CREDIT AGREEMENT

Dated as of May 1, 2000

among

ML MACADAMIA ORCHARDS, L.P.
ML RESOURCES, INC.

as Borrower

and

PACIFIC COAST FARM CREDIT SERVICES, PCA

as Lender

Loan No. ____________

Exhibit A            - Form of Notice of Revolving Advance

Exhibit B            - Form of Certification Regarding Compliance
                       with Financial Covenants

THIS CREDIT AGREEMENT ("Agreement"), dated as of May 1, 2000, is by and among ML MACADAMIA ORCHARDS, L.P., a Delaware limited partnership, and ML RESOURCES, INC., a Hawaii corporation (collectively, "Borrower"), and PACIFIC COAST FARM CREDIT SERVICES, PCA, ("Lender") with respect to the following facts:

RECITALS

1. Borrower has requested that Lender extend to Borrower certain financial accommodations. Lender is willing to do so on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows:

ARTICLE I.

GENERAL TERMS

1.1 CERTAIN DEFINED TERMS. As used in this Agreement, all terms defined in the preamble to this Agreement shall have the meanings set forth therein, and the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

"Acquisition" shall mean the purchase by MLO of certain assets from Kau Agribusiness Co. Inc, a Hawaii corporation, Kau Sugar, Inc., a Hawaii corporation, Mauna Kea Macadamia Orchards, Inc., a Hawaii corporation, and Mauna Kea Agribusiness Co., Inc., a Hawaii corporation, pursuant to that certain Asset Purchase Agreement dated as of March 14, 2000.

"Affiliate" shall mean any person or entity directly or indirectly controlling, controlled by, or under common control with the Borrower. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlled by" and "under common control with") as used with respect to the Borrower, any person, or entity shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Borrower, any person, or entity, whether through the ownership of voting shares, by contract or otherwise.

"Agreement" shall mean this Credit Agreement, including all amendments, modifications, and supplements hereto and any appendices, exhibits, or schedules to any of the foregoing.

"Bankruptcy Code" shall mean 11 U.S.C.Section 101, ET SEQ., as in effect from time to time. "Base Rate" shall mean a floating rate of interest: (a) with respect to the Revolving Loan, the Prime Rate plus a margin equal on the Closing Date to zero percent (0.00%), and thereafter to such other margin as may become applicable under Section 2.4(c); (b) with respect to Term Loan Tranche A, the Prime Rate plus a margin equal on the Closing Date to zero percent (0.00%), and thereafter to such other margin as may become applicable under Section 2.5(c); and (c) with respect to Term Loan Tranche B, the Prime Rate plus a margin equal to three percent (3.00%).

"Borrower" shall mean ML Macadamia Orchards, L.P., a Delaware limited partnership, and ML Resources, Inc., a Hawaii corporation.

"Business Day" shall mean any day that is not a Saturday, a Sunday, or a day on which banks are required or permitted to be closed in the State of California.

"Capital Lease" shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of such Person or otherwise be disclosed as such in a note to such balance sheet, other than, in the case of Borrower, any such lease under which Borrower is the lessor.

"Charges" shall mean all federal, state, county, city, municipal, local, foreign, or other governmental taxes (including, without limitation, taxes owed to the Pension Benefit Guaranty Corporation or any successor) at the time due and payable, levies, assessments, charges, liens, claims or encumbrances upon or relating to (i) the Collateral, (ii) the Obligations, (iii) the employees, payroll, income, or gross receipts of Borrower, (iv) Borrower's ownership or use of any of its assets, or (v) any other aspect of Borrower's business.

"Closing Date" shall mean the date set forth in the preamble to this Agreement, or such other date on which this Agreement is closed.

"Collateral" shall mean any and all property of Borrower in which Lender now or hereafter has a Lien to secure all or any part of the Obligations to Lender.

"Collection Account" shall mean a bank account in the name of Lender at a bank chosen by Borrower and reasonably acceptable to Lender.

"Consolidated Cash Flow" shall mean, for any period, for MLO and its Subsidiaries on a consolidated basis, the sum (without duplication) of:
(a) Consolidated Net Income; plus (b) the sum of (i) extraordinary non-cash losses, (ii) interest expense (including the interest portion of any capitalized lease obligations), (iii) depletion, depreciation and amortization, and (iv) losses on asset sales (excluding the cash portion of any loss),; minus (c) the sum of (i) extraordinary gains, (ii) gains on asset sales (excluding the cash portion on any gain associated with the sale of property held for investment purposes), and (iii) Maintenance Capital Expenditures.

"Consolidated Debt Coverage Ratio" shall mean, as at any date of determination, the ratio of Consolidated Cash Flow for any period to Consolidated Debt Service for such period.

"Consolidated Debt Service" shall mean, for any period, for MLO and its Subsidiaries on a consolidated basis, the sum (without duplication) of the following: (a) interest expense (including the interest portion of any capitalized lease obligations); and (b) scheduled principal payments (including the principal portion of capitalized lease obligations).

"Consolidated EBITDA" shall mean, for any period, for MLO and its Subsidiaries on a consolidated basis, the sum (without duplication) of: (a) Consolidated Net Income; plus (b) the sum of (i) Federal, state, local, and foreign income taxes, (ii) interest expense (including the interest portion of any capitalized lease obligations), (iii) depletion, depreciation and amortization, and (iv) extraordinary losses; minus (c) the sum of (I) gains on asset sales, and (II) extraordinary gains.

"Consolidated Funded Debt" shall mean, as at any date of determination, for MLO and its Subsidiaries on a consolidated basis, the sum (without duplication) of: (a) indebtedness for borrowed money or guarantees of borrowed money, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, including certain contingent obligations such as letter of credit reimbursement agreements, and (c) obligations under capitalized leases.

"Consolidated Funded Debt to Consolidated EBITDA Ratio" shall mean, as at any date of determination, the ratio of Consolidated Funded Debt, as of such date of determination, to Consolidated EBITDA, as of such date of determination.

"Consolidated Net Cash Flow" shall mean, for any period, for MLO and its Subsidiaries on a consolidated basis, the sum (without duplication) of: (a) Consolidated Net Income; plus (b) the sum of (i) extraordinary non-cash losses, (ii) depletion, depreciation and amortization, and (iii) losses on asset sales; minus (c) the sum of (i) extraordinary gains, (ii) gains on asset sales (excluding the cash portion on any gain associated with the sale of property held for investment purposes), (iii) principal payments on term debt (including the interest portion of any capitalized lease obligations), and (iv) Maintenance Capital Expenditures.

"Consolidated Net Income" shall mean, for any period, on a consolidated basis, the net income, if any, of MLO, determined in accordance with GAAP.

"Consolidated Partners Capital" shall mean, as at any date of determination, the gross book value of the assets of MLO, less (a) reserves applicable thereto, and (b) all liabilities (including subordinated liabilities), in each case determined in accordance with GAAP and measured on a consolidated basis..

"Consolidated Total Capitalization" shall mean, as of any date of determination, for MLO and its Subsidiaries on a consolidated basis, the sum (without duplication) of (a) Consolidated Funded Debt, and (b) Consolidated Partners Capital.

"Current Assets" shall mean, as at any date of determination, the current assets of MLO determined in accordance with GAAP.

"Current Liabilities" shall mean, as at any date of determination, the current liabilities of MLO determined in accordance with GAAP.

"Default" shall mean any event or circumstance which, with the passage of time or the giving of notice or both, would unless remedied or waived, become an Event of Default.

"Default Rate" shall mean a rate of interest that is three percent (3.00%) per annum higher than the rate otherwise applicable.

"Disclosure Schedule" shall mean the Disclosure Schedule delivered by Borrower to Lender in conjunction with this Agreement.

"Environmental Laws" shall mean all federal, state and local laws, statutes, ordinances and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any judicial or administrative interpretation thereof, including, without limitation, any applicable judicial or administrative order, consent decree or judgment, relative to the applicable real estate, relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 ET SEQ.) ("CERCLA"); the Hazardous Material Transportation Act, as amended (49 U.S.C. Sections 1801 ET SEQ.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. Sections 136 ET SEQ.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901 ET SEQ.) ("RCRA"); the Toxic Substance Control Act, as amended (15 U.S.C. Sections 2601 ET SEQ.); the Clean Air Act, as amended (42 U.S.C. Sections 7401 ET SEQ.); the Federal Water Pollution Control Act, as amended (33 U.S.C. Sections 1251 ET SEQ.); the Occupational Safety and Health Act, as amended (29 U.S.C. Sections 651 ET SEQ.); and the Safe Drinking Water Act, as amended (42 U.S.C. Sections 300(f) ET SEQ.), and any and all regulations promulgated thereunder, and all analogous state and local counterparts or equivalents and any transfer of ownership notification or approval statutes.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time, and any regulations promulgated thereunder.

"ERISA Affiliate" shall mean, with respect to Borrower, any trade or business (whether or not incorporated) under common control with Borrower and which, together with Borrower, are treated as a single employer within the meaning of Section 4001(a) of ERISA.

"Eurodollar Business Day" shall mean a business day on which banks generally in the City of London are open for interbank or foreign exchange transactions.

"Event of Default" shall have the meaning assigned to it in
Section 10.1.

"Farm Credit One-Year Discount Note Rate" shall mean, at any time, the all-in cost paid by Western Farm Credit Bank on one-year Farm Credit Discount Notes made available to Western Farm Credit Bank by the Federal Farm Credit Banks Funding Corporation.

"Farm Credit Medium Term Note Rate" shall mean, at any time, the all-in cost paid by Western Farm Credit Bank on Farm Credit Medium Term Notes for periods of two years, five years, or the period through the Term Loan Termination Date, as applicable, made available to Western Farm Credit Bank by the Federal Farm Credit Banks Funding Corporation.

"Fees" shall mean any fees referred to in Section 2.8, including the Loan Fee and the Unused Commitment Fee, any prepayment surcharge, and any other fees due to Lender pursuant to the Loan Documents.

"Fiscal Quarter" shall mean any of the quarterly accounting periods of Borrower.

"Fiscal Year" shall mean the 12-month period of Borrower ending December 31 of each year. Subsequent changes of the fiscal year of Borrower shall not change the term "Fiscal Year," unless Lender shall consent in writing to such change.

"Fixed Rate" shall mean: (a) with respect to any portion of the Revolving Loan that Borrower elects at any time pursuant to Section 2.4(b) to convert to a fixed rate of interest, the applicable LIBO Rate as of the date of such election plus a margin equal on the Closing Date to one and seventy-five one hundredths percent (1.75%), and thereafter to such other margin as may become applicable under Section 2.4(c); (b) with respect to any portion of Term Loan Tranche A that Borrower elects at any time pursuant to Section 2.5(b) to convert to a fixed rate of interest, the applicable LIBO Rate as of the date of such election plus a margin equal on the Closing Date to one and seventy-five one hundredths percent (1.75%), and thereafter to such other margin as may become applicable under Section 2.5(c), and (c) with respect to Term Loan Tranche B, (i) for Interest Periods of one (1) year, the applicable Farm Credit One-Year Discount Note Rate plus a margin equal on the Closing Date to two percent (2.00%), and thereafter to such other margin as may become applicable under Section 2.6(b), (ii) for Interest Periods of two (2) years or five (5) years, the applicable Farm Credit Medium Term Note Rate plus a margin equal on the Closing Date to two percent (2.00%), and thereafter to such other margin as may become applicable under Section 2.6(b), and (iii) for the Interest Periods commencing on the Closing Date and expiring on the Term Loan Maturity Date, the applicable Farm Credit Medium Term Note Rate plus a margin of two percent (2.00%).

"GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time.

"Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

"Hazardous Material" shall mean any substance, material or waste, the generation, handling, storage, treatment or disposal of which is regulated by any local or state government authority in any jurisdiction in which Borrower has owned, leased or operated real property or disposed of hazardous materials, or by the United States Government, including any material or substance which is (i) defined as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste" or "restricted hazardous waste" or other similar term of phrase under any such law, (ii) petroleum, (iii) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section 1251 ET SEQ. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section 1317), (iv) defined as a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, ET SEQ. (42 U.S.C.
Section 6903), or (v) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601, ET SEQ. (42 U.S.C. Section 9601).

"Indebtedness" of any Person shall mean all obligations for borrowed money (including the present value of capitalized lease obligations) which, in accordance with GAAP, would be included in determining total liabilities as shown on the liability side of a balance sheet as of the date at which Indebtedness is to be determined, and guarantees, letters of credit (other than letters of credit to support trade payables) and endorsements (other than of notes, bills and checks presented to banks for collection or deposit in the ordinary course of business), in each case to support indebtedness for borrowed money of others, but excluding existing guarantees outstanding on the Closing Date (and extensions or renewals thereof).

"Interest Determination Date" shall mean the date, as designated by Borrower pursuant to Section 2.4, Section 2.5 or Section 2.6, on which a portion of the Revolving Advances or a portion of the Term Loan shall begin to bear interest at a Fixed Rate.

"Interest Period" shall mean (a) with respect to any portion of interest on Revolving Advances that Borrower elects to have bear interest at a Fixed Rate, a period beginning on the Interest Determination Date and ending, at Borrower's election, either

one (1) month, two (2) months, three (3) months, six (6) months, or twelve (12) months thereafter, (b) with respect to any portion of interest on Term Loan Tranche A that Borrower elects to have bear interest at a Fixed Rate, a period beginning on the Interest Determination Date and ending, at Borrower's election, either three (3) months, six (6) months, or twelve (12) months thereafter, and
(c) with respect to interest on Term Loan Tranche B, a period beginning on the Interest Determination Date and ending, at Borrower's election, either one (1) year, two (2) years, or five (5) years thereafter or, only with respect to an election made in connection with the Closing Date, ending on the Maturity Date for Term Loan Tranche B.

"Lender" shall mean PCFC.

"LIBO Rate" shall mean, for any Interest Determination Date, the rate offered from time to time for U.S. Dollar deposits for the Interest Period selected, as quoted by Telerate News Service on page 3750 recorded as of 11:00 A.M. London setting time (or, if the page 3750 of the Telerate News Service is unavailable, the comparable reference on the Reuters Screen LIBOR Page or such other quotation service as may be chosen by Lender) on the second full Eurodollar Business Day preceding the beginning of the Interest Period; PROVIDED, that if two or more of such offered rates appear on Telerate (or on the Reuters Screen LIBOR Page or alternative service, as the case may be), the "LIBO Rate" shall be highest of the two rates quoted.

"Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction).

"Loan Documents" shall mean this Agreement, the Revolving Loan Note of even date herewith, the Term Note of even date herewith, the Security Documents, and all other agreements, instruments, documents, and certificates identified in any Schedule of Documents listing documents to be delivered by Borrower to Lender and including all other pledges, powers of attorney, consents, assignments, contracts and agreements whether heretofore, now, or hereafter executed by or on behalf of Borrower or any of its Affiliates, or any employee of Borrower or any of its Affiliates, and delivered to Lender in connection with this Agreement, or any previous versions of this Agreement or the transactions contemplated thereby or hereby.

"Maintenance Capital Expenditures" shall mean capital expenditures for maintenance and enhancement of MLO's business operations.

"Material Adverse Effect" shall mean a material adverse effect on (i) the business, assets, operations, or financial or other condition of Borrower, (ii) Borrower's ability to pay the Obligations in accordance with the terms thereof, or (iii) the Collateral or Lender's Liens on the Collateral or the priority of any such Lien, or (iv) Lender's rights and remedies under this Agreement and the other Loan Documents.

"Maximum Lawful Rate" shall have the meaning assigned to it in
Section 2.7(e).

"Maximum Revolving Loan" shall mean Five Million Dollars ($5,000,000).

"MLO" shall mean ML Macadamia Orchards, L.P., a Delaware limited partnership.

"Notice of Revolving Advance" shall have the meaning assigned to it in Section 2.1(b).

"Obligations" shall mean all loans, advances, debts, liabilities, and obligations, for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable and whether or not allowed as a claim in any proceeding referred to in Section 10.1(i) or 10.1(j)) owing by Borrower to Lender, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under any of the Loan Documents. This term includes the Revolving Loan, the Term Loan, all principal, interest, Fees, charges, expenses, attorneys' fees and any other sum chargeable to Borrower under this Agreement or any of the Loan Documents.

"PACA" shall mean the Perishable Agricultural Commodities Act, 7 U.S.C. Section 499e(c) (or any successor legislation thereto), as amended from time to time, and any regulations promulgated thereunder.

