, together with any and all
replacements, remedies, or accessions thereto and all proceeds and products
thereof (all of which being hereinafter collectively referred to as the
"Collateral"); PROVIDED, HOWEVER, that notwithstanding any provision to the
contrary contained in this Security Agreement, Grantor does not grant, and
Lender has not taken, a lien against or security interest in (i) any Hazardous
Materials in which Grantor may now or hereafter acquire any interest, or which
Grantor may now or hereafter possess, manage or control, any (ii) any of
Grantor's governmental licenses and permits that if included in the Collateral
would violate any mandatory requirements of such licenses and permits or
applicable law prohibiting the creation of security interests therein.

                           b. In addition, to secure the prompt and complete
payment when due of the Secured Obligations and in order to induce Lender to
enter into the Credit Agreement and to make the Loan in accordance with the
terms thereof, Grantor hereby grants to Lenders a security interest in all other
personal property of Grantor, including all property of every description now or
hereafter in the possession or custody of, or in transit to, Lender for any
purpose, including safekeeping, collection or pledge, for the account of
Grantor, or as to which Grantor may have any right or power.


                  3. LENDER'S RIGHTS; LIMITATIONS ON LENDER'S OBLIGATIONS.

                           a. GRANTOR REMAINS LIABLE UNDER CONTRACTS AND
LICENSES. Grantor agrees that, anything herein to the contrary notwithstanding,
Grantor shall remain liable under each of its Contracts and each of its Licenses
to observe and perform all the conditions and obligations to be observed and
performed by it thereunder and Grantor shall perform all of its duties and
obligations thereunder, all in accordance with and pursuant to the terms and
provisions of each such Contract or License.

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Lender shall not have any obligation or liability under any Contract or License
by reason of or arising out of this Security Agreement or the granting herein of
a security interest therein or the receipt by Lender of any payment relating to
any Contract or License pursuant hereto, nor shall Lender be required or
obligated in any manner to perform or fulfill any of the obligations of Grantor
under or pursuant to any Contract or License, or to make any payment, or to make
any inquiry as to the nature or the sufficiency of any payment received by it or
the sufficiency of any performance by any party under any Contract or License,
or to present or file any claim, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.

                           b. NOTICE OF ASSIGNMENT OF COLLATERAL TO LENDER.
Lender may at any time after the occurrence and during the continuance of an
Event of Default notify Account Debtors of Grantor, parties to the Contracts of
Grantor, and obligors in respect of Instruments and Investment Property of
Grantor that the Accounts and the right, title and interest of Grantor in and
under such Contracts, Instruments, and Investment Property have been assigned to
Lender and that payments shall be made directly to Lender. Upon the request of
Lender, Grantor shall so notify such Account Debtors, parties to such Contracts,
and obligors in respect of such Instruments and Investment Property. Lender may
at any time after the occurrence and during the continuance of an Event of
Default notify obligors in respect of Chattel Paper of Grantor that the right,
title and interest of Grantor in and under such Chattel Paper has been assigned
to Lender and that payments shall be made directly to Lender.

                           c. VERIFICATION OF COLLATERAL.  Upon reasonable prior
notice to Grantor (unless an Event of Default has occurred and is continuing, in
which case no notice is necessary), Lender shall have the right to make test
verifications of the Accounts and physical verifications and appraisals of the
Inventory and other Collateral in any manner and through any medium that it
considers advisable, and Grantor agrees to furnish all such assistance and
information as Lender may require in connection therewith.

                  4. REPRESENTATIONS AND WARRANTIES. Grantor hereby represents
and warrants that:

                           a. AUTHORITY; EXECUTION.  Grantor has the right and
power and is duly authorized and empowered to enter into, execute, deliver and
perform this Security Agreement, and any other agreements, documents or
instruments executed in connection herewith or therewith. Grantor's execution
and performance of this Security Agreement will not constitute, cause or result
in any breach or violation of any provision of the partnership

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agreement, articles of incorporation or by-laws of Grantor, any law or any
contractual obligation of Grantor and does not conflict with, constitute a
default or require any consent under (other than consents that if not obtained
would not have a Material Adverse Effect) or result in the creation of any Lien
that would not be a Permitted Encumbrance upon any property or assets of Grantor
pursuant to any contractual obligation of Grantor. Upon execution, this Security
Agreement will constitute a valid, binding obligation of Grantor to Lender that
is enforceable according to its terms, except as the enforceability of this
Security Agreement may be subject to or limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws relating to or
affecting the rights of creditors generally and except as the availability of
equitable remedies are subject to the application of equitable principles. No
further consent, ratification or approval is required for this Security
Agreement to be effective.

