LOAN AND SECURITY AGREEMENT
 
This Loan and Security Agreement (this “Agreement”) is executed by and among
Marquette Business Credit, Inc., a Minnesota corporation (“Lender”), Mendocino
Brewing Company, Inc., a California corporation (“Mendocino Brewing”) and Releta
Brewing Company LLC, a Delaware limited liability company (“Releta Brewing”);
together with Mendocino Brewing, collectively referred to herein as the
“Borrowers”), as of November 16, 2006. Lender and Borrowers hereby agree as
follows:
 
ARTICLE I — DEFINITIONS
 
Section 1.1  Definitions. When used in this Agreement, the capitalized terms set
forth below shall have the definitions assigned to such terms below:
 
“Account Debtor” means a Person who is obligated on an account.
 
“Affiliate” of a Person means another Person which, directly or indirectly,
controls, is controlled by, or is under common control with, such former Person.
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 any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through ownership of voting securities or partnership or other
interests, by contract or otherwise.
 
“Agricultural Lien Statute” means, collectively, each statute, law or regulation
(or other mandatory provision of state or local law) that could either (a)
create or give rise to an “agricultural lien” (as defined in the UCC) in or
against any portion of the products purchased, stored or otherwise handled by
any Person from whom any Borrower purchases Inventory (or by any other Person
from whom such first Person purchases or otherwise receives goods in the
ordinary course of business), or (b) create a Lien against, or impose a trust
upon, some portion of either Borrower's inventory (and/or the accounts
receivable derived therefrom) for the benefit of unpaid agricultural producers,
any broker acting on behalf of an agricultural producer, any cooperative whose
members consist of agricultural producers or any other Person that purchases
goods from an agricultural producer in the ordinary course of business. Without
limiting the generality of the foregoing, the term “Agricultural Lien Statute”
shall specifically include each of the following statutes: Article 20 of the New
York Agriculture and Markets Law and Section 55631, et seq. of Food and
Agricultural Code of California.
 
“Authorized Representatives” means any officers or employees of the Borrowing
Agent designated by the Borrowing Agent for purposes of giving and receiving
notices hereunder, requesting and repaying Loans, agreeing to rates of interest
and otherwise transacting business with the Lender hereunder.
 
“Availability” means, as of any date, the positive difference between (a) an
amount equal to the lesser of (i) the Revolving Facility Limit or (ii) the
Borrowing Base on such date, and (b) the aggregate outstanding principal amount
of the Revolving Loans on such date.
 
“Base Rate” means the one-month or 30 day LIBOR rate quoted by Lender from The
Wall Street Journal, which shall be that one-month or 30 day LIBOR rate in
effect on the first day of each calendar month, adjusted for any reserve
requirement and any subsequent costs arising from a change in government
regulation, such rate to be reset on the first day of each succeeding calendar
month. If the initial advance of any Loan occurs other than on the first day of
the month, the initial one-month or 30 day LIBOR rate shall be that one-month or
30 day LIBOR rate in effect on the date of such initial advance, which rate plus
the Applicable Margin described on Schedule A, shall be in effect for the
remaining days of the month of such initial advance; such one-month or 30 day
LIBOR rate to be reset at on the first day of each succeeding month. Lender’s
internal records of applicable interest rates shall be determinative in the
absence of manifest error.
 
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“Benefit Plan” means a defined benefit plan as defined in Section 3(35) of ERISA
(other than a Multiemployer Plan) in respect of which a Person or any Related
Company is, or within the immediately preceding 6 years was, an “employer” as
defined in Section 3(5) of ERISA, including such plans as may be established
after the date hereof.
 
“Blocked Account” means an account maintained with a Collecting Bank pursuant to
a Blocked Account Agreement.
 
“Blocked Account Agreement” means an agreement among one or more of the
Borrowers, Lender, and a Collecting Bank concerning the collection of payments
which represent the proceeds of accounts or of any other Collateral.
 
“Borrowing Agent” means Mendocino Brewing.
 
“Borrowing Base” shall have the meaning provided in Section 1.1 of Schedule A
hereto.
 
“Borrowing Base Certificate” means a certificate in the form of Exhibit A
attached hereto.
 
“Capex Loan” shall have the meaning assigned to such term in Section 2.5(a).
 
“Capex Loan Advance Rate” shall mean a percentage equal to eighty percent (80%)
of the original invoice amount of the capital assets acquired in connection with
the relevant Qualified Capital Expenditure.
 
“Capex Loan Amount” shall mean an amount equal to $650,000, it being understood
and agreed that in no event shall the aggregate principal amount of all Capex
Loans advanced by the Lender from time to time exceed $650,000.
 
“Capex Note” shall have the meaning assigned to such term in Section 2.5(a).
 
“Capital Expenditures” means, with respect to any Person, all expenditures made
and liabilities incurred for the acquisition of assets (including by entry into
a Capitalized Lease) which are required to be capitalized in accordance with
GAAP.
 
“Capitalized Lease” means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
 
“Capitalized Lease Obligation” means Indebtedness represented by obligations
under a Capitalized Lease, and the amount of such Indebtedness shall be the
capitalized amount of such obligations determined in accordance with GAAP.
 
“Code” means the Internal Revenue Code of 1986, as amended from time to time, or
any successor statute, together with all regulations promulgated with respect
thereto.
 
“Collateral” means and includes all of each Borrower’s now owned or hereafter
acquired personal property and assets, whether tangible or intangible, including
without limitation all of each Borrower’s right, title and interest in and to
each of the following, wherever located and whether now existing or hereafter
arising or acquired: (a) all accounts, (b) all inventory, (c) all equipment and
fixtures (except as set forth below), (d) all contract rights, (e) all general
intangibles, including without limitation payment intangibles and software,
(f) all Intellectual Property, (g) all deposit accounts, cash, drafts,
certificates of deposit, and general and special deposits, (h) all investment
property and financial assets (other than (i) margin stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, and (ii)
the equity interest of any Borrower in its subsidiaries), (i) all instruments,
(j) all chattel paper, including without limitation, electronic chattel paper,
(k) all goods and all accessions thereto, (1) all documents, (m) all letter of
credit rights, (n) all insurance and certificates of insurance pertaining to any
and all items of Collateral, (o) all books and records, (p) all files,
correspondence, computer programs, tapes, disks and related data processing
software and other media which contain information identifying or pertaining to
any of the Collateral or any Account Debtor or showing the amounts thereof or
payments thereon or otherwise necessary or helpful in the realization thereon or
the collection thereof, (q) all cash deposited with any Affiliate of Lender,
(r) those commercial tort claims, if any, described on Schedule 1.1 hereto, and
(s) any and all products and cash and non-cash proceeds of the foregoing
(including, but not limited to, any claims to any items referred to in this
definition and any claims against third parties for loss of, damage to or
destruction of any or all of the Collateral or for proceeds payable under or
unearned premiums with respect to policies of insurance) in whatever form.
Notwithstanding anything to the contrary contained herein, the term “Collateral”
shall not include any of either Borrower’s now owned or hereafter acquired real
property or any buildings, structures or improvements now or hereafter erected
on such real property.
 
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“Collecting Bank” means any banking institution with which a Blocked Account has
been established pursuant to a Blocked Account Agreement.
 
“Concentration Limit” shall have the meaning provided in Section 1.1 of Schedule
A hereto.
 
“Contract Rate” shall have the meaning provided in Section 1.1 of Schedule A
hereto.
 
“Cross Aging Percentage” shall have the meaning provided in Section 1.1 of
Schedule A hereto.
 
“Default” means any of the events specified in Section 10.1 that, with the
passage of time or giving of notice or both, would constitute an Event of
Default.
 
“Default Rate” means the Contract Rate plus three percent (3%) per annum.
 
“Dollar” and “$” means freely transferable United States dollars.
 
“EBITDA” means, for any period, the sum of (a) Net Income (or Net Loss)
(including gains and losses from the sales of assets in the ordinary course of
business) for such period, (b) the provision for income taxes allocable to such
period, (c) the interest expense for such period, and (d) any depreciation or
amortization expenses incurred in determining Net Income (or Net Loss) for such
period (where the items set forth in sections (a) - (d) above are determined
without duplication and on a consolidated basis and, where applicable, in
accordance with GAAP).
 
“Eligible Accounts” shall mean, with respect to each Borrower, all accounts of
such Borrower which are deemed by Lender in the exercise of its commercially
reasonable discretion to be eligible for inclusion in the calculation of the
Borrowing Base, net of any and all interest, finance charges, sales tax, fees,
returns, discounts, claims, credits, charges, contra accounts, exchange
contracts or other allowances, offsets and rights of offset, deductions,
counterclaims, disputes, rejections, shortages or other defenses and all credits
owed or allowed by such Borrower upon any of its accounts and further reduced by
the aggregate amount of all reserves, limits and deductions provided for in this
definition and elsewhere in this Agreement. In no event shall Eligible Accounts
include the following:
 
(a)  accounts which remain unpaid more than ninety (90) days past their invoice
dates;
 
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(b)  accounts which are not due and payable within thirty (30) days after their
invoice dates;
 
(c)  accounts owing by a single Account Debtor if more than the Cross Aging
Percentage of such accounts is ineligible pursuant to clauses (a) or (b) above;
 
(d)  accounts with respect to which the Account Debtor is an Affiliate of any
Borrower;
 
(e)  accounts with respect to which the obligation of payment by the Account
Debtor is or may be conditional for any reason whatsoever including, without
limitation, accounts arising with respect to goods that were (i) not sold on an
absolute basis, (ii) sold on a bill and hold sale basis, (iii) sold on a
consignment sale basis, (iv) sold on a guaranteed sale basis, (v) sold on a sale
or return basis, or (vi) sold on the basis of any other similar understanding;
 
(f)  accounts with respect to which the Account Debtor is not a resident or
citizen of, or otherwise located in, the continental United States of America or
a province of Canada (other than Quebec), or with respect to which the Account
Debtor is not subject to service of process in the continental United States of
America or a province of Canada (other than Quebec), unless such accounts are
backed in full by irrevocable letters of credit or credit insurance in form and
substance satisfactory to Lender issued or confirmed by a domestic commercial
bank acceptable to Lender and which, if a letter of credit, is in the possession
of Lender and which, if credit insurance, is payable to Lender;
 
(g)  accounts with respect to which the Account Debtor is the United States of
America or any other federal governmental body, or any state, county or local
governmental authority, or (in each case) any department, agency or
instrumentality thereof, unless such accounts are duly assigned to Lender in
compliance with all applicable governmental requirements (including, without
limitation, the Federal Assignment of Claims Act of 1940, as amended, if
applicable), or in compliance with all applicable state law requirements (if
any), as applicable, and such assignment has been accepted and acknowledged by
the appropriate government officers;
 
(h)  accounts (i) with respect to which any Borrower is or may be liable to the
Account Debtor for goods sold or services rendered by such Account Debtor, but
only to the extent of such liability to such Account Debtor or (ii) with respect
to which such Account Debtor disputes the amount owed but only that portion of
such accounts which such Account Debtor disputes;
 
(i)  accounts with respect to which the goods giving rise thereto have not been
shipped and delivered to and accepted as satisfactory by the applicable Account
Debtor or with respect to which the services performed giving rise thereto have
not been completed and accepted as satisfactory by the applicable Account
Debtor;
 
(j)  accounts which are not invoiced within three (3) days after the shipment
and delivery to and acceptance by said Account Debtor of the goods giving rise
thereto or the performance of the services giving rise thereto;
 
(k)  accounts which are not subject to a first priority perfected security
interest in favor of Lender;
 
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(l)  accounts with respect to which there exists any Lien in favor of any Person
other than Lender, unless such Lien has been fully and unconditionally
subordinated to the Lender’s security interest pursuant to a written agreement
in form and substance acceptable to the Lender in its commercially reasonable
discretion;
 
(m)  that portion of the aggregate account balance owed by a single Account
Debtor which exceeds the Concentration Limit;
 
(n)  accounts with respect to which the Account Debtor is located in any state
requiring the filing of a Notice of Business Activities Report or similar report
in order to permit the applicable Borrower to seek judicial enforcement in such
state of payment of such account, unless such Borrower has qualified to do
business in such state or has filed a Notice of Business Activities Report or
equivalent report for the then current year;
 
(o)  accounts which represent a progress billing or which arise in connection
with any pre-billing;
 
(p)  accounts with respect to which there are proceedings or actions which are
then threatened or pending against the Account Debtor or to which such Account
Debtor is a party which might result in any material adverse change in such
Account Debtor’s financial condition or in its ability to pay any account in
full when due;
 
(q)  accounts which arose out of a contract or order which, by its terms,
forbids, restricts or makes void or unenforceable the assignment by the
applicable Borrower to the Lender of such account;
 
(r)  accounts with respect to which possession and/or control of the goods sold
giving rise thereto is held, maintained or retained by the applicable Borrower
or any Affiliate of such Borrower (or by any lender or custodian of such
Borrower or any Affiliate of such Borrower) for the account of or subject to
further and/or future direction from the Account Debtor with respect thereto;
 
(s)  accounts which, in any way, violate or fail to meet any warranty,
representation or covenant contained in the Loan Documents relating directly or
indirectly to the applicable Borrower’s accounts;
 
(t)  accounts with respect to which the applicable Borrower has failed to
observe and comply with all laws of the jurisdiction in which the Account Debtor
with respect to such Account is located which, if not observed or complied with,
would deny such Borrower access to the courts of such jurisdiction;
 
(u)  accounts which arise outside of the ordinary course of the applicable
Borrower’s business;
 
(v)  accounts which are evidenced by chattel paper or instruments unless the
Lender has specifically agreed to include each such account as an Eligible
Account, in which case (i) only payments then due and payable under such chattel
paper or instrument shall be included as an Eligible Account and (ii) the
originals of such chattel paper or instruments have been assigned and delivered
to the Lender in a manner satisfactory to the Lender; and
 
(w)  accounts that Lender, in its commercially reasonable discretion, has
determined to be ineligible.
 
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“Eligible Inventory” means, with respect to each Borrower, as at any date of
determination, all inventory owned by and in the possession of such Borrower and
located in the United States of America that Lender, in its commercially
reasonable discretion, deems to be eligible for borrowing purposes. Without
limiting the generality of the foregoing, unless otherwise agreed by Lender, the
following are not Eligible Inventory:
 
(a)  finished goods which are produced under a contract brewing agreement or are
otherwise specific to a particular customer;
 
(b)  finished goods which do not meet the specifications of the purchase order
for such goods;
 
(c)  inventory which Lender determines, in its commercially reasonable
discretion, to be unacceptable for borrowing purposes;
 
(d)  inventory with respect to which Lender does not have a valid, first
priority and fully perfected security interest;
 
(e)  inventory with respect to which there exists any Lien in favor of any
Person other than Lender, unless such Lien has been fully and unconditionally
subordinated to the Lender’s security interest pursuant to a written agreement
in form and substance acceptable to the Lender in its commercially reasonable
discretion;
 
(f)  inventory which has been consigned to such Borrower;
 
(g)  packaging and shipping materials, products and labels, with the exclusion
of generic, unbranded and unlabeled bottles;
 
(h)  inventory that is slow-moving or obsolete or returned or repossessed or
used goods taken in trade;
 
(i)  inventory consisting of consumables (i.e. chemicals used in the brewing
process);
 
(j)  inventory produced in violation of the Fair Labor Standards Act, in
particular provisions contained in Title 29 U.S.C. 215 (a)(i);
 
(k)  inventory that violates or fails to meet any warranty, representation or
covenant contained in the Loan Documents relating directly or indirectly to the
applicable Borrower’s inventory;
 
(l)  inventory that was purchased from a Person who did not comply with the Food
Security Act;
 
(m)  inventory that is located outside of the continental United States; and
 
(n)  inventory located at a location for which Lender does not have a valid
landlord’s or warehouseman’s waiver or subordination on terms and conditions
acceptable to Lender in its commercially reasonable discretion and inventory
located at any location other than those listed on Schedule 5.1(o).
 
It is expressly understood and agreed that any hops, malt or other grain
products or derivatives, whether located at a facility owned or leased by a
Borrower or otherwise, that are covered by a negotiable warehouse receipt,
nonnegotiable warehouse receipt, scale weight ticket or load slip, or by any
other evidence of ownership or document of title, that is not in the physical
possession of the applicable Borrower or the Lender shall in no event constitute
Eligible Inventory.
 
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“Environmental Laws” means all federal, state, local and foreign laws now or
hereafter in effect relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, removal, transport
or handling of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes, and any and all regulations, notices or demand
letters issued, entered, promulgated or approved thereunder.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as in effect
from time to time, and any successor statute, and any rule or regulation issued
thereunder.
 
“Event of Default” means any of the events specified in Section 10.1.
 
“Financial Statements” shall have the meaning provided in Section 1.1 of
Schedule A hereto.
 
“Fixed Charge Coverage Ratio” shall have the meaning provided in Section 1.1 of
Schedule A hereto.
 
“Food Security Act” means 7 U.S.C. Section 1631, and any successor statute
thereto, together with each state statute establishing a “central filing system”
(as defined in 7 U.S.C. Section 1631) that has been certified by the Secretary
of the United States Department of Agriculture.
 
“GAAP” means generally accepted accounting principles and practices consistently
applied.
 
“Grower Payables” means, collectively, all unpaid amounts payable by Borrowers
(or any of them), in the aggregate, for the purchase of inventory from any
“Producer” as defined in Article 20 of the New York Agriculture and Markets Law,
from any “Producer” as defined in the Food and Agricultural Code of California
or from any other Person engaged in a farming operation, or from any broker or
agent selling on behalf of any such Producer or other Person, or from any
cooperative whose owners/members consist of any such Producer or other Persons.
 
“Grower Payables Reserve” means a reserve in such amount as the Lender shall
determine from time to time is necessary to cover the aggregate liability of all
Borrowers for Grower Payables; provided, however, that the amount of such
reserve shall be reduced, dollar for dollar, by the amount of each Grower
Payable with respect to which the applicable payee has waived and disclaimed any
Lien or other interest such payee might otherwise have or be entitled to in all
or any portion of the Collateral, which waiver and disclaimer shall be made
pursuant to a written document in form and substance acceptable to the Lender.
 
“Indebtedness” means, without duplication, (a) all Liabilities, (b) all
obligations for Money Borrowed or for the deferred purchase price of property or
services or in respect of reimbursement obligations under letters of credit,
(c) all obligations represented by bonds, debentures, notes and accepted drafts
that represent extensions of credit, (d) Capitalized Lease Obligations, (e) all
obligations (including, during the noncancellable term of any lease in the
nature of a title retention agreement, all future payment obligations under such
lease discounted to their present value in accordance with GAAP) secured by any
Lien to which any property or asset owned or held by a Person is subject,
whether or not the obligation secured thereby shall have been assumed by such
Person, (f) all obligations of other Persons which such Person has guaranteed,
including, but not limited to, all obligations of such Person consisting of
recourse liability with respect to accounts sold or otherwise disposed of by
such Person, and (g) in the case of each Borrower, the Loans.
 