"Permitted Encumbrances" shall mean the following encumbrances: (i) Liens for taxes or assessments or other governmental Charges or levies, either not yet due and payable or which are currently being contested in good faith by appropriate proceedings and which at all times are junior and subordinate to the Lien of Lender; (ii) pledges or deposits securing obligations under workmen's compensation,

unemployment insurance, social security or public liability laws or similar legislation; (iii) pledges or deposits securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which Borrower is a party as lessee made in the ordinary course of business; (iv) deposits securing public or statutory obligations of Borrower; (v) inchoate and unperfected workers', mechanics', suppliers' or similar Liens arising in the ordinary course of business; (vi) carriers', warehousemen's, or other similar possessory Liens arising in the ordinary course of business and securing indebtedness either not yet due and payable or which are currently being contested in good faith by appropriate proceedings; (viii) deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings to which Borrower is a party; (ix) an attachment or judgment Lien, but only for a period of thirty (30) days following attachment of such Lien and such attachment or judgment lien shall cease to be a Permitted Lien if the obligation that it secures has not been satisfied or bonded during such thirty (30) day period; (x) zoning restrictions, easements, licenses, or other restrictions on the use of real property or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such real property, leases or leasehold estates; (xi) Liens existing as of the Closing Date as identified in Part (E) of the Disclosure Schedule, but only securing the debt and covering the property referred to therein, (xii) Liens to secure Indebtedness arising from development of investment properties, provided that the Liens do not encumber any asset other than the asset benefitting from the improvement, and (xiii) security interests securing purchase money indebtedness and liens covering property other than Collateral, in each case to the extent permitted by Section 8.4.

"Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof).

"Prime Rate" shall mean the "Prime" rate as published from time to time in the Eastern Edition of The Wall Street Journal, regardless of whether such rate is actually charged by any bank, or, in the event that THE WALL STREET JOURNAL ceases publication of such rate, in such other nationally recognized financial publication of general circulation as Lender may, from time to time, designate in writing based on Lender's reasonable determination that the rate so published is comparable to the "Prime" rate published in the Eastern Edition of THE WALL STREET JOURNAL.

"Restricted Payment" shall mean (a) any payment or other distribution, direct or indirect, in respect of any partnership interest or stock in

Borrower, except a distribution payable solely in additional partnership interest or stock, and (b) any payment, direct or indirect, on account of the redemption, retirement, purchase or other acquisition of any partnership interest or stock or (c) any payment, loan, contribution, or other transfer of funds or other property to any partner or stockholder of Borrower except for reasonably equivalent value.

"Revolving Advance" shall have the meaning ascribed to such term in Section 2.1(a).

"Revolving Loan" shall mean the aggregate amount of Revolving Advances outstanding at any time.

"Revolving Loan Maturity Date" shall mean May 1, 2004; provided, that if the Obligations shall become due and payable in accordance with Section 10.2 or any other provision of this Agreement, then the Revolving Loan Maturity Date shall be the date on which the Obligations become due and payable.

"Security Documents" shall mean all security agreements, assignments, and other similar documents delivered by Borrower to Lender pursuant to which Borrower grants to Lender a security interest in, assignment of, or Lien upon any property of Borrower, including all amendments, modifications and supplements thereto.

"Subsidiary" shall mean any corporation, association or business entity of which Borrower owns, directly or indirectly, more than fifty percent of the voting securities or which Borrower otherwise controls.

"Tangible Net Worth" shall mean the gross book value of the assets of MLO (exclusive of goodwill, patents, trademarks, trade names, organization expense unamortized debt discount and expense, deferred charges and other like intangibles) less (i) reserves applicable thereto and (ii) all liabilities (including subordinated liabilities), in each case determined in accordance with GAAP (provided an adjustment shall be made to eliminate the effect of FAS 109), and as reasonably determined by Lender in accordance with GAAP.

"Working Capital" shall mean Current Assets less Current Liabilities.

1.2 ACCOUNTING TERMS. Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP consistently applied. That

certain terms or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing.

1.3 CERTAIN MATTERS OF CONSTRUCTION. The words "herein," "hereof," "hereto," "hereunder," and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement. Any reference to a "Section," "Exhibit," or "Schedule" shall refer to the relevant Section or, Exhibit, or Schedule to this Agreement, unless specifically indicated to the contrary. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine or neuter. The term "including" shall not be limiting or exclusive, unless specifically indicated to the contrary.

ARTICLE II.

AMOUNT AND TERMS OF CREDIT

1.4 REVOLVING ADVANCES.

(1) REVOLVING ADVANCES TO BE MADE AVAILABLE. Upon and subject to the terms and conditions hereof, Lender agrees to make available, from time to time, until the Revolving Loan Maturity Date, for Borrower's use and upon the request of Borrower therefor, advances (each, a "Revolving Advance") that shall not exceed the Maximum Revolving Loan. The amount of any Revolving Advance shall be not less than Fifty Thousand Dollars ($50,000) and shall be in integral multiples of One Thousand Dollars ($1,000). The Revolving Loan shall be evidenced by the Revolving Loan Promissory Note to be executed and delivered by Borrower to Lender on the Closing Date.

(2) REQUESTS FOR ADVANCES. If Borrower desires to receive a Revolving Advance, Borrower shall deliver a notice (a "Notice of Revolving Advance") to Lender substantially in the form of Exhibit A no later than 2:00
p.m. (California time) on the Business Day prior to the date of the proposed Revolving Advance. Lender shall be entitled to rely upon and shall be fully protected under this Agreement in relying upon any Notice of Revolving Advance reasonably believed by Lender to be genuine. Upon the close of business on the date of the proposed Revolving Advance, Lender shall make the Revolving Advance available to Borrower unless Lender determines that Borrower is not entitled to such Revolving Advance under the terms of this Agreement. All notices delivered pursuant to this Section 2.1(b) shall be delivered by facsimile to the facsimile number set forth in Section 11.9 or to such other facsimile number as a party hereto shall designate in writing pursuant to the provisions of Section 11.9.

(3) REVOLVING NATURE OF LOAN; REPAYMENT OF LOAN. The Revolving Loan is a revolving line of credit and Borrower may borrow, repay principal, and reborrow in accordance with the terms of this Agreement; PROVIDED that Borrower shall provide Lender with one (1) day's advance notice of any repayment. Repayments of principal shall be not less than Fifty Thousand Dollars ($50,000) and shall be in integral multiples of One Thousand Dollars ($1,000). The Revolving Loan shall mature and shall become due and payable in full on the Revolving Loan Maturity Date.

1.5 TERM LOAN.

(1) ADVANCE OF TERM LOAN. Upon and subject to the terms and conditions hereof, Lender shall advance the Term Loan to Borrower on the Closing Date. The Term Loan shall be evidenced by the Term Loan Promissory Note to be executed and delivered by Borrower to Lender on the Closing Date.

(2) PRINCIPAL PAYMENTS -- TERM LOAN TRANCHE A. With respect to Term Loan Tranche A, Borrower shall pay to Lender annual principal installments of Two Hundred Thousand Dollars ($200,000) commencing on May 1, 2001 and continuing on the first day of May in each year thereafter through and including May 1, 2005; PROVIDED, that all unpaid principal, accrued interest and other amounts evidenced by the Term Loan Promissory Note shall be due and payable in full on the Term Loan Maturity Date.

(3) PRINCIPAL PAYMENTS -- TERM LOAN TRANCHE B. With respect to Term Loan Tranche B, Borrower shall pay to Lender, annual principal installments of Two Hundred Thousand Dollars ($200,000) commencing on May 1, 2001 and continuing on the first day of May in each year thereafter through and including May 1, 2005. Thereafter, Borrower shall pay to Lender, annual principal installments of Four Hundred Thousand Dollars ($400,000) commencing on May 1, 2006 and continuing on the first day of May in each thereafter through and including May 1, 2010; PROVIDED, that all unpaid principal, accrued interest and other amounts evidenced by the Term Loan Promissory Note shall be due and payable in full on the Term Loan Maturity Date.

1.6 PREPAYMENTS.

(1) PREPAYMENT IN FULL. Borrower shall have the right at any time to voluntarily prepay the entire amount of the outstanding Revolving Loan and the entire amount of the outstanding Term Loan and to terminate this Agreement upon at least three (3) Business Days notice to Lender, without premium or penalty except Borrower shall pay to Lender a prepayment surcharge calculated in accordance with Section 2.3(c). Prepayment in full shall be accompanied by the payment of all accrued and unpaid interest and all Fees and other remaining Obligations.

(2) PARTIAL PREPAYMENT. Borrower shall have the right at any time to voluntarily prepay any portion of the Term Loan, or any portion of the Revolving Loan subject to a Fixed Rate, upon at least three (3) Business Days notice to Lender, without premium or penalty except Borrower shall pay to Lender, a prepayment surcharge calculated in accordance with Section 2.3(c). Unless otherwise approved by Lender, any prepayment of the Term Loan shall be applied pro rata, based on the respective aggregate principal amounts then outstanding, to Term Loan Tranche A and Term Loan Tranche B, shall be applied in inverse order of maturity, and shall not reduce the amount of any installment payments to Lender.

(3) PREPAYMENT SURCHARGE. At the time that Borrower makes any Prepayment, Borrower shall simultaneously pay to Lender, a prepayment surcharge for each Fixed Rate portion of the Term Loan and the Revolving Loan so prepaid, calculated as follows:

(1) For each portion of the Revolving Loan or the Term Loan bearing interest at a Fixed Rate calculated with respect to the LIBO Rate or the Farm Credit One-Year Discount Note Rate, the prepayment surcharge shall be equal to any funding losses incurred by Lender as a result of such prepayment, including any loss or unreimbursed expense arising from the redeployment of funds, calculated according to any reasonable methodology established by Lender; and

(2) For each portion of the Term Loan bearing interest at a Fixed Rate calculated with respect to the Farm Credit Medium Term Note Rate, the prepayment surcharge shall be equal to the present value of any loss of earnings incurred by Lender as a result of such prepayment, including any loss or unreimbursed expense arising from the redeployment of funds, calculated according to any reasonable methodology established by Lender.

1.7 INTEREST RATE ON REVOLVING ADVANCES.

(1) BASE RATE. Revolving Advances hereunder shall bear interest at the Base Rate, unless Borrower elects to convert the interest rate to a Fixed Rate for the period selected by Borrower in accordance with the provisions of Section 2.4(b).

(2) FIXED RATE FOR REVOLVING LOAN. Borrower may, from time to time, elect to convert all or a portion of the outstanding Revolving Advances to a Fixed Rate; PROVIDED, that (i) at least two (2) Business Days prior to the proposed Interest Determination Date, Borrower has provided Lender with written notice of such election, the requested Interest Determination Date, the amount of the Revolving Advances to be converted, and the requested Interest Period for the amount to be converted, (ii) at the time of delivery of such written notice and upon the date of conversion, no Default or Event of Default exists under this Agreement, (iii) at no time shall there be more than five (5) outstanding tranches of the Revolving Loan bearing interest at a Fixed Rate, (iv) the last day of the Interest Period chosen by Borrower shall not extend beyond

the Revolving Loan Maturity Date, and (v) the amount converted to a Fixed Rate at any one time shall be not less than Fifty Thousand Dollars ($50,000) and any amounts in excess thereof shall be in integral multiples of Fifty Thousand Dollars ($50,000). Any election by Borrower pursuant to this Section 2.4(b) shall be irrevocable during the Interest Period selected by Borrower, and that portion of the Revolving Loan so converted shall bear interest at the applicable Fixed Rate until the expiration of the applicable Interest Period at which time, unless another Fixed Rate has been duly elected by Borrower pursuant to this
Section 2.4(b), the interest rate for such portion of the Revolving Loan will automatically convert to the Base Rate.

(3) ADJUSTMENT IN MARGIN APPLICABLE TO BASE RATE AND TO FIXED RATE ELECTIONS FOR REVOLVING LOAN. With respect to the Revolving Loan, the margin applicable to the Base Rate and the Fixed Rate shall be adjusted on an annual basis in the manner and to the extent provided in this Section 2.4(c). If, as of the end of any Fiscal Year, Borrower's Consolidated Funded Debt to Consolidated EBITDA Ratio, for the period of such Fiscal Year falls within any of the levels listed below, then the margin applicable to the Base Rate and the Fixed Rate for the next Fiscal Year shall be adjusted, in the manner set forth below, to the applicable margin for such level listed below:

Consolidated Funded Debt                              Applicable Margin      Applicable Margin
to Consolidated EBITDA Ratio Level                       Fixed Rate              Base Rate
----------------------------------                       ----------              ---------

1.25:1 or greater                                           2.00%                  0.25%
Less than 1.25:1 but equal to or greater than 0.75:1        1.75%                  0.00%
Less than 0.75:1                                            1.50%                  0.00%

Any change to the applicable margin shall become effective as of the first (1st) day of the month after Borrower's delivery to Lender of the financial statements required to be delivered to Lender pursuant to Section 6.1(b) demonstrating to Lender's reasonable satisfaction that a change in the margin should occur; provided that a change in the margin shall not change the Fixed Rate applicable to an Interest Period that commenced prior to the date on which the margin changes. Notwithstanding anything to the contrary in the foregoing, if a Default or Event of Default shall have occurred and be continuing on either the date that Borrower elects to convert a portion of the Revolving Loan to a Fixed Rate or upon the Interest Determination Date, then Borrower shall have no right to elect a Fixed Rate.

1.8 INTEREST RATE ON TERM LOAN TRANCHE A.

(1) BASE RATE. Term Loan Tranche A shall bear interest at the Base Rate, unless Borrower elects to convert the interest rate to a Fixed Rate for the period selected by Borrower in accordance with the provisions of Section 2.5(b).

(2) DESIGNATION OF FIXED RATES. Borrower may, from time to time, elect to convert all or a portion of Term Loan Tranche A to a Fixed Rate; PROVIDED, that (i) at least two (2) Business Days prior to the proposed Interest Determination Date, Borrower has provided Lender with written notice of such election, the requested Interest Determination Date, the amount of Term Loan Tranche A to be converted, and the requested Interest Period for the amount to be converted, (ii) at the time of delivery of such written notice and upon the date of conversion, no Default or Event of Default exists under this Agreement,
(iii) at no time shall there be more than four (4) outstanding tranches of Term Loan Tranche A bearing interest at a Fixed Rate, (iv) the last day of the Interest Period chosen by Borrower shall not extend beyond the Term Loan Maturity Date, and (v) the amount converted to a Fixed Rate at any one time shall be not less than Two Hundred Fifty Thousand Dollars ($250,000) and any amounts in excess thereof shall be in integral multiples of Fifty Thousand Dollars ($50,000). Any election by Borrower pursuant to this Section 2.5(b) shall be irrevocable during the Interest Period selected by Borrower, and that portion of Term Loan Tranche A so converted shall bear interest at the applicable Fixed Rate until the expiration of the applicable Interest Period at which time, unless another Fixed Rate has been duly elected by Borrower pursuant to this Section 2.5(b), the interest rate for such portion of Term Loan Tranche A will automatically convert to the Term Loan Tranche A Base Rate.

(3) ADJUSTMENT IN MARGIN APPLICABLE TO BASE RATE AND TO FIXED RATE ELECTIONS FOR TERM LOAN TRANCHE A. With respect to Term Loan Tranche A, the margin applicable to the Base Rate and the Fixed Rate shall be adjusted on an annual basis in the manner and to the extent provided in this Section 2.5(c). If, as of the end of any Fiscal Year, Borrower's Consolidated Funded Debt to Consolidated EBITDA Ratio, for the period of such Fiscal Year falls within any of the levels listed below, then the margin applicable to the Base Rate and the Fixed Rate for the next Fiscal Year shall be adjusted, in the manner set forth below, to the applicable margin for such level listed below:

Consolidated Funded Debt                             Applicable Margin   Applicable Margin
to Consolidated EBITDA Ratio Level                       Fixed Rate         Base Rate
----------------------------------                       ----------         ---------

1.25:1 or greater                                           2.00%            0.25%
Less than 1.25:1 but equal to or greater than 0.75:1        1.75%            0.00%
Less than 0.75:1                                            1.50%            0.00%

Any change to the applicable margin shall become effective as of the first (1st) day of the month after Borrower's delivery to Lender of the financial statements required to be delivered to Lender pursuant to Section 6.1(b) demonstrating to Lender's reasonable satisfaction that a change in the margin should occur; provided that a change in the margin shall not change the Fixed Rate applicable to an Interest Period that commenced prior to the date on which the margin changes. Notwithstanding anything to the

contrary in the foregoing, if a Default or Event of Default shall have occurred and be continuing on either the date that Borrower elects to convert a portion of Term Loan Tranche A to a Fixed Rate or upon the Interest Determination Date, then Borrower shall have no right to elect a Fixed Rate.