                           b. TITLE TO COLLATERAL.  Except for the security
interest granted to Lender under this Security Agreement and the other Permitted
Encumbrances, Grantor is the sole owner of each item of the Collateral in which
it purports to grant a security interest hereunder, having good and marketable
title thereto free and clear of any and all liens, security interests or other
encumbrances.

                           c. NO OTHER LIENS.  No effective security agreement,
financing statement, equivalent security or lien instrument or continuation
statement covering all or any part of the Collateral is on file or of record in
any public office, except such as may have been filed by Grantor in favor of
Lender pursuant to this Security Agreement or such as relate to other Permitted
Encumbrances or protective filings with respect to equipment leases.

                           d. PERFECTION AND PRIORITY OF SECURITY INTEREST IN
THE COLLATERAL. The security interest granted to Lender in the Collateral under
this Security Agreement is a duly perfected security interest in favor of Lender
to secure the Secured Obligations, and is senior in priority to all other Liens
against and security interests in all or any part of the Collateral, except for
the Permitted Encumbrances.

                           e. ACCOUNTS.  Subject to reasonable reserves therefor
on the books of Grantor, each Account of Grantor is, or when it comes into
existence will be, a statement of an indebtedness incurred by the obligor
thereunder to Grantor in the amount shown thereon. All Accounts are, or will be
when they come into existence, bona fide transactions completed in accordance
with the terms and provisions contained in any documents related thereto.

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                           f. CHANGE OF NAME.  Grantor did not and has not done
within the last five years business under any trade name or style other than as
disclosed on EXHIBIT C hereto.

                           g. LOCATIONS OF OFFICES AND COLLATERAL; FEDERAL
TAXPAYER IDENTIFICATION. Grantor's chief executive office, principal place of
business, corporate offices, all warehouses and premises within which Collateral
is stored or located, and the locations of all of its records concerning the
Collateral are set forth on EXHIBIT C hereto, and Grantor shall not change such
chief executive office, principal place of business, corporate offices, or
warehouses or Collateral premises, or remove such records unless it has taken
such action as is necessary to cause the Lien of Lender in the Collateral to
continue to be perfected. Grantor shall not change its chief executive office,
principal place of business, corporate offices, or warehouses or Collateral
premises, or the location of its records concerning the Collateral, or its
federal taxpayer identification number, without giving thirty (30) days' prior
written notice thereof to Lender. Grantor's federal taxpayer identification
number is as set forth on EXHIBIT C hereto.

                           h. REGISTERED PATENTS, TRADEMARKS, AND COPYRIGHTS.
Grantor does not own or have any interest in any Patents, Trademarks, or
Copyrights that have been registered or otherwise recorded with any governmental
office, except as set forth on EXHIBIT C hereto.

                           i. FARMING OPERATIONS.  Grantor does not own or have
any interest in any real property other than the real property described in
EXHIBIT B hereto.

                  5. COVENANTS. Grantor covenants and agrees with Lender that
from and after the date of this Security Agreement and until the Secured
Obligations are fully satisfied:

                           a. FURTHER ASSURANCES; PLEDGE OF INSTRUMENTS.  At any
time and from time to time, upon the written request of Lender, and at the sole
expense of Grantor, Grantor shall promptly and duly execute and deliver any and
all such further instruments and documents and take such further action as
Lender may reasonably deem desirable to obtain the full benefits of this
Security Agreement and of the rights and powers herein granted, including (i)
filing any financing or continuation statements under the UCC with respect to
the liens and security interests granted hereunder or under any other Loan
Document and (ii) transferring Collateral to Lender's possession (if such
Collateral consists of Chattel Paper or if a security interest in such
Collateral can be perfected only by possession, or, if requested by Lender).
Grantor also hereby authorizes Lender to file any such financing or continuation
statement without the signature of Grantor to the extent permitted by applicable
law.

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If any amount payable under or in connection with any of the Collateral is or
shall become evidenced by any Instrument, such Instrument, other than checks and
notes received in the ordinary course of business, shall be duly endorsed in a
manner satisfactory to Lender and delivered to Lender immediately upon Grantor's
receipt thereof.