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“Intellectual Property” means, as to any Person, all of such Person’s then owned
and existing and future acquired or arising patents, patent rights, copyrights,
works which are the subject of copyrights, trademarks, service marks, trade
names, trade styles, patent, trademark and service mark applications, and all
licenses and rights related to any of the foregoing, and all rights to sue for
past, present and future infringements of any of the foregoing.
 
“Inventory Advance Rate” shall have the meaning provided in Section 1.1 of
Schedule A hereto.
 
“Inversiones” means Inversiones Mirabel S.A., a company incorporated in Panama.
 
“Investment” means any investment, whether by means of share purchase, loan,
advance, purchase of debt instrument, extension of credit (other than
(i) accounts receivable arising from the sale of goods or services in the
ordinary course of business, and (ii) notes, accepted in the ordinary course of
business, evidencing overdue accounts receivable arising in the ordinary course
of business), capital contribution, acquisition of real or personal property
(other than personal property acquired in the ordinary course of business) or
otherwise, in or to any Person, the guaranty of any Indebtedness of any Person
or the subordination of any claim against any Person to other indebtedness of
such Person.
 
“Lender’s Office” means the office of Lender located at 1660 S. Highway 100,
Suite 146, Minneapolis, MN 55416-1524, Attention: Credit Department, or such
other office as Lender may designate from time to time.
 
“Liabilities” means all liabilities of a Person determined in accordance with
GAAP.
 
“Lien” means, with respect to any Person, any security interest, chattel
mortgage, charge, mortgage, deed to secure debt, deed of trust, lien, pledge,
Capitalized Lease, conditional sale or other title retention agreement covering,
or any trust upon, or any other security interest or encumbrance of any kind in
respect of, any property of such Person or upon the income or profits therefrom.
 
“Loans” means the Revolving Loans, the Capex Loans and the Term Loan.
 
“Loan Documents” means, collectively, this Agreement, each agreement or document
now or hereafter executed and delivered by any Person to evidence or secure, in
whole or in part, the Obligations and each other instrument, agreement and
document now or hereafter executed and delivered in connection with this
Agreement or the Loans.
 
“Lockbox” shall have the meaning provided in Section 1.1 of Schedule A hereto.
 
“Material Adverse Change” means any act, omission, event or undertaking which
would, singly or in the aggregate, have a materially adverse effect upon (a) the
business, assets, properties, liabilities, condition (financial or otherwise),
results of operations or business prospects of any Borrower or any of its
subsidiaries, (b) upon the ability of any Borrower or any of its subsidiaries to
perform any obligations under this Agreement or any other Loan Document to which
it is a party, or (c) the legality, validity, binding effect, enforceability or
admissibility into evidence of any Loan Document or the ability of Lender to
enforce any rights or remedies under or in connection with any Loan Document.
 
“Material Agreement” means any contract, agreement, commitment, arrangement or
instrument to which, as of any date, any Borrower is a party or by which any
Borrower or any of its properties is bound, including any contract brewing
agreement, license agreement, distribution agreement, promissory note,
indenture, loan agreement, mortgage, lease, or deed, in each case the
cancellation, termination or non-existence of which could constitute a Material
Adverse Change.
 
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“Maximum Rate” shall have the meaning provided in Section 3.8.
 
“Money Borrowed” means Indebtedness (i) that is represented by notes payable,
drafts accepted, bonds, debentures or similar instruments that represent
extensions of credit, (ii) upon which interest charges are customarily paid
(other than trade Indebtedness), (iii) that was issued or assumed as full or
partial payment for property, (iv) that is evidenced by a guarantee (but only if
the obligations guaranteed would otherwise qualify as Money Borrowed), or
(v) that constitutes a Capitalized Lease Obligation.
 
“Multiemployer Plan” means a “multiemployer plan” as defined in Section
4001(a)(3) of ERISA to which any Borrower or a Related Company is required to
contribute or has contributed within the immediately preceding 6 years.
 
“Net Income” or “Net Loss” means, with respect to any Person, the net income or
net loss of such Person for the period in question (after provision for income
taxes) determined in accordance with GAAP, provided that the impact of any
extraordinary gains and any extraordinary non-cash losses, in each case as
determined in accordance with GAAP, shall be excluded from the determination of
“Net Income” and “Net Loss.”
 
“Net Worth” of any Person means the total shareholders’ or members’ equity
(including capital stock, additional paid-in capital and retained earnings,
after deducting treasury stock) which would appear as such on a balance sheet of
such Person prepared in accordance with GAAP.
 
“New York Banking Day” means any day (other than a Saturday or Sunday) on which
commercial banks are open for business in New York, New York.
 
“Note” shall mean the Revolving Note, the Capex Note, the Term Loan Note and any
other promissory note of the Borrowers, or any one or more of them, evidencing
any loan or advance (including but not limited to the Loans) made by the Lender
to the Borrowers, or any one or more of them, pursuant to this Agreement, as the
same may be amended, modified, restated or replaced from time to time.
 
“Obligations” shall mean (i) all Loans or other advances made by Lender to
Borrowers (or any of them) pursuant to this Agreement or otherwise, (ii) all
future advances or other value, of whatever class or for whatever purpose, at
any time hereafter made or given by Lender to Borrowers (or any of them),
whether or not the advances or value are given pursuant to a commitment and
whether or not such Borrower(s) is (are) indebted to Lender at the time of such
advance; (iii) any and all other debts, liabilities and obligations of every
kind and character of Borrowers (or any of them) to Lender, whether now or
hereafter existing, and regardless of whether such present or future debts,
liabilities or obligations are direct or indirect, primary or secondary, joint,
several, or joint and several, fixed or contingent, and regardless of whether
such present or future debts, liabilities or obligations may, prior to their
acquisition by Lender, be or have been payable to, or be or have been in favor
of, some other Person or have been acquired by Lender in a transaction with one
other than a Borrower (it being contemplated that Lender may make such
acquisitions from others), howsoever such debts, liabilities or obligations
shall arise or be incurred or evidenced; (iv) any and all other debts,
liabilities and obligations of every kind and character of Borrowers (or any of
them) to any Affiliate of Lender, whether now or hereafter existing, and
regardless of whether such present or future debts, liabilities or obligations
are direct or indirect, primary or secondary, joint, several, or joint and
several, fixed or contingent, and regardless of whether such present or future
debts, liabilities or obligations may, prior to their acquisition by such
Affiliate, be or have been payable to, or be or have been in favor of, some
other Person or have been acquired by such Affiliate in a transaction with one
other than a Borrower (it being contemplated that Affiliates of Lender may make
such acquisitions from others), howsoever such debts, liabilities or obligations
shall arise or be incurred or evidenced; (v) interest on all of the debts,
liabilities and obligations set forth above; (vi) all costs, fees and expenses
payable by Borrowers (or any of them) to Lender or any Affiliate of Lender
pursuant to any of the Loan Documents; and (vii) any and all renewals,
extensions, modifications and increases of the debts, liabilities and
obligations set forth above, or any part thereof.
 
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“Operating Lease” means any lease (other than a lease constituting a Capitalized
Lease) of real or personal property determined in accordance with GAAP.
 
“PACA” means, collectively, (a) the Perishable Agricultural Commodities Act,
1930, as amended (7 U.S.C. § 499(e)(c)(2) et. seq.), together with all rules and
regulations relating thereto or promulgated thereunder (including 7 C.F.R. §
46.1 et seq.), and (b) any other state law or regulation of similar import.
 
“PACA Payables” means, collectively, all unpaid amounts payable by any Borrower
for the purchase of “Perishable Agricultural Commodities” (as defined in PACA)
acquired by Borrower as a “dealer” (as defined in PACA). PACA Payables shall
include, without limitation, the amount of any outstanding uncashed checks
issued by any Borrower in payment of PACA Payables to the extent not otherwise
included in the amount of PACA Payables.
 
“PACA Reserve” shall mean a reserve in such amount as Bank shall determine from
time to time is necessary to cover the Borrowers’ aggregate liability for PACA
Payables.
 
“PBGC” means the Pension Benefit Guaranty Corporation or any successor agency.
 
“Permitted Indebtedness” shall have the meaning provided in Section 1.1 of
Schedule A hereto.
 
“Permitted Investments” means, with respect to each Borrower, Investments of
such Borrower in (a) negotiable certificates of deposit issued by any commercial
bank having capital and surplus in excess of $100,000,000, and (b) any direct
obligation of the United States of America or any agency or instrumentality
thereof which has a remaining maturity at the time of repurchase of not more
than one year and repurchase agreements relating to the same.
 
“Permitted Liens” means: (a) Liens securing taxes, assessments and other
governmental charges or levies (excluding any Lien imposed pursuant to any of
the provisions of ERISA) or the claims of materialmen, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, but (i) in all cases, only if payment shall not
at the time be past due, and (ii) in the case of warehousemen or landlords
controlling locations where inventory is located, only if such liens have been
waived or subordinated to the security interest of Lender in a manner
satisfactory to Lender; (b) the Liens described on Schedule 5.1(g) attached
hereto and made a part hereof; and (c) Liens in favor of Lender.
 
“Person” means an individual, corporation, limited liability company,
partnership, joint venture, association, trust or unincorporated organization or
a government or any agency or political subdivision thereof.
 
“Prohibited Distribution” by any Person means (a) the retirement, redemption,
purchase, or other acquisition for value of any capital stock or other equity
securities or partnership interests issued by such Person, (b) the declaration
or payment of any dividend or distribution on or with respect to any such
securities (excluding distributions made solely in shares of stock of the same
class) or partnership interests, (c) any loan or advance by such Person to, or
other Investment by such Person in, any other Person, and (d) any other payment
by such Person in respect of such securities or partnership interests, without
the prior written consent of Lender, which consent shall not be unreasonably
withheld.
 
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“Prohibited Payment” means (a) any redemption, repurchase or prepayment or other
retirement, prior to the stated maturity thereof or prior to the due date of any
regularly scheduled installment or amortization payment with respect thereto, of
any Indebtedness of a Person (other than the Obligations and trade debt),
(b) the payment by any Person of the principal amount of or interest on any
Indebtedness (other than trade debt) owing to an Affiliate of such Person, and
(c) any payment with respect to any Subordinated Indebtedness that is made in
violation of the subordination agreement relating thereto.
 
“Qualified Capital Expenditure” shall mean a Capital Expenditure which meets the
following requirements:
 
(a)  the applicable Borrower shall have paid (or shall cause to be paid
contemporaneously with the funding of the applicable Capex Loan), in cash, the
full original invoice cost of the capital assets acquired with such Capital
Expenditure, and such Borrower shall have provided (or shall provide within five
(5) days following the funding of the applicable Capex Loan) to the Lender
copies of the original invoice and the canceled check for payment or other
evidence of payment in full;
 
(b)  it is made in the ordinary course of the applicable Borrower’s business;
 
(c)  the capital assets acquired with such Capital Expenditure consist solely of
one or more items of production equipment which are intended for direct use in
the applicable Borrower’s primary business of producing and distributing beer
and malt beverages for the specialty “craft” segment of the beer market (without
limiting the generality of the foregoing, it is expressly understood and agreed
that in no event shall Capital Expenditures for such items as computers,
telephone systems, office machinery, office equipment, furniture, fixtures,
appliances, vehicles and other similar non-production equipment constitute
“Qualified Capital Expenditures” hereunder);
 
(d)  no portion thereof consists of any soft costs relating to the acquisition
of the applicable capital assets (for purposes hereof the term “soft costs”
shall include, but shall not be limited to, all taxes, delivery charges, setup
fees, installation costs, insurance and other similar charges and costs);
 
(e)  no portion thereof has been paid by or financed with any other Person;
 
(f)  no portion of the capital assets acquired with such Capital Expenditure are
located outside of the continental United States;
 
(g)  the capital assets acquired with such Capital Expenditure are located on
premises that are either owned by the applicable Borrower or leased by such
Borrower (provided that in the case of leased premises the Lender has received a
landlord’s waiver acceptable to the Lender with respect to such leased
premises);
 
(h)  the capital assets acquired with such Capital Expenditure are presently in
good and workable condition, ordinary wear and tear excepted;
 
(i)  the capital assets acquired with such Capital Expenditure are not subject
to any prior assignment, claim or Lien other than (i) a first priority Lien in
favor of the Lender, and (ii) Liens consented to by the Lender in writing;
 
(j)  the capital assets acquired with such Capital Expenditure comply with the
applicable Borrower’s specifications and have been delivered to and accepted by
such Borrower;
 
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(k)  there exists no dispute with respect thereto between the applicable
Borrower and the manufacturer or supplier of the capital assets acquired with
such Capital Expenditure including, without limitation, warranties or other
claims;
 
(l)  the capital assets acquired with such Capital Expenditure do not, in any
way violate or fail to meet any warranty, representation or covenant contained
in the Loan Documents relating directly or indirectly to such assets;
 
(m)  the Lender has determined in its commercially reasonable discretion that
the capital assets acquired with such Capital Expenditures are not unacceptable
due to age, type, condition or quality (without limiting the generality of the
foregoing, it is expressly understood and agreed that any capital asset acquired
or first used by the applicable Borrower (whether pursuant to a Capitalized
Lease or otherwise) more than twelve (12) months prior to the date of the
applicable Capex Loan request is unacceptable due to age, unless such capital
asset is included on a fixed asset appraisal (in form and substance acceptable
to the Lender in its commercially reasonable discretion) prepared by an
independent appraiser acceptable to the Lender in its commercially reasonable
discretion no more than twelve (12) months prior to the date of such Capex Loan
request); and
 
(n)  the Capital Expenditure is not made in payment of obligations arising under
any Capitalized Lease, except to the extent such obligations are satisfied in
full by such payment and the liability related to such Capitalized Lease is
removed from the applicable Borrower’s balance sheet in accordance with GAAP.
 
“Related Company” means, as to any Person, any (a) corporation which is a member
of the same controlled group of corporations (within the meaning of Section
414(b) of the Code) as such Person, (b) partnership or other trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the Code) with such Person, or (c) member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
such Person or any corporation described in clause (a) above or any partnership,
trade or business described in clause (b) above.
 
“Reserve” at any time shall mean the PACA Reserve (if any), plus the Grower
Payables Reserve (if any), plus the aggregate amount of royalties and similar
charges owed by the Borrowers (or any of them) to Kingfisher America, Inc., a
Delaware corporation, UBI, UBSN or any other Affiliate of a Borrower, plus an
amount from time to time established by Lender in its commercially reasonable
discretion as a reserve in reduction of the Borrowing Base in respect of
contingencies or other potential factors (such as, without limitation, rebates,
sales taxes, property taxes, installation and delivery expenses, and warranties)
which could adversely affect or otherwise reduce the anticipated amount of
timely collections in payment of Eligible Accounts or the value (whether at
cost, market or orderly liquidation value) of Eligible Inventory. The “Reserve,”
if any from time to time, does not represent cash funds. For purposes of this
definition and determining the Borrowing Base and without limiting Lender’s
other discretion as described above, Lender specifically reserves the right to
establish additional commercially reasonable reserves in respect of: any claims,
interests, or rights (including Liens) of any Person (“Priming Interests”),
whether arising pursuant to an Agricultural Lien Statute or otherwise, which (A)
as of the date Lender learns or is notified of the existence of the applicable
Priming Interest, has priority over the Liens of Lender on any or all of the
Collateral or (B) will have priority over the Liens of Lender on any or all of
the Collateral after any required notice or filing, the passage of time, the
satisfaction of any other condition, or otherwise.
 
“Revolving Facility Limit” shall have the meaning provided in Section 1.1 of
Schedule A hereto.
 
“Revolving Loans” means the advances made to Borrowers pursuant to Section 2.1.
 
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“Schedule of Accounts” means a schedule delivered by Borrowers to Lender
pursuant to the provisions of Section 8.3(a).
 
“Schedule of Inventory” means a schedule delivered by Borrowers to Lender
pursuant to the provisions of Section 8.3(c).
 
“Solvent” means, when used in connection with any Person, that such Person has
assets of a fair value which exceeds the amount required to pay its debts
(including contingent, subordinated, unmatured and unliquidated liabilities) as
they become absolute and matured, and that such Person is able to, and
anticipates that it will be able to, meet its debts as they mature and has
adequate capital to conduct the business in which it is or proposes to be
engaged.
 
“State of Organization” shall have the meaning provided in Section 1.1 of
Schedule A hereto.
 
“Subordinated Indebtedness” means Indebtedness of Borrowers (or any of them) to
a third Person (i) that has been approved in writing by Lender and (ii) that has
been subordinated to the payment of the Obligations pursuant to a written
subordination agreement executed by Lender and the holder of such Indebtedness
containing terms acceptable to Lender in its commercially reasonable discretion.
 
“Tangible Net Worth” means (a) the combined Net Worth of Borrowers at the time
in question (excluding the financial condition of all Persons other than the
Borrowers), less (b) the amount of all intangible items, investments in
subsidiaries, amounts due from Affiliates, employees, officers, managers,
directors, members and shareholders, and all other items which should properly
be treated as intangibles in accordance with GAAP, plus (c) the Subordinated
Indebtedness of Borrowers.
 
“Term Loan” means the advances made to Borrower pursuant to Section 2.4.
 
“Termination Date” shall have the meaning provided in Section 1.1 of Schedule A
hereto.
 
“Termination Event” means (a) a “Reportable Event” as defined in Section 4043 of
ERISA, but excluding any such event as to which the PBGC has by regulation
waived the requirement of Section 4043(a) of ERISA that it be notified within
thirty days of the occurrence of such event, provided however, that a failure to
meet the minimum funding standard of Section 412 of the Code and of Section 302
of ERISA shall be a Reportable Event regardless of the issuance of any such
waiver of the notice requirement in accordance with either Section 4043(a) of
ERISA or Section 412(d) of the Code, (b) the filing of a notice of intent to
terminate a Benefit Plan or the treatment of a Benefit Plan amendment as a
termination under Section 4041 of ERISA, or (c) the institution of proceedings
to terminate a Benefit Plan by the PBGC under Section 4042 of ERISA or the
appointment of a trustee to administer any Benefit Plan.
 
“Total Credit Facility” shall have the meaning provided in Section 1.1 of
Schedule A hereto.
 
“UBA” means United Breweries of America, Inc., a Delaware corporation.
 
“UBH” means United Breweries Holdings Limited, an Indian public limited company.
 
“UBI” means United Breweries International (U.K.), Limited, a United Kingdom
private limited company.
 
“UBSN” means UBSN Limited, a United Kingdom private limited company.
 
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“UCC” means the Uniform Commercial Code as in effect from time to time in the
State of Minnesota, including without limitation, any amendments thereto which
are effective after the date hereof.
 