1.9 INTEREST RATE ON TERM LOAN TRANCHE B.

(1) DESIGNATION OF FIXED RATES. Borrower shall, from time to time, designate a Fixed Rate to be applicable to all or a portion of Term Loan Trance B; PROVIDED, that (i) at least two (2) Business Days prior to the proposed Interest Determination Date, Borrower has provided Lender with written notice of such designation, the requested Interest Determination Date, the amount of Term Loan Tranche B so designated, and the requested Interest Period for the amount so designated, (ii) at the time of delivery of such written notice and upon the date of conversion, no Default or Event of Default exists under this Agreement, (iii) at no time shall there be more than four (4) outstanding interest rate tranches of Term Loan Tranche B, (iv) the last day of the Interest Period chosen by Borrower shall not extend beyond the Term Loan Maturity Date, and (v) the amount so designated shall be not less than Five Hundred Thousand Dollars ($500,000) and any amounts in excess thereof shall be in integral multiples of Five Thousand Dollars ($5,000). Any designation by Borrower pursuant to this Section 2.6(a) shall be irrevocable during the Interest Period designated by Borrower, and that portion of Term Loan Tranche B so designated shall bear interest at the applicable Fixed Rate until the expiration of the applicable Interest Period. Borrower's failure to designate a new Interest Period upon the expiration of a previous Interest Period shall constitute an Event of Default and the portion of Term Loan Tranche B not subject to a designated Interest Period shall bear interest at the Default Rate.

(2) ADJUSTMENT IN MARGIN APPLICABLE TO FIXED RATE DESIGNATIONS FOR TERM LOAN TRANCHE B. With respect to Term Loan Tranche B, the margin applicable to the Fixed Rate shall be adjusted on an annual basis in the manner and to the extent provided in this Section 2.6(b). If, as of the end of any Fiscal Year, Borrower's Consolidated Funded Debt to Consolidated EBITDA Ratio, for the period of such Fiscal Year falls within any of the levels listed below, then the margin applicable to the Fixed Rate for the next Fiscal Year shall be adjusted, in the manner set forth below, to the applicable margin for such level listed below:

Consolidated Funded Debt                             Applicable Margin
to Consolidated EBITDA Ratio Level                       Fixed Rate
----------------------------------                       ----------

1.25:1 or greater                                          2.25%
Less than 1.25:1 but equal to or greater than 0.75:1       2.00%
Less than 0.75:1                                           1.75%

Any change to the applicable margin shall become effective as of the first (1st) day of the month after Borrower's delivery to Lender of the financial statements required to be delivered to Lender pursuant to Section 6.1(b) demonstrating to Lender's reasonable satisfaction that a change in the margin should occur; provided that a change in the margin shall not change the Fixed Rate applicable to an Interest Period that commenced prior to the date on which the margin changes. Notwithstanding anything to the contrary in the foregoing, if a Default or Event of Default shall have occurred and be continuing on either the date that Borrower elects to convert a portion of Term Loan Tranche B to a Fixed Rate or upon the Interest Determination Date, then Borrower shall have no right to elect a Fixed Rate and such portion of Term Loan Tranche B shall thereafter bear interest at the Default Rate.

1.10 OTHER INTEREST PROVISIONS.

(1) INTEREST PAYMENT DATES. Interest shall be due and payable on the first day of each calendar quarter with respect to all interest accrued on the Revolving Loan and the Term Loan during the preceding calendar quarter; PROVIDED, that if any Interest Period shall mature prior to the first day of a calendar quarter, then interest accrued at a Fixed Rate during the particular Interest Period shall be due and payable upon expiration of the Interest Period. Interest accrued on the Revolving Loan but not otherwise due and payable on the Revolving Loan Maturity Date shall become due and payable on the Revolving Loan Maturity Date. Interest accrued on the Term Loan but not otherwise due and payable on the Term Loan Maturity Date shall become due and payable on the Term Loan Maturity Date.

(2) PAYMENTS DUE ON BUSINESS DAYS. If any installment of interest or any other amount payable under any Loan Document becomes due and payable on a day other than a Business Day, the payment date for such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal or other payments that bear interest (other than interest first due on such date), interest thereon shall be payable at the then applicable rate during such extension; PROVIDED, HOWEVER, if any installment of interest relating to (i) Revolving Advances that have been converted to a Fixed Rate or (ii) the Term Loan, shall become due and payable on a Saturday, the payment date for such payment shall be the preceding Business Day.

(3) COMPUTATION OF INTEREST. All computations of interest calculated with respect to the LIBO Rate shall be made by Lender on the basis of a three hundred sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest is payable. All computations of interest calculated with respect to the Farm Credit One-Year Discount Note Rate, the Farm Credit Medium Term Note Rate, or at the Base Rate shall be made by Lender on the basis of a three hundred sixty five (365) day year, in each case for the actual

number of days occurring in the period for which such interest is payable. Any change in the applicable rate shall become effective on the day such change occurs. Each determination by Lender of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error or bad faith.

(4) DEFAULT RATE. Any overdue principal of or interest with respect to any Revolving Advance, or the Term Loan, and the amount of any fees, costs, or expenses that Borrower is obligated to pay to Lender under this Agreement or any Loan Document not paid when due, shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. In addition, upon and after the occurrence of an Event of Default and continuing until such Event of Default has been cured or waived in writing by Lender in accordance with the terms of this Agreement, interest shall accrue on the Obligations at the Default Rate. The interest rate increase to the Default Rate shall take effect immediately upon the occurrence of an Event of Default, without prior notice to Borrower.

(5) INTEREST NOT TO EXCEED MAXIMUM LAWFUL RATE. Notwithstanding anything to the contrary set forth in this Agreement, if at any time until payment in full of all of the Obligations, the rate of interest payable hereunder exceeds the highest rate of interest permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto (the "Maximum Lawful Rate"), then in such event and so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; PROVIDED, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Lender hereunder, is equal to the total interest which Lender would have received had the interest rate payable hereunder been (but for the operation of this Section 2.7(e)) the interest rate payable since the Closing Date. Thereafter, the interest rate payable hereunder shall be the rate of interest set forth herein, unless and until the rate of interest again exceeds the Maximum Lawful Rate, in which event this paragraph shall again apply. In no event shall the total interest received by Lender pursuant to the terms hereof exceed the amount which Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. In the event the Maximum Lawful Rate is calculated pursuant to this SECTION 2.7(e), such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. In the event that a court of competent jurisdiction, notwithstanding the provisions of this
Section 2.7(e), shall make a final determination that Lender has received interest hereunder or under any of the Loan Documents in excess of the Maximum Lawful Rate, Lender shall to the extent permitted by applicable law, promptly apply such excess first to any interest due and not yet paid under the Revolving Loan and the Term Loan, then to the outstanding principal of the Revolving Loan, and the Term Loan (without premium or penalty), and then to Fees and any other unpaid Obligations and thereafter shall refund any excess to Borrower or as a court of competent jurisdiction may otherwise order.

(6) ADDITIONAL FIXED RATE PROVISIONS. If at any time Lender reasonably determines that for any reason adequate and reasonable means do not exist for ascertaining the LIBO Rate or the LIBO Rate generally becomes unavailable to Lender, Lender shall promptly give notice thereof to Borrower, and upon the giving of such notice, no new Fixed Rate may be selected by Borrower, until Lender is reasonably able to ascertain the LIBO Rate and Lender shall promptly notify Borrower at such time; PROVIDED, that Lender's determination under this SECTION 2.7(f) as to Borrower shall be in accordance with its treatment of other borrowers under commercial loans generally. In the event that any law, treaty, rule, regulation, or determination of a court or governmental authority or any change therein or in the interpretation or application thereof or compliance by Lender with any request or directive (whether or not having the force of law) from any central bank or governmental authority:

(1) shall subject Lender to any tax of any kind whatsoever with respect to any LIBO Rate, or change the basis of taxation of payments to Lender of principal, interest or any other amount payable under any Loan Document (except for changes in the rate of tax on the overall net income of a Lender); or

(2) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan, or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Lender; or

(3) shall impose on Lender any other condition; and the result of any of the foregoing is to increase the cost to Lender of making, renewing, or maintaining any portion of the Revolving Loan or Term Loan with interest rates tied to the LIBO Rate and/or to reduce any amount receivable by Lender in connection therewith;

then in any such case, Borrower shall pay to Lender, immediately upon demand, such amount or amounts as may be necessary to compensate Lender for any additional costs incurred by Lender and/or reductions in amounts received by Lender which are attributable to LIBO Rates made available to Borrower hereunder. In determining which costs incurred by a Lender and/or reductions in amounts received by a Lender are attributable to such LIBO Rates, any reasonable allocation made by Lender among its operations shall be conclusive and binding upon Borrower; PROVIDED, that Lender's determination under this SECTION 2.7(f) as to Borrower is in accordance with its treatment of other borrowers under commercial loans generally.

1.11 FEES. In addition to the other Fees listed in this Agreement, Borrower shall pay to Lender the following Fees:

(1) LOAN FEE. Upon the Closing Date, Borrower shall pay to Lender a loan fee in the amount of Thirty Thousand Dollars ($30,000).

(2) UNUSED COMMITMENT FEE. In consideration of the commitment made by Lender under this Agreement, commencing on April 1, 2001 and continuing until the Revolving Loan Maturity Date, Borrower shall pay to Lender, a quarterly unused commitment fee (the "Unused Commitment Fee") equal to one-quarter of one percent (.25%) per annum of the average daily amount by which the Maximum Revolving Loan exceeds the outstanding balance of the Revolving Loan; PROVIDED, that the Unused Commitment Fee shall be subject to adjustment as provided below. If, as of the end of any Fiscal Year, Borrower's Consolidated Funded Debt to Consolidated EBITDA Ratio, for the period of such Fiscal Year falls within any of the levels listed below, then the Unused Commitment Fee applicable for the next Fiscal Year shall be adjusted, in the manner set forth below, to the applicable Unused Commitment Fee for such level listed below:

Consolidated Funded Debt                             Applicable Unused
to Consolidated EBITDA Ratio                           Commitment Fee
----------------------------                           --------------

1.25:1 or greater                                          .250%
Less than 1.25:1 but equal to or greater than 0.75:1       .200%
Less than 0.75:1                                           .175%

Any change to the applicable Unused Commitment Fee shall become effective as of the first (1st) day of the month after Borrower's delivery to Lender of the financial statements required to be delivered to Lender pursuant to Section 6.1(b) demonstrating to Lender's reasonable satisfaction that a change in the Unused Commitment Fee should occur. Notwithstanding anything to the contrary in the foregoing, if a Default or Event of Default shall have occurred and be continuing on the date that the Commitment Fee would otherwise adjust, then the Unused Commitment Fee shall remain or become two and one-half tenths of one percent (.25%) per annum. The Unused Commitment Fee shall be paid to Lender on
(i) the first day of each calendar quarter with respect to the previous calendar quarter, and (ii) the Revolving Loan Maturity Date, with respect to the period from the last full calendar quarter through the Revolving Loan Maturity Date.

1.12 FEES CUMULATIVE AND NON-REFUNDABLE. All Fees payable under any Loan Document shall be cumulative and all Fees shall be considered fully earned on the date of payment and shall not be refundable under any circumstances.

1.13 PURCHASE OF FARM CREDIT STOCK. On the Closing Date, Borrower shall purchase One Thousand Dollars ($1,000) of stock in PCFC and shall execute and deliver to PCFC such documents as may be required to consummate such purchase.

1.14 RECEIPT OF PAYMENTS. Borrower shall make each payment under this Agreement not later than 10:30 A.M. (California time) on the day when due in lawful money of the United States of America by wire transfer of immediately available funds to the Collection Account. Borrower shall have advised Lender in writing of each payment being made by Borrower no later than 2:00 p.m. (California time) on the Business Day prior to the date of making of such payment. For purposes of computing interest and fees and determining the amount of funds available for borrowing by Borrower pursuant to ARTICLE II, payments of immediately available funds by wire transfer deposited in the Collection Account not later than 10:30 a.m. (California time) (and for which Lender has received notice prior to the making of such payment) shall be deemed received by Lender upon that Business Day. If payment shall be deposited later than 10:30 a.m. (California time) on any particular Business Day (or if Lender was not given prior notice of the payment by 2:00 p.m. (California time) on the Business Day preceding the date of payment), such payment shall be deemed received on the following Business Day. If Lender, in its sole discretion, determines to accept from Borrower payment by checks, drafts, or similar non-cash items, payment shall be deemed received by Lender two (2) Business Days after notice to Lender and deposit of such payment in the Collection Account.

1.15 ACCOUNTING. Lender will provide a monthly accounting of transactions under the Revolving Loan, and a quarterly accounting of transactions under the Term Loan to Borrower. Each and every such accounting shall (absent manifest error) be deemed final, binding, and conclusive in all respects as to all matters reflected therein, unless Borrower or a Lender, within one hundred twenty (120) days after the date any such accounting is rendered, shall notify Lender in writing of any objection which Borrower or Lender may have to any such accounting, describing the basis for such objection with specificity. In that event, only those items expressly objected to in such notice shall be deemed to be disputed by Borrower or Lender. Lender's determination, based upon the facts available, of any item objected to by Borrower or a Lender in such notice shall (absent manifest error) be final, binding, and conclusive, unless Borrower shall commence a judicial proceeding to resolve such objection within sixty (60) days following Lender's notifying Borrower of such determination.

1.16 TAXES.

(1) Any and all payments by Borrower hereunder or under the Revolving Notes or Term Notes shall be made, in accordance with this Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, Charges, or withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the net income of Lender by the jurisdiction under the laws of which Lender is organized or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, Charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Revolving Note or Term Note to Lender, (i) the sum payable shall be increased as may be

necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.13) Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law.

(2) In addition, Borrower agrees to pay any present or future stamp or documentary taxes or any other sales, transfer, excise, mortgage recording, or property taxes, Charges or similar levies that arise from any payment made hereunder or under the Revolving Notes, Term Notes, or from the execution, sale, transfer, delivery or registration of, or otherwise with respect to, this Agreement or the Revolving Notes, Term Notes, the Loan Documents and any other agreements and instruments contemplated thereby (hereinafter referred to as "Other Taxes").

(3) Borrower shall indemnify each Lender for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.13) paid by Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within thirty (30) days from the date Lender makes written demand therefor.

(4) Within thirty (30) days after the date of any payment of Taxes, Borrower shall furnish to each Lender the original or a certified copy of a receipt evidencing payment thereof.

(5) Without prejudice to the survival of any other agreement of Borrower hereunder, the agreements and obligations of Borrower contained in this Section 2.13 shall survive the payment in full of all Obligations and the Termination Date.

1.17 CAPITAL ADEQUACY.

(1) Borrower shall pay to Lender from time to time on written request such amounts as Lender may reasonably determine to be necessary to compensate Lender for any increased costs to Lender that it reasonably determines are attributable to any law or regulation, or any interpretation, directive, or request (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) of any court or governmental or monetary authority (i) following any Regulatory Change or (ii) implementing after the Closing Date any risk-based capital guideline or other capital requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) heretofore or hereafter issued by any Governmental Authority in respect of Lender's Percentage of the Revolving Loan or Term Loan (such compensation to include an amount equal to any reduction of the rate of return on assets or equity of Lender to a level below that which Lender could have achieved but

for such law, regulation, interpretation, directive or request); PROVIDED that with respect to this Section 2.14, each Lender shall treat Borrower as Lender generally treats its other similarly situated borrowers.

(2) Lender will furnish to Borrower a certificate setting forth the basis and amount of each request by Lender for compensation under this
Section 2.14. Determinations and allocations by Lender for purposes of this
Section 2.14 of the effect of any Regulatory Change pursuant to or of capital maintained pursuant to this Section 2.14, on its costs or rate of return of maintaining Revolving Advances or the Term Loan and or its commitment to make Revolving Advances or the Term Loan, and of the amounts required to compensate Lender under this Section 2.14, shall be conclusive absent manifest error or bad faith.

(3) As used in this Section 2.14, "Regulatory Change" shall mean any change after the Closing Date in federal, state, or foreign law or regulations (including Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of lenders including Lender of or under any Federal, state, or foreign law or regulations (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority charged with the interpretation or administration thereof.

ARTICLE III.

COLLATERAL

1.18 BORROWER'S OBLIGATIONS. The Obligations of Borrower to pay all sums due to Lender and to perform all other covenants and agreements under this Agreement and the other Loan Documents to which Borrower is a party, shall be secured by all Collateral to the extent provided in the Security Documents.

1.19 ASSURANCES. Borrower shall, at its sole cost and expense, execute and deliver to Lender all such further documents, instruments, and agreements and to perform all such other acts which may be reasonably required in the opinion of Lender to enable Lender to perfect, protect, exercise, or enforce their respective rights as the secured parties or beneficiaries under the Security Documents. To the extent permitted by applicable law, Borrower hereby authorizes Lender to file financing statements and continuation statements with respect to the security interests granted under the Security Documents in favor of Lender and to execute such financing statements and continuation statements on behalf of Borrower and hereby grants Lender with a limited power-of-attorney to do so. Such power-of-attorney is coupled with an interest and is irrevocable.

ARTICLE IV.