                           b. MAINTENANCE OF RECORDS.  Grantor shall keep and
maintain, at its own cost and expense, satisfactory and complete records of the
Collateral, including a record of any and all payments received and any and all
credits granted with respect to the Collateral and all other dealings with the
Collateral. Upon the request of Lender, Grantor shall mark its books and records
pertaining to the Collateral to evidence this Security Agreement and the
security interests granted hereby. All Chattel Paper shall be marked with the
following legend: "This writing and the obligations evidenced or secured hereby
are subject to the security interest of Pacific Coast Farm Credit Services,
PCA." For Lender's further security, Grantor agrees that Lender shall have a
special property interest in all of Grantor's books and records pertaining to
the Collateral and, upon the occurrence and during the continuation of any Event
of Default, Grantor shall deliver and turn over any such books and records to
Lender or to its representatives at any time on demand of Lender. Prior to the
occurrence of an Event of Default and upon reasonable notice from Lender,
Grantor shall permit any representative of Lender to inspect such books and
records and shall provide photocopies thereof to Lender as more specifically set
forth in Section 5(i) below.

                           c. DELIVERY OF NOTES, DOCUMENTS AND CHATTEL PAPER.
Grantor shall deliver to Lender or its designee all now existing or hereafter
created or arising (i) original promissory notes payable to Grantor, assigned to
Grantor, pledged to Grantor or otherwise held by Grantor, together with all
corresponding documents including deeds of trust, security agreements and title
insurance policies, with such endorsements thereto as Lender may reasonably
require, (ii) Instruments (except for checks which are deposited in the ordinary
course of Grantor's business), (iii) negotiable warehouse receipts, and (iv)
Chattel Paper, promptly upon the execution of this Security Agreement or
Grantor's receipt of any such item, as the case may be.

                           d. FURTHER IDENTIFICATION OF COLLATERAL.  Grantor
shall, if so requested by Lender, furnish to Lender, as often as Lender
reasonably requests, statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral as
Lender may reasonably request, all in reasonable detail.

                           e. LIMITATION ON LIENS ON COLLATERAL.  Grantor shall
not create, permit or suffer to exist, and shall defend the Collateral against
and take such other action as is necessary to

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remove, any Lien on the Collateral except Permitted Encumbrances. Grantor shall
further defend the right, title and interest of Lender in and to any of
Grantor's rights under the Collateral, including, the Accounts, Chattel Paper,
Contracts, Documents, Equipment, Farm Products, Fixtures, General Intangibles,
Instruments, Investment Property, and Inventory and in and to the Proceeds
thereof against the claims and demands of all Persons whomsoever except the
holders of Permitted Encumbrances.

                           f. NOTICES.  Grantor shall advise Lender, in
reasonable detail, promptly, within five (5) Business Days of after it becomes
aware of: (i) any material Lien, other than Permitted Encumbrances, attaching to
or asserted against any of the Collateral, (ii) any material change in the
composition of the Collateral (iii) any destruction of or substantial damage to
any of the Collateral in excess of $100,000 and (iv) the occurrence of any other
event which would have a Material Adverse Effect upon the Collateral and/or
Lender's Lien.

                           g. LIMITATIONS ON MODIFICATIONS OF ACCOUNTS.  Subject
to the terms of the Credit Agreement, upon the occurrence and during the
continuation of any Event of Default, Grantor shall not, without Lender's prior
written consent, (i) grant any extension of the time of payment of any of the
Accounts, Chattel Paper, Instruments or amounts due under any Contract; (ii)
compromise or settle the same for less than the full amount thereof; (iii)
release, in whole or in part, any Person liable for the payment thereof; or (iv)
allow any credit or discount whatsoever thereon other than trade discounts
granted in the ordinary course of business of Grantor.

                           h. CONTINUOUS PERFECTION.  Grantor shall not change
its name, identity or corporate structure in any manner which might make any
financing or continuation statement filed in connection herewith seriously
misleading within the meaning of section 9-402(7) of the UCC or any other then
applicable provision of the UCC unless Grantor shall have given Lender at least
thirty (30) days' prior written notice thereof and shall have taken all action
(or made arrangements to take such action substantially simultaneously with such
change if it is impossible to take such action in advance) necessary or
reasonably requested by Lender to amend such financing statement or continuation
statement so that it is not seriously misleading.