“Unfunded Vested Liabilities” shall mean, with respect to each Borrower, the
amount (if any) by which (i) the actuarial present value of accumulated benefits
under a Benefit Plan which are vested exceeds (ii) such Benefit Plan’s net
assets available for benefits (all as determined in connection with the filing
of such Borrower’s most recent Annual Report on Form 5500) but only to the
extent such excess would, if such Benefit Plan were to terminate as of such
date, represent a liability of such Borrower or any ERISA Affiliate to the PBGC
under Title IV of ERISA. In each case the foregoing determination shall be made
as of the most recent date prior to the filing of said Annual Report as of which
such actuarial present value of accumulated Plan benefits is determined.
 
Section 1.2  UCC Terms. Terms defined in the UCC (such as, but not limited to,
accounts, chattel paper, commercial tort claims, contract rights, deposit
account, documents, equipment, financial assets, general intangibles, goods,
instruments, investment property, inventory and proceeds), as and when used
(without being capitalized) in this Agreement or the Loan Documents, shall have
the meanings given to such terms in the UCC.
 
Section 1.3  Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Lender hereunder shall be prepared, in
accordance with GAAP, applied on a basis consistent with the audited financial
statements of Borrowers referenced in Section 5.1(k).
 
ARTICLE II — CREDIT FACILITIES
 
Section 2.1  Revolving Loans. Subject to the terms and conditions of this
Agreement, prior to the Termination Date Lender shall make advances to Borrowers
under the revolving credit facility provided for under this Agreement in an
amount not to exceed outstanding at any time the lesser of (a) the Revolving
Facility Limit and (b) the Borrowing Base. Borrowers may borrow, repay and
reborrow the principal of the Revolving Loans in accordance with the terms of
this Agreement.
 
Section 2.2  Advances Under the Revolving Loan. A request for an advance of a
Revolving Loan shall be made, or shall be deemed to be made, in the following
manner:
 
(a)  Any request by the Borrowing Agent for a Loan shall be in writing (via
email, facsimile or an updated Borrowing Base Certificate), and must be given so
as to be received by the Lender not later than 12:00 noon, Minneapolis,
Minnesota time, on the date of the requested advance. Each such request shall
specify the effective date of the borrowing, the amount of the requested advance
and which Borrower will be the recipient of such advance. The Borrowing Agent’s
failure to comply with the provisions of this Section 2.2(a) with respect to any
Loan shall not in any manner affect the joint and several obligation of each
Borrower to repay such Loan in accordance with the terms of this Agreement.
 
(b)  Unless payment is otherwise made by a Borrower, the becoming due of any
amount required to be paid under any Loan Document or of any Obligation shall be
deemed to be a request for an advance under the Revolving Loan on the due date
in the amount required to pay such amount, and such request shall be
irrevocable. Lender shall not have any obligation to any Borrower to honor any
such deemed request for an advance but may do so in its sole and absolute
discretion and without regard to the existence of, and without being deemed to
have waived, any Default or Event of Default.
 
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Section 2.3  Repayment of the Revolving Loans. The Revolving Loans shall be
repaid as follows: (a) unless accelerated in accordance with the terms hereof,
the outstanding principal amount of, and all accrued and unpaid interest on, the
Revolving Loans is due and payable, without demand, on the Termination Date;
(b) if at any time the principal of, and interest upon, the aggregate
outstanding Revolving Loans exceeds the lesser of (i) the Revolving Facility
Limit or (ii) the Borrowing Base, Borrowers jointly and severally agree to
immediately repay the Revolving Loans in the amount of such excess; and (c) each
Borrower hereby instructs Lender to repay the Revolving Loans on any day in an
amount equal to the amount received by Lender on such day pursuant to Section
6.2.
 
Section 2.4  Term Loan.
 
(a)  Subject to the terms and conditions hereof, Lender agrees to make a Term
Loan to Borrowers in the amount equal to $1,525,000. Borrower agrees to repay to
Lender the Term Loan, together with interest thereon, in the manner provided
herein. The principal owing hereunder in respect of the Term Loan at any given
time shall equal the aggregate initial amount of the advance made as the Term
Loan minus all principal payments thereon received by Lender in respect of the
Term Loan. Amounts repaid in respect of the Term Loan may not be reborrowed
hereunder.
 
(b)  The aggregate principal balance of the Term Loan shall be paid, jointly and
severally, by Borrowers to Lender in monthly installments, due and payable on
the first day of each calendar month, commencing on December 1, 2006. Each
monthly principal installment shall be in an amount equal to the original
principal balance of the Term Loan divided by eighty-four (84), provided that
the remaining unpaid principal balance of the Term Loan and all accrued interest
thereon shall be due and payable on the earliest of (i) the payment of the
remaining unpaid principal balance of the Revolving Loans, (ii) the Termination
Date and (iii) acceleration of the maturity of the Term Loan in accordance with
the terms hereof.
 
(c)  Borrowers shall prepay the Term Loan from the proceeds of insurance or
condemnation awards paid in respect of any equipment in which Lender has a
security interest. Such prepayments shall be applied first to accrued but unpaid
interest and the balance to installments of principal in the inverse order of
their maturities.
 
(d)  Notwithstanding anything to the contrary contained herein, Borrowers may
prepay the Term Loan in accordance with Section 3.4(b)(ii) of Schedule A hereto.
 
Section 2.5  Capital Expenditure Loans.
 
(a)  The Lender agrees to make loans (each, a “Capex Loan”) to the Borrowers
from and after the effective date hereof through and including the Termination
Date, in such amounts and at such times as the Borrowing Agent may from time to
time request, up to but not in excess of (A) with respect to each individual
Capex Loan, an amount equal to the Capex Loan Advance Rate multiplied by the
amount of the Qualified Capital Expenditures to be paid with the proceeds of
such Capital Expenditure Loan, and (B) with respect to Capital Expenditure Loans
in the aggregate, the Capex Loan Amount. The proceeds of each Capital
Expenditure Loan shall be used by the Borrowers solely to pay Qualified Capital
Expenditures. Each request for a Capital Expenditure Loan shall be in a minimum
amount of $25,000. The Capital Expenditure Loan shall be evidenced by that
certain Capex Note bearing even date herewith made payable, jointly and
severally, by the Borrowers to order of the Lender (as the same may be amended,
restated, renewed, replaced, supplemented or otherwise modified from time to
time, the “Capex Note”).
 
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(b)  Unless otherwise required to be sooner paid pursuant to this Agreement, the
principal of each Capex Loan shall mature and be payable in consecutive equal
monthly installments in an amount sufficient to fully amortize the principal
balance of such Capex Loan by the last day of the seventy-second (72nd) month
following the first day of the first month following the first anniversary date
of this Agreement occurring after the date on which such Capex Loan was made.
Such payments shall commence on the first day of the first month following the
first anniversary date of this Agreement occurring after the date on which such
Capex Loan was made and shall continue on the first day of each calendar month
thereafter until the Termination Date, at which time a final balloon payment
equal to the aggregate principal balance of all Capex Loans outstanding on such
date shall be due and payable.
 
(c)  The Borrowers may, upon three Business Days’ notice to the Lender, prepay
the principal of the Capex Loans in whole or in part without premium. Any
partial prepayment of principal of the Capex Loans shall be in a minimum amount
of the lesser of (A) the aggregate outstanding principal balance of the Capex
Loans, or (B) $25,000 or an integral multiple thereof, and shall be applied to
the unpaid installments of the Capex Loans in the inverse order of their
maturities. Any principal of the Capex Loans which is repaid may not be
reborrowed. Any regularly scheduled payment due in respect of the Capex Loans
may be made with the proceeds of a Revolving Loan only if, immediately before
and after giving effect to such payment, no Default or Event of Default then
exists or would result therefrom. No portion of the Capex Loans may be prepaid
with the proceeds of any Revolving Loan.
 
Section 2.6  Disbursement of Loans. Each Borrower hereby irrevocably authorizes
Lender to disburse the proceeds of Loans requested, or deemed to be requested,
pursuant to this Article II as follows: (i) each advance requested under Section
2.2(a) or Section 2.5(a) shall be disbursed by the Lender in lawful money of the
United States of America in immediately available funds, (a) in the case of the
initial advances under the Revolving Loan, the Capex Loan and the Term Loan in
accordance with the written instructions from Borrowing Agent to Lender, and
(b) in the case of each subsequent advance, to a deposit account designated in
writing by Borrowing Agent to Lender; and (ii) the proceeds of each advance
requested under Section 2.2(b) shall be distributed by the Lender by way of
direct payment of the relevant Obligation.
 
Section 2.7  Authorized Representatives. The Borrowing Agent shall act hereunder
through the Authorized Representatives designated from time to time and all
notices and requests to be given and received by the Borrowing Agent or any
Borrower, including requests for Loans, shall be given by and directed to such
Authorized Representatives; provided, however, that the Lender may rely on the
authority (or apparent authority) of any officer or employee of the Borrowing
Agent or any Borrower whom the Lender in good faith believes to be an Authorized
Representative.
 
Section 2.8  Borrowing Agency Provisions. Each Borrower hereby irrevocably
designates the Borrowing Agent to be its attorney and agent and in such capacity
to borrow, sign and endorse notes, and execute and deliver all instruments,
documents, writings and further assurances now or hereafter required hereunder,
on behalf of such Borrower, and hereby authorizes the Lender to pay over or
credit all Loan proceeds hereunder in accordance with the request of the
Borrowing Agent. The handling of this credit facility as a co-borrowing facility
in the manner set forth in this Agreement is solely as an accommodation to the
Borrowers and at their request. The Lender shall not incur liability to any
Borrower or any other Person as a result thereof. To induce the Lender to do so
and in consideration thereof, each Borrower hereby indemnifies the Lender and
holds the Lender harmless from and against any and all liabilities, expenses,
losses, damages and claims of damage or injury asserted against the Lender by
any Person arising from or incurred by reason of the handling of the financing
arrangements of the Borrowers as provided herein, reliance by the Lender on any
request or instruction from the Borrowing Agent or any other action taken by the
Lender with respect to this Section 2.8, except due to willful misconduct or
gross (not mere) negligence of the Lender.
 
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Section 2.9  Obligations Joint and Several. All obligations of the Borrowers
under this Agreement and the other Loan Documents shall be joint and several.
Each Borrower hereby agrees to make payment upon the maturity of the
Obligations, whether by acceleration or otherwise, and such obligation and
liability on the part of each Borrower shall in no way be impaired or otherwise
affected by any act or omission of the Lender including, without limitation any
extension, renewal or forbearance granted by the Lender to any Borrower, any
failure of the Lender to pursue or preserve its rights against any Borrower or
the release by the Lender of any collateral now or hereafter given as security
for all or any part of such obligations.
 
Section 2.10  Waiver of Subrogation. Subject only to the provisions of Section
2.11 below, each Borrower expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which
such Borrower may now or hereafter have against any other Borrower or any other
person directly or contingently liable for the Obligations, or against or with
respect to any other Borrower’s property (including, without limitation, any
property which is collateral for the Obligations), arising from the existence or
performance of this Agreement, until repayment in full of the Obligations.
 
Section 2.11  Contribution and Indemnification Among the Borrowers. Each
Borrower is obligated to repay the Obligations as joint and several obligors
under this Agreement. To the extent that any Borrower shall, under this
Agreement as a joint and several obligor, repay any of the Obligations
constituting Loans made to another Borrower (an “Accommodation Payment”), then
the Borrower making such Accommodation Payment shall be entitled to contribution
and indemnification from, and be reimbursed by, each of the other Borrowers in
an amount, for each of such other Borrowers, equal to a fraction of such
Accommodation Payment, the numerator of which fraction is such other Borrower’s
“Allocable Amount” (as defined below) and the denominator of which is the sum of
the Allocable Amounts of all of the Borrowers. As of any date of determination,
the “Allocable Amount” of each Borrower shall be equal to the maximum amount of
liability for Accommodation Payments which could be asserted against such
Borrower hereunder without (a) rendering such Borrower “insolvent” within the
meaning of Section 101(31) of Title 11 of the United States Code entitled
“Bankruptcy” (as amended, the “Bankruptcy Code”), Section 2 of the Uniform
Fraudulent Transfer Act (as amended, the “UFTA”), or Section 2 of the Uniform
Fraudulent Conveyance Act (as amended, the “UFCA”), (b) leaving such Borrower
with unreasonably small capital or assets, within the meaning of Section 548 of
the Bankruptcy Code, Section 4 of the UFTA, or Section 4 of the UFCA, or (c)
leaving such Borrower unable to pay its debts as they become due within the
meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section
5 of the UFCA. All rights and claims of contribution, indemnification and
reimbursement under this Section 2.11 shall be subordinate in right of payment
to the prior payment in full of the Obligations.
 
ARTICLE III — GENERAL LOAN PROVISIONS; FEES AND EXPENSES
 
Section 3.1  Interest.
 
(a)  Loans. Borrowers shall pay interest on the unpaid principal amount of the
Obligations at a rate per annum equal to the lesser of (i) the Maximum Rate and
(ii) the Contract Rate, payable monthly in arrears on the first day of each
calendar month and on the Termination Date.
 
(b)  Default Rate. From and after the occurrence of an Event of Default, the
unpaid principal amount of all Obligations shall, at the option of Lender, bear
interest until paid in full (or, if earlier, until such Event of Default is
cured or waived in writing by Lender) at a rate per annum equal to the lesser of
(i) the Maximum Rate and (ii) the Default Rate, payable on demand.
 
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(c)  Computation of Interest. The interest rates provided for in Sections 3.1(a)
and (b) shall be computed on the basis of a year of 360 days and the actual
number of days elapsed;
 
Section 3.2  Fees and Expenses.
 
(a)  Origination Fee. In consideration for Lender’s agreement to make the Loans
in accordance with the terms of this Agreement and in order to compensate Lender
in part for the costs associated with the Loans, Borrowers jointly and severally
agree to pay to Lender on the date hereof an origination fee in the amount
provided in Section 3.2(a) of Schedule A hereto. Such fee is in addition to the
expenses that Borrowers have agreed to pay elsewhere in this Agreement. Such fee
shall in all respects be limited so that interest on the Obligations is at all
times less than interest calculated at the Maximum Rate.
 
(b)  Monthly Facility Fee. In consideration for Lender’s agreement to make the
Loans in accordance with the terms of this Agreement and in order to compensate
Lender in part for the costs associated with the Loans, Borrowers jointly and
severally agree to pay to Lender a monthly facility fee for the period from the
date hereof through the Termination Date calculated as provided in Section
3.2(b) of Schedule A hereto. Such facility fee shall be payable monthly in
advance on the first day of each calendar month until the Termination Date and
on the Termination Date. Such fee is in addition to the expenses that Borrowers
have agreed to pay elsewhere in this Agreement. Such fee shall in all respects
be limited so that interest on the Obligations is at all times less than
interest calculated at the Maximum Rate.
 
(c)  Unused Line Fee. Borrowers jointly and severally agree to pay to Lender an
unused line fee for the period from the date hereof through the Termination Date
calculated as provided in Section 3.2(c) of Schedule A hereto. Such unused line
fee shall be payable monthly in arrears on the last day of each calendar month
until the Termination Date and on the Termination Date. The parties hereto agree
that such unused line fee, together with the other fees assessed hereunder,
constitutes reasonable consideration for Lender’s taking of appropriate actions
to be able to make available to Borrowers the amount of the Revolving Facility
Limit for such period.
 
(d)  Collateral Monitoring Fee. Lender shall be entitled to charge Borrowers,
and if so charged each Borrower jointly and severally agrees to pay, a monthly
collateral monitoring fee in the amount provided in Section 3.2(d) of Schedule A
hereto. The collateral monitoring fee for each calendar month shall be due and
payable on the first day of the next calendar month, and shall be prorated for
any partial calendar month until the Termination Date. Such fee shall in all
respects be limited so that interest on the Obligations is at all times less
than interest calculated at the Maximum Rate.
 
(e)  Minimum Usage Fee. Borrowers jointly and severally agree to pay to Lender a
minimum usage fee for the period from the date hereof through the Termination
Date calculated as provided in Section 3.2(e) of Schedule A hereto. Such usage
fee shall be payable monthly in arrears on the last day of each calendar month
until the Termination Date and on the Termination Date. The parties hereto agree
that such usage fee, together with the other fees assessed hereunder,
constitutes reasonable consideration for Lenders taking appropriate actions to
be able to make available to Borrowers the Loans for such period.
 
(f)  Early Termination Fees; Prepayment Fees. See Section 3.4(b).
 
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(g)  Expenses. See Section 11.2.
 
Section 3.3  Manner of Payment.
 
(a)  Timing. Each payment by a Borrower on account of the principal of or
interest on the Loans or of any fee or other amount payable to Lender shall be
made not later than 1:00 p.m. (Minneapolis, Minnesota, time) on the applicable
due date (or if such day is not a Business Day, the next succeeding Business
Day, provided that interest shall continue to accrue until such payment is
made). All payments shall be made to Lender at Lender’s Office, in Dollars, in
immediately available funds and shall be made without any setoff, counterclaim
or deduction whatsoever.
 
(b)  Charging Accounts. Each Borrower hereby irrevocably authorizes Lender and
each Affiliate of Lender to charge any account of such Borrower maintained with
Lender or such Affiliate with such amounts as may be necessary from time to time
to pay any Obligations which are not paid when due.
 
Section 3.4  Termination of Agreement.
 
(a)  Required Payments. On the Termination Date and upon any early termination
of this Agreement, each Borrower jointly and severally agrees to pay to Lender
(i) the principal of, and accrued and unpaid interest on, all Loans outstanding
on such date, (ii) all fees accrued and unpaid, (iii) any amounts payable to
Lender pursuant to the other provisions of this Agreement or any other Loan
Document, and (iv) any and all other Obligations then outstanding.
 
(b)  Early Termination; Prepayment. If Borrowers terminate this Agreement or
prepay the Term Loan prior to the Termination Date, each Borrower acknowledges
that such termination or prepayment would result in the loss to Lender of the
benefits of this Agreement and, as a result thereof, each Borrower jointly and
severally agrees to pay to Lender an early termination fee or a prepayment fee
(as applicable) in the amount provided in Section 3.4(b) of Schedule A hereto.
 
Section 3.5  Evidence of Indebtedness.
 
(a)  At the request of Lender, the Loans shall be evidenced by one or more
promissory notes.
 
(b)  Lender shall maintain accounts in which it will record (i) the amount of
each Loan extended hereunder and which Borrower was the recipient of such Loan,
(ii) the amount of any principal or interest due and payable or to become due
and payable from Borrowers to Lender hereunder, and (iii) the amount of any sum
received by Lender hereunder from Borrowers.
 
(c)  The entries in the accounts maintained pursuant to subsection (b) above
shall be prima facie evidence of the existence, amounts and recipients of the
Obligations therein recorded, provided, however, that the failure of the Lender
to maintain such accounts or any error therein shall not in any manner affect
the joint and several obligation of each Borrower to repay the Obligations in
accordance with their terms.
 