CONDITIONS PRECEDENT

1.20 CONDITIONS PRECEDENT TO CLOSING DATE. Notwithstanding any other provision of this Agreement and without affecting in any manner the rights of Lender hereunder, the Closing Date shall not occur until and unless each and every one of the following conditions has been satisfied or waived, in Lender's sole discretion:

(1) Borrower shall have delivered to Lender all documents required by Lender to be delivered on or before the Closing Date.

(2) Lender shall have received from Borrower all financial statements and from Borrower all agreements, documents, and schedules that Lender shall consider necessary or appropriate in connection with this Agreement;

(3) Borrower shall concurrently consummate the Acquisition;

(4) No Material Adverse Effect shall have occurred or shall exist; and

(5) No Default or Event of Default shall have occurred and be continuing.

1.21 CONDITIONS PRECEDENT TO EACH REVOLVING ADVANCE AND THE TERM LOAN. It shall be a condition to the funding of the initial and each subsequent Revolving Advance and the Term Loan that the following statements shall be true on the date of each such funding or advance:

(1) All of Borrower's representations and warranties contained herein or in any of the Loan Documents shall be true and correct in all material respects on and as of the Closing Date and the date of each such Revolving Advance is incurred as though made on and as of such date, except to the extent that any such representation or warranty expressly relates to an earlier date and for changes therein permitted or contemplated by this Agreement.

(2) No event shall have occurred and be continuing, or would result from the funding of any Revolving Advance or the Term Loan, which (i) constitutes or would constitute a Default or an Event of Default, or (ii) which has a Material Adverse Effect.

(3) After giving effect to each Revolving Advance, the aggregate principal amount of the Revolving Loan shall not exceed the Maximum Revolving Loan.

The acceptance by Borrower of the proceeds of (i) any Revolving Advance or (ii) the Term Loan, shall be deemed to constitute, as of the date of such acceptance, a

representation and warranty by Borrower that the conditions in this Section 4.2 have been satisfied.

ARTICLE V.

REPRESENTATIONS AND WARRANTIES

To induce Lender to make the Revolving Loan and Term Loan, as herein provided for, Borrower makes the following representations and warranties to Lender, each and all of which shall be true and correct as of the date of execution and delivery of this Agreement, and shall survive the execution and delivery of this Agreement:

1.22 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. MLO is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Delaware. ML Resources, Inc. is the managing general partner of MLO. ML Resources, Inc. is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Neither Borrower has any Subsidiaries. Each Borrower (i) is duly qualified as a foreign corporation or limited partnership and is in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification (except for jurisdictions in which such failure to so qualify or to be in good standing would not have a Material Adverse Effect); (ii) has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate all real property that it owns, to lease the real property it operates under lease, and to conduct its business as now, heretofore, and proposed to be conducted; (iii) has all material licenses, permits, consents, or approvals from or by, and has made all material filings with, and has given all material notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation, and conduct; (iv) is in compliance with its certificate of incorporation and by-laws, or its agreement of limited partnership, as applicable; and (v) is in compliance with all applicable provisions of law where the failure to comply would have a Material Adverse Effect.

1.23 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The execution, delivery, and performance by Borrower of the Loan Documents to which it is a party, and all instruments and documents required to be delivered by Borrower under any of the Loan Documents, and the creation of all Liens provided for in any Loan Documents: (i) are within Borrower's corporate or partnership power; (ii) have been duly authorized by all necessary or proper corporate or partnership action; (iii) are not in contravention of any provision of Borrower's certificate of incorporation or by-laws or agreement of limited partnership, as applicable; (iv) will not violate any law or regulation, or any order or decree of any court or governmental instrumentality; (v) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any material indenture, mortgage, deed of trust, lease, agreement or other instrument to which Borrower is a party or by

which Borrower or any of its property is bound; (vi) will not result in the creation or imposition of any Lien upon any of the property of Borrower other than those in favor of Lender, all pursuant to the Loan Documents; and (vii) do not require the consent or approval of any Governmental Authority or any other Person, except for consents or approvals which have been duly obtained or specifically waived in writing by Lender. At or prior to the Closing Date, each of the Loan Documents required hereunder to be delivered at or prior to the Closing Date shall have been duly executed and delivered on behalf of Borrower and each shall then constitute a legal, valid, and binding obligation of Borrower, to the extent it is a party thereto, enforceable against it in accordance with its terms except for general principles of equity and the effect of bankruptcy, insolvency, and other laws affecting the rights of creditors generally.

1.24 ACQUISITION; SOLVENCY; PROJECTIONS. The Acquisition has been duly consummated in accordance with its terms, neither Borrower nor any other party are in default thereunder, and all of the transactions engaged in by Borrower as part of such agreement were legal and valid and in compliance with all applicable law. True and correct copies of all documents relating thereto were delivered to Lender. Borrower is solvent and will be solvent after completion of such acquisition and after giving effect to the initial advance hereunder. All budget forecasts and projections of Borrower delivered to Lender are based upon reasonable estimates and assumptions, all of which are fair in light of current conditions, have been prepared on the basis of the assumptions stated therein, and reflect the reasonable estimate of Borrower of the results of operations and other information projected therein.

1.25 OWNERSHIP OF PROPERTY; LIENS. None of the properties and assets of Borrower are subject to any Liens, except Permitted Encumbrances and the Lien in favor of Lender pursuant to the Security Documents. All real property owned or leased by Borrower on the Closing Date is set forth on Parts (A) and (B) of the Disclosure Schedule. Neither Borrower nor any other party to any such lease is in default of its obligations thereunder, except for any default which would not have a Material Adverse Effect. All permits required to have been issued to enable the real property owned or leased by Borrower to be lawfully occupied and used for all of the purposes for which they are currently occupied and used, have been lawfully issued and are, as of the date hereof, in full force and effect, except for any permit for which the failure of such permit to be issued and in full force and effect would not have a Material Adverse Effect. Borrower has not received any notice, and to Borrower's knowledge does not have, any pending, threatened, or contemplated condemnation proceeding affecting any real property owned or leased by Borrower or any part thereof, or of any sale or other disposition of any real property owned or leased by Borrower or any part thereof in lieu of condemnation.

1.26 NO DEFAULT. Borrower is not in default, and to Borrower's knowledge no third party is in default, under or with respect to any contract, agreement, lease or other instrument to which it is a party which default in each case or in the aggregate would have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing.

1.27 BURDENSOME RESTRICTIONS. No contract, lease, agreement, or other instrument to which Borrower is a party or is bound and no provision of applicable law or governmental regulation has a Material Adverse Effect, or insofar as Borrower can reasonably foresee, may have a Material Adverse Effect.

1.28 LABOR MATTERS. There are no strikes or other labor disputes against Borrower that are pending or, to Borrower's knowledge, threatened which would have a Material Adverse Effect. Hours worked by and payment made to employees of Borrower have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters which would have a Material Adverse Effect. All payments due from Borrower on account of employee health and welfare insurance which would have a Material Adverse Effect if not paid have been paid or accrued as a liability on the books of Borrower.

1.29 OTHER VENTURES. Except as set forth in Part (C) of the Disclosure Schedule, Borrower is not engaged in any joint venture or partnership with any other Person.

1.30 INVESTMENT COMPANY ACT. Borrower is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. The making of the Revolving Loan and Term Loan by Lender, the application of the proceeds and repayment thereof by Borrower and the consummation of the transactions contemplated by this Agreement and the other Loan Documents will not violate any provision of such Act or any rule, regulation, or order issued by the Securities and Exchange Commission thereunder.

1.31 MARGIN REGULATIONS. Borrower does not own any "margin security", as that term is defined in Regulations U of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Revolving Advances and Term Loan will not be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the loans under this Agreement to be considered a "purpose credit" within the meaning of Regulation T, U, or X of the Federal Reserve Board.

1.32 TAXES. All federal, state, local, and foreign tax returns, reports, and statements, including information returns required to be filed by Borrower, have been filed with the appropriate Governmental Authority and all Charges and other impositions shown thereon to be due and payable have been paid prior to the date on which any fine, penalty, interest, or late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge, or loss has been paid. Borrower has paid when due and payable all Charges required to be paid by it. Proper and accurate amounts have been withheld by Borrower from their respective employees for all periods in full and complete compliance with the tax, social security, and unemployment withholding provisions of applicable federal, state, local and foreign law and

such withholdings have been timely paid to the respective governmental agencies. None of Borrower's tax returns with respect to Borrower's corporate income are currently being audited by the Internal Revenue Service or any other applicable Governmental Authority.

1.33 ERISA. Each "Plan" (as defined below) is in compliance in all material respects with the applicable provisions of ERISA and the Internal Revenue Code ("IRC") and with respect to each Plan, other than a Qualified Plan, all required contributions and benefits have been paid in accordance with the provisions of each such Plan to the extent that the failure to pay any such contribution or benefit would have a Material Adverse Effect. There are no pending or, to Borrower's knowledge, threatened claims, actions or lawsuits (other than claims for benefits in the normal course), asserted or instituted against Borrower or any Plan or its assets. Neither Borrower nor any ERISA Affiliate of either has incurred or reasonably expects to incur any Withdrawal Liability under Section 4201 of ERISA as a result of a complete or partial withdrawal from a Multiemployer Plan. Borrower has not engaged in a prohibited transaction, as defined in Section 4975 of the IRC or Section 406 of ERISA, in connection with any Plan, which would subject Borrower (after giving effect to any exemption) to a material tax on prohibited transactions imposed by Section 4975 of the IRC or any other material liability. As used above, the term "Plan" means, with respect to Borrower or any ERISA Affiliate of either, at any time, an employee benefit plan, as defined in Section 3(3) of ERISA, which Borrower maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. The terms "Qualified Plan" and "Multiemployer Plan" shall have the meaning given them in ERISA.

1.34 NO LITIGATION. Except as set forth in Part (D) of the Disclosure Schedule, no action, claim or proceeding is now pending or, to Borrower's Knowledge, threatened against Borrower, at law, in equity or otherwise, before any court, board, commission, agency, or instrumentality of any federal, state, or local government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators, which, if determined adversely, could have a Material Adverse Effect, nor to Borrower's knowledge does a state of facts exist which is reasonably likely to give rise to such proceedings. None of the matters set forth in Part (D) of the Disclosure Schedule questions the validity of any of the Loan Documents or any action taken or to be taken pursuant thereto, or would have either individually or in the aggregate a Material Adverse Effect.

1.35 BROKERS. No broker or finder acting on behalf of Borrower brought about the obtaining, making, or closing of the loans made pursuant to this Agreement or the transactions contemplated by the Loan Documents and has no obligation to any Person in respect of any finder's or brokerage fees in connection therewith.

1.36 PATENTS, TRADEMARKS, COPYRIGHTS, AND LICENSES. Borrower owns or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are necessary to the conduct of

Borrower's business, without known conflict with the rights of others. To the best knowledge of Borrower, no product of Borrower infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark and trade name or other right owned by any other Person. To the best knowledge of Borrower, there is no material violation by any Person of any right of Borrower with respect to any patent, copyright, service mark, trademark and trade name or other right owned by Borrower.

1.37 FULL DISCLOSURE. To Borrower's Knowledge, no information contained in this Agreement, the other Loan Documents, any budget forecasts or projections, the financial statements delivered to Lender, or any written statement furnished by or on behalf of Borrower pursuant to the terms of this Agreement, which has previously been delivered to Lender, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which made.

1.38 ENVIRONMENTAL MATTERS. Borrower is and has been in compliance with all Environmental Laws, except for such noncompliance which would not result in Environmental Liabilities which could reasonably be expected to exceed $100,000. Borrower has obtained, and is in compliance with, all environmental permits required by Environmental Laws for the operations of its business, except where the failure to so obtain or comply with such environmental permits would not result in Environmental Liabilities that could reasonably be expected to exceed $100,000, and all such Environmental Permits are valid, uncontested and in good standing. Borrower is not involved in operations and does not know of any facts, circumstances or conditions, including any releases of Hazardous Materials, that are likely to result in any Environmental Liabilities of Borrower that could reasonably be expected to exceed $100,000. There is no litigation arising under or related to any Environmental Laws, environmental permits or Hazardous Material that seeks damages, penalties, fines, costs or expenses in excess of $50,000 or injunctive relief against, or that alleges criminal misconduct by, Borrower. No notice has been received by Borrower identifying it as a "potentially responsible party" or requesting information under CERCLA or analogous state statutes, and to the knowledge of Borrower, there are no facts, circumstances or conditions that may result in Borrower being identified as a "potentially responsible party" under CERCLA or analogous state statutes.

1.39 INSURANCE POLICIES. Borrower has disclosed to Lender in writing all insurance of any nature maintained for current occurrences by Borrower, as well as a summary of the terms of such insurance. Borrower shall maintain "All Risk" physical damage insurance on all of Borrower's tangible real and personal property and assets, wherever located, and covers, without limitation, fire and extended coverage, boiler and machinery coverage, liquids, theft, burglary, explosion, collapse, and all other hazards and risks ordinarily insured against by owners or users of such properties in similar businesses. All policies of insurance on such real and personal property contain an endorsement, in form and substance acceptable to Lender, showing loss

payable to Lender (Form 438 BFU or its equivalent) and extra expense and business interruption endorsements. Such endorsement, or an independent instrument furnished to Lender, provides that the insurance companies will give Lender at least thirty (30) days prior written notice before any such policy or policies of insurance shall be altered or canceled and that no act or default of Borrower or any other Person shall affect the right of Lender to recover under such policy or policies of insurance in case of loss or damage. In addition, Borrower shall maintain the following types of insurance coverage, in such amounts as may be approved by Lender: (a) comprehensive general liability insurance on an "occurrence basis" against claims for personal injury, bodily injury and property damage, including premises/operations, broad form contractual liability, underground, explosion and collapse hazard, independent contractors, broad form property coverage, products and completed operations liability; (b) statutory limits of worker's compensation insurance, (c) automobile liability insurance for all owned, non-owned or hired automobiles against claims for personal injury, bodily injury, and property damage; and (d) umbrella insurance. All of such policies are in full force and effect and in form and with insurers recognized as adequate by Lender, and provide coverage of such risks and for such amounts as are customarily maintained for businesses of the scope and size of Borrower's and as otherwise acceptable to Lender. Each insurance policy contains a clause which provides that Lender's interest under such policy shall not be invalidated by any act or omission to act of, or any breach of warranty by, the insured, or by any change in the title, ownership or possession of the insured property, or by the use of the property for purposes more hazardous than is permitted in such policy. Borrower has delivered to Lender a certificate of insurance that evidences the existence of each policy of insurance, payment of all premiums therefor and compliance with all provisions of this Agreement.

1.40 PACA. Borrower is not a "dealer," "commission merchant," or "broker" under PACA, and Borrower's assets are not subject to the trust provisions provided for under PACA.

ARTICLE VI.

FINANCIAL STATEMENTS AND INFORMATION

1.41 REPORTS AND NOTICES. Borrower covenants and agrees that it shall deliver to each Lender:

(1) Within forty-five (45) days after the end of each Fiscal Quarter, (i) financial and other information requested by Lender, including an internally-prepared statement of income and cash flow, balance sheet, and management letter, each of which would provide comparisons to the prior year's equivalent period and to the budgets provided to Lender, (ii) the certification of the chief financial officer of Borrower that all such financial statements and schedules are complete and correct and present fairly in accordance with GAAP (subject to normal year-end adjustments), the financial position, the results of operations and the statements of cash flows of Borrower as at the end of such month and for the period then ended, that there

was no Default or Event of Default in existence as of such time; (iii) a certificate in the form attached hereto as Exhibit B, containing the certification of Borrower's chief financial officer that Borrower has complied with all of the covenants set forth in Section 8.12 as of the end of such Fiscal Quarter;

(2) Within ninety (90) days after the end of each Fiscal Year, audited financial statements, consisting of balance sheets and statements of income and retained earnings and cash flows, setting forth in comparative form in each case the figures for the previous Fiscal Year, which financial statements shall be prepared in accordance with GAAP, certified without qualification by a firm of independent certified public accountants of recognized national standing selected by Borrower and acceptable to Lender, and accompanied by (i) a report from such accountants to the effect that in connection with their audit examination, nothing has come to their attention to cause them to believe that a Default or Event of Default had occurred and that, to the best of their knowledge, Borrower was in compliance with all the covenants set forth in Section 8.12 as of the end of such Fiscal Year, (ii) the annual letter from Borrower's chief financial officer to such accountants in connection with their audit examination detailing Borrower's contingent liabilities and material litigation matters involving Borrower, (iii) a certification of the chief financial officer of Borrower that all such financial statements are complete and correct and present fairly in accordance with GAAP the financial position, the results of operations and the statements of cash flow of Borrower as at the end of such year and for the period then ended and that there was no Default or Event of Default in existence as of such time, and
(iv) a certificate in the form attached hereto as Exhibit B, containing the certification of Borrower's chief financial officer that Borrower has complied with all of the covenants set forth in Section 8.12 as of the end of such Fiscal Year;

(3) Within ninety (90) days after the start of any Fiscal Year, an annual budget and forecast for such Fiscal Year, substantially in the form provided to Lender prior to the Closing Date, and containing such information as Lender shall request;

(4) Within ninety (90) days after completion of crop harvesting, an annual crop production report containing such information as Lender shall request;

(5) As soon as practicable, but in any event within one (1) Business Day after Borrower becomes aware of the existence of any Default or Event of Default, or any development or other information which would have a Material Adverse Effect, telephonic notice specifying the nature of such Default or Event of Default or development or information, including the anticipated effect thereof, which notice shall be promptly confirmed in writing within three
(3) Business Days;

(6) Copies of all federal, state, local and foreign tax returns, information returns and reports in respect of income, franchise or other taxes on or measured by income (excluding sales, use or like taxes) filed by Borrower; and

(7) Such other information respecting Borrower's business, financial condition or prospects as Lender may, from time to time, reasonably request.