                           i. RIGHT OF INSPECTION.  Upon reasonable notice to
Grantor (unless an Event of Default has occurred and is continuing, in which
case no notice is necessary), Lender shall at all times have full and free
access during normal business hours to all the books and records and
correspondence of Grantor, and Lender or its representatives may examine the
same, take extracts therefrom and make photocopies thereof, and Grantor agrees
to render to Lender, at Grantor's cost and expense, such clerical and other
assistance as may be reasonably requested with

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regard thereto. Upon reasonable notice to Grantor (unless an Event of Default
has occurred and is continuing, in which case no notice is necessary), Lender
and its representatives shall also have the right to enter into and upon any
premises where any of the Inventory is located for the purpose of inspecting the
same, observing its use or otherwise protectings Lender's interests in the
Collateral.

                           j. INDEMNIFICATION.  In any suit, proceeding or
action brought by Lender relating to any Account, Chattel Paper, Contract,
General Intangible, Instrument or Document for any sum owing thereunder, or to
enforce any provision of any Account, Chattel Paper, Contract, General
Intangible, Instrument, or Document, Grantor shall save, indemnify and keep
Lender harmless from and against all expense, loss or damage suffered by reason
of any defense, setoff, counterclaim, recoupment or reduction of liability
whatsoever of the obligor thereunder arising out of a breach by Grantor of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to, or in favor of, such obligor or its successors
from Grantor, and all such obligations of Grantor shall be and remain
enforceable against, and only against, Grantor and shall not be enforceable
against Lender.

                           k. COMPLIANCE WITH TERMS OF ACCOUNTS, ETC.  In all
material respects, Grantor shall perform and comply with all obligations in
respect of (i) Accounts, (ii) material Chattel Paper, Contracts, Licenses,
Instruments and Documents, and (iii) all other material agreements to which it
is a party or by which it is bound.

                           l. NOTIFICATION PRIOR TO REGISTRATION OF PATENTS,
TRADEMARKS, AND COPYRIGHTS. Grantor shall not register any interest in any
Patents, Trademarks, or Copyrights nor shall Grantor permit any in any Patents,
Trademarks, or Copyrights in which Grantor has an interest to become registered
with any governmental office, unless Grantor has provided Lender with fifteen
(15) days prior notice of Grantor's intent to do so and Grantor shall provide
Lender prior to effecting or permitting any such registration with such
additional security documents as Lender shall request.

                           m. FARMING OPERATIONS.  Grantor shall not undertake
any farming operations on any real property unless Grantor shall have provided
Lender with thirty (30) days prior notice of Grantor's intent to do so, which
notice shall be accompanied by a detailed description of the real property on
which the crops are grown, and Grantor shall have provided Lender with a
supplement to this Security Agreement and such financing statement amendments
and other documents as Lender shall request.

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                  6. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.

                           a. Grantor hereby irrevocably constitutes and
appoints Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Grantor and in the name of Grantor
or in its own name, and hereby grants to Lender, in Lender's discretion, the
power and right, on behalf of Grantor, without notice to or assent by Grantor,
and at any time prior to or after the occurrence of an Event of Default, to do
the following:

                                    (i) to take any and all appropriate action
         and to execute and deliver any and all documents and instruments which
         may be necessary or desirable to continue any insurance existing
         pursuant to the terms of the Credit Agreement, and pay all or any part
         of the premiums therefor and the costs thereof; and

                                    (ii) to file any financing or continuation
         statements under the UCC with respect to the Liens and security
         interests granted hereunder or under any other Loan Document.

                           b. Grantor hereby irrevocably constitutes and
appoints Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Grantor and in the name of Grantor
or in its own name, from time to time in Lender's discretion, for the purpose of
carrying out the terms of this Security Agreement, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Security Agreement and, without limiting the generality of the foregoing,
hereby grants to Lender the power and right, on behalf of Grantor, without
notice to or assent by Grantor, upon the occurrence and during the continuation
of an Event of Default, to do the following:

                                    (i) ask, demand, collect, receive and give
         acquittances and receipts for any and all money due or to become due
         under any Collateral, and take ownership and control of any and all
         lock boxes and other depository accounts by written notice to any bank
         or other institution maintaining such lock boxes or other depository
         accounts;

                                    (ii) in the name of Grantor, in its own name
         or otherwise, endorse and receive payment of any checks, drafts, notes,
         acceptances, or other Instruments for the payment of monies due under
         any Collateral;

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                                    (iii) receive payment of any and all monies,
         claims, and other amounts due or to become due at any time arising out
         of or in respect of any Collateral;

                                    (iv) pay or discharge taxes, liens, security
         interest, or other encumbrances levied or placed on or threatened
         against the Collateral;