Section 3.6  Changes in Capital Adequacy Regulations. If Lender determines the
amount of capital required or expected to be maintained by Lender or any
corporation controlling Lender is increased as a result of a Change, then,
within fifteen days of demand by Lender, each Borrower jointly and severally
agrees to pay Lender the amount necessary to compensate for any shortfall in the
rate of return on the portion of such increased capital which Lender determines
(in its commercially reasonable discretion) is attributable to this Agreement
and any facility hereunder; provided, however, that the Lender shall not demand
a payment under this Section 3.6 relating to any time period prior to 90 days
before the date on which a demand is made for payment pursuant to this Section.
“Change” means (i) any change after the date of this Agreement in the Risk-Based
Capital Guidelines (as defined below) or (ii) any adoption of or change in any
other law, governmental or quasi-governmental rule, regulation, policy,
guideline, interpretation, or directive (whether or not having the force of law)
after the date of this Agreement which affects the amount of capital required or
expected to be maintained by Lender or any corporation controlling Lender.
“Risk-Based Capital Guidelines” means (i) the risk-based capital guidelines in
effect in the U.S. on the date of this Agreement, including transition rules,
and (ii) the corresponding capital regulations promulgated by regulatory
authorities outside the U.S. implementing the July 1988 report of the Basel
Committee on Banking Regulation and Supervisory Practices Entitled
“International Convergence of Capital Measurements and Capital Standards,”
including transition rules, and any amendments to such regulations adopted prior
to the date of this Agreement. If the Lender requests compensation under this
Section 3.6 or requires any Borrower to pay any additional amount to the Bank
pursuant to this Section, then, upon the written request of such Borrower, the
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the
commercially reasonable judgment of the Lender, such designation or assignment
(A) would eliminate or materially reduce amounts payable pursuant to this
Section in the future and (B) would not subject the Lender to any unreimbursed
cost or expense and would not otherwise be disadvantageous to the Lender (as
determined in its commercially reasonable discretion). Without limitation of the
provisions of Section 11.2, the Borrower hereby agrees to pay all reasonable
out-of-pocket costs and expenses incurred by the Lender in connection with any
such designation or assignment.
 
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Section 3.7  Lender Statements; Survival of Indemnity. Lender shall deliver a
written statement to Borrowing Agent as to the amount due, if any, under Section
3.6. Such written statement shall set forth in reasonable detail the
calculations upon which Lender determined such amount. Unless otherwise provided
herein, the amount specified in the written statement of Lender shall be jointly
and severally payable on demand by the Borrowers after receipt by Borrowing
Agent of such written statement.
 
Section 3.8  Maximum Interest. If, at any time, the rate of interest contracted
for, and computed in the manner provided, in this Agreement (“Applicable Rate”),
together with all fees and charges as provided for herein or in any other Loan
Document (collectively, the “Charges”), which are treated as interest under
applicable law, exceeds the maximum lawful rate (the “Maximum Rate”) allowed
under applicable law, it is agreed that such contracting for, charging or
receiving of such excess amount was an accidental and bona fide error and the
provisions of this Section 3.8 will govern and control. The rate of interest
payable hereunder, together with all Charges, shall be limited to the Maximum
Rate; provided, however, that any subsequent reduction in the Base Rate shall
not reduce the Applicable Rate below the Maximum Rate until the total amount of
interest earned hereunder, together with all Charges, equals the total amount of
interest which would have accrued at the Applicable Rate if the Applicable Rate
had at all times been in effect. If any payment hereunder, for any reason,
results in the Borrowers having paid interest in excess of that permitted by
applicable law, then all excess amounts theretofore collected by the Lender
shall be credited on the principal balance of the Obligations (or, if all sums
owing hereunder have been paid in full, refunded to the Borrowers), and the
amounts thereafter collectible hereunder shall immediately be deemed reduced,
without the necessity of the execution of any new document, so as to comply with
applicable law and permit the recovery of the fullest amount otherwise called
for hereunder.
 
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ARTICLE IV — CONDITIONS PRECEDENT
 
Section 4.1  Conditions Precedent. Lender shall not be obligated to make any
Loan or advance hereunder (including the first) until (i) it shall have received
the documents and items listed in Section 4.1 of Schedule A hereto, each duly
executed and delivered in form and substance satisfactory to Lender, in its
commercially reasonable discretion (it is understood and agreed that, in the
case of the legal opinion delivered pursuant to Section 4.1(h) of Schedule A
hereto, such opinion shall be in the form attached hereto as Exhibit C), and
(ii) the requirements listed in Section 4.1 of Schedule A hereto have been
fulfilled to the satisfaction of Lender, in its commercially reasonable
discretion.
 
Section 4.2  Conditions to Subsequent Advances. The obligation of Lender to make
any advance subsequent to the initial advance is subject to the following
conditions precedent:
 
(a)  Conditions to First Advance. All of the conditions precedent set forth in
Section 4.1 have been satisfied.
 
(b)  Borrowing Base Certificate. Lender shall have received from Borrowing Agent
a Borrowing Base Certificate executed by Borrowing Agent, prepared as of a date
not more than five (5) Business Days prior to the date of the requested advance.
 
(c)  Representations and Warranties. The representations and warranties
contained in each of the Loan Documents shall be true in all material respects
with the same force and effect as though made on and as of such date.
 
(d)  Defaults and Events of Default. No Default or Event of Default shall have
occurred and be continuing.
 
(e)  Adverse Change. No Material Adverse Change (or event or condition that
could reasonably be expected to cause or have a Material Adverse Change) has
occurred since the date of the Financial Statements.
 
(f)  Legal Restriction. Such advance or financial accommodation shall not be
prohibited by any law or regulation or any order of any court or governmental
agency or authority.
 
(g)  No Repudiation. No Borrower shall have repudiated or made any anticipatory
breach of any of its obligations under any Loan Document.
 
ARTICLE V — REPRESENTATIONS AND WARRANTIES OF BORROWERS
 
Section 5.1  Representations and Warranties. Each Borrower represents and
warrants to Lender as follows:
 
(a)  Organization; Power; Qualification. Each Borrower is the type of entity
identified in Section 5.1(a) of Schedule A, duly organized, validly existing and
in good standing under the laws of the State of Organization and is authorized
to do business in each state in which the nature of its properties or its
activities requires such authorization. The jurisdictions in which each Borrower
is qualified to do business as a foreign entity are listed on Schedule 5.1(a).
Each Borrower’s federal employer identification number and its organizational
number with the Secretary of State of the State of Organization (if issued) are
as set forth in Section 5.1(a) of Schedule A hereto.
 
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(b)  Authorization; Enforceability. Each Borrower has the power and authority
to, and is duly authorized to, execute and deliver the Loan Documents to be
executed by such Borrower. All of the Loan Documents to which a particular
Borrower is a party, constitute the legal, valid and binding obligations of such
Borrower, enforceable in accordance with their terms, except as limited by
bankruptcy, insolvency or similar laws of general application relating to the
enforcement of creditors’ rights generally.
 
(c)  Subsidiaries; Ownership. Except as shown on Schedule 5.1(c), no Borrower
has any subsidiaries. The outstanding capital stock or membership interests of
each Borrower have been duly and validly issued and are fully paid and
nonassessable, and the significant shareholders/members of each Borrower, and
the of the amount of shares of capital stock or membership interests, as
applicable, held by such significant shareholders/members, in each case as of
the date of this Agreement, are set forth on Schedule 5.1(c).
 
(d)  Conflicts. Neither the execution and delivery of the Loan Documents, nor
consummation of any of the transactions therein contemplated nor compliance with
the terms and provisions thereof, will contravene any provision of law or any
judgment, decree, license, order or permit applicable to any Borrower or will
conflict with, or will result in any breach of, any agreement to which any
Borrower is a party or by which any Borrower may be bound or subject, or violate
any provision of the organizational documents of any Borrower.
 
(e)  Consents, Governmental Approvals, Etc. No governmental approval nor any
consent or approval of any third Person (other than those which have been
obtained prior to the date hereof) is required in connection with the execution,
delivery and performance by any Borrower of the Loan Documents. Each Borrower is
in compliance with all applicable governmental approvals and all applicable
laws.
 
(f)  Business. Each Borrower is engaged principally in that business described
in Section 5.1(b) of Schedule A hereto.
 
(g)  Title; Liens. Except for items described in Schedule 5.1(g) and for
Permitted Liens, all of the properties and assets of each Borrower are free and
clear of all Liens, and such Borrower has good and marketable title to such
properties and assets. Each Lien granted, or intended to be granted, to Lender
pursuant to the Loan Documents is a valid, enforceable, perfected, first
priority Lien and security interest.
 
(h)  Indebtedness and Guaranties. With respect to each Borrower, set forth on
Schedule 5.1(h) is a complete and correct listing of all of such Borrower’s
(i) Indebtedness for Money Borrowed, and (ii) guaranties and other contingent
obligations.
 
(i)  Suits, Actions, Etc. Except as disclosed on Schedule 5.1(i), no litigation,
arbitration, governmental investigation, proceeding or inquiry is pending or, to
the knowledge of any Borrower, threatened against any Borrower or that could
affect any of the Collateral.
 
(j)  Tax Returns and Payments. All tax returns required to be filed by any
Borrower in any jurisdiction have been filed and all taxes (including property
taxes) have been paid prior to the time that such taxes could give rise to a
lien therefor.
 
(k)  Financial Condition. Borrowers have delivered to Lender copies of the
Financial Statements. The Financial Statements fairly present the financial
condition of Borrowers as of their respective dates and have been prepared in
accordance with GAAP (except, with respect to the unaudited statements, for the
presentation of footnotes and for applicable normal year-end audit adjustments).
There is no Indebtedness of any Borrower which is not reflected in the Financial
Statements, and no event or circumstance has occurred since the date of the
Financial Statements which has had or could have or result in a Material Adverse
Change.
 
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(l)  ERISA. Neither any Borrower nor any Related Company maintains or
contributes to any Benefit Plan other than those listed on Schedule 5.1(l).
Further, (i) no Reportable Event (as defined in ERISA) has occurred and is
continuing with respect to any Benefit Plan, and (ii) the PBGC has not
instituted proceedings to terminate any Benefit Plan. Each Borrower and each
Related Company has satisfied the minimum funding standards under ERISA with
respect to its Benefit Plans and is in compliance in all material respects with
the presently applicable provisions of ERISA and the Code, and has not incurred
any liability to the PBGC or a Benefit Plan under Title IV of ERISA other than a
liability to the PBGC for premiums under Section 4007 of ERISA.
 
(m)  Compliance; Defaults. Each Borrower is in material compliance with all
applicable statutes and governmental rules and regulations (including, without
limitation, all statutes and regulations governing or otherwise relating to the
production, manufacture, storage, sale, distribution and/or other handling of
beer or other intoxicating beverages that apply to such Borrower by virtue of
the nature of its business). No Default or Event of Default has occurred and is
continuing.
 
(n)  Borrowing Base Reports. All accounts and inventory included in any
Borrowing Base Certificate constitute Eligible Accounts or Eligible Inventory,
as appropriate, except as disclosed in such Borrowing Base Certificate.
 
(o)  Location of Tangible Collateral. Set forth on Schedule 5.1(o) is (i) the
location and address where all inventory and other tangible Collateral is
located, and (ii) if the facility is leased or is a third party warehouse or
processor location, the name of the landlord or such third party warehouseman or
processor.
 
(p)  Place of Business. The place of business of each Borrower (or, if a
Borrower has more than one place of business, its chief executive office) is at
the address or addresses set forth on Schedule 5.1(p) and the books and records
relating to the accounts are located at the address or addresses set forth on
Schedule 5.1(p).
 
(q)  Corporate and Fictitious Names; Trade Names. Except as disclosed on
Schedule 5.1(q), no Borrower has, during the preceding five (5) years, (i) been
known as or used any other corporate, fictitious or trade names (excluding trade
names used solely in relation to the Borrowers’ contract and licensed brewing
operations), (ii) been the surviving corporation of a merger or consolidation,
or (iii) acquired all or substantially all of the assets of any Person.
 
(r)  Intellectual Property. Each Borrower owns or possesses all Intellectual
Property required to conduct its business as now and presently planned to be
conducted without, to its knowledge, conflict with the rights of others, and
Schedule 10.6 lists all Intellectual Property owned by any Borrower.
 
(s)  Payroll Taxes. Each Borrower has made all payroll tax deposits for all of
its employees on or before the date when due.
 
(t)  Other Taxes. Each Borrower has filed all federal, state and local tax
returns required to be filed and has paid or made provision for the payment of
all taxes due and payable pursuant to such returns and pursuant to any
assessments made against it or any of its property and all other taxes, fees and
other charges imposed on it or any of its property by any governmental authority
(other than taxes, fees or charges the amount or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which reserves in accordance with GAAP have been provided on the books of the
applicable Borrower). No tax Liens have been filed and no material claims are
being asserted with respect to any such taxes, fees or charges. The charges,
accruals and reserves on the books of the Borrowers in respect of taxes and
other governmental charges are adequate.
 
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(u)  Solvency. Each Borrower is Solvent. No transfer of property is being made
by any Borrower and no obligation is being incurred by any Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay or defraud either present or
future creditors of such Borrower.
 
(v)  Inventory; PACA and Agricultural Lien Matters. Except for Liens arising in
favor of warehousemen that are party to a warehouse or bailee letter in favor of
the Lender, no processing, packaging or other work is performed by any Person
with respect to inventory of any Borrower giving rise to a Lien in favor of such
Person for amounts due for the processing, packaging or other work performed. No
Borrower has received written notice from any unpaid seller, supplier,
cooperative or agent of such Person’s intent to preserve the benefits of the
trust created under PACA or any Agricultural Lien Statute, nor has any action
been commenced by (i) any beneficiary of the trust created under PACA or any
Agricultural Lien Statute to enforce payment from such trust, or (ii) U.S.
Department of Agriculture or other governmental body or regulatory authority
against any Borrower to enforce payment from the trust created under PACA or any
Agricultural Lien Statute. No Borrower has received (a) any direct notice from
any secured party claiming a security interest or agricultural lien in any “farm
products” (as defined in the UCC) purchased by such Borrower, or (b) any notice
from any eligible claimant or other Person entitled to protection or otherwise
afforded rights under an Agricultural Lien Statute, nor is any Borrower aware of
any noncompliance with the Food Security Act or any Agricultural Lien Statute on
the part of any Person from whom such Borrower has purchased Inventory. Neither
Borrower is a “Dealer” as defined in Article 20 of the New York Agriculture and
Markets Law, and, as such, neither Borrower maintains a license as a Dealer
under such statute. Neither Borrower is a “Processor” as defined in Section
55407 of Food and Agricultural Code of California.
 
Section 5.2  Survival of Representations. All representations and warranties by
Borrowers (or any of them) herein shall be deemed to have been made on the date
hereof and the date of each advance of a Loan.
 
ARTICLE VI — SECURITY INTEREST AND COLLATERAL COVENANTS
 
Section 6.1  Security Interest. To secure the payment and performance of the
Obligations, each Borrower hereby mortgages, pledges and assigns to Lender all
of the Collateral and grants to Lender a continuing security interest and Lien
in and upon all of the Collateral.
 
Section 6.2  Collection of Accounts.
 
(a)  If any Borrower receives any monies, checks, notes, drafts, and other
payments relating to or constituting proceeds of accounts or of any other
Collateral, such Borrower shall immediately deposit such items in kind in a
Blocked Account, fully-endorsed. Each Borrower shall advise each Account Debtor
that remits amounts payable on the accounts, and any other Person that remits
amounts to such Borrower in respect of any of the Collateral, by wire transfer
or ACH to make such remittances directly to a Blocked Account.
 
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(b)  Each Borrower shall enter into a Lockbox agreement and shall cause all
moneys, checks, notes, drafts and other payments relating to or constituting
proceeds of accounts, or of any other Collateral, to be forwarded to a Lockbox
for deposit in a Blocked Account in accordance with the procedures set out in
the corresponding Blocked Account Agreement. In particular, each Borrower will
(i) advise each Account Debtor to address to a Lockbox specified by Lender all
remittances with respect to amounts payable on all accounts, and (ii) stamp all
invoices relating to any such amounts with a legend satisfactory to Lender
indicating that payment is to be made to such Borrower via such specified
Lockbox.
 
(c)  Borrowers and Lender shall cause all collected balances in each Blocked
Account to be transmitted daily to the Lender by wire transfer or depository
transfer check or Automated Clearing House transfer in accordance with the
procedures set forth in the corresponding Blocked Account Agreement.
 
(d)  Amounts transmitted to the Lender pursuant to subsection (c) above shall be
credited to the payment of the Obligations three (3) Business Days after the
date of actual receipt of such amounts by the Lender. The delay in applying
funds received by the Lender to the Obligations shall in all respects be limited
so that interest on the Obligations is at all times less than interest
calculated at the Maximum Rate.
 
(e)  Any payments which are received by any Borrower (including any payment
evidenced by a promissory note or other instrument) shall be held in trust for
Lender and shall be (i) deposited in the Blocked Account, or (ii) delivered to
Lender, as promptly as possible in the exact form received, together with any
necessary endorsements.
 
Section 6.3  Verification and Notification. Lender shall have the right at any
time at Borrowers’ expense and in its own name, any Borrower’s name, or an
assumed name (a) to verify the validity, amount or any other matter relating to
any accounts, and (b) to notify Account Debtors to make payment of all amounts
directly to Lender and enforce collection of any such accounts and to adjust,
settle or compromise the amount or payment thereof, in the same manner as the
applicable Borrower.
 
Section 6.4  Disputes, Returns and Adjustments.
 
(a)  Each Borrower shall provide Lender with prompt written notice of amounts in
excess of $25,000 that are in dispute between any Account Debtor and such
Borrower.
 
(b)  Each Borrower shall notify Lender promptly of all returns and credits in
respect of any account, which notice shall specify the accounts affected and be
included in the Borrowing Base Certificate delivered to Lender in accordance
with Section 8.3(d). Each Borrower shall notify Lender promptly of any pending
return or credit in excess of $15,000 and shall specify the account affected,
the related Account Debtor and the goods to be returned.
 
(c)  Each Borrower may, in the ordinary course of business and prior to a
Default or an Event of Default, grant any extension of time for payment of any
account or compromise, compound or settle the same for less than the full amount
thereof or release wholly or partly any Person liable for the payment thereof or
allow any credit or discount whatsoever thereon, provided that (i) such Borrower
shall not have taken any such action that results in the reduction of more than
ten percent (10%) of the amount payable with respect to any account or of more
than ten percent (10%) of the amount payable with respect to all accounts of
such Borrower in any fiscal year, and (ii) such Borrower shall promptly notify
Lender (but not less often than ten (10) days after the end of each month) of
the amount of such adjustments and the account(s) affected thereby.
 