1.42 COMMUNICATION WITH ACCOUNTANTS. Lender is authorized to communicate directly with Borrower's independent certified public accountants and tax advisors, and such accountants and tax advisors are hereby authorized to disclose directly to Lender any and all financial information requested by Lender.

ARTICLE VII.

AFFIRMATIVE COVENANTS

Borrower covenants and agrees that, unless Lender shall have otherwise consented, Borrower shall comply with and observe each of the following covenants.

1.43 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. Borrower shall: (a) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate or partnership existence and its rights and franchises;
(b) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder; and (c) maintain all of its property that is necessary or useful in the proper conduct of its business in good working condition (taking into consideration ordinary wear and tear).

1.44 PAYMENT OF OBLIGATIONS. Borrower shall pay and discharge or cause to be paid and discharged promptly all Charges imposed upon it, its income, and profits, or any of its property, and lawful claims for labor, materials, supplies, and services or otherwise before any thereof shall become in default, except for those that are being contested in good faith by proper legal actions or proceedings.

1.45 BOOKS AND RECORDS. Borrower shall keep adequate records and books of account with respect to its business activities, in which proper entries, reflecting all of its financial transactions, are made in accordance with GAAP and on a basis consistent with the financial statements delivered to Lender.

1.46 LITIGATION. Borrower shall notify Lender in writing, promptly upon learning thereof, of any litigation commenced or threatened against Borrower, and of the institution against it of any suit or administrative proceeding that
(a) may involve an amount in excess of One Hundred Thousand Dollars ($100,000) or (b) may have a Material Adverse Effect if adversely determined.

1.47 INSURANCE. Borrower shall, at its sole cost and expense, maintain the policies of insurance described in Section 5.18 in form and with insurers recognized as adequate by Lender, and all such policies shall be in such amounts as may be reasonably satisfactory to Lender. In addition, Borrower shall notify Lender promptly of any occurrence causing a material loss or decline in value of any real or personal property and the estimated (or actual, if available) amount of such loss or decline. Borrower hereby directs all present and future insurers under its "All Risk" policies of insurance to pay all proceeds payable thereunder directly to Lender. Borrower irrevocably makes, constitutes and appoints Lender (and all officers, employees, or agents designated by Lender) as Borrower's true and lawful agent and attorney-in-fact for the purpose of making, settling, and adjusting claims under the "All Risk" policies of insurance, endorsing the name of Borrower on any check, draft, instrument or other item of payment for the proceeds of such "All Risk" policies of insurance, and for making all determinations and decisions with respect to such "All Risk" policies of insurance; provided Lender agrees that it shall not exercise its right to settle or adjust any claim unless an Event of Default has occurred and is continuing. In the event Borrower at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above or to pay any premium in whole or in part relating thereto, Lender, without waiving or releasing any Obligations or Default or Event of Default hereunder, may at any time or times thereafter (but shall not be obligated to) obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto which Lender deems advisable. All sums so disbursed by Lender, including reasonable attorneys' fees, court costs, expenses and other charges relating thereto, shall be payable, on demand, by Borrower to Lender and shall be additional Obligations hereunder secured by the Collateral. Lender reserves the right at any time, upon review of Borrower's risk profile, to require additional forms and limits of insurance to, in Lender's reasonable judgment, after consultation with Borrower, adequately protect Lender's interests.

1.48 COMPLIANCE WITH LAWS AND AGREEMENTS. Borrower shall comply in all material respects with all federal, state and local laws and regulations applicable to it. Borrower shall perform, within all required time periods, all of its obligations and enforce all of its rights under each material agreement to which it is a party.

1.49 ENVIRONMENTAL MATTERS. Borrower shall (i) comply in all material respects with the Environmental Laws applicable to it, (ii) notify Lender promptly after knowledge in the event of any spill or release which is reportable to any Governmental Authority upon any premises owned or occupied by it, and (iii) promptly forward to Lender a copy of any order, notice, permit, application, or any other communication or report received by Borrower in connection with any matter relating to the Environmental Laws that may materially affect such premises.

1.50 INTEREST RATE PROTECTION. Borrower shall provide evidence to Lender, within thirty (30) days after the Closing Date, that Borrower shall have fixed or hedged interest rates for not less than sixty-five percent (65%) of Term Loan Tranche B for a period of not less than two (2) years.

ARTICLE VIII.

NEGATIVE COVENANTS

Borrower covenants and agrees that, unless Lender shall have otherwise consented, Borrower shall comply with and observe each of the following covenants.

1.51 MERGERS, ETC.; CHANGE OF BUSINESS. Borrower shall not, directly or indirectly, by operation of law or otherwise, merge with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with, any Person or form any Subsidiary. Borrower shall not engage in any business other than those businesses in which Borrower is engaged on the Closing Date.

1.52 CAPITAL STRUCTURE. Borrower shall not make any material changes in its capital structure or amend its certificate of incorporation, by-laws, limited partnership agreement without the prior written consent of Lender, which consent will not be unreasonably withheld.

1.53 INVESTMENTS; LOANS AND ADVANCES. Borrower shall not make any investment in, or make or accrue loans or advances of money to any Person, through the direct or indirect holding of securities or otherwise; provided, that Borrower may: (a) make and maintain investments in cash equivalents, (b) make and maintain loans or advances to, any of its wholly-owned Subsidiaries (provided that the creation of such wholly-owned Subsidiary has been approved by Lender and has guaranteed all Obligations and secured such guarantee by a first priority security interest in all of such Subsidiary's assets), (c) loans to employees to the extent disclosed to an approved by Lender, (d) investments existing on the Closing Date to the extent approved by Lender.

1.54 INDEBTEDNESS. Except as otherwise expressly permitted by this Agreement, Borrower shall not create, incur, assume, or permit to exist any Indebtedness, except (a) Indebtedness secured by Permitted Encumbrances, (b) the Revolving Loan, (c) the Term Loan, (d) all unfunded pension fund and other employee benefit plan obligations and liabilities but only to the extent they are permitted to remain unfunded under applicable law, (e) Indebtedness under Capital Leases to the extent permitted under this Agreement, but not to exceed One Million Two Hundred Thousand Dollars ($1,200,000) at any time outstanding,
(f) Indebtedness secured by property of Borrower other than the Collateral in an aggregate amount not to exceed Five Hundred Thousand Dollars ($500,000), (g) unsecured Indebtedness in an aggregate amount not to exceed Six Million Dollars ($6,000,000), and (h) purchase money indebtedness with respect to the acquisition of new capital assets so long as such Indebtedness is secured only by the particular asset being acquired.

1.55 TRANSACTIONS WITH AFFILIATES. Borrower shall not enter into or be a party to any transaction with (including the purchase from, sale to, or exchange of property with, or the rendering of any service by or for) any Affiliate of Borrower, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms that are fully disclosed to Lender and are no less favorable to Borrower than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate of Borrower; provided, that MLO may reimburse ML Resources, Inc. for reasonable management expenses.

1.56 LIENS. Borrower shall not create or permit any Lien on any of its properties or assets except the Lien of Lender under the Loan Documents and Permitted Encumbrances.

1.57 SALES OF ASSETS. Borrower shall not sell, transfer (including any consensual transfer such as the execution of a deed in lieu of foreclosure), convey, assign, or otherwise dispose of any of its assets or properties involved in Borrower's macadamia operations; provided, that the foregoing shall not prohibit (i) the sale of inventory in the ordinary course of business, (ii) disposal of worn out or obsolete assets, (iii) the sale or other disposal of used equipment which is being replaced by equipment having a similar value or serving a similar function, and (iv) sale of other assets in an aggregate amount not to exceed One Million Dollars ($1,000,000) from and after the Closing Date.

1.58 CANCELLATION OF CLAIMS. Borrower shall not cancel any claim or debt owing to it, except for reasonable consideration or in the ordinary course of business.

1.59 RESTRICTED PAYMENTS. Borrower shall not make any Restricted Payments; provided, that so long as no Default or Event of Default then exists, has occurred within the twelve (12) months immediately preceding such proposed Restricted Payment, or would result from such Restricted Payment, Borrower may make Restricted Payments if all of the following requirements are fulfilled: (a) the making of such Restricted Payment, if it had been made in the preceding Fiscal Quarter, would not have caused Borrower to breach any of the financial covenants set forth in Section 8.12, (b) after giving effect to such Restricted Payment, MLO's Working Capital would not be less than Two Million Five Hundred Thousand Dollars ($2,5000,000), (c) after giving effect to such Restricted Payment, the ratio of MLO's Current Assets to Current Liabilities shall not be less than one and one-half to one (1.5:1.0); (d) the aggregate amount of all Restricted Payments made during the period from and after January 1, 2000 to and including the date of the Restricted Payment in question shall not have exceeded the sum of (i) Three Million Dollars ($3,000,000), plus (ii) the aggregate amount of MLO's Consolidated Net Cash Flow, on a cumulative basis, from January 1, 2000 to and including the last day of the most recently completed Fiscal Quarter.

1.60 ENVIRONMENTAL COMPLIANCE. Borrower shall not and shall not knowingly permit any other Person within the control of Borrower to cause or permit the presence, use, generation,

manufacture, installation, release, discharge, storage or disposal of any Hazardous Materials on, under, in or about any of its real estate or the transportation of any Hazardous Materials to or from any real estate where such presence, use, generation, manufacture, installation, release, discharge, storage or disposal would violate any Environmental Laws, the violation of which would have a Material Adverse Effect.

1.61 PACA LICENSE. Borrower shall not obtain or attempt to obtain a dealer license under PACA.

1.62 FINANCIAL COVENANTS.

(1) MINIMUM TANGIBLE NET WORTH. MLO shall not permit its Tangible Net Worth, as of the last day of any Fiscal Quarter to be less than the applicable "Minimum Tangible Net Worth Amount." The Minimum Tangible Net Worth Amount shall initially be Fifty-Seven Million Five Hundred Thousand Dollars ($57,500,000) and shall be reduced dollar for dollar on by the amount (to the extent positive) that (i) the aggregate amount of all Restricted Payments made by MLO after the Closing Date (but only if such Restricted Payments were permitted by the terms of this Agreement at the time they were made), exceeds
(ii) the cumulative amount of Consolidated Net Income achieved by MLO after the Closing Date.

(2) CAPITALIZATION RATIO. Borrower shall not permit the ratio of (i) Consolidated Funded Debt, to (ii) Consolidated Total Capitalization, as of the last day of any Fiscal Quarter, to exceed twenty percent (20%).

(3) DEBT COVERAGE RATIO. Commencing with the first full Fiscal Quarter following the Closing Date, Borrower shall not permit the Consolidated Debt Coverage Ratio for the four Fiscal Quarters immediately preceding each measurement date, as of the last day of each Fiscal Quarter to be less than two and one half to one (2.5:1.0).

ARTICLE IX.

INDEMNITY

1.63 INDEMNIFICATION. Borrower shall indemnify and hold Lender and Lender's affiliates, subsidiaries, officers, directors, employees, attorneys, and agents (each, an "Indemnified Person"), harmless from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including reasonable attorneys' fees and disbursements (including allocated costs of internal counsel) and other costs of investigations or defense, including those incurred upon any appeal) which may be instituted or asserted against or incurred by such Indemnified Person as a result of credit having been extended under this Agreement and

the other Loan Documents or in connection with Lender's interest in any Collateral; provided, that Borrower shall not be liable for any indemnification to such Indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense was the result of any action by such Indemnified Person or results from such Indemnified Person's gross negligence or willful misconduct. NEITHER LENDER NOR ANY OTHER INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO BORROWER, ANY OTHER PERSON, ANY SUCCESSOR, ASSIGNEE, OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY, OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS.

ARTICLE X.

EVENTS OF DEFAULT; RIGHTS AND REMEDIES

1.64 EVENTS OF DEFAULT. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder:

(1) FAILURE TO PAY PRINCIPAL. Borrower shall fail to make any payment of principal owing with respect to the Revolving Loan or any regularly scheduled payment of principal owing with respect to the Term Loan when due and payable and such failure shall remain uncured for a period of two (2) Business Days; provided that the failure to make such payment may only be cured by paying the amount due together with interest on such amount at the Default Rate.

(2) FAILURE TO PAY INTEREST OR OTHER AMOUNTS OTHER THAN EXPENSES. Borrower shall fail to make any payment of interest on the Revolving Loan, the Term Loan, or any other amount (other than expenses payable under any Loan Document) owing with respect to the Revolving Loan, the Term Loan or any of the other Obligations when due and payable or declared due and payable and such failure shall remain uncured for a period of two (2) Business Days; provided that the failure to make such payment may only be cured by paying the amount due together with interest on such amount at the Default Rate.

(3) FAILURE TO PAY EXPENSES. Borrower shall fail to make any payment of any expenses payable under any Loan Document, and such failure shall have remained uncured for a period of ten (10) days after Borrower has received notice of such failure from Lender; provided that the failure to make such payment may only be cured by paying the amount due together with interest on such amount at the Default Rate.

(4) BREACH OF COVENANTS OR OTHER PROVISIONS OF THIS AGREEMENT. Borrower shall fail or neglect to perform, keep, or observe any other provision of this Agreement or of any of the other Loan Documents, and the same is by its nature incapable of being cured or shall remain unremedied for a period ending on the first to occur of twenty (20) days after Borrower shall receive written notice of any such failure from Lender or thirty (30) days after Borrower shall become aware thereof. A breach by Borrower of the financial covenants set forth in Section 8.12 are incapable of being cured.

(5) DEFAULT UNDER OTHER INDEBTEDNESS. A default shall occur under any other agreement, document, or instrument to which Borrower is a party or by which Borrower or Borrower's property is bound and such default involves the failure to make any payment (whether of principal, interest, or otherwise) due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise, but only after expiration of any cure periods provided by the underlying agreement, document, or instrument) in respect of any Indebtedness of Borrower in excess of One Hundred Thousand Dollars ($100,000).

(6) BREACH OF REPRESENTATION OR WARRANTY. Any material representation or warranty herein or in any Loan Document or in any written statement pursuant thereto or hereto, report, financial statement, or certificate made or delivered to Lender by Borrower shall be untrue or incorrect, as of the date when made or deemed made (including those made or deemed made pursuant to Section 4.2) and the same is by its nature incapable of being cured or shall remain unremedied for a period ending on the first to occur of twenty (20) days after Borrower shall receive written notice of any such failure from Lender or thirty (30) days after Borrower shall become aware thereof.

(7) LOSS OF ASSETS. (i) Any of the assets of Borrower shall be attached, seized, levied upon, or subjected to a writ or distress warrant, or come within the possession of any receiver, trustee, custodian, or assignee for the benefit of creditors of Borrower and shall remain unstayed or undismissed for thirty (30) consecutive days, (ii) any Person other than Borrower shall apply for the appointment of a receiver, trustee or custodian for any of Borrower's assets and such application shall remain unstayed or undismissed for thirty (30) consecutive days, or (iii) Borrower shall have concealed, removed, or permitted to be concealed or removed, any part of its property, with intent to hinder, delay, or defraud its creditors or any of them or made or suffered a transfer of any of its property or the incurring of an obligation which may be fraudulent under any bankruptcy, fraudulent conveyance or other similar law.

(8) INVOLUNTARY INSOLVENCY ACTIONS. A case or proceeding shall have been commenced against Borrower in a court having competent jurisdiction seeking a decree or order (i) under the Bankruptcy Code, or any other applicable federal, state, or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of Borrower or of any substantial part of its properties, or (iii) ordering the winding-up or liquidation of the affairs of Borrower and such case or

proceeding shall remain undismissed or unstayed for thirty (30) consecutive days or such court shall enter a decree or order granting the relief sought in such case or proceeding.

(9) VOLUNTARY INSOLVENCY ACTIONS. Borrower shall (i) file a petition seeking relief under the Bankruptcy Code, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, or sequestrator (or similar official) of Borrower or of any substantial part of its properties, (iii) fail generally to pay its debts as such debts become due, or (iv) take any corporate action in furtherance of any such action.