                                    (v) effect any repairs or obtain any
         insurance called for by the terms of this Security Agreement and pay
         all or any part of the premiums therefor and costs thereof;

                                    (vi) direct any party liable for any payment
         under or in respect of any of the Collateral to make payment of any and
         all monies due or to become due thereunder, directly to Lender or as
         Lender shall direct;

                                    (vii) sign and endorse any invoices, freight
         or express bills, bills of lading, storage or warehouse receipts,
         drafts against debtors, assignments, verifications, and notices in
         connection with accounts and other documents constituting or related to
         the Collateral;

                                    (viii) settle, compromise or adjust any
         suit, action, or proceeding described above and, in connection
         therewith, give such discharges or releases as Lender may deem
         appropriate;

                                    (ix) file any claim or take or commence any
         other action or proceeding in any court of law or equity or otherwise
         deemed appropriate by Lender for the purpose of collecting any and all
         such monies due under any Collateral whenever payable;

                                    (x) commence and prosecute any suits,
         actions or proceedings of law or equity in any court of competent
         jurisdiction to collect the Collateral or any part thereof and to
         enforce any other right in respect of any Collateral;

                                    (xi) defend any suit, action or proceeding
         brought against Grantor with respect to any Collateral if Grantor does
         not defend such suit, action or proceeding or if Lender believes that
         Grantor is not pursuing such defense in a manner that will maximize the
         recovery with respect to such Collateral;

                                    (xii) license or, to the extent permitted by
         an applicable license, sublicense whether general, specific or
         otherwise, and whether on an exclusive or non-exclusive

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         basis, any Patent or Trademark throughout the world for such term or
         terms on such conditions and in such manner as Lender shall, in its
         sole discretion, determine;

                                    (xiii) sell, transfer, pledge, make any
         agreement with respect to, or otherwise deal with any of the Collateral
         as fully and completely as though Lender were the absolute owner
         thereof for all purposes, and to do, at Lender's option and Grantor's
         expense, at any time, or from time to time, all acts and things which
         Lender reasonably deems necessary to perfect, preserve, or realize upon
         the Collateral and Lender's Lien therein in order to effect the intent
         of this Security Agreement, all as fully and effectively as Grantor
         might do; and

                                    (xiv) contact, make any agreement with, or
         otherwise deal with any governmental or regulatory agency in connection
         with the operation of Grantor's business or the possession or
         liquidation of any or all of the Collateral.

                           c. Grantor hereby ratifies, to the extent permitted
by law, all that said attorneys shall lawfully do or cause to be done by virtue
hereof. The power of attorney granted pursuant to this Section 6 is a power
coupled with an interest and shall be irrevocable until the Secured Obligations
are paid or otherwise satisfied in full.

                           d. The powers conferred on Lender hereunder are
solely to protect Lender's interests in the Collateral and shall not impose any
duty upon Lender to exercise any such powers. Lender shall be accountable only
for amounts that it actually receives as a result of the exercise of such powers
and neither it nor any of its officers, directors, employees, agents or
representatives shall be responsible to Grantor for any act or failure to act,
except for their own gross negligence or willful misconduct.

                           e. Grantor also authorizes Lender to execute, in
connection with the sale provided for in Section 8 hereof, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.

                  7. PERFORMANCE BY LENDER OF GRANTOR'S OBLIGATION. If Grantor
fails to perform or comply with any of its agreements contained herein or in any
other Loan Document, and Lender, as provided for by the terms of this Security
Agreement, or in any other Loan Document, shall itself perform or comply, or
otherwise cause performance of or compliance with such agreement, the reasonable
expenses, including attorneys' fees, of Lender incurred in connection with such
performance or compliance, together with interest thereon at the Base Rate then
in effect in respect of the Revolving Loan, shall be payable by Grantor to

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Lender on demand and shall constitute Secured Obligations secured hereby.