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Section 6.5  Invoices. Upon request, each Borrower shall deliver to Lender
copies of customers’ invoices or the equivalent, original shipping and delivery
receipts or other proof of delivery, customers’ statements, the original copy of
all documents, including, without limitation, repayment histories and present
status reports, relating to accounts and such other documents and information
relating to the accounts as Lender shall specify.
 
Section 6.6  Ownership; Defense of Title.
 
(a)  Each Borrower shall defend its title in and to the Collateral and shall
defend the security interest of Lender in the Collateral against the claims and
demands of all Persons.
 
(b)  Each Borrower shall (i) protect and preserve all properties material to its
business, including Intellectual Property, and maintain all tangible property in
good and workable condition in all material respects, with reasonable allowance
for wear and tear, and (ii) from time to time make or cause to be made all
needed and appropriate repairs, renewals, replacements, and additions to such
properties necessary for the conduct of its business.
 
Section 6.7  Location of Offices and Collateral; Organizational Information. No
Borrower shall change the location of its place of business (or, if it has more
than one place of business, its chief executive office) or the place where it
keeps its books and records relating to the Collateral or change its name,
identity, corporate structure or jurisdiction of organization without giving
Lender at least thirty (30) days’ prior written notice thereof (provided,
however, that such Borrower may change its corporate structure or jurisdiction
of organization with less than thirty (30) days prior written notice to Lender
if Lender consents in writing, which consent shall not be unreasonably
withheld). All inventory, other than inventory in transit to any such location,
shall at all times be kept by the applicable Borrower at one or more of the
locations set forth in Schedule 5.1(o).
 
Section 6.8  Records Relating to Collateral.
 
(a)  Each Borrower shall at all times keep and maintain (i) complete and
accurate records of inventory on a basis consistent with past practices of such
Borrower, itemizing and describing the kind, type and quantity of inventory and
such Borrower’s cost therefor and a current price list for such inventory, (ii)
complete and accurate records of all other Collateral, (iii) a list of all
customers of such Borrower with names, addresses and phone numbers, (iv) a list
of all distributors for each product line included in such Borrower’s inventory,
(v) a current customer open order report against current inventory, and (vi) a
current list of all salesmen and employees of such Borrower. Data bases
containing the foregoing shall at all times be accessible and available to
Lender.
 
(b)  Each Borrower will conduct a physical count of all inventory, wherever
located, at least annually and make adjustments to its books and records to
reflect the findings of such count and such adjustments shall be immediately
reported to Lender.
 
Section 6.9  Inspection. Lender (by any of its officers, employees, or agents)
shall have the right at any time or times to (a) visit the properties of each
Borrower, inspect the Collateral and the other assets of each Borrower and
inspect and make extracts from the books and records of each Borrower, all
during customary business hours, (b) discuss each Borrower’s business, financial
condition, results of operations and business prospects with such Borrower’s (i)
principal officers, (ii) independent accountants and other professionals
providing services to such Borrower, and (iii) any other Person (except that any
such discussion with any third parties shall be conducted only in accordance
with Lender’s standard operating procedures relating to the maintenance of
confidentiality of confidential information of such Borrower), (c) verify the
amount, quantity, value, and condition of, or any other matter relating to, any
of the Collateral and in this connection review, audit and make extracts from
all records and files related to any of the Collateral, and (d) access and copy
the records, lists, reports and data bases referred to in Section 6.8; provided,
however, that so long as no Default or Event of Default has occurred and is
continuing, Lender agrees to provide at least three (3) business days prior
notice to Borrowers before exercising any of its inspection or visitation rights
under this Section. Each Borrower will deliver to the Lender upon request any
instrument necessary to authorize an independent accountant or other
professional to have discussions of the type outlined above with the Lender or
for the Lender to obtain records from any service bureau maintaining records on
behalf of such Borrower.
 
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Section 6.10  Maintenance. Each Borrower shall maintain all equipment of such
Borrower in good and working order and condition, reasonable wear and tear
accepted.
 
Section 6.11  Power of Attorney. Each Borrower hereby appoints Lender as its
attorney, with power (a) to endorse the name of such Borrower on any checks,
notes, acceptances, money orders, drafts or other forms of payment or security
that may come into Lender’s possession, and (b) to sign the name of such
Borrower on any invoice or bill of lading relating to any accounts, inventory or
other Collateral. Each Borrower also authorizes Lender to file financing
statements, without such Borrower’s signature, covering part or all of the
Collateral in such jurisdictions as Lender shall determine to be advisable.
 
ARTICLE VII — AFFIRMATIVE COVENANTS
 
So long as this Agreement shall be in effect or any of the Obligations shall be
outstanding, each Borrower covenants and agrees as follows:
 
Section 7.1  Preservation of Corporate Existence and Similar Matters. Each
Borrower shall preserve and maintain its existence as a corporation or limited
liability company, as the case may be, and qualify and remain qualified as a
foreign entity authorized to do business in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification or authorization.
 
Section 7.2  Compliance with Applicable Law. Each Borrower shall comply with all
applicable laws (including, without limitation, PACA, the Food Security Act, any
applicable Agricultural Lien Statute, and any applicable statute, regulation or
ordinance governing or otherwise relating to (a) ecology, human health or the
environment, or (b) the production, manufacture, storage, sale, distribution
and/or other handling of beer or other intoxicating beverages).
 
Section 7.3  Conduct of Business. Each Borrower shall engage only in
substantially the same businesses conducted by such Borrower on the date hereof.
 
Section 7.4  Payment of Taxes and Claims. Each Borrower shall pay or discharge
when due (a) all taxes, assessments and governmental charges imposed upon it or
its properties and (b) all lawful claims which, if unpaid, might become a Lien
on any properties of such Borrower, except that this Section 7.4 shall not
require the payment or discharge of any such tax, assessment, charge, levy or
claim which is being contested in good faith by appropriate proceedings and for
which adequate reserves have been established on the appropriate books of such
Borrower.
 
Section 7.5  Accounting Methods and Financial Records. Each Borrower shall
maintain a system of accounting, and keep such books, records and accounts
(which shall be true and complete), as may be required or as may be necessary to
permit the preparation of financial statements in accordance with GAAP
consistently applied.
 
Section 7.6  Use of Proceeds. Each Borrower shall (a) use the proceeds of the
Loans for the repayment of its outstanding bank debt and for working capital and
general business purposes, and (b) not use any part of such proceeds to purchase
or carry, or to reduce or retire or refinance any credit incurred to purchase or
carry, any margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System) or for any other purpose which would
violate Regulation U or Regulation T or X of such Board of Governors or for any
other purpose prohibited by law or by the terms and conditions of this
Agreement.
 
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Section 7.7  Hazardous Waste and Substances; Environmental Requirements. Each
Borrower shall comply with all occupational health and safety laws and
Environmental Laws.
 
Section 7.8  Accuracy of Information. All written information, reports,
statements and other papers and data furnished to Lender shall be, at the time
the same is so furnished, complete and correct in all material respects.
 
Section 7.9  Revisions or Updates to Schedules. Should any of the information or
disclosures provided on any of the Schedules attached hereto become outdated or
incorrect in any material respect, Borrowers shall provide promptly to Lender
such revisions or updates to such Schedule(s) as may be necessary or appropriate
to update or correct and update such Schedule(s). Notwithstanding the foregoing,
the delivery to Lender of a revised or updated schedule shall not constitute a
waiver of, or consent to, any Default or Event of Default arising as a result of
any erroneous or incorrect information provided in any Schedule previously
delivered to Lender.
 
Section 7.10  ERISA. Each Borrower shall provide to Lender, as soon as possible
and in any event within 30 days after the date that (a) any Termination Event
with respect to a Benefit Plan of such Borrower has occurred or will occur, (b)
the aggregate present value of the Unfunded Vested Liabilities under all Benefit
Plans of such Borrower has increased to an amount in excess of $0, or (c) such
Borrower is in “default” (as defined in Section 4219(c)(5) of ERISA) with
respect to payments to a Multiemployer Plan required by reason of its complete
or partial withdrawal (as described in Section 4203 or 4205 of ERISA) from such
Multiemployer Plan, a certificate of the president or the chief financial
officer of such Borrower setting forth the details of such of the events
described in clauses (a) through (c) as applicable and the action which is
proposed to be taken with respect thereto and, simultaneously with the filing
thereof, copies of any notice or filing which may be required by the PBGC or
other agency of the United States government with respect to such of the events
described in clauses (a) through (c) as applicable.
 
Section 7.11  Insurance. Each Borrower shall keep or cause to be kept adequately
insured by financially sound and reputable insurers all of its property usually
insured by Persons engaged in the same or similar businesses. Without limiting
the foregoing, each Borrower shall insure the Collateral of such Borrower
against loss or damage by fire, theft, burglary, pilferage, loss in transit,
business interruption, and such other hazards as usual and customary in such
Borrower’s industry or as Lender may specify in amounts and under policies by
insurers acceptable to Lender, and all premiums thereon shall be paid by such
Borrower and copies of the policies delivered to Lender. If any Borrower fails
to do so, Lender may procure such insurance and charge the cost to such
Borrower’s account. Each policy of insurance covering the Collateral shall
provide that at least ten (10) days prior written notice of cancellation or
notice of lapse must be given to Lender by the insurer. All insurance policies
required under this Section 7.11 shall name Lender as an additional named
insured and as a loss payee. Any proceeds of insurance referred to in this
Section 7.11 which are paid to Lender shall be, at the option of Lender in its
commercially reasonable discretion, either (i) applied to rebuild, restore or
replace the damaged or destroyed property, or (ii) applied to the payment of the
Obligations (or, if any Default or Event of Default has occurred and is
continuing, to the prepayment of the Obligations).
 
Section 7.12  Payroll Taxes. Each Borrower shall at all times make all payroll
tax deposits for all of its employees on or before the date when due.
 
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Section 7.13  Notice of Certain Matters. Each Borrower shall provide to Lender
prompt notice of (a) the commencement, to the extent such Borrower is aware of
the same, of all actions and proceedings in any court against any Borrower or
any of the Collateral, (b) any amendment of any of the organizational documents
of any Borrower, including but not limited to articles of incorporation or
bylaws, (c) any change in the business, financial condition, results of
operations or business prospects of any Borrower and any change in the executive
officers of any Borrower (including, without limitation, if either (x) Yashpal
Singh shall for any reason cease to hold the office of President and Chief
Executive Officer of Mendocino Brewing, or (y) N. Mahadevan shall for any reason
cease to hold the office of Chief Financial Officer of Mendocino Brewing), and
(d) any (i) Default or Event of Default, or (ii) event that would constitute a
default or event of default by any Borrower under any Material Agreement (other
than this Agreement) to which such Borrower is a party. In addition, each
Borrower will promptly notify Bank in writing upon receiving from any unpaid
seller, supplier or agent any written notice of intent to preserve the benefits
of the trust created under PACA or any Agricultural Lien Statute, the
commencement of any action by any beneficiary of the trust created under PACA or
any Agricultural Lien Statute to enforce payment from such trust, or any action
commenced by the U.S. Department of Agriculture or any governmental body or
regulatory authority against Borrower to enforce payment from the trust created
under PACA or any Agricultural Lien Statute. In addition, each Borrower will
promptly notify Lender in writing (a) upon receiving any direct notice from any
secured party claiming a security interest or agricultural lien in any “farm
products” (as defined in the UCC) purchased by such Borrower, (b) upon receiving
any notice from any eligible claimant or other Person entitled to protection
under an Agricultural Lien Statute, (c) upon learning that any Person from whom
such Borrower has purchased Inventory has failed to comply with the Food
Security Act or any Agricultural Lien Statute, and (d) upon receiving any
written notice or other written communication from any licensing authority under
any Agricultural Lien Statute. In addition, so long as any of UBH, UBA or
Inversiones remain significant shareholders, directly or indirectly, of
Mendocino Brewing, Mendocino Brewing agrees that it will promptly notify Lender
in writing upon learning of the occurrence of any of the following events or
circumstances:
 
(A) UBH, UBA or Inversiones shall (i) apply for or consent to the appointment of
a receiver, trustee, custodian, intervenor or liquidator of such Person or of
all or a substantial part of such Person’s assets, (ii) file a voluntary
petition in bankruptcy, (iii) admit in writing that such Person is unable to pay
its debts as they become due, (iv) make a general assignment for the benefit of
creditors, (v) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or insolvency
proceeding, or (vii) take corporate, company or partnership action for the
purpose of effecting any of the foregoing; or
 
(B) An involuntary petition or complaint shall be filed against UBH, UBA or
Inversiones seeking bankruptcy or reorganization of such Person or the
appointment of a receiver, custodian, trustee, intervenor or liquidator of such
Person, or of all or substantially all of such Person’s assets; or an order,
order for relief, judgment or decree shall be entered by any court of competent
jurisdiction or other competent authority approving a petition or complaint
seeking reorganization of such Person or appointing an intervenor or liquidator
of such Person, or of all or substantially all of such Person’s assets.

Section 7.14  Additional Affirmative Covenants. The covenants set forth in
Section 7.14 of Schedule A hereto are incorporated herein by reference.
 
ARTICLE VIII — FINANCIAL AND COLLATERAL REPORTING
 
So long as this Agreement shall be in effect or any of the Obligations shall be
outstanding, each Borrower covenants and agrees as follows:
 
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Section 8.1  Financial Statements.
 
(a)  Audited Year-End Statements. As soon as available, but in any event within
one hundred twenty (120) days after the end of each fiscal year of Borrowers,
Borrowers shall furnish to Lender copies of the audited consolidated and
consolidating balance sheet of Mendocino Brewing and its subsidiaries as of the
end of such fiscal year and the related audited consolidated and consolidating
statements of income, shareholders’ equity and cash flow for such fiscal year,
in each case setting forth in comparative form the figures for the previous year
of Mendocino Brewing and its subsidiaries, together with an unqualified audit
report certified by independent certified public accountants selected by
Borrowers and acceptable to Lender in its commercially reasonable discretion;
provided that consolidating statements need not be certified by such
accountants. In addition, on or before such date, Borrowers shall provide Lender
with copies of all management reports received from their certified public
accountants.
 
(b)  Monthly Financial Statements. As soon as available, but in any event within
twenty (20) days after the end of each month, Borrowers shall furnish to Lender
copies of the unaudited consolidated and consolidating balance sheet of
Mendocino Brewing and its U.S. subsidiaries as of the end of such month and the
related unaudited consolidated and consolidating income statement and statement
of cash flow of Mendocino Brewing and its U.S. subsidiaries for such month and
for the portion of the fiscal year of Borrowers through such month, certified by
the chief financial officer of Mendocino Brewing as presenting fairly the
financial condition and results of operations of Mendocino Brewing and its
subsidiaries as of the date thereof and for the periods ended on such date,
subject to normal year-end adjustments.
 
(c)  Projected Financial Statements. At least thirty (30) but not more than
sixty (60) days prior to the end of each fiscal year of Borrowers, Borrowers
shall furnish to Lender forecasted financial statements, prepared by Borrowers’
management, consisting of consolidated and consolidating balance sheets, cash
flow statements and income statements of Mendocino Brewing and its U.S.
subsidiaries, reflecting projected borrowing hereunder and setting forth the
assumptions on which such forecasted financial statements were prepared,
covering the one-year period until the next fiscal year end.
 
All such financial statements shall be complete and correct in all material
respects and all such financial statements referred to in clauses (a) and (b)
shall be prepared in accordance with GAAP (except, with respect to interim
financial statements, for the omission of footnotes) applied consistently
throughout the periods reflected therein. Further, all such financial statements
shall be in a form acceptable to Lender. It is expressly understood and agreed
that, if the financial statements referred to in clauses (a) and (b) above
combine and consolidate the financial condition and results of operation of the
Borrowers with those of any other Person, or if such financial statements do not
combine and consolidate the financial condition and results of operation of the
Borrowers, then the Borrowers, in addition to such financial statements referred
to above, shall deliver to the Lender with such financial statements a separate
set of financial statements for the same periods (and, in the case of the
financial statements referred to in clause (a), prepared by the same independent
certified public accountants) which combine and consolidate solely the financial
condition and results of operation of the Borrowers.
 
Section 8.2  Compliance Certificate. Together with each delivery of financial
statements required by Sections 8.1(a) and (b), Borrowers shall furnish to
Lender a certificate of each Borrower’s president or chief financial officer in
the form of Exhibit B.
 
Section 8.3  Collateral Information and Reports.
 
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(a)  Schedules of Accounts. Within twenty (20) days after the end of each month,
Borrowers shall furnish to Lender a Schedule of Accounts listing all accounts of
each Borrower as of the last Business Day of such month setting forth (i) the
name of each Account Debtor together with account balances detailed by invoice
number, amount (and any applicable rebate or discount), invoice date and terms,
(ii) aging of all accounts setting forth accounts thirty (30) days past the
invoice date or less, accounts over thirty (30) days past the invoice date but
less than sixty-one (61) days past the invoice date, accounts over sixty (60)
days past the invoice date but less than ninety-one (91) days past the invoice
date, accounts over ninety (90) days past the invoice date and less than one
hundred twenty-one (121) days past the invoice date and accounts over one
hundred twenty (120) days past the invoice date, and (iii) a reconciliation of
the Schedule of Accounts to the Borrowing Base Certificate as of the most recent
month end and to each Borrower’s general ledger as of such month end.
 
(b)  Schedules of Accounts Payable. Within twenty (20) days after the end of
each month, Borrowers shall furnish to Lender a schedule of accounts payable of
each Borrower as of the last Business Day of such month setting forth (i) a
detailed aged trial balance of all of each Borrower’s then existing accounts
payable, specifying the name of and the balance due to each creditor and (ii) a
reconciliation to the schedule of accounts payable to each Borrower’s general
ledger as of such month end. Together with the above-described accounts payable
agings, each Borrower shall deliver to the Lender (i) a listing of all Grower
Payables (if any) of such Borrower, certified as true and complete by a duly
authorized officer of such Borrower, which listing may be relied upon by the
Lender in determining the Grower Payables Reserve, and (b) a listing of all PACA
Payables (if any) of such Borrower, certified as true and complete by a duly
authorized officer of such Borrower, which listing may be relied upon by Bank in
determining the PACA Reserve.
 
(c)  Schedule of Inventory. Within twenty (20) days after the end of each month,
Borrowers shall furnish to Lender (i) (A) a Schedule of Inventory, based upon
each Borrower’s perpetual inventory, as of the last Business Day of such month,
itemizing and describing the kind, type, quantity and location of all inventory
of each Borrower and the cost thereof with a summary of inventory by category,
and (B) a detailed statement of all inventory that is not located on the
premises described on Schedule 5.1(o), in each case in form and substance
acceptable to Lender, and (ii) a reconciliation of the Schedule of Inventory to
the Borrowing Base Certificate as of the most recent month end and to each
Borrower’s general ledger as of such month end.
 