(10) JUDGMENTS. Final judgment or judgments for the payment of money in excess of Fifty Thousand Dollars ($50,000) in the aggregate shall be rendered against Borrower and the same shall not be (i) fully covered by insurance, or (ii) vacated, stayed, bonded, paid, or discharged for a period of thirty (30) days.

(11) MATERIAL ADVERSE EFFECT. There shall occur any event or circumstance that constitutes a Material Adverse Effect.

1.65 ACCELERATION; REMEDIES.

(1) AUTOMATIC ACCELERATION; EXERCISE OF REMEDIES. If an Event of Default shall occur and be continuing: (i) all Obligations and any indebtedness of Borrower under any of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Lender's option and without notice be accelerated and become immediately due and payable without presentment, demand, protest, or notice of dishonor, all of which are hereby expressly waived by Borrower; and (ii) the obligation, if any, of Lender to make further Revolving Advances shall immediately cease and terminate. Lender shall have all rights, powers, and remedies available under each of the Loan Documents, including the right to resort to any or all Collateral for any Obligations and to exercise any or all of the rights of a beneficiary or secured party with respect to the Collateral pursuant to applicable law. All rights, powers and remedies of Lender in connection with each of the Loan Documents (x) may be exercised at any time and from time to time after the occurrence and during the continuation of an Event of Default, (y) are cumulative and not exclusive, and (z) shall be in addition to any other rights, powers or remedies provided by law or equity. Without limiting the foregoing, Lender may, as provided in the Farm Credit Act of 1971, as amended, retire and cancel all or any portion of Borrower's stock or other equities in Lender and apply the proceeds thereof to the Obligations. In addition, Lender may hold, set off, sell, and/or apply against Borrower's indebtedness any and all cash, accounts, securities, instruments, documents, or other property in Lender's possession or under its control.

(2) PAYMENTS TO THIRD PARTIES. At its sole discretion and without any obligation to do so, Lender may pay any amount to any Person as Lender deems reasonably necessary to preserve the value of, avoid loss of or damage to, or prevent foreclosure, sale, or forfeiture of any of the Collateral, including bidding at or redeeming from any sale of Collateral. Any amounts paid or expended by Lender in connection herewith shall constitute Obligations which shall be payable on demand and which shall bear interest at the Default Rate from the date paid by Lender.

(3) APPOINTMENT OF RECEIVER. After the occurrence of an Event of Default, Lender may (but shall not be obligated to) seek to obtain the appointment of a receiver who shall be vested with any and all such powers and rights as Lender may request of the court, including the right (i) to sell the Collateral at one or more private or public sales, (ii) to undertake cultivation, harvest, purchasing, processing, sales, collections, or other work in connection with any Collateral (or any portion thereof) in accordance with this Agreement and the other Loan Documents (or any other plan of cultivation, harvest, processing, preservation or maintenance approved by Lender and the receiver or the court), and (iii) to exercise any or all such rights, powers or privileges as Borrower or Lender might exercise on its own behalf.

1.66 DISTRIBUTION AND APPLICATION OF AMOUNTS RECEIVED AFTER AN EVENT OF DEFAULT. Any amounts received by Lender on account of the Obligations after an Event of Default, whether from voluntary payment by Borrower, from a foreclosure sale, or from some other source shall be distributed against such portions of the Obligations and in such order as Lender, in its sole discretion, shall determine. Borrower irrevocably waives the right to direct the application of any and all payments at any time or times hereafter received by Lender from or on behalf of Borrower, and Borrower irrevocably agrees that Lender shall have the continuing exclusive right to apply any and all such payments against the then due and payable Obligations of Borrower as Lender may deem advisable.

1.67 WAIVERS BY BORROWER. Except as otherwise provided for in this Agreement, Borrower waives (i) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension, or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Lender on which Borrower may in any way be liable and hereby ratifies and confirms whatever Lender may do in this regard, (ii) all rights to notice and a hearing prior to Lender's taking possession or control of, or to Lender's replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of its remedies, and (iii) the benefit of all valuation, appraisal, and exemption laws.

ARTICLE XI.

MISCELLANEOUS

1.68 SUCCESSORS AND ASSIGNS. This Agreement and the other Loan Documents shall be binding on and shall inure to the benefit of Borrower and Lender and their respective successors and assigns, except as otherwise provided herein or therein. Borrower may not assign, transfer, hypothecate, or otherwise convey its rights, benefits, obligations, or duties hereunder or thereunder without the prior express written consent of Lender. Any purported assignment, transfer, hypothecation, or other conveyance by Borrower without the prior express written consent of all of Lender shall be void. Lender may sell, assign, transfer, grant a participation in, or otherwise dispose of all or any portion of its interest in this Agreement at any time without consent of Borrower. In connection therewith, Lender shall be entitled to provide to any assignee or participant or prospective assignee or participant such information pertaining to Borrower as Lender may deem appropriate or such assignee or participant or prospective assignee or participant may request; provided, that such assignee or participant or prospective assignee or participant shall agree (a) to treat in confidence such information, and (b) not to make use of such information for purposes of transactions other than contemplated by such assignment or participation.

1.69 COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT; CONSENTS AND WAIVERS. The Loan Documents constitute the complete agreement between the parties with respect to the subject matter hereof and may not be modified, altered, or amended except by an agreement in writing executed by Borrower and Lender. No amendment or waiver of any provision of this Agreement or any Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and executed by Lender.

1.70 FEES AND EXPENSES. Borrower shall reimburse Lender for all reasonable fees, costs, and expenses incurred in connection with: (a) the preparation and negotiation of the Loan Documents (including the reasonable fees and expenses of internal counsel, and appraisers and consultants, retained in connection with the Loan Documents and the transactions contemplated thereby and advice in connection therewith); (b) any amendment, modification, or waiver of, or consent with respect to, any of the Loan Documents; (c) any advice in connection with the administration of the Revolving Loan, the Term Loan, this Agreement, any Loan Document, or the Collateral; (d) any litigation, contest, dispute, suit, proceeding, or action (whether instituted by Lender, Borrower or any other Person) in any way relating to the Collateral, any of the Loan Documents or any other agreements to be executed or delivered in connection therewith or herewith, including any litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against Borrower or any other Person that may be obligated to Lender by virtue of this Agreement, or the other Loan Documents, under the Bankruptcy Code, or any other applicable federal, state or foreign bankruptcy or other similar law (including the seeking of relief from the automatic stay or proposal of opposition to a plan of reorganization); (e) any attempt to enforce any rights of Lender against Borrower or any other Person that may be obligated to Lender by virtue of any of

the Loan Documents; or (f) any attempt to (i) monitor the Revolving Loan or Term Loan, (ii) evaluate, observe, assess Borrower or its affairs, and (iii) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the Collateral, including and field inspections; then, in any such event, the reasonable attorneys' and other professional and service providers' fees (including internally-allocated costs of in-house counsel) arising from such services, including those of any appellate proceedings, and all expenses, costs, charges, and other fees incurred by such counsel and others in any way or respect arising in connection with or relating to any of the events or actions described in this Section 11.3, shall be payable, on demand, by Borrower to Lender and shall be additional Obligations secured under this Agreement and the other Loan Documents by all of the Collateral.

1.71 ACCESS. Borrower shall provide access to Lender, exercisable as frequently as Lender reasonably determines to be appropriate, upon reasonable advance notice (unless an Event of Default shall have occurred and be continuing, in which event no notice shall be required and Lender shall have access at any and all times), during normal business hours (or at such other times as may reasonably be requested by Lender), to inspect the properties and facilities of Borrower and to inspect, audit, and make extracts from all of Borrower's records, files, and books of account and Borrower shall make such items available to Lender.

1.72 NO WAIVER BY LENDER. Lender's failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement and any of the other Loan Documents shall not waive, affect, or diminish any right of Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Lender of an Event of Default by Borrower under the Loan Documents shall not suspend, waive, or affect any other Event of Default by Borrower under this Agreement and any of the other Loan Documents whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants, and representations of Borrower contained in this Agreement or any of the other Loan Documents and no Default or Event of Default by Borrower under this Agreement and no defaults by Borrower under any of the other Loan Documents shall be deemed to have been suspended or waived by Lender, unless such suspension or waiver is by an instrument in writing signed by an officer of Lender, and directed to Borrower specifying such suspension or waiver.

1.73 SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

1.74 PARTIES. This Agreement and the other Loan Documents shall be binding upon, and inure to the benefit of, the successors of Borrower, each Lender and the assigns, transferees and endorsees of each Lender..

1.75 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 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. BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR COURTS OF SAN FRANCISCO COUNTY, CALIFORNIA, OR, AT LENDER'S 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 BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER 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. BORROWER 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 BORROWER AT THE ADDRESS SET FORTH IN SECTION 11.9 OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION.

1.76 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 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 :

(1) If to Lender, at:

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

Pacific Coast Farm Credit Services 200 Concourse Boulevard Santa Rosa, California 95403 Attention: Account Officer - ML Macadamia Orchards Facsimile: (707) 545-9400

(2) If to Borrower, 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.

1.77 SURVIVAL. The representations and warranties of Borrower in this Agreement shall survive the execution, delivery and acceptance hereof by the parties hereto and the closing of the transactions described herein or related hereto.

1.78 SECTION TITLES. The Section titles and Table of Contents contained in this 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.

1.79 COUNTERPARTS. This Agreement may be executed in any number of separate counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute one and the same instrument.

1.80 PERFORMANCE ALWAYS DUE ON BUSINESS DAY. To the extent that any date under this Agreement is not a Business Day, then the payment or performance due on such day shall be due on the next Business Day.

1.81 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 AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.

1.82 TIME OF THE ESSENCE. Time is of the essence in every provision of this Agreement.

1.83 NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other Person shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other Loan Document.

IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written 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, as Borrower

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

PACIFIC COAST FARM CREDIT SERVICES, PCA

By:______________________________
Name:____________________________
Title:___________________________

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.

"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

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

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.

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

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.

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.

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

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

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.

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;

(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

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

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

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

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

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.

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

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

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

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.

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:_______________________________

KA'U ORCHARDS YEAR 2000 FARMING LEASE

THIS LEASE is made as of the 1st day of May 2000, and effective May 1, 2000, by and between:

KA'U AGRIBUSINESS CO., INC., a Hawaii corporation, with place of business at 96-3207 Maile Street, Pahala, Hawaii 96777, and post office address at P.O. Box 130, Pahala, Hawaii 96777, hereinafter called the "Landlord, and

ML MACADAMIA ORCHARDS, L.P., a Delaware limited partnership, with place of business at 828 Fort Street, Suite 205, Honolulu, Hawaii, 96813, hereinafter called the "Tenant".

WITNESSETH

For the term, at the rents, and on the covenants, conditions and provisions hereinafter set forth, Landlord hereby demises and leases, and Tenant hereby accepts and rents, those certain parcels of land (or undivided interests therein) situate at Ka'u in the County and State of Hawaii, as more particularly described in Exhibit A attached hereto and made a part hereof, subject, however, to the encumbrances described in said Exhibit A.

TO HAVE AND TO HOLD the same, together with all improvements (excepting the Garage, Administration Building and Macadamia Nut Husking Plant and all macadamia trees which are already owned by Tenant), rights, easements, privileges and appurtenances thereunto belonging or appertaining, including rights of access to the demised premises over Landlord's land, unto Tenant for a term of forty-five years and two months commencing May 1, 2000, and ending June 30, 2045, unless sooner terminated as provided below.

Tenant hereby covenants and agrees to pay to Landlord, net over and above all taxes, assessments and other charges hereunder payable by Tenant, rent as set out in the Rent Schedule attached hereto and made a part hereof.

AND LANDLORD hereby covenants with Tenant that upon payment by Tenant of the rent as aforesaid and upon observance and performance of the covenants by Tenant hereinafter contained, Tenant shall peaceably hold and enjoy said premises for the term hereby demised without hindrance or interruption by Landlord or any other person or persons lawfully claiming by, through or under Landlord, except as herein expressly provided.

AND TENANT hereby covenants with Landlord as follows:

1. PAYMENT OF RENT. Tenant will pay said rent in lawful money of the United States of America at the times and in the manner aforesaid, without any deduction and without notice or demand, at the office of Landlord in Pahala.

2. TAXES AND OTHER CHARGES. Tenant will also pay to Landlord at least ten (10) days before the same become delinquent all taxes, assessments, rates, charges and other outgoings of every description (but not including interest and penalties if Landlord makes late payment after receiving timely remittance from Tenant) to which said premises or any part thereof or any improvement thereon, or Landlord or Tenant in respect thereof, are now or may during said term be assessed or become liable, whether made by governmental authority, by any utility company or by any public or community service company; provided, however, that with respect to any assessment made under any betterment or improvement law which may be payable in installments, Tenant shall be required to pay only such installments together with interest as shall become due and payable during said term, and real property taxes shall be prorated between Landlord and Tenant as of the dates of commencement and expiration respectively of said term, and provided that Tenant's share of the real property taxes for the land shall be proportionate to any undivided interests in the land demised by this Lease and that Tenant shall be responsible for all real property taxes attributable to trees and other improvements used or owned by Tenant on the premises.

Tenant will also pay to Landlord with each installment of rent, real property taxes and assessments and other charges hereunder payable by Tenant the amount of all Hawaii general excise or similar taxes payable by Landlord with respect thereto, whether actually or constructively received. If at any time during said term there shall be assessed against the demised land or any part thereof or any improvement thereon or any rents payable to Landlord therefor or against Landlord in respect thereof, any new taxes (other than federal or state net income, franchise, corporation, capital stock or excess profits taxes or any other taxes existing at the commencement of said term) which are in substitution for real property taxes or are in lieu of increases thereof, Tenant will also pay to Landlord as additional rent, at least ten (10) days before the same become delinquent, Tenant's proportionate share of all such new taxes. Tenant will pay all Hawaii conveyance taxes, if any, payable with respect to this Lease and any subleases hereunder.

3. IMPROVEMENTS REQUIRED BY LAW. Tenant will at Tenant's own expense during the whole of said term make, build, maintain and repair all fences, sewers, drains and roads which may be required by law to be made, built, maintained and repaired upon or adjoining or in connection with or for the use of the premises used or occupied by Tenant or any part thereof and will bear the pro rata cost of all such features or facilities used by both Tenant and Landlord, corresponding to the proportionate usage of the same by Tenant or persons acting under Tenant.

4. REPAIR. Tenant will at Tenant's own expense from time to time and at all times during said term repair, maintain and keep all of Tenant's buildings and other improvements now or hereafter built on the demised land with all necessary

reparations and amendments whatsoever in good and safe repair, order and condition, except for reasonable wear and use thereof and damage by unavoidable casualty other than fire and extended coverage risks. If Tenant or any person claiming by, through or under Tenant shall damage any private roadway giving access to said premises, Tenant shall immediately upon written notice by Landlord repair such roadway to the condition that existed prior to such damage, and if Tenant shall fail to do so Landlord may accomplish such repair at Tenant's expense. Tenant will also, at all times during said term at Tenant's own expense, maintain in good order and condition all boundary monuments (if any) now or hereafter constructed on the demised land. Landlord represents that no major repairs that would be required pursuant to the terms of this paragraph are necessary as of the date of this Lease.

5. OBSERVANCE OF LAWS. Tenant will at all times during said term keep said premises in a safe condition and observe and perform all laws, ordinances, rules and regulations now or hereafter made by any governmental authority for the time being applicable to said premises or any improvement thereon or use thereof.

6. INSPECTION. Tenant will permit Landlord and Landlord's agents at all reasonable times during said term to enter said premises and examine the state of repair and condition thereof, and will repair and make good all defects required by the terms of this Lease to be repaired by Tenant of which notice shall be given by Landlord or Landlord's agents within thirty (30) days after the giving of such notice or such further time as may be required to complete such repair with due diligence.

7. USE. Tenant will use said premises solely for the cultivation and harvesting of macadamia nuts and for accessory buildings and other improvements useful for or incidental to said purpose. Tenant will not make or suffer any strip or waste or unlawful, improper or offensive use of said premises or any part thereof.

8. GOOD HUSBANDRY. Tenant will in the use of the portions of said premises used or occupied by Tenant follow approved methods of husbandry practiced on lands similarly situated or subject to similar conditions. Tenant will keep said premises in a good cultivated condition reasonably free from weeds and other noxious growth. Tenant will seek the guidance of appropriate governmental agencies on the matter of erosion control and will by proper construction and use of drainage ditches and otherwise, take all reasonable precautions to prevent or arrest loss of soil by erosion. Any buffer strip required by Tenant for the protection of Tenant's agricultural crops on said premises shall be provided by Tenant at Tenant's own expense within the land hereby demised, and Tenant will not demand any contribution whatsoever for the cost of providing or maintaining any such strip from Landlord or Landlord's tenants of any land adjoining areas used by Tenant. Tenant understands and agrees that neither Landlord nor Landlord's tenants shall be required to perform any crop or weed control on any land adjoining said premises.