                  8. REMEDIES, RIGHTS UPON DEFAULT.

                           a. If any Event of Default shall occur and be
continuing, Lender may exercise in addition to all other rights and remedies
granted to it under this Security Agreement, the Credit Agreement, the other
Loan Documents and under any other instrument or agreement securing, evidencing
or relating to the Secured Obligations, all rights and remedies of a secured
party under the UCC. Without limiting the generality of the foregoing, Grantor
expressly agrees that in any such event Lender, without demand of performance or
other demand, advertisement or notice of any kind (except the notice specified
below of time and place of public or private sale) to or upon Grantor or any
other Person (all and each of which demands, advertisements and notices are
hereby expressly waived to the maximum extent permitted by the UCC and other
applicable law), may forthwith enter upon the premises of Grantor where any
Collateral is located through self-help, without judicial process, without first
obtaining a final judgment or giving Grantor notice and opportunity for a
hearing on Lender's claim or action, and without paying rent to Grantor, and
collect, receive, assemble, process, appropriate and realize upon the
Collateral, or any part thereof, and may forthwith sell, lease, assign, give an
option or options to purchase, or sell or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales, at any exchange or broker's board or at any
of Lender's offices or elsewhere at such prices as it may deem best, for cash or
on credit or for future delivery without assumption of any credit risk. Lender
shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase for the
benefit of Lender the whole or any part of said Collateral so sold, free of any
right or equity of redemption, which equity of redemption Grantor hereby
releases. Such sales may be adjourned and continued from time to time with or
without notice. Lender shall have the right to conduct such sales on Grantor's
premises or elsewhere and shall have the right to use Grantor's premises without
charge for such sales for such time or times as Lender deems necessary or
advisable.

                           b. Grantor further agrees, at Lender's request, to
assemble the Collateral and make it available to Lender at places which Lender
shall reasonably select, whether at Grantor's premises or elsewhere. Until
Lender is able to effect a sale, lease, or other disposition of Collateral,
Lender shall have the right to use or operate Collateral on behalf of Lender, or
any part thereof, to the extent that it deems appropriate for the purpose of
preserving Collateral or its value or for any other purpose deemed appropriate
by Lender. Lender shall have no

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obligation to Grantor to maintain or preserve the rights of Grantor as against
third parties with respect to Collateral while Collateral is in the possession
of Lender. Lender may, if it so elects, seek the appointment of a receiver or
keeper to take possession of Collateral and to enforce any of Lender's remedies
with respect to such appointment without prior notice or hearing. Lender shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, as provided in Section 8(e) hereof, such Grantor remaining
liable for any deficiency remaining unpaid after such application, and only
after so paying over such net proceeds and after the payment by Lender of any
other amount required by any provision of law, including section 9-504(1)(c) of
the UCC (but only after Lender has received what Lender considers reasonable
proof of a subordinate party's security interest), need Lender account for the
surplus, if any, to Grantor. To the maximum extent permitted by applicable law,
Grantor waives all claims, damages, and demands against Lender arising out of
the repossession, retention or sale of the Collateral except such as arise out
of the gross negligence or wilful misconduct of such party. Grantor agrees that
five (5) days' prior notice by Lender of the time and place of any public sale
or of the time after which a private sale may take place is reasonable
notification of such matters. Grantor shall remain liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are insufficient to
pay all amounts to which Lender is entitled, Grantor also being liable for any
attorneys' fees incurred by Lender to collect such deficiency.

                           c. Grantor agrees to pay any and all costs of Lender,
including, reasonable attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies hereunder.

                           d. Except as otherwise specifically provided herein,
Grantor hereby waives presentment, demand, protest or any notice (to the maximum
extent permitted by applicable law) of any kind in connection with this Security
Agreement or any Collateral.

                           e. The proceeds of any sale, disposition or other
realization upon all or any part of the Collateral shall be distributed by
Lender, upon receipt, in accordance with the provisions of the Credit Agreement.

                           f. From and after the occurrence and during the
continuation of an Event of Default, Lender may, at its sole discretion, contact
any and all Federal, state, or other governmental or regulatory agencies with
any jurisdiction over Grantor, with respect to the possibility that Lender may
take over the operation of any Grantor's business, or the possibility

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that Lender may take possession of or liquidate any or all of the Collateral.

                           g. Grantor acknowledges that Lender shall be entitled
to independently, but without duplication, exercise the rights and remedies of
Lender exercisable for their benefit under this Security Agreement.

                  9. INDEMNITY AND EXPENSES.

                           a. Grantor agrees to indemnify Lender from and
against any and all claims, losses and liabilities growing out of or resulting
from this Security Agreement (including, enforcement of this Security
Agreement), except claims, losses or liabilities resulting from such indemnified
party's gross negligence or wilful misconduct.

                           b. Grantor will upon demand pay to Lender the amount
of any and all reasonable out-of-pocket expenses, including the reasonable fees
and disbursements of counsel and of any experts and agents, which Lender may
incur in connection with (i) the administration of this Security Agreement, (ii)
the custody, preservation, use or operation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Lender hereunder, or (iv) the failure by
Grantor to perform or observe any of the provisions hereof.