(d)  Borrowing Base Certificate. Not less often than weekly, Borrowers shall
furnish to Lender a Borrowing Base Certificate prepared as of the close of
business on the last Business Day of such week, along with supporting
documentation, in form and substance satisfactory to Lender (including but not
limited to information on sales, credits, collections and adjustments).
 
(e)  Certification. Each of the schedules and certificates delivered to Lender
by Borrowers pursuant to this Section 8.3 shall be in a form acceptable to
Lender in its commercially reasonable discretion and shall be signed and
certified by the president, chief financial officer or treasurer of each
Borrower to be true, correct and complete as of the date indicated thereon. In
the event any of such schedules or certificates are delivered electronically or
without signature, such schedules and/or certificates shall, by virtue of their
delivery, be deemed to have been signed and certified by the president of each
Borrower to be true, correct and complete as of the date indicated thereon.
 
(f)  Other Information. Lender may, in its commercially reasonable discretion,
from time to time require Borrowers to deliver the schedules and certificates
described in Section 8.3 more or less often and on different schedules than
specified in such Section. Borrowers shall also furnish to Lender such other
additional information as Lender may from time to time request in its
commercially reasonable discretion.
 
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ARTICLE IX — NEGATIVE COVENANTS
 
So long as this Agreement shall be in effect or any of the Obligations shall be
outstanding, each Borrower covenants and agrees as follows:
 
Section 9.1  Financial Covenants. Refer to Section 9.1 of Schedule A hereto.
 
Section 9.2  Prohibited Distributions and Payments, Etc. No Borrower shall,
directly or indirectly, declare or make any Prohibited Distribution or
Prohibited Payment without the prior written consent of Lender, which consent
shall not be unreasonably withheld, provided, that so long as (i) a Borrower is
a limited liability company and has elected to be taxed as a partnership for
Federal income tax purposes or has a valid election to be taxed as an “S
corporation” for Federal income tax purposes and (ii) no Default or Event of
Default has occurred or would result therefrom, such Borrower may pay dividends
or make distributions to its shareholders or members (as applicable) in an
aggregate amount not greater than the amount necessary for such shareholders or
members to pay their actual state and United States federal income tax
liabilities in respect of taxable income earned by such Borrower.
 
Section 9.3  Indebtedness. Except as disclosed on Schedule 5.1(h), no Borrower
shall, directly or indirectly, create, assume, or otherwise become or remain
obligated in respect of, or permit or suffer to exist or to be created, assumed
or incurred or to be outstanding, any Indebtedness, except for Permitted
Indebtedness. Without limiting the generality of the foregoing, Borrowers
specifically covenant and agree that they will not, directly or indirectly,
create, assume or otherwise become or remain obligated in respect of, or permit
or suffer to exist or to be created, assumed or incurred or to be outstanding,
any Indebtedness owed to any subsidiary or other Affiliate of any Borrower,
other than Indebtedness that is expressly contemplated by and subject to a
Subordination Agreement (in form and substance acceptable to the Lender in its
commercially reasonable discretion) executed by the holder(s) of such
Indebtedness in favor of the Lender.
 
Section 9.4  Liens. No Borrower shall, directly or indirectly, create, assume or
permit or suffer to exist or to be created or assumed any Lien on any of the
property or assets of such Borrower, real, personal or mixed, tangible or
intangible, except for Permitted Liens or the liens identified on Schedule
5.1(g).
 
Section 9.5  Loans. No Borrower shall make any loans or advances to or for the
benefit of any officer, director, manager, shareholder, member, or partner of
any Borrower except advances for routine expense allowances in the ordinary
course of business. No Borrower shall make or suffer to exist any loans or
advances to or for the benefit of any subsidiary of other Affiliate of any
Borrower. No Borrower shall make any payment on any obligation owing to any
officer, director, manager, shareholder, member, partner or Affiliate of any
Borrower, except payments of salary and payments to the holder of any
Subordinated Indebtedness, if any, in accordance with the terms of the
subordination agreement among such subordinated creditor, such Borrower, and
Lender.
 
Section 9.6  Merger, Consolidation, Sale of Assets, Acquisitions. No Borrower
shall, directly or indirectly, merge or consolidate with any other Person or
sell, lease or transfer or otherwise dispose of any assets to any Person (other
than sales of inventory in the ordinary course of business) or acquire all or
substantially all of the assets of any Person or the assets constituting the
business or a division or operating unit of any Person.
 
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Section 9.7  Transactions with Affiliates. No Borrower shall, directly or
indirectly, effect any transaction with any Affiliate on a basis less favorable
to such Borrower than would be the case if such transaction had been effected
with a Person not an Affiliate, provided that no Borrower shall enter into any
lease with any Affiliate.
 
Section 9.8  Licensure. No Borrower is required to maintain a license, and no
Borrower maintains a license, under either PACA or any Agricultural Lien
Statute.
 
Section 9.9  Warehouse Receipts. Each Borrower represents that it does not
issue, and covenants that it will not issue, any negotiable warehouse receipts,
nonnegotiable warehouse receipts, scale weight tickets or load slips, or any
other evidence of ownership or document of title, covering any hops, malt or
other grain products or derivatives, whether located at a facility owned or
leased by a Borrower or otherwise, that are or were included within such
Borrower’s inventory.
 
Section 9.10  Guaranties. No Borrower shall, directly or indirectly, either (a)
endorse, guarantee, contingently agree to purchase or to provide funds for the
payment of, or otherwise become contingently liable upon, any obligation of any
other Person, except by the endorsement of negotiable instruments for deposit or
collection (or similar transactions) in the ordinary course of business, or (b)
agree to maintain the net worth or working capital of, or provide funds to
satisfy any other financial test applicable to, any other Person.
 
Section 9.11  Operating Leases. No Borrower shall, directly or indirectly,
suffer to exist or enter into any lease other than a Capitalized Lease which
would cause the annual payment obligations of such Borrower under all leases
(other than Capitalized Leases and the real property leases described on
Schedule 9.11 attached hereto) to exceed $50,000 in the aggregate.
 
Section 9.12  Benefit Plans. No Borrower shall, directly or indirectly, permit,
or take any action which would cause, the Unfunded Vested Liabilities under all
Benefit Plans of such Borrower to exceed $0.
 
Section 9.13  Sales and Leasebacks. No Borrower shall, directly or indirectly,
enter into any arrangement with any Person providing for the leasing from such
Person of real or personal property which has been or is to be sold or
transferred, directly or indirectly, by such Borrower to such Person.
 
Section 9.14  Investments. No Borrower shall, directly or indirectly, make or
acquire any Investment without the prior written consent of the Lender, which
consent shall not be unreasonably withheld; provided, however, each Borrower may
make Permitted Investments.
 
Section 9.15  Amendments. No Borrower shall amend or modify, or permit any
amendment or modification to, whether orally, in writing, or otherwise, any
agreement evidencing or relating to Subordinated Indebtedness that would affect
the validity or enforceability of the subordination agreement referred to in
Section 4.11(q) of Schedule A hereto, without the prior written consent of the
Lender.
 
Section 9.16  USA Patriot Act. No Borrower shall (a) be or become subject at any
time to any law, regulation, or list of any government agency (including,
without limitation, the U.S. Office of Foreign Asset Control list) that
prohibits or limits Lender from making any advance or extension of credit to
such Borrower or from otherwise conducting business with such Borrower or
(b) fail to provide documentary and other evidence of such Borrower’s or its
officers’ or managers’ identities as may be requested by Lender at any time to
enable Lender to verify such Borrower’s identity or to comply with any
applicable law or regulation, including, without limitation, Section 326 of the
USA Patriot Act of 2001, 31 U.S.C. §5318.
 
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Section 9.17  Additional Negative Covenants. The covenants set forth in Section
9.16 of Schedule A hereto are incorporated herein by reference.
 
ARTICLE X — DEFAULT
 
Section 10.1  Events of Default. Each of the following events shall constitute
an Event of Default:
 
(a)  The failure or refusal of any Borrower to make any payment of the
Obligations when due;
 
(b)  The failure of any Borrower to perform properly any covenant in this
Agreement or in any of the other Loan Documents;
 
(c)  The occurrence of any default or event of default under any of the other
Loan Documents;
 
(d)  Any representation or warranty contained herein or in any of the other Loan
Documents is false or misleading in any material respect when made or deemed
made;
 
(e)  Any Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian, intervenor or liquidator of such Borrower or of
all or a substantial part of such Borrower’s assets, (ii) file a voluntary
petition in bankruptcy, (iii) admit in writing that such Borrower is unable to
pay its debts as they become due, (iv) make a general assignment for the benefit
of creditors, (v) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or insolvency
proceeding, or (vii) take corporate, company or partnership action for the
purpose of effecting any of the foregoing;
 
(f)  With respect to any Borrower, either (i) an involuntary petition or
complaint shall be filed against such Borrower seeking bankruptcy or
reorganization of such Borrower or the appointment of a receiver, custodian,
trustee, intervenor or liquidator of such Borrower, or of all or substantially
all of such Borrower’s assets or (ii) an order, order for relief, judgment or
decree shall be entered by any court of competent jurisdiction or other
competent authority approving a petition or complaint seeking reorganization of
such Borrower or appointing an intervenor or liquidator of such Borrower, or of
all or substantially all of such Borrower’s assets; or (iii) such Borrower shall
become subject to a proceeding ancillary commenced in connection with any
insolvency proceeding involving UBI, UBSN or any other foreign Affiliate of such
Borrower;
 
(g)  Any money judgment is rendered against any Borrower that is not paid within
thirty (30) days after the entry thereof (or, if later, by the date on which
such payment is due pursuant to a written settlement agreement duly executed by
or on behalf of the applicable judgment creditor), or the failure, within a
period of ten (10) days after the commencement thereof, to have discharged any
attachment, sequestration, or similar proceedings against any Borrower’s assets;
 
(h)  Lender shall cease to have a valid, perfected and first priority Lien on
any of the Collateral, except as otherwise expressly permitted herein or
consented to in writing by Lender;
 
(i)  Any failure by UBI, UBSN or any other foreign Affiliate owned, directly or
indirectly, by any Borrower to consistently observe all necessary and proper
corporate formalities consistent with its status as an independent legal entity;
or
 
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(j)  Any other event described in Section 10.1 of Schedule A hereto shall occur.
 
Section 10.2  Remedies.
 
(a)  Automatic Acceleration and Termination of Facilities. Upon the occurrence
of an Event of Default specified in Section 10.1(e) or (f)(ii), (i) the
principal of and the accrued interest on the Loans at the time outstanding, and
all other amounts owed to Lender under this Agreement or any of the Loan
Documents and all other Obligations, shall thereupon become due and payable
without presentment, demand, protest, notice of protest and non-payment, notice
of default, notice of acceleration or intention to accelerate, or other notice
of any kind, all of which are expressly waived, anything in this Agreement or
any of the Loan Documents to the contrary notwithstanding, and (ii) the
commitment of Lender to make Loans hereunder shall immediately terminate.
 
(b)  Other Remedies. Without limiting the terms of Section 10.2(a) above, if any
Event of Default shall have occurred and be continuing, Lender, in its sole and
absolute discretion, may (i) declare the principal of and accrued interest on
the Loans at the time outstanding, and all other amounts owed to Lender under
this Agreement or any of the Loan Documents and all other Obligations, to be
forthwith due and payable, whereupon the same shall immediately become due and
payable without presentment, demand, protest, notice of protest and non-payment,
notice of default, notice of acceleration or intention to accelerate, or other
notice of any kind, all of which are expressly waived, anything in this
Agreement or the Loan Documents to the contrary notwithstanding; (ii) terminate
any commitment of Lender to make Loans hereunder; (iii) enter upon any premises
where Collateral is located; (iv) require that Mendocino Brewing execute and
deliver to Lender a Pledge Agreement (in form and substance acceptable to Lender
in its commercially reasonable discretion) covering all of its capital stock in
Releta Brewing (which Mendocino Brewing specifically agrees it will execute and
deliver to Lender without delay); and (v) exercise any or all rights and
remedies available under the Loan Documents, at law and/or in equity including,
without limitation, the rights and remedies of a secured party under the UCC
(whether or not the UCC is applicable). Each Borrower agrees that, to the extent
notice of sale shall be required by law, 10 days’ notice to such Borrower of the
time and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notice, but notice given in any other
reasonable manner or at any other reasonable time shall also constitute
reasonable notification.
 
Section 10.3  Application of Proceeds. All proceeds from each sale of, or other
realization upon, all or any part of the Collateral following an Event of
Default shall be applied to the payment of the Obligations (with each Borrower
remaining jointly and severally liable for any deficiency) in any order which
Lender may elect with the balance (if any) paid to Borrowers or to whomsoever is
entitled thereto.
 
Section 10.4  Power of Attorney. Each Borrower hereby irrevocably designates,
makes, constitutes and appoints Lender (and all Persons designated by Lender
from time to time) as such Borrower’s true and lawful attorney and agent in
fact, and Lender or any agent of Lender may, without notice to any Borrower, and
at such time or times as Lender or any such agent in its sole and absolute
discretion may determine, in the name of such Borrower or Lender:
 
(a)  demand payment of the accounts, enforce payment thereof by legal
proceedings or otherwise, settle, adjust, compromise, extend or renew any or all
of the accounts or any legal proceedings brought to collect the accounts,
discharge and release the accounts or any of them and exercise all of such
Borrower’s rights and remedies with respect to the collection of accounts;
 
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(b)  prepare, file and sign the name of such Borrower on any proof of claim in
bankruptcy or any similar document against any Account Debtor or any notice of
Lien, assignment or satisfaction of Lien or similar document in connection with
any of the Collateral;
 
(c)  use the stationery of such Borrower, open such Borrower’s mail, notify the
post office authorities to change the address for delivery of such Borrower’s
mail to an address designated by Lender and sign the name of such Borrower to
verifications of the accounts and on any notice to the Account Debtors; and
 
(d)  use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the accounts, inventory
or other Collateral.
 
Section 10.5  Miscellaneous Provisions Concerning Remedies.
 
(a)  Rights Cumulative. The rights and remedies of Lender under the Loan
Documents shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. In exercising such rights and remedies, Lender may be
selective and no failure or delay by Lender in exercising any right shall
operate as a waiver of such right nor shall any single or partial exercise of
any power or right preclude its other or further exercise or the exercise of any
other power or right.
 
(b)  Waiver of Marshaling. Each Borrower hereby waives any right to require any
marshaling of assets and any similar right.
 
Section 10.6  Trademark License. All trademarks, patents, copyrights, service
marks and licenses owned by any Borrower, and all trademarks, patents,
copyrights, service marks and software licensed by any Borrower, are listed on
Schedule 10.6. Each Borrower hereby grants to Lender the nonexclusive right and
license to use all of the trademarks, patents, copyrights, service marks and
licenses described on Schedule 10.6 and any other trademarks, patents,
copyrights, service marks and licenses now or hereafter used by such Borrower,
for the purposes set forth in Section 10.2 and for the purpose of enabling
Lender to realize on the Collateral and to permit any purchaser of any portion
of the Collateral through a foreclosure sale or any other exercise of Lender’s
rights and remedies under the Loan Documents to use, sell or otherwise dispose
of the Collateral bearing any such trademarks, patents, copyrights, service
marks and licenses. Such right and license is granted free of charge, without
the requirement that any monetary payment whatsoever be made to any Borrower or
any other Person by Lender.
 
ARTICLE XI — MISCELLANEOUS
 
Section 11.1  Notices.
 
(a)  Method of Communication. All notices and the communications hereunder and
thereunder shall be in writing or by telephone subsequently confirmed in
writing. Notices in writing shall be delivered personally or sent by overnight
courier service, by certified or registered mail, postage pre-paid, or by
facsimile transmission and shall be deemed received, in the case of personal
delivery, when delivered, in the case of overnight courier service, on the next
Business Day after delivery to such service, in the case of mailing, on the
third day after mailing (or, if such day is a day on which deliveries of mail
are not made, on the next succeeding day on which deliveries of mail are made)
and, in the case of facsimile transmission, upon transmittal, provided that in
the case of notices to Lender, Lender shall be charged with knowledge of the
contents thereof only when such notice is actually received by Lender. A
telephonic notice to Lender as understood by Lender will be deemed to be the
controlling and proper notice in the event of a discrepancy with or failure to
receive a confirming written notice.
 
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(b)  Addresses for Notices. Notices to any party shall be sent to it at the
following addresses, or any other address of which all the other parties are
notified in writing.

If to a Borrower:
See Section 11.1 of Schedule A hereto for each Borrower’s address and contact
information.
   
If to Lender:
1660 S. Highway 100
Suite 146
Minneapolis, MN 55416-1524
Attention: Credit Department
Facsimile (952) 542-8907

 
Section 11.2  Expenses. Within ten (10) days after presentation of an invoice
for such costs and expenses, outlining such items in reasonable detail, each
Borrower jointly and severally agrees to pay or reimburse all costs and expenses
incurred by Lender arising out of or in connection with this Agreement and the
Loans including, without limitation, (a) the reasonable fees and expenses of
counsel in connection with the negotiation, preparation, execution, delivery,
amendment, enforcement and termination of this Agreement and each of the other
Loan Documents, (b) the out-of-pocket costs and expenses incurred in connection
with the administration and interpretation of this Agreement and the other Loan
Documents, (c) the costs and expenses of appraisals of the Collateral, (d) the
costs and expenses of lien searches, (e) all stamp, registration, recordation
and similar taxes, fees or charges related to the Collateral and charges of
filing financing statements and continuations and the costs and expenses of
taking other actions to perfect, protect, and continue the security interest of
Lender, (f) costs and expenses related to the preparation, execution and
delivery of any waiver, amendment, supplement or consent by Lender relating to
this Agreement or any of the Loan Documents, (g) sums paid or obligations
incurred in connection with the payment of any amount or taking any action
required of any Borrower under the Loan Documents that such Borrower fails to
pay or take, (h) costs of inspections and verifications of the Collateral,
including, without limitation, $800 per diem per examiner plus out of
pocket expenses for travel, lodging, and meals arising in connection with
inspections and verifications of the Collateral and each Borrower’s operations
and books and records by Lender’s employees and agents, (i) costs and expenses
of forwarding loan proceeds, collecting checks and other items of payment, and
establishing and maintaining each account of each Borrower maintained with
Lender or owned by Lender for the benefit of any Borrower and each Blocked
Account and Lockbox, (j) costs and expenses of preserving and protecting the
Collateral, (k) costs and expenses related to consulting with and obtaining
opinions and appraisals from one or more Persons, including personal property
appraisers, accountants and lawyers, concerning the value of any Collateral for
the Obligations or related to the nature, scope or value of any right or remedy
of Lender hereunder or under any of the Loan Documents, including any review of
factual matters in connection therewith, which expenses shall include the fees
and disbursements of such Persons, and (1) costs and expenses paid or incurred
to obtain payment of the Obligations, enforce the security interest of Lender,
sell or otherwise realize upon the Collateral, and otherwise enforce the
provisions of the Loan Documents, or to prosecute or defend any claim in any way
arising out of, related to or connected with, this Agreement or any of the Loan
Documents, which expenses shall include the reasonable fees and disbursements of
counsel and of experts and other consultants retained by Lender. Each Borrower
hereby authorizes Lender to debit such Borrower’s loan account by increasing the
principal amount of the Loan, or deduct from such Borrower’s accounts maintained
with any Affiliate of Lender, the amount of any costs, fees and expenses owed by
any Borrower when due.
 