9. REPORTS. Tenant will furnish to Landlord on or before the expiration of sixty (60) days after the end of each calendar year during said term a complete written statement stating in reasonable detail (a) the quantity of macadamia nuts produced on or derived from the demised land which were sold during such year, (b) a list of every sublease, tenancy and cropping agreement effective at any time during such year with respect to any part of said premises specifying the area, location and term thereof and the rent reserved thereunder,
(c) the extent of construction and maintenance of buildings and other improvements on and general character and condition of the demised land, and (d) the number of acres of the demised land cleared and planted with macadamia nut trees and the location thereof.

10. FIRE INSURANCE. Tenant will at Tenant's own expense at all times during said term keep all buildings now or hereafter erected on the demised land used by Tenant exceeding $1,000 in actual value insured against loss or damage by fire with extended coverage in an insurance company authorized to do business in Hawaii in a sum not less than 80% of the value thereof, in the joint names of Landlord, Tenant and any mortgagee as their interests may appear, and will pay all premiums thereon when due, and will, whenever requested by Landlord, deposit promptly with Landlord the current policies of such insurance or certificates thereof. In every case of loss or damage to said buildings all proceeds of such insurance shall be used with all reasonable speed by Tenant for rebuilding, repairing or otherwise reinstating the same buildings in a good and substantial manner according to the plan and elevation of the buildings so destroyed or damaged or such modified plan as shall first be approved in writing by Landlord; provided, however, that in lieu of such restoration Tenant may at Tenant's option remove all debris and remains of such damaged buildings and restore the site thereof to good condition and even grade, and all insurance proceeds then remaining after the costs of restoration and debris removal shall be payable to Tenant and any mortgagee as their interests may appear, except that such remaining proceeds shall be payable to Landlord if there shall be fewer than three (3) years remaining on the term of this Lease (not including any extension options).

11. LIENS AND BONDS. Tenant will not commit or suffer any act or neglect whereby said premises or any improvement thereon or the estate of Tenant therein shall at any time during said term become subject to any attachment, judgment, lien, charge or encumbrance whatsoever, and will indemnify and hold Landlord harmless from and against all loss, cost and expense, including reasonable attorneys' fees, with respect thereto. Tenant will, before commencing construction of any improvements on said premises, deposit with Landlord a fully-executed copy of the contract therefor and a copy of the contractor's performance bond and labor and material payment bond naming Landlord as an obligee, in an amount equal to the cost of such construction in form and with surety satisfactory to Landlord, guaranteeing the completion of such work free and clear of all mechanics' and materialmen's lien.

12. INDEMNITY AND LIABILITY INSURANCE. Except as to injury, death or property, damage resulting solely from the negligence of Landlord, Tenant will indemnify and hold Landlord harmless from and against all claims and demands for loss or damage, including property damage, personal injury and wrongful death, arising out of or in connection with the use or occupancy of said premises, or any road giving access to the premises, by Tenant or any person claiming by, through or under Tenant, or any accident or fire on said premises, or any nuisance made or suffered thereon, or any failure by Tenant to keep said premises or, any adjoining land as set forth in paragraph 14 hereof in a safe condition, or to perform any of the covenants herein contained, and will reimburse Landlord for all costs and expenses, including reasonable attorneys' fees, incurred by Landlord in connection with the defense of any such claims, and will hold all goods, materials, furniture, fixtures, equipment, machinery, livestock and other property whatsoever on said premises at the sole risk of Tenant and hold Landlord harmless from any loss or damage thereto by any cause whatsoever. Tenant will at Tenant's own expense effect and maintain during the whole of said term comprehensive general liability insurance with respect to said premises in an insurance company authorized to do business in Hawaii, naming Landlord as an additional assured, with minimum limits of not less than $1,000,000 for injury to one or more persons in any one accident or occurrence and not less than $100,000 for property damage, or such higher limits as Landlord may from time to time establish with due regard to the then prudent business practice in the State of Hawaii as reasonably adequate for Landlord's protection, and will from time to time deposit promptly with Landlord current certificates of such insurance. Except as to injury, death or property damage resulting solely from the negligence of Tenant, Landlord will indemnify and hold Tenant harmless from and against all claims and demands for loss or damage, including property damage, personal injury and wrongful death, arising out of or in connection with the use or occupancy by Landlord or any person claiming by, through or under Landlord, of the land represented by the undivided interest not demised by this Lease, or out of or in connection with any accident or fire on said land of Landlord not used or occupied by Tenant or persons claiming under Tenant, or any nuisance made or suffered thereon (unless caused by Tenant), and will reimburse Tenant for all costs and expenses, including reasonable attorneys' fees, incurred by Tenant in connection with the defense of any such claims for which Tenant and those claiming under Tenant shall be found to be without fault.

13. OVERHANGING TREES. Tenant will not during said term plant, cultivate or maintain on the demised land any trees whatsoever so close to any boundary thereof as to overhang an adjoining lot, road or trail, and if necessary to comply with this covenant will remove any trees or branches thereof which at any time shall overhang an adjoining lot, road or trail.

14. LAND ADJOINING ROAD. Tenant will at all times during said term maintain and keep any adjoining land lying between the established road and any parts of said premises used or occupied by Tenant or persons claiming under Tenant along such road in a safe, neat and orderly condition free from all brush, weeds and debris of every kind, and will also maintain and keep any ditch now or hereafter existing within such adjoining land free from all boulders and other obstructions whatsoever to flood waters.

15. ASSIGNMENT AND SUBLETTING Landlord and Tenant shall each have the right to assign this Lease with the prior written consent of the other, which consent shall not be unreasonably withheld. In the event of assignment of this Lease by Tenant, Landlord shall have the right to condition its consent on satisfactory proof of the financial strength of Tenant's assignee. Tenant may sublet any part or parts of said land used or occupied by Tenant to others on the express condition that such sublease shall incorporate all terms and provisions herein contained pertaining to such land and that such sublease shall be properly accounted for in detail in each annual report by Tenant herein required to be furnished to Landlord. Landlord shall not unreasonably withhold any such consent nor require the payment of any moneys or other consideration for the giving of such consent other than a reasonable fee as hereinafter provided in paragraph 16.

16. EXPENSES OF LANDLORD. Tenant will pay to Landlord on demand (a) all costs and expenses, including reasonable attorneys' fees, paid or incurred by Landlord in enforcing any of the covenants herein contained, in remedying any breach by Tenant of said covenants, in recovering possession of said premises or any part thereof, in collecting or causing to be paid any delinquent rent, taxes or other charges hereunder payable by Tenant, or in connection with any litigation (other than condemnation proceedings) commenced by or against Tenant to which Landlord shall without fault be made a party, and
(b) a reasonable fee for reviewing and processing any request by Tenant for Landlord's consent or approval, which fee shall be a flat-rate service charge as established by the policy of Landlord then in effect or a sum equal to all costs and expenses paid or incurred by Landlord, including without limitation reasonable fees of attorneys and other consultants retained by Landlord and the costs of Landlord's regular salaried staff in connection therewith, whichever is greater.

17. CONDITION OF PREMISES. Tenant has examined and accepts said premises in the existing condition thereof and shall be solely responsible for the adequate design, construction and repair of all improvements now or hereafter made on or in connection with the areas occupied or used by Tenant or persons claiming under Tenant in respect of any undivided land interests demised by this Lease, and for obtaining all necessary utility services and connections, and Tenant agrees that Landlord shall have no liability whatsoever for such condition or any further

improvement or development thereof or any repair of any private roads serving said areas.

18. CONSTRUCTION OF BUILDINGS. Tenant will not at any time erect, place or maintain on said land any buildings or structures other than fences, walls and water facilities, nor make or suffer any additions to or alterations of the basic structure of any buildings thereon, except in accordance with plans, specifications and plot plans therefor first approved in writing by Landlord. Landlord shall not unreasonably withhold any such approval.

19. DEDICATION OF LAND. Tenant may, at Tenant's option at any time during said term, petition the Director of Finance of the County of Hawaii for dedication for agricultural uses of all or such portion of the land hereby demised and actually used or occupied by Tenant and as shall qualify therefor under the provisions of Section 19-55 of the Hawaii County Code, as amended. If all or a portion of said land is now or hereafter to be developed as an orchard, Tenant may also, at Tenant's option at any time during said term, apply to the Board of Agriculture of the Department of Agriculture, State of Hawaii, for classification of such land as orchard property under the provisions of Section 154-2, Hawaii Revised Statutes, as amended. If at any time after such dedication or classification Tenant shall fail to observe the restrictions on the use of such land or shall cancel or cause such dedication or classification to be cancelled for any reason whatsoever, Tenant will promptly pay or cause to be paid to Landlord all taxes, penalties and other charges imposed by the County of Hawaii or the State of Hawaii on account of such cancellation, together with the amount of all Hawaii general excise or similar taxes payable thereon by Landlord, whether actually or constructively received.

20. SURRENDER. At the end of said term or other sooner determination of this Lease, Tenant will peaceably deliver up to Landlord possession of the land hereby demised, together with all improvements, including, but not limited to fences, roads, bridges, underground sewers, drains, buildings including administration building, field office and the macadamia nut husking plant, and all macadamia nut trees and other trees upon or belonging to the same, the buildings in "as is" condition and the remaining improvements in good order and condition, unless Landlord shall advise Tenant in writing of Landlord's decision to require removal, in which latter case Tenant shall remove the same and promptly repair to Landlord's satisfaction all damage caused by such removal. If not then in default hereunder, Tenant shall have the right, upon written notice to Landlord, to remove from said premises prior to the end of said term all or any number of the orchard trees thereon, promtly repairing to Landlords's satisfaction all damage caused by such removal;provided, however, if a growing orchard or other crop shall be in existence on the last day of said term, Tenant shall have the right upon written notice to Landlord to extend said term only for the continued cultivation and harvest at maturity of such growing crop and removal of

such trees as hereinbefore provided, but in no event for more than six (6) months after the last harvest preceding expiration of said term, at the same rent as was payable for the last full calendar year of said term, and Tenant's right of removal of such trees shall continue during such period of extension..

21. INTEREST ON PAST DUE AMOUNTS. Any rent or other sums payable Tenant to Landlord under this Lease which are not paid when due shall bear interest from the date the same became due until paid at the greater of the maximum rate then permitted to be contracted for by written contract under the laws of the State of Hawaii, or in the absence of such maximum rate, at the rate of one percent (1%) per month.

22. LANDLORD'S AGRICULTURAL OPERATING RIGHTS. Landlord reserves and shall have the unrestricted right, appurtenant to its remaining undivided interests in the demised premises and appurtenant to lands located adjacent to or in the vicinity of the demised premises and now owned or used or hereafter used by Landlord and its successors or assigns or lessees in agricultural operations, to engage in any type of farming operation, including but not limited to open burning, percolating, evaporating, fertilizing, milling, power generation, water diversion, plowing, grading, storing, hauling, herbicide and pesticide spraying, irrigating, crop dusting, and all other activities incidental to the planting, farming, harvesting and processing of agricultural products and by-products, which operations may from time to time cause noxious emissions such as noise, smoke, dust, light, heat, vapor, odor, chemicals, vibration and other nuisances to be discharged or emitted over and upon the demised premises. Landlord and its successors and assigns shall not be responsible or liable to Tenant or its successors or assigns for the consequences from the creation and discharge of such noxious emissions. Tenant and its assigns from time to time shall indemnify and hold Landlord and its successors and assigns harmless from any liability or expense resulting from the Tenant's or such assigns' claims, as the case may be, arising from such noxious emissions.

23. LANDLORD'S EASEMENT RIGHTS. Landlord reserves, and shall have appurtenant to its remaining undivided interest in the demised premises, if any, and appurtenant to lands located adjacent to or in the vicinity of the demised premises, the non-exclusive right to use all of the demised premises which the Landlord, in its sole discretion, may require or deem necessary or desirable for roads, trails, easements or rights-of-way which Landlord, in its sole discretion may require or deem necessary or desirable for access, utilities, pole and wire lines, flumes, ditches, pipelines and other water courses, and the right to grant such rights to third parties; together with the right to enter the demised premises for the construction, installation, maintenance, repair, alteration or replacement of any such improvements. The Landlord shall exercise its rights under this paragraph in such a manner to cause the least practicable interference with the growing of macadamia nuts on the demised land and shall compensate the Tenant fully for the lost value all macadamia nut trees damaged or destroyed by the

Landlord's exercise of such rights; provided however, that Landlord shall not be liable for any consequential or other damages.

AND IT IS HEREBY MUTUALLY AGREED by and between the parties hereto as follows:

A. CONDEMNATION. In case at any time or times during said term said premises or any part thereof shall be required, taken or condemned by any authority having the power of eminent domain, then and in every such case the estate and interest of Tenant in the premises so required, taken or condemned shall at once cease and determine, and Tenant shall not by reason thereof be entitled to any claim against Landlord or others for compensation, or indemnity for leasehold interest, and all compensation and damages payable for or on account of any land, water and improvements thereon shall be payable to and be the sole property of Landlord; provided, however, that all compensation and damages for or on account of any buildings, sheds, drying platforms, water tanks, surface pipelines and any trees and crops on the demised land shall be payable to and be the sole property of Tenant; provided, further, that in case only part of the land hereby demised shall be so required, taken or condemned, the base rent hereunder payable for the remainder of said term shall be reduced (calculated to the nearest dollar) in the proportion that the area of land in macadamia nut cultivation so required, taken or condemned bears to the total area of land in macadamia nut cultivation hereby demised, and Landlord shall refund to Tenant any unearned rent therefor paid in advance prior to such date. In case one-half or more of the total area of the land in macadamia nut cultivation hereby demised shall be so required, taken or condemned, thereby rendering use of the remaining portion of the land in macadamia nut cultivation to be economically unsound, Tenant shall have the option within one hundred twenty (120) days after such taking to surrender this Lease and be relieved of further performance hereunder. Condemnation of any leasehold interest in said premises or any part thereof shall not terminate this Lease nor excuse Tenant from full performance of Tenant's covenants for the payment of money or any other obligations hereunder capable of performance by Tenant, but in such case Tenant may claim and recover from the condemning authority all compensation and damages payable on account of Tenant's leasehold interest.

B. CONSENT TO MORTGAGE. Tenant may from time to time without further consent of Landlord assign this Lease by way of mortgage to any bank, insurance company or other established lending institution as mortgagee, provided that Tenant shall upon execution of such mortgage promptly deliver a true copy thereof to Landlord. The mortgagee or its assigns may enforce such mortgage and acquire title to the leasehold estate in any lawful way, and pending foreclosure of such mortgage may take possession of and rent said premises, and upon foreclosure thereof may without further consent of Landlord sell and assign the leasehold estate by assignment in which the assignee shall expressly assume and agree to observe and perform all the covenants

of Tenant herein contained, and such assignee may make a purchase money mortgage of this Lease to the assignor, provided that upon execution of any such assignment or mortgage a true copy thereof shall be delivered promptly to Landlord and that no other or further assignment of this Lease for which any provision hereof requires the written consent of Landlord shall be made without such consent. The mortgagee or its assigns of such mortgage shall be liable to perform the obligations herein imposed on Tenant only during the period such person has possession or ownership of the leasehold estate. Nothing contained in such mortgage shall release or be deemed to relieve Tenant from the full and faithful observance and performance of Tenant's covenants herein contained or from any liability for the nonobservance or nonperformance thereof, nor be deemed to constitute a waiver of any rights of Landlord hereunder, and the terms, covenants and conditions of this Lease shall control in case of any conflict with the provisions of such mortgage.

C. PROTECTION OF MORTGAGE. During the continuance in effect of any authorized mortgage of this Lease, Landlord will not terminate this Lease because of any default on the part of Tenant to observe or perform any of the covenants or conditions herein contained if the mortgagee or its assigns, within one hundred twenty (120) days after Landlord has mailed to the mortgagee or its assigns at the last known address thereof a written notice of intention to terminate this Lease for such cause, shall cure such default, if the same can be cured by the payment of money or, if such is not the case, shall undertake in writing to perform and shall thereafter perform all the covenants of this Lease capable of performance by the mortgagee or its assigns until such time as this Lease shall be sold upon foreclosure, of such mortgage commenced promptly and completed with due diligence, and upon foreclosure sale of this Lease, the time for performance of any obligation of Tenant then in default other than payment of money shall be extended by the time reasonably necessary to complete such performance with due diligence. Any default consisting of Tenant's failure promptly to discharge any lien, charge or encumbrance against said premises junior in priority to such mortgage shall be deemed to be duly cured if such mortgage shall be foreclosed by appropriate action instituted within said 120-day period and thereafter prosecuted in a diligent and timely manner. Ownership by or for the same person of both the fee and leasehold estates in said premises shall not effect the merger thereof without the prior written consent of any mortgagee to such merger.