                  10. GRANT OF LICENSE TO USE PATENT AND TRADEMARK COLLATERAL.
For the purpose of enabling Lender to exercise rights and remedies under Section
8 hereof (including, without limiting the terms of Section 8 hereof, in order to
take possession of, hold, preserve, process, assemble, prepare for sale, market
for sale, sell or otherwise dispose of Collateral) at such time as Lender shall
be lawfully entitled to exercise such rights and remedies, Grantor hereby grants
to Lender an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to Grantor) to use, transfer, license or
sublicense any Patent, Trademark, trade secret, or copyright now owned or
hereafter acquired by Grantor, and wherever the same may be located, and
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer and automatic
machinery software and programs used for the compilation or printout thereof.

                  11. LIMITATION ON LENDER'S DUTY IN RESPECT OF COLLATERAL.
Lender shall use reasonable care with respect to the Collateral in its
possession or under its control. Lender shall have no other duty as to any
Collateral in its possession or control or in the possession or control of any
agent or nominee of such party, or any income thereon or as to the preservation
of

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rights against prior parties or any other rights pertaining thereto.

                  12. REINSTATEMENT. This Security Agreement shall remain in
full force and effect and continue to be effective should any petition be filed
by or against Grantor for liquidation or reorganization, should Grantor become
insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of Grantor's
assets, and shall continue to be effective or be reinstated, as the case may be,
if at any time payment and performance of the Secured Obligations, or any part
thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Secured Obligations,
whether as a "voidable preference," "fraudulent conveyance," or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Secured Obligations shall be reinstated and deemed reduced only by such amount
paid and not so rescinded, reduced, restored or returned.

                  13. NOTICES. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration, or other communication shall or may be given or delivered to or
served upon any of the parties by another, or whenever any of the parties
desires to give or deliver or serve upon another any communication with respect
to this Security Agreement, each such notice, demand, request, consent,
approval, declaration, or other communication shall be in writing, shall be
addressed to the addresses set forth below, or such other or additional address
as the parties may notify each other of in writing, and shall be deemed to have
been sent, delivered, or given and received upon the earlier of: (a) if by
facsimile, upon transmission if transmission occurs between 8:00 a.m. and 5:00
p.m. on any Business Day; (b) if by Federal Express or other overnight or
one-day mail or delivery service, on the next Business Day following deposit
with such delivery service; (c) if by personal delivery, upon completion of
delivery; or (d) if by mail, three (3) Business Days after deposit in the U.S.
Mail, first class, postage prepaid:

                  (a)      If to Pacific Coast, at:

                           Pacific Coast Farm Credit Services, ACA
                           5560 South Broadway
                           Eureka, California  95503
                           Attention:  Account Officer -- ML Macadamia Orchards
                           Facsimile:  (707) 442-1268

                           Pacific Coast Farm Credit Services, ACA
                           200 Concourse Blvd.

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<PAGE>

                           P.O. Box 1120
                           Santa Rosa, CA 95402-1120
                           Attn: Account Officer --ML Macadamia Orchards
                           Facsimile: (707) 521-6105


             (b)      If to Grantor, at:

                           ML Macadamia Orchards, L.P.
                           ML Resources, Inc.
                           827 Fort Street
                           Honolulu, Hawaii  96813
                           Attention: _____________
                           Facsimile: _____________

or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration, or other
communication to the persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration, or other communication.

                  14 SEVERABILITY. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

                  15 NO WAIVER; CUMULATIVE REMEDIES. Lender shall not by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Lender, and then only to the extent therein set forth. A waiver by Lender of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Lender would otherwise have had on any future
occasion. No failure to exercise nor any delay in exercising on the part of
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Security Agreement may be waived, altered, modified
or

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amended except by an instrument in writing, duly executed by Lender and Grantor
affected by such waiver.

                  16 LIMITATION BY LAW. All rights, remedies and powers provided
in this Security Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable provision of law, and all the provisions
of this Security Agreement are intended to be subject to all applicable
mandatory provisions of law that may be controlling and to be limited to the
extent necessary so that they shall not render this Security Agreement invalid,
unenforceable, in whole or in part, or not entitled to be recorded, registered,
or filed under the provisions of any applicable law.

                  17 TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section
12 hereof, this Security Agreement shall terminate upon full and final payment
and performance of all of the Secured Obligations.