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Section 11.3  Setoff. In addition to any rights now or hereafter granted under
applicable law, and not by way of limitation of any such rights, upon and after
the occurrence of any Event of Default, Lender and any participant with Lender
in the Loans are hereby authorized by each Borrower at any time or from time to
time, without notice to any Borrower or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all deposits (general or special, time or demand, including, but not limited
to, indebtedness evidenced by certificates of deposit, whether matured or
unmatured) and any other indebtedness at any time held or owing by Lender or any
participant to or for the credit or the account of any Borrower against and on
account of the Obligations irrespective or whether or not (a) Lender shall have
made any demand under this Agreement or any of the Loan Documents, or (b) Lender
shall have declared any or all of the Obligations to be due and payable as
permitted by Section 10.2 and although such Obligations shall be contingent or
unmatured.
 
Section 11.4  Venue; Service of Process. EACH BORROWER HEREBY IRREVOCABLY
SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
LOCATED IN HENNEPIN COUNTY, MINNESOTA, AND AGREES AND CONSENTS THAT SERVICE OF
PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT,
ANY BORROWING HEREUNDER OR ANY OTHER RELATIONSHIP BETWEEN OR AMONG LENDER AND
BORROWERS (OR ANY OF THEM) BY ANY MEANS ALLOWED UNDER STATE OR FEDERAL LAW. ANY
LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY
BORROWING HEREUNDER OR ANY OTHER RELATIONSHIP BETWEEN OR AMONG LENDER AND
BORROWERS (OR ANY OF THEM) MAY BE BROUGHT AND LITIGATED IN ANY ONE OF THE STATE
OR FEDERAL COURTS LOCATED IN HENNEPIN COUNTY, MINNESOTA, HAVING JURISDICTION.
BORROWERS AND LENDER WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE, THAT ANY SUCH PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM OR THAT THE VENUE THEREOF IS IMPROPER. ANY JUDICIAL PROCEEDING BY
BORROWERS (OR ANY OF THEM) AGAINST THE LENDER INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTION WITH ANY LOAN
DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN MINNEAPOLIS, MINNESOTA.
 
Section 11.5  Assignment; Participation. All the provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that no Borrower may assign or
transfer any of its rights or obligations under this Agreement. Lender may
assign to one or more Persons, or sell participations to one or more Persons in,
all or a portion of its rights and obligations hereunder and under this
Agreement and any promissory notes issued pursuant hereto and, in connection
with any such assignment or sale of a participation, may assign its rights and
obligations under the Loan Documents. Each Borrower agrees that Lender may
provide any information that Lender may have about such Borrower or about any
matter relating to this Agreement to any of its Affiliates or their successors,
or to any one or more purchasers or potential purchasers of any of its rights
under this Agreement or any one or more participants or potential participants.
 
Section 11.6  Amendments. Any term, covenant, agreement or condition of this
Agreement or any of the other Loan Documents may be amended or waived and any
departure therefrom may be consented to if, but only if, such amendment, waiver
or consent is in writing signed by Lender and, in the case of an amendment, by
Borrowers. Unless otherwise specified in such waiver or consent, a waiver or
consent given hereunder shall be effective only in the specific instance and for
the specific purpose for which given.
 
Section 11.7  Performance of Borrowers’ Duties. If any Borrower shall fail to do
any act or thing which it has covenanted to do under this Agreement or any of
the Loan Documents, Lender may (but shall not be obligated to) do the same or
cause it to be done either in the name of Lender or in the name and on behalf of
such Borrower, and each Borrower hereby irrevocably authorizes Lender so to act.
 
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Section 11.8  Indemnification. Each Borrower jointly and severally agrees to
reimburse Lender and its Affiliates and their officers, employees, directors,
shareholders and agents (collectively, the “Indemnified Parties” and
individually, an “Indemnified Party”) for all reasonable costs and expenses,
including legal fees and expenses, incurred and shall indemnify and hold the
Indemnified Parties harmless from and against all losses suffered by any
Indemnified Party, other than losses resulting from an Indemnified Party’s gross
negligence or willful misconduct, in connection with (a) the exercise by Lender
or any of its Affiliates of any right or remedy granted to it under this
Agreement or any of the Loan Documents or at law, (b) any claim, and the
prosecution or defense thereof, arising out of or in any way connected with this
Agreement or any of the Loan Documents, except in the case of a dispute between
Borrowers (or any of them) and Lender in which such Borrower(s) prevail(s) in a
final unappealed or unappealable judgment, and (c) the collection or enforcement
of the Obligations or any of them.
 
Section 11.9  All Powers Coupled with Interest. All powers of attorney and other
authorizations granted to Lender and any Persons designated by Lender pursuant
to any provisions of this Agreement or any of the Loan Documents shall be deemed
coupled with an interest and shall be irrevocable so long as any of the
Obligations remain unpaid or unsatisfied or Lender has any obligations to make
advances hereunder.
 
Section 11.10  Entire Agreement; Severability of Provisions. This Agreement and
the other Loan Documents embody the entire agreement and understanding between
the Borrowers and the Lender with respect to the subject matter hereof and
thereof. This Agreement supersedes all prior agreements and understandings
relating to the subject matter hereof. Any provision of this Agreement or any
other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remainder of such
provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
 
Section 11.11  Governing Law. This Agreement and the promissory notes issued
pursuant hereto shall be construed in accordance with and governed by the law of
the State of Minnesota other than its conflict of laws principles.
 
Section 11.12  Jury Waiver. EACH BORROWER AND LENDER HEREBY VOLUNTARILY,
KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) BETWEEN OR AMONG BORROWERS (OR ANY OF THEM) AND LENDER AND LENDER’S
AFFILIATES ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR ANY RELATIONSHIP BETWEEN OR AMONG LENDER AND BORROWERS (OR ANY
OF THEM), OR BETWEEN OR AMONG BORROWERS (OR ANY OF THEM) AND ANY AFFILIATE OF
LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE
FINANCING DESCRIBED HEREIN OR IN THE OTHER LOAN DOCUMENTS.
 
Section 11.13  Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement. A facsimile or digital copy of any
signed Loan Document, including this Agreement, shall be deemed to be an
original thereof.
 
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Section 11.14  Patriot Act Notice. IMPORTANT INFORMATION ABOUT PROCEDURES FOR
OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and
money laundering activities, Federal law requires all financial institutions to
obtain, verify, and record information that identifies each person or entity
that opens an account, including any deposit account, treasury management
account, loan, other extension of credit, or other financial services product.
What this means for each Borrower: When such Borrower opens an account, if such
Borrower is an individual, Lender will ask for such Borrower’s name, residential
address, date of birth, and other information that will allow Lender to identify
such Borrower, and if such Borrower is not an individual, Lender will ask for
such Borrower’s name, employer identification number, business address, and
other information that will allow Lender to identify such Borrower. Lender may
also ask, if such Borrower is an individual, to see such Borrower’s driver’s
license or other identifying documents, and if such Borrower is not an
individual, to see such Borrower’s legal organizational documents or other
identifying documents.
 
Section 11.15  Wire Transfer Fees and Returned Check Charges. Each Borrower
jointly and severally agrees to pay a wire transfer charge of $20.00 for every
wire transfer processed by the Lender and $20.00 for any returned checks charged
against its account for funds deposited on such Borrower’s behalf.
 
Section 11.16  Participations and Information. Lender may sell participation
interests in any or all of the Loans to any Person. Lender may furnish any
information concerning the Borrowers (or any of them) in the possession of the
Lender from time to time to affiliates of the Lender in connection with lending
business of the Lender or such affiliates, and to participants and prospective
participants, and may furnish information in response to credit inquiries
consistent with general commercial lending practice.

[Remainder of page intentionally left blank;
signature page follows]
 

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THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
 

       
MENDOCINO BREWING COMPANY, INC.
 
   
   
    By:       Name:     Title:      

 

       
RELETA BREWING COMPANY LLC
 
   
   
    By:       Name:     Title:      

 

       
MARQUETTE BUSINESS CREDIT, INC.
 
   
   
    By:       Name:     Title:      

 
EXHIBITS AND SCHEDULES

EXHIBIT A
 
FORM OF BORROWING BASE CERTIFICATE
EXHIBIT B
 
FORM OF COMPLIANCE CERTIFICATE
EXHIBIT C
 
FORM OF LEGAL OPINION
 
 
 
SCHEDULE A
 
Additional Terms and Covenants
     
SCHEDULE 1.1
 
Commercial Tort Claims
SCHEDULE 5.1 (a)
 
Jurisdictions in Which Each Borrower is Qualified as a Foreign Corporation
SCHEDULE 5.1 (c)
 
Capital Stock/Membership Interests and Subsidiaries
SCHEDULE 5.1 (g)
 
Liens
SCHEDULE 5.1 (h)
 
Indebtedness for Money Borrowed and Guaranties
SCHEDULE 5.1 (i)
 
Litigation
SCHEDULE 5.1 (1)
 
ERISA Benefit Plans
SCHEDULE 5.1 (o)
 
Locations of inventory
SCHEDULE 5.1 (p)
 
Location of Chief Executive Office
SCHEDULE 5.1 (q)
 
Corporate and Fictitious Names
SCHEDULE 9.1
 
Real Property Leases
SCHEDULE 10.6
 
List of trademarks, patents, etc.

 

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ACKNOWLEDGMENT
 
State of California
County of _________________
 
On November ____, 2006 before me, _________________________, the
_____________________ of MENDOCINO BREWING COMPANY, INC., a California
corporation personally appeared _____________________________ personally known
to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
 
 
WITNESS my hand and official seal.

 
Signature _______________________________
 
(Seal)
 
ACKNOWLEDGMENT
 
State of California
County of _________________
 
On November ____, 2006 before me, ________________________, the
_____________________ of RELETA BREWING COMPANY LLC, a New York limited
liability company, personally appeared ______________________________ personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
 
 
WITNESS my hand and official seal.

 
Signature _______________________________
 
(Seal)
 
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Exhibit A
 
Borrowing Base Certificate
 

See attached.
 
LOANAND SECURITY AGREEMENT - PAGE 43

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Exhibit B
 
Compliance Certificate

TO: Marquette Business Credit, Inc.
 
THE UNDERSIGNED HEREBY CERTIFIES THAT:
 
(a) I am a duly elected officer (or deputy thereof) Mendocino Brewing Company,
Inc., a California corporation and Releta Brewing Company LLC, a Delaware
limited liability company (collectively, the “Borrowers”).
 
(b) I have reviewed the terms of the Loan and Security Agreement dated as of
November 16, 2006 (as previously amended, and as the same may be further amended
or otherwise modified from time to time, the "Loan Agreement") among MARQUETTE
BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), and the
Borrowers, and I have made, or have caused to be made under my supervision, a
detailed review of the transactions and conditions of the Borrowers during the
accounting period covered by the attachment hereto, and the financial
information contained in the attachment hereto is accurate as of the date of
said attachment for the period specified.
 
(c) The examinations described in paragraph (b) did not disclose, and I have no
knowledge of, whether arising out of such examinations or otherwise, the
existence of any condition or event which constitutes a Default or an Event of
Default (as such terms are defined in the Loan Agreement) during or at the end
of the accounting period covered by the attachment hereto or as of the date of
this Certificate, except as described below (or in a separate attachment to this
Certificate). The exceptions listing, in detail, the nature of the condition or
event, the period during which it has existed and the action which the
applicable Borrower has taken, is taking, or proposes to take with respect to
each such condition or event, are as follows: (see attached).
 
(d) No policy of insurance required to be maintained pursuant to the Loan
Agreement or any other Loan Document (as such term is defined in the Loan
Agreement) has lapsed during the reporting period described on Attachment No. 1
hereto and no such policy will lapse within the next 60 days.
 
(e) The undersigned is not aware of any change in any law, statute, regulation,
rule or ordinance of any governmental authority or regulatory body, or in the
prevailing interpretation of any such law, statute, regulation, rule or
ordinance, which could reasonably be expected to impair or otherwise adversely
affect the Lender's rights or ability to enforce its security interest against,
or to otherwise realize the expected value from, the Collateral (or any
significant portion thereof), including, without limitation, any change by which
any governmental authority, regulatory body or other Person has, or has the
right to obtain, a Lien on any material part of the Collateral.
 
The foregoing certifications, together with the computations set forth in
Attachment No. 1 hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this ___ day of
________________ 200__, pursuant to Section 8.2 of the Loan Agreement.

       
[_______________________________]
 
   
   
   
By  
   
Its
     

 

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ATTACHMENT NO. 1
TO COMPLIANCE CERTIFICATE
AS OF _______________, 200___, WHICH PERTAINS
TO THE PERIOD FROM _______________, 200___
TO _______________, 200___
 
Terms defined in the Loan Agreement are used herein as defined therein and
Section references herein refer to the Sections in Schedule A to the Loan
Agreement.
 
1. Tangible Net Worth (Section 9.1(a))
(At least $7,000,000)
Actual $ _____________
In Compliance?
Yes______ No______
     
2. Fixed Charge Coverage Ratio (Section 9.1(b))
(At least 1.05 to 1.00 as of each calendar quarter-end)
Actual _____ to 1.00
In Compliance?
Yes______ No______
     
3. Capital Expenditures (Section 9.1(c))
(No more than $300,000 in any fiscal year)
Actual $__________
In Compliance?
Yes______ No______
     
4. Minimum EBITDA (Section 9.1(d))
(Not less than $925,000 for any fiscal year)
Actual $__________
In Compliance?
Yes ______ No______

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Exhibit C
 
Form of Legal Opinion

 
See attached.

 

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SCHEDULE A
 
Additional Terms and Covenants
 
Section 1.1 Definitions
 
"Applicable Margin" means (a) with respect to the Revolving Loans, a percentage
equal to four and one-quarter percent (4.25%) per annum, and (b) with respect to
the Capex Loans, the Term Loan and all of the other Obligations, a percentage
equal to five and one-quarter percent (5.25%) per annum; provided, however, that
each such percentage shall be subject to adjustment on the first two (2)
anniversary dates of the date of this Agreement (each such anniversary date
being a “Determination Date”) as set forth in the remainder of this definition
based on the Borrowers’ Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio will be determined as of each Determination Date for the immediately
preceding period of twelve consecutive months ending on, or most recently ended
prior to, such Determination Date. On the Lender's receipt of the Borrowers’
financial statements required to be delivered to the Lender pursuant to Section
8.1(b), the Applicable Margin will be reduced by 0.125% per annum if the then
Fixed Charge Coverage Ratio equals or exceeds 1.25 to 1.00, so long as no
Default or Event of Default has occurred and is continuing as of applicable
Determination Date or as of the effective date of such adjustment. The foregoing
adjustment, if applicable, to the Applicable Margin will become effective for
the unpaid principal balance of Loans outstanding on and after the first day of
the first calendar month following delivery to the Lender of the Borrowers’
financial statements required to be delivered to Lender pursuant to Section
8.1(b) until the next succeeding effective date of adjustment pursuant to this
definition (if any). Each of the financial statements required to be delivered
to the Lender must be delivered to the Lender in compliance with Section 8.1. If
Borrower, however, has not timely delivered its financial statements in
accordance with Section 8.1, then, without limiting any of the rights and
remedies available to the Lender by reason of such noncompliance at the Lender's
option, commencing on the date upon which such financial statements should have
been delivered in accordance with Section 8.1 and continuing until such
financial statements are actually delivered in accordance with Section 8.1, it
shall be assumed for purposes of determining the Applicable Margin that the
Fixed Charge Coverage Ratio was less than 1.25 to 1.0 and the pricing associated
with a Fixed Charge Coverage Ratio of less than 1.25 to 1.0 will be applicable
on the then applicable Determination Date. Notwithstanding the foregoing it is
expressly understood and agreed that:
 
(i) in no event shall the Applicable Margin be less than (a) with respect to the
Revolving Loans, a percentage equal to four percent (4.00%) per annum, and (b)
with respect to the Capex Loans, the Term Loan and all of the other Obligations,
a percentage equal to five percent (5.00%) per annum;
 
(ii) if, as of any date of determination occurring after the Applicable Margin
has been adjusted pursuant to the preceding provisions of this definition, the
Fixed Charge Coverage is less than 1.25 to 1.00, then the Applicable Margin
shall be immediately restored to (a) with respect to the Revolving Loans, a
percentage equal to four and one-quarter percent (4.25%) per annum, and (b) with
respect to the Capex Loans, the Term Loan and all of the other Obligations, a
percentage equal to five and one-quarter percent (5.25%) per annum; and
 
(iii) nothing contained in this definition shall limit or otherwise affect any
of the rights and remedies available to the Lender if the Fixed Charge Coverage
Ratio is less than the level required pursuant to Section 9.1(b) of this
Schedule A.
 
“Borrowing Base” means, as of any date, an amount equal to the sum of
(a) eighty-five percent (85%) (or such lesser percentage as Lender may in its
sole and absolute discretion determine from time to time) of Eligible Accounts
on such date, plus (b) the lesser of (i) sixty percent (60%) (or such lesser
percentage as Lender may in its sole and absolute discretion determine from time
to time) multiplied by the amount of Eligible Inventory on such date and
(ii) $750,000, minus (c) the Reserve.
 

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

 
“Concentration Limit” means fifteen percent (15%).
 
“Contract Rate” means (a) with respect to the Revolving Loans, the sum of the
Base Rate in effect from time to time plus the Applicable Margin, and (b) with
respect to the Capex Loans, the Term Loan and all of the other Obligations, the
sum of the Base Rate in effect from time to time plus the Applicable Margin. Any
change in the Contract Rate resulting from a change in the Base Rate shall
become effective on the day such change in the Base Rate is quoted and
determined by Lender.
 
“Cross Aging Percentage” shall mean twenty five percent (25%) of the aggregate
balance of all accounts owing by a particular Account Debtor.
 