D. DESTRUCTION OF LAND. In case at any time or times during said term any part or parts of, the demised land in macadamia nut cultivation shall be rendered unfit for the cultivation of macadamia nuts by volcanic action or other act of God, the base rent hereunder payable for the remainder of said term shall be reduced in the ratio that the area of the land in macadamia nut cultivation so affected bears to the total area of land in macadamia nut cultivation hereby demised, and if a major portion of the land in macadamia nut cultivation hereby demised shall be rendered unfit for said use by such act of God thereby rendering the continuance of operations on the remainder of

the land to be economically unsound, Tenant may at Tenant's option surrender this Lease by giving written notice thereof to Landlord within thirty (30) days after such casualty and thereby be relieved of any further obligations hereunder.

E. DEFEASANCE. This demise is upon the express condition, that if Tenant shall fail to pay said rent or any part thereof within thirty (30) days after the same becomes due, whether the same shall or shall not have been legally demanded, or shall fail to observe or perform any of the other covenants herein contained and on the part of Tenant to be observed and performed and such default shall continue for thirty (30) days after written notice thereof given to Tenant at the address provided below, specifying said default in detail, or if Tenant then owning this Lease shall make any assignment for the benefit of creditors or abandon said premises, or if this Lease or any estate or interest of Tenant hereunder shall be sold under any attachment or execution, Landlord may in any such case at once re-enter said premises or any part thereof in the name of the whole and, upon or without such entry, at Landlord's option terminate this Lease without service of notice or legal process, and may expel and remove from said premises Tenant and all persons claiming under Tenant and their effects without being deemed guilty of any trespass or becoming liable for any loss or damage occasioned thereby, and may bring an action for summary possession of said premises, all without prejudice to any other remedy or right of action which Landlord may have for arrears of rent or for any preceding or other breach of contract. If this Lease or a memorandum thereof is recorded in the Hawaii Bureau of Conveyances, such termination may but need not necessarily be made effective by recording in such place an affidavit thereof by Landlord or a judgment thereof by a court of competent jurisdiction.

F. NONWAIVER. Acceptance of rent by Landlord or its agent shall not be deemed to be a waiver by Landlord of any breach by Tenant of any covenant herein contained or of Landlord's right to re-enter or terminate for breach of condition. Waiver by Landlord of any breach by Tenant shall not operate to extinguish the term, covenant or condition the breach of which has been waived nor be deemed to be a waiver of Landlord's right to declare a forfeiture or termination for any other breach thereof.

G. NOTICES. Any notice or demand to Landlord or Tenant provided for or permitted by this Lease may be given sufficiently for all purposes in writing either (1) mailed as registered or certified mail, addressed as follows:

If to Tenant, at          828 Fort Street Mall Suite 205
                          Honolulu, Hawaii 96813

If to Landlord, at        P.O. Box 130
                          Pahala, Hawaii 96777

With a copy to            Alan Kugle
                          C. Brewer
                          P.O. Box 1826
                          Papaikou, Hawaii 96781-1826

or at the last address designated by such party in writing to the other, or (2) delivered personally within the State of Hawaii to Landlord or Tenant or any officer of Tenant if Tenant is a corporation or any general partner of Tenant if Tenant is a partnership, as the case may be, and shall be deemed conclusively to have been given on the date of such mailing or personal delivery.

H. NEGATION OF PARTNERSHIP. Nothing in this Lease shall be construed to render Landlord in any way or for any purpose a partner, joint venturer, or associate in any relationship with Tenant.

I. DEFINITIONS. The terms "Premises," "land" and "demised land" herein shall be deemed or taken to include (except where such meaning would be clearly repugnant to the context) all buildings and other improvements now or hereafter built on the land hereby demised. The term "Landlord" herein shall mean and include Landlord, its successors and assigns. The term "Tenant" herein or any pronoun used in place thereof shall mean and include the masculine or feminine, the singular or plural number, and jointly and severally individuals, firms and corporations, and their and each of their respective heirs, successors, personal representatives and permitted assigns, according to the context hereof. The headings of paragraphs herein are inserted only for convenience and reference and shall in no way define, expand or limit the scope or intent of any provision of this Lease.

J. STATE LAND: 9-6-2-55. The parties acknowledge that Landlord has specifically disclosed to Tenant that there is a twelve acre parcel owned by the State of Hawaii and licensed to Landlord under a thirty day revocable permit included in the demised premises. After this transaction closes Landlord will seek to have the permit transferred to Tenant. Landlord discloses that it has been farming the macadamia nut orchard on this twelve acre parcel since 1982 and further discloses that this twelve acre parcel was given a separate Tax Map Key number in 1997.

K. MAINTENANCE OF ROADS AND OTHER AREAS USED BY BOTH LANDLORD AND TENANT. Landlord and Tenant agree to work cooperatively and share the expense of maintenance for those roads and other areas used jointly by Landlord and Tenant for which each has rights of possession in the Ka'u District of the island of Hawaii. The expense of maintenance shall be shared based on the use by each party and the damage occasioned by that use.

L. SUBDIVISIONS. Landlord shall have the right from time to time to subdivide any part or all of the demised premises or to use part or all of the demised premises in a parcel consolidation and resubdivision so long as any such action does not unreasonably interfere with Tenant's use of the premises.

M. LAND DEMISED BUT NOT NEEDED BY TENANT. Any areas of land demised hereunder which are not needed by Tenant, including but not limited to approximately five acres of the macadamia nut husking plant parcel, and/or any office space in any of the buildings on the demised premises which is not needed by Tenant, which Landlord desires to use, will be licensed to Landlord under a long term license at no cost other than a pro rata share of real property taxes.

N. FIELD OFFICE 9-6-16-11. The field office parcel except for the offices of Landlord's Ka'u Land Manager and his assistant is included in this lease. Landlord's employees shall have the right to use the two offices, the conference room, bathroom, and their parking spaces for the term of this lease at no charge. Landlord shall pay Tenant a monthly fee for Landlord's use of Tenant's water, utilities, copy machines, fax machines, microwave, refrigerator and maintenance. This fee is presently set at $100 per month and will be reviewed annually.

O. GARAGE AND ADMIN OFFICES PARCEL: 9-6-5-36. The Clubhouse, presently licensed to Huliau O Ka'u, a self-help farming cooperative, the ILWU Hall, presently licensed to Bay Clinic for a health and exercise facility, the Cooler Room and the two bays adjacent to the cooler, which will be used by Landlord or Landlord's lessees, are specifically excluded from this lease; provided, however, that if either Landlord or Tenant deem it necessary Tenant will license to Landlord these areas under a separate license at no charge.

P. PERMIT TO OPERATE THE SISAL WELL. Tenant is hereby granted permission to enter on TMK parcel 9-6-3-22 for the purpose of operating the Sisal Well for the term of the Lease. Tenant agrees to pay all of the costs of operating the Sisal Well and to indemnify and hold harmless Landlord from any and all costs or damages associated with the Sisal Well during the term of this lease.

Q. ADDITIONAL ACCESS RIGHTS. In addition to the access rights demised under this Lease Landlord hereby grants to Tenant such additional access rights as reasonably necessary for Tenant to farm the macadamia nut trees owned by Tenant in Ka'u. The term "reasonably necessary" shall be determined by past practice of farming any specific macadamia nut orchard; provided, however, Landlord shall have no obligation hereunder if the grant of such access would unreasonably interfere with Landlord's use or plans for the property to be encumbered.

IN WITNESS WHEREOF, the parties hereto have executed these presents as of the day and year first above written

KA`U AGRIBUSINESS CO., INC.                 ML MACADAMIA ORCHARDS, L.P.
                                            a Delaware limited partnership

By   s/s Kent T. Lucien                     By  ML Resources, Inc.
    -------------------                           Its General Partner

Its President

By   s/s J. Alan Kugle                      By  s/s Gregory A. Sprecher
    ------------------                         ------------------------

         Its Secretary                               Its Senior Vice President


                                            By  s/s Daryle S. Nekoba
                                                --------------------

                                                     Its Secretary

KA`U RENT SCHEDULE

Rents under the foregoing Lease shall be determined and payable as follows:

A. YEARS 1 THROUGH 10.

i. BASE RENT. For and during each of the first ten
(10) fiscal years (July 1 through June 30) of the term, Tenant shall pay to Landlord a base annual macadamia rent of TEN THOUSAND TWO HUNDRED NINE DOLLARS ($10,209.00, a rate of $72 per tree acre x 141.79 tree acres), and a base annual ancillary land rent for the land used for roads, water drainage, windbreak trees, storage, and offices (the difference between the TMK acres and the number of tree acres, 89.98) of EIGHT HUNDRED NINETY-NINE DOLLARS ($899.00, a rate of $10 per acre per year) both base rents payable in equal installments semiannually in advance on January 1 and July 1 of each year with the first payment to include additional payments of $1701.50 for base mac rent and $150 for base ancillary rent for the months of May and June 2000.

ii. ADDITIONAL RENT. For each of the first ten (10) fiscal years of the term, Tenant shall pay to Landlord additional rent of ONE HUNDRED FORTY ONE DOLLARS AND SEVENTY NINE CENTS ($141.79) for every one cent (1CENTS) by which the average annual "Farm Price" for "Net" pounds of macadamia nuts in the State of Hawaii for that year, as reported by the Hawaii Agricultural Statistics Service, exceeds seventy two cents (72CENTS) per pound. An example of such a publication is attached hereto as Exhibit B and made a part hereof. Such additional rent shall be payable within thirty (30) days after the final report of such average annual price per pound, published as stated above, is available. If the Hawaii Agricultural Statistics Service shall discontinue issuing such reports, Landlord and Tenant shall mutually agree on what reports shall be substituted therefor.

B. YEARS 11 THROUGH 45.

i. BASE RENT. For and during each year of the three
(3) ten-year periods succeeding the tenth fiscal year of the term and for one five-year period following the last of said ten-year periods, Tenant shall pay to Landlord base annual macadamia rent and base ancillary land rent in a sum equal to the then fair market rental of the demised land for the operation of macadamia orchards (or for any higher and better use then being made of the land), and for ancillary land use, determined by mutual agreement of Landlord and Tenant based upon the factors that would be considered by the appraisers as described in paragraph D below, as of the commencement of the respective ten-year or five-year rental period, as the case may be, payable in equal installments semiannually in advance on January 1 and July 1 of each year.

ii. ADDITIONAL RENT. For and during each year of the three (3) ten-year periods succeeding the tenth fiscal year of the term and for one five-year period following the last of said ten-year periods, Tenant shall pay to Landlord additional rent determined pursuant to the following formula:

Additional Rent - (Annual Average "Farm Price" for "Net" pounds of Macadamia Nuts in the State of Hawaii, as reported by the Hawaii Agricultural Statistics Service, for the year under consideration) divided by (Annual Average "Farm Price" for "Net" pounds of Macadamia Nuts in the State of Hawaii, as reported by the Hawaii Agricultural Statistics Service, for the year immediately preceding the commencement of such ten-year or five-year period, as the case may be) x (Annual Base Rent for the year under consideration) - (Annual Base Rent for the year under consideration). Such additional rent shall be payable within thirty (30) days after the final report of such average annual price per pound, published as stated above, is available. If the Hawaii Agricultural Statistics Service shall discontinue issuing such reports, Landlord and Tenant shall mutually agree on what reports shall be substituted therefor.

For example, if (a) the Annual Base Rent for Year 11 is $15,000, and (b) the average annual "Farm Price" for Years 10 and 11 are $.90 and $.95, respectively, then the additional rent for year 11 would be ($.95) divided by ($.90) x ($15,000) - ($15,000), or $833.33.

iii. COMMON PROVISIONS. If Landlord and Tenant are unable to agree upon such fair market rental or the means of determining additional rent, the same shall be determined by an arbitrator or arbitrators appointed as provided below, who shall ascertain the fair market rental or the manner of determining additional rent, or both, as of the commencement of the ten-year or five-year period for which rent is sought to be determined. Such annual base rent, whether determined by agreement or arbitration, shall in no event be less than the average annual total rent (base and additional rent) payable for the immediately preceding ten-year period.

C. ARBITRATION. If Landlord and Tenant shall not have agreed upon the fair market rental of the demised land or upon the means of determining additional rent, or both, at least ninety (90) days prior to the commencement of a ten-year or five-year period for which rent is to be determined, either party may give to the other written notice of a desire to have an arbitration to determine such fair market rental or such additional rent formula, or both, pursuant to chapter 658, Hawaii Revised Statutes, as the same may be amended or reenacted. If the parties agree upon a single arbitrator, such arbitrator shall determine such fair market rental or such additional rent formula, or both, and his decision shall be final, conclusive and binding upon both parties, subject to the minimum limitation stated above. If the parties fail to agree upon a single arbitrator or if either party prefers not to have an arbitration by a single arbitrator, there shall be an arbitration by three (3) appraisers, in which case either party shall name one of the appraisers by written notice to the other party, whereupon the other party shall, within ten (10) days after receipt of such notice, name a second appraiser, and in case of

failure to do so, the party who has already named an appraiser may have the second appraiser selected or appointed by a judge of the First Circuit Court of the State of Hawaii; and the two appraisers so appointed, in either manner, shall select and appoint a third appraiser, and if the two appraisers so appointed shall fail to appoint the third appraiser within ten (10) days after the naming of the second appraiser, either party may have the third appraiser selected or appointed by such judge; and the three appraisers so appointed shall thereupon proceed to determine such fair market rental or such additional rent formula, or both, as herein provided, and the decision and award of any two of them shall be final, conclusive and binding upon both parties for the particular ten-year or five-year rental period then under consideration, subject to the minimum limitation stated above, unless such decision and award shall be vacated, modified or corrected, all as provided in chapter 658. The appraisers so selected shall be reputable persons experienced in valuing macadamia nut orchards and shall not be regularly employed by or have any material interest in either Landlord' or Tenant or in any affiliate of either (or in the outcome of the appraisal proceedings). Such appraisers shall have all of the powers and duties prescribed by chapter 658; and judgment may be entered upon any such decision and award as therein provided.

In all cases of arbitration, Landlord and Tenant shall each pay the expense of its own appointee and its own attorneys' and witnesses' fees; and all other expenses of arbitration shall be divided equally between Landlord and Tenant.

If and whenever the fixing of such fair market rental or such additional rent formula, or both, is under arbitration, Tenant, pending the determination thereof, shall continue to pay rent on the same terms in effect during the last preceding rental period and shall promptly pay the deficiency, if any, upon the conclusion of the arbitration proceedings plus interest at the rate of one percent (A) per month on the amount of such deficiency computed from the date or dates when the amount of such deficiency would have been payable but for the pendency of the arbitration.

----------------------- --------------------- -------------------- --------------------- --------------------
TMK                     TMK ACRES             TREE ACRES           FIELD NO              MISC INFO
----------------------- --------------------- -------------------- --------------------- --------------------

----------------------- --------------------- -------------------- --------------------- --------------------
9-6-2-44                15.121                0.42                 N425                  Husking Plant
                                                                                         parcel
----------------------- --------------------- -------------------- --------------------- --------------------
9-6-2-55                12.0                  11.47                E410  E415             State parcel--30
                                                                                         day permit
----------------------- --------------------- -------------------- --------------------- --------------------
9-6-3-9                 4.6                   2.0                  G110                  Formerly P80A,
                                                                                         then F80A
----------------------- --------------------- -------------------- --------------------- --------------------
9-6-4-8                 7.8                   12.2                 N275                  Formerly F75A and
9-6-4-16                4.13                                                             F75B
----------------------- --------------------- -------------------- --------------------- --------------------
9-6-4-15                3.0                   3.93                 N284                  Formerly 84  1 aka
                                                                                         P84A
----------------------- --------------------- -------------------- --------------------- --------------------
9-6-5-16                11.722                7.45                 G430                  Formerly P79C
----------------------- --------------------- -------------------- --------------------- --------------------
9-6-5-36                25.35                                                            Garage and office
                                                                                         parcel
----------------------- --------------------- -------------------- --------------------- --------------------
9-6-12-1                44.360                24.09                K551                  Anderson
----------------------- --------------------- -------------------- --------------------- --------------------
9-6-12-19               26.733                17.65                B725                  Nakazono
----------------------- --------------------- -------------------- --------------------- --------------------
9-6-12-23               76.2                  62.58                K552                  Anderson
----------------------- --------------------- -------------------- --------------------- --------------------
9-6-16-11               0.75                                                             Field office
----------------------- --------------------- -------------------- --------------------- --------------------

----------------------- --------------------- -------------------- --------------------- --------------------
Total                   231.77                141.79
----------------------- --------------------- -------------------- --------------------- --------------------

----------------------- --------------------- -------------------- --------------------- --------------------

The metes and bounds descriptions which are available are attached hereto.