                  18 SUCCESSOR AND ASSIGNS. This Security Agreement and all
obligations of Grantor hereunder shall be binding upon the successors and
assigns of Grantor, and shall, together with the rights and remedies of Lender
hereunder, inure to the benefit of Lender and its successors and assigns, as
permitted pursuant to the terms of the Credit Agreement. No sales of
participations, other sales, assignments, transfers or other dispositions of any
agreement governing or instrument evidencing the Secured Obligations or any
portion thereof or interest therein, as permitted pursuant to the terms of the
Credit Agreement, shall in any manner affect the security interest granted to
Lender hereunder. Grantor may not assign, sell or otherwise transfer an interest
in this Security Agreement except as provided by the Credit Agreement.

                  19 FURTHER INDEMNIFICATION. Grantor agrees to pay, and to hold
Lender harmless from, any and all liabilities with respect to, or resulting from
any delay in paying, any and all excise, sales, or other similar taxes which may
be payable or determined to be payable with respect to any of the Collateral or
in connection with any of the transactions contemplated by this Security
Agreement.

                  20 ENTIRE AGREEMENT. The execution of this Security Agreement
supersedes all the negotiations or stipulations concerning matters thereof which
preceded or accompanied the execution and delivery of this Security Agreement.
This Security Agreement is intended by the parties hereto to be a complete and
exclusive statement of the terms and conditions hereof.

                  21 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS

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SECURITY AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. GRANTOR HEREBY CONSENTS AND AGREES THAT
THE SUPERIOR COURTS OF SAN FRANCISCO COUNTY, CALIFORNIA, OR, AT LENDERS OPTION,
THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA, SHALL
HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN GRANTOR AND LENDER PERTAINING TO THIS SECURITY AGREEMENT OR TO ANY
MATTER ARISING OUT OF OR RELATED TO THIS SECURITY AGREEMENT. GRANTOR EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND GRANTOR HEREBY WAIVES ANY OBJECTION WHICH
GRANTOR MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING FOR SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. GRANTOR HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT, AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTOR AT THE
ADDRESS SET FORTH IN SECTION 13 OF THIS SECURITY AGREEMENT AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF GRANTOR'S ACTUAL RECEIPT
THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID. NOTHING IN THIS SECURITY AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE LENDER OR GRANTOR FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN
ANY OTHER JURISDICTION.

                  22 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.

                  23 AMENDMENTS; ETC. No amendment to or waiver of any provision
of this Security Agreement nor consent to any departure by Grantor from any
provision of the Security Agreement, shall in any event be effective unless the
same shall be in writing and signed by Lender, and then such waiver or consent
shall be

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effective only in the specific instance and for the specific purpose for which
given.

                  24 INTERPRETATION. No provision of this Security Agreement
shall be construed against or interpreted to the disadvantage of any party
hereto by any court or other governmental or judicial authority by reason of
such party's having or being deemed to have structured, drafted or dictated such
provision.

                  25 SECTION TITLES. The section titles contained in this
Security Agreement are and shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the parties
hereto.

                  26 COUNTERPARTS. This Security Agreement may be executed in
any number of identical counterparts, each of which shall be an original, but
all of which shall constitute one and the same agreement. This Security
Agreement shall become effective when Lender shall have received all original
executed counterparts

                  27 FURTHER ASSURANCES. Grantor agrees, upon the written
request of Lender, to execute and deliver to Lender, from time to time, any
additional instruments or documents reasonably considered necessary by Lender to
cause this Security Agreement and the Secured Obligations to be, become, or
remain valid and effective, and to cause Lender's security interest in the
pledged Collateral to be, become, or remain duly perfected.

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                  IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
on the date first set forth above.

                                              ML MACADAMIA ORCHARDS, L.P., a
                                              Delaware limited partnership

                                              By:  ML RESOURCES, INC., a Hawaii
                                                   corporation, its managing
                                                   general partner

                                                   By: s/s Gregory A. Sprecher
                                                      ------------------------
                                                   Name:Gregory A. Sprecher
                                                        -------------------
                                                   Title: Senior Vice President
                                                          ---------------------

                                              ML RESOURCES, INC., a Hawaii
                                              corporation

                                                   By: s/s Gregory A. Sprecher
                                                      ------------------------
                                                   Name:Gregory A. Sprecher
                                                        -------------------
                                                   Title: Senior Vice President
                                                          ---------------------

ACCEPTED:

PACIFIC COAST FARM CREDIT SERVICES, PCA

By:__________________________________
Name:________________________________
Title:_______________________________


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