“Financial Statements” means (i) the consolidated and consolidating balance
sheet of Mendocino Brewing and its subsidiaries for its fiscal year ending,
December 31, 2005, and the related consolidated and consolidating statements of
profit and loss and cash flows for the year ended on such date, audited by
independent public accountants, and (ii) the unaudited consolidated and
consolidating balance sheet of Mendocino Brewing and its U.S. subsidiaries as of
August 31, 2006, and the related statements of profit and loss and cash flows
for the monthly period then ended; provided, however, that if the financial
statements referred to in items (i) and (ii) above combine and consolidate the
financial condition and results of operation of the Borrowers with those of any
other Person, or if such financial statements do not combine and consolidate the
financial condition and results of operation of the Borrowers, then the
Borrowers, in addition to such financial statements referred to above, shall
deliver to the Lender with such financial statements a separate set of financial
statements for the same periods (and, in the case of item (i), prepared by the
same independent certified public accountants) which combine and consolidate
solely the financial condition and results of operation of the Borrowers.
 
“Fixed Charge Coverage Ratio” means the ratio, determined as of the end of each
calendar quarter for the twelve consecutive months then ending of (a) the
combined EBITDA of the Borrowers (excluding the results of operation of all
Persons other than the Borrowers) for such period minus cash taxes paid by the
Borrowers during such period, minus unfinanced Capital Expenditures made by the
Borrowers during such period, to (b) without duplication, cash interest expense
of the Borrowers, plus scheduled principal payments on Indebtedness made by the
Borrowers during such period, plus payments on Capitalized Leases of the
Borrowers, plus all dividends and distributions made by the Borrowers in respect
of their respective capital stock or other equity interests during such period,
all calculated for the Borrowers on a combined basis (excluding the results of
operation of all Persons other than the Borrowers).
 
“Lockbox” means the U.S. Post Office Box(es) specified in, or established
pursuant to, (i) a Blocked Account Agreement, or (ii) a Lockbox agreement, in
form and substance acceptable to Lender, executed between on or more of the
Borrowers and a financial institution acceptable to Lender.
 
“Permitted Indebtedness” means (i) purchase money Indebtedness incurred by any
Borrower to finance, or provide the funds for, the acquisition of assets, which
outstanding principal Indebtedness shall not exceed $150,000 in the aggregate
for all Borrowers at any time outstanding, (ii) the Indebtedness described on
Schedule 5.1(h) attached hereto and made a part hereof, and (iii) the
Obligations.
 
“Revolving Facility Limit” means Two Million Seven Hundred Fifty Thousand and
no/100 Dollars ($2,750,000.00).
 

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

 
“State of Organization” means (a) with respect to Mendocino Brewing, California,
and (b) with respect to Releta Brewing, Delaware.
 
“Termination Date” means June 27, 2011.
 
“Total Credit Facility” means an amount equal to the sum of the Revolving
Facility Limit, the Capex Loan Amount and the original principal amount of the
Term Loan.
 
Section 3.2 Fees and Expenses.
 
(a) The origination fee shall be $50,000.
 
(b) The monthly facility fee shall be one-half of one percent (0.50%) per annum
of the Total Credit Facility.
 
(c) The unused line fee shall equal one quarter of one percent (0.25%) per annum
of the sum of the average daily unborrowed amount of the Revolving Facility
Limit in effect during the period for which payment is made.
 
(d) The collateral monitoring fee shall be $0 for each calendar month.
 
(e) The minimum usage fee shall equal, for a particular month, the positive
difference (if any) between (i) the interest that would have accrued under this
Agreement assuming the aggregate outstanding principal balance of the Revolving
Loans averaged the Required Minimum Usage (defined below) during such month, and
(ii) the actual interest that accrued on the Loans during such month. For
purposes of this Section 3.2(e) the term “Required Minimum Usage” shall mean (x)
for all dates of determination before the second anniversary of the date of this
Agreement, an amount equal to $2,000,000, (y) for all dates of determination on
or after the second anniversary of the date of this Agreement but before the
fourth anniversary of the date of this Agreement, an amount equal to $1,750,000,
and (z) for all dates of determination on or after the fourth anniversary of the
date of this Agreement, an amount equal to $1,500,000.
 
Section 3.4 Early Termination Fee; Prepayment Fee.
 
(b) (i) Revolving Loan Facility. Upon termination of this Agreement prior to the
Termination Date, the early termination fee shall be an amount equal to (A) four
percent (4.0%) of the Revolving Facility Limit if the termination occurs on or
prior to the first anniversary of the date hereof; (B) three percent (3%) of the
Revolving Facility Limit if the termination occurs after the first anniversary
of the date hereof but on or prior to the second anniversary of the date
hereof.; (C) two percent (2.0%) of the Revolving Facility Limit if the
termination occurs after the second anniversary of the date hereof but on or
prior to the third anniversary of the date hereof; (D) one-half of one percent
(0.50%) of the Revolving Facility Limit if the termination occurs after the
third anniversary of the date hereof but on or prior to the fourth anniversary
of the date hereof; and (E) one-quarter of one percent (0.25%) of the Revolving
Facility Limit if the termination occurs after the fourth anniversary of the
date hereof.
 
(ii) Term Loan. Upon prepayment of the Term Loan prior to the Termination Date,
the prepayment fee shall be an amount equal to (A) four percent (4.0%) of the
amount prepaid if such prepayment occurs on or prior to the first anniversary of
the date hereof; (B) three percent (3%) of the amount prepaid if such prepayment
occurs after the first anniversary of the date hereof but on or prior to the
second anniversary of the date hereof.; (C) two percent (2.0%) of the amount
prepaid if such prepayment occurs after the second anniversary of the date
hereof but on or prior to the third anniversary of the date hereof; (D) one-half
of one percent (0.50%) of the amount prepaid if such prepayment occurs after the
third anniversary of the date hereof but on or prior to the fourth anniversary
of the date hereof; and (E) one-quarter of one percent (0.25%) of the amount
prepaid if such prepayment occurs after the fourth anniversary of the date
hereof; provided, however, that no prepayment fee shall be due under this clause
(ii) if the amount of such prepayment is less than or equal to $500,000 in each
fiscal year and if the source of the funds used to effectuate such prepayment
(which source has been verified to the reasonable satisfaction of the Lender) is
an Affiliate of the Borrowers.
 

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

 
Section 4.1 Closing Documents and Requirements
 
(a) this Agreement and promissory notes evidencing the Loans;
 
(b) with respect to each Borrower, a certificate executed by the President and
the Secretary of such Borrower certifying (i) the names and signatures of the
officers of such Person authorized to execute Loan Documents to which such
Borrower is a party, (ii) the resolutions duly adopted by the Board of Directors
of such Person authorizing the execution of this Agreement and the other Loan
Documents, as appropriate, and (iii) correctness and completeness of the copy of
the bylaws of such Person attached thereto;
 
(c) with respect to each Borrower, a certificate regarding the due formation,
valid existence, and good standing of such Borrower in the state of its
organization issued by the appropriate governmental authorities in such
jurisdiction and copies of its organizational documents certified by such
authorities;
 
(d) an authorization to file financing statements;
 
(e) a payoff letter executed by BFI Business Finance;
 
(f) a landlord’s or mortgagee’s waiver with respect to each premises where
collateral is located;
 
(g) endorsements naming Lender as an additional insured and loss payee on all
liability insurance and all property insurance policies of each Borrower;
 
(h) a favorable opinion of counsel for Borrowers in the form attached hereto as
Exhibit C;
 
(i) establishment of one or more Lockboxes for receipts of proceeds of
Collateral;
 
(j) with respect to each Lockbox, a Lockbox Agreement executed by the financial
institution with which such Lockbox has been established and the applicable
Borrower(s);
 
(k) with respect to each Blocked Account, a deposit account control agreement
executed by the financial institution with which such Blocked Account is
maintained, Lender, and the applicable Borrower(s);
 
(l) pre-funding verifications of Accounts;
 
(m) after giving effect to the first advance of a Revolving Loan, the first
advance of a Capex Loan, the advance of the Term Loan and the Reserve
established by Lender, Borrowers shall have Availability of at least $350,000,
plus an amount sufficient so that no trade payables are overdue plus an amount
sufficient to pay all book overdrafts;
 

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

 
(n) no Default or Event of Default shall have occurred;
 
(o) all documents evidencing or relating to any and all Subordinated
Indebtedness;
 
(p) a validity and support agreement executed by each of Yashpal Singh and N.
Mahadevan;
 
(q) a subordination agreement from UBA;
 
(r) Uniform Commercial Code, state and federal tax lien, judgment and bankruptcy
searches covering the Borrowers and such other parties as the Lender may require
in such filing offices and locations as the Lender may require, and evidence of
the termination and satisfaction of all liens and encumbrances (other than
Permitted Liens) against any portion of the Collateral; and
 
(s) such other documents, certificates, opinions, and information that Lender
may require.
 
Section 5.1 Representations and Warranties of Borrowers
 
(a) Mendocino Brewing is a California corporation. Mendocino Brewing’s federal
employer identification number is 68-0318293, and its organizational number with
the Secretary of State of the State of Organization is C1876489. Releta Brewing
is a Delaware limited liability company. Releta Brewing’s federal employer
identification number is 68-0398450, and its organizational number with the
Secretary of State of the State of Organization is 2799258.
 
(b) Each Borrower is engaged principally in the business of producing and
distributing beer and malt beverages for the specialty "craft" segment of the
beer market.
 
Section 7.14 Additional Affirmative Covenants
 
[None]
 
Section 9.1 Financial Covenants
 
(a) Minimum Tangible Net Worth. Borrowers shall not, directly or indirectly,
permit the Tangible Net Worth at any time to be less than $7,000,000.
 
(b) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio as of each
calendar quarter-end shall be at least 1.05 to 1.0, commencing with the quarter
ending December 31, 2006.
 
(c) Capital Expenditures. Borrowers shall not, directly or indirectly, make or
incur Capital Expenditures which exceed, in the aggregate for all Borrowers,
$300,000 in any fiscal year without the prior written consent of the Lender.
 
(d) Minimum EBITDA. Borrowers shall not permit the combined EBITDA of the
Borrowers (excluding the results of operation of all Persons other than the
Borrowers) for any fiscal year to be less than $925,000. 
 
Section 9.16 Additional Negative Covenants
 
(a) No Borrower shall make any principal or interest payment on any Indebtedness
owing to UBA if a Default or Event of Default is then outstanding or would be
caused by such payment or would violate the terms of the Subordination Agreement
executed by UBA in favor of the Lender. In addition, no Borrower shall make any
principal or interest payment on any Indebtedness owing to UBI or UBSN;
provided, however, that so long as no Default or Event of Default has occurred
or is continuing at the time of a “Permitted Payment” (defined below), or would
result from such Permitted Payment, the Permitted Payments are excepted from the
terms of the foregoing provisions of this Section 9.16(a). For purposes of this
Section 9.16(a), the term “Permitted Payments” means (i) ordinary course,
non-cash offsets of Indebtedness owed by one or more of the Borrowers to UBI
and/or UBSN against amounts owed by UBI and/or UBSN to one or more of the
Borrowers in connection with (A) overhead expense allocations, and/or (B)
amortization of the investment of Mendocino Brewing in the UBI and UBSN,
provided that such offsets are made in amounts, at a frequency and in a manner
substantially consistent with the past course of dealing among UBI, UBSN and the
Borrowers; and (ii) cash payments of principal or interest in respect of any
Indebtedness owing to UBI or UBSN, provided that (x) the full amount of each
such payment was included within the Reserve at the time of the associated
invoicing, and (y) the Lender has consented to such payment in writing (which
consent shall not be unreasonably withheld).
 

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

 
(b) The aggregate annual cash and non-cash compensation paid by the Borrowers
(or any of them) to the person holding the office of Chairman of Mendocino
Brewing in any fiscal year may not exceed the amount paid to the person holding
such office in fiscal year 2005 without the prior written consent of Lender,
which consent shall not be unreasonably withheld.
 
Section 10.1 Additional Events of Default
 
(a) Mendocino Brewing shall cease to own, beneficially and of record, 100% of
all classes of the membership interests of Releta Brewing.
 
(b) The occurrence of a default or event of default under any other Indebtedness
of Borrowers (or any of them), excluding unsecured trade payables and the
Subordinated Indebtedness held by UBA, which Indebtedness exceeds $50,000.
 
(c) Any material violation of any of the terms or provisions of that certain
Subordination Agreement dated as of November 16, 2006, executed by UBA in favor
of the Lender, as the same may be amended, restated, supplemented or otherwise
modified from time to time, unless the Lender has otherwise consented in writing
(which consent shall not be unreasonably withheld). Without limiting the
generality of the foregoing each Borrower specifically agrees that the
occurrence of any of the following events or circumstances shall constitute an
Event of Default hereunder:
 
(i) if either Borrower shall make any payment or other distribution whatsoever
in respect of any Subordinated Indebtedness held by UBA, whether before or after
the final maturity of such Subordinated Indebtedness, at any time prior to the
date on which all Obligations have been paid in full in cash and this Agreement
has been terminated;
 
(ii) if any property or assets of either Borrower be applied to the purchase or
other acquisition or retirement of any Subordinated Indebtedness held by UBA; or
 
(iii) if UBA takes any action to (A) transfer or assign, or attempt to enforce
or collect, or subordinate to any Liabilities other than the Obligations, any
Subordinated Indebtedness held by UBA or any rights in respect thereof, (B) take
any collateral security for any Subordinated Indebtedness held by UBA, or (C)
commence, or join with any other creditor in commencing, any bankruptcy,
reorganization or insolvency proceedings with respect to either Borrower, in
each case without the prior written consent of the Lender (which consent shall
not be unreasonably withheld).
 
(d) If any material portion of the unsecured trade payables of Borrowers (or any
of them) owed to a Major Vendor (defined below) is more than sixty (60) days
past due. For purposes of this subsection (d), the term “Major Vendor” shall
mean any trade creditor of Borrowers (or any of them) that is owed more than
$250,000 in the aggregate by such Borrower(s) at any one time.
 

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

 
Section 11.1 Borrowers’ Address for Notice Purposes

Mendocino Brewing:
 
Releta Brewing:
1601 Airport Road
 
131 Excelsior Avenue
Ukiah, California 95482
 
Saratoga Springs, NY 12866
Attention: Yashpal Singh
 
Attention: Robert Craven
Facsimile No.: (707) 463-2465
 
Facsimile No.: (518) 581-1804
     
With a copy to:
   
Coblentz, Patch, Duffy & Bass LLP
   
One Ferry Building
   
Suite 200
   
San Francisco, California 94111
   
Attention: Sara Finigan, Esq.
   
Facsimile No.: (415) 989-1663
   

 

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

 
SCHEDULE 1.1
 
Commercial Tort Claims
 

 
None.
 

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

 

SCHEDULE 5.1(a)
 
Jurisdictions in Which Each Borrower is Qualified as a Foreign Corporation
 
Mendocino Brewing - None
 
Releta Brewing - New York
 

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

 

SCHEDULE 5.1(c)
 
Capital Stock/Membership Interests and Subsidiaries

Borrower
 
Subsidiaries
 
Owners
Mendocino Brewing
 
Releta Brewing
UBI
 
UBA - 26.55%
Inversiones - 47.30%
Others - 26.15%
Releta Brewing
 
None
 
Mendocino Brewing - 100%

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

SCHEDULE 5.1(g)
 
Liens

Debtor
 
Secured Party
 
State/County
 
Filing No.
 
Filing Date
Mendocino Brewing Co. Inc.
 
Colonial Pacific Leasing
 
CA
 
9919360413
 
07/01/99
Mendocino Brewing Company, Inc.
 
GE Capital Colonial Pacific Leasing
 
CA
 
0200760468
 
01/04/02
Mendocino Brewing Company, Inc.
 
Citicorp Leasing, Inc.
 
CA
 
067073421373
 
06/12/06
Mendocino Brewing Company
 
Scott Laboratories, Inc.
 
CA
 
067074242688
 
06/15/06

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

 
SCHEDULE 5.1(h)
 
Indebtedness for Money Borrowed and Guaranties
 
1.  Continuing Corporate Guaranty, dated December 20, 2000 by Mendocino Brewing,
as guarantor, on behalf of Releta Brewing, as payor, in favor of Gamer Packing,
Inc., a Minnesota corporation, as payee (“Gamer”), relating to amounts due to
Gamer in connection with products sold and services provided by Gamer to Releta
Brewing.
 
2.  Promissory Note in the principal amount of $3,000,000 dated June 28, 2006
issued by Mendocino Brewing, as borrower, to Grand Pacific Financing
Corporation, as lender.
 
3.  Promissory Note in the principal amount of $350,000, dated June 6, 2006,
issued by Mendocino Brewing, as borrower, to Savings Bank of Mendocino County,
as lender.
 
4.  Continuing Guaranty, dated June 28, 2006, by Releta Brewing, as guarantor,
on behalf of Mendocino Brewing, as borrower, to Grand Pacific Financing
Corporation (“Grand Pacific”), as lender, relating to Mendocino Brewing’s
obligations under the certain loan agreement dated June 28, 2006 between
Mendocino Brewing and Grand Pacific.
 
5.  [Additional Capital Leases to Come]
 

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

 

SCHEDULE 5.1(i)
 
Litigation

 
None.
 

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

 
SCHEDULE 5.1(l)
 
ERISA Benefit Plans

 
None.
 

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

 

 

SCHEDULE 5.1(o)
 
Location of Inventory 
 
Mendocino Brewing:
 
1601 Airport Road
Ukiah, CA 95482
 
Releta Brewing:
 
131 Excelsior Avenue
Saratoga Springs, NY 12866
 

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

 

SCHEDULE 5.1(p)
 
Location of Chief Executive Office
 
Mendocino Brewing:
 
1601 Airport Road
Ukiah, CA 95482
 
Releta Brewing:
 
131 Excelsior Avenue
Saratoga Springs, NY 12866
 

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

 

SCHEDULE 5.1(q)
 
Corporate and Fictitious Names
 
Mendocino Brewing:
 
None
 
Releta Brewing:
 
Ten Springs Brewing Company
Olde Saratoga Brewing Company
 
Acquisitions
 
Mendocino Brewing acquired all of the assets of UBI in 2001.
 

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

 

SCHEDULE 9.1
 
Real Property Leases
 
1.  That certain Commercial Lease dated October, 1997 between Stewart’s Ice
Cream Company, Inc., as landlord, and Releta Brewing, as tenant, covering the
leased premises commonly known as 131 Excelsior Avenue, Saratoga Springs, NY
12866. The term of such lease has been extended to October 15, 2019.
 
2.  That certain Lease Agreement dated January 1, 2004 between John Fetzer, as
landlord, and Mendocino Brewing, as tenant, covering the leased premises located
at 13351 S. Highway 101, Hopland, CA 95449.
 
3.  That certain Commercial Lease dated April 1, 2003 between McDowell Business
Center, as landlord, and Mendocino Brewing, as tenant, covering the leased
premises located at 921 Transport Way, Suite #29, Petaluma, CA 94954. The term
of such lease has been extended to March 31, 2007.
 

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

SCHEDULE 10.6
 
List of trademarks, patents, etc.

 
Mendocino Brewing:
 
MARK
 
SERIAL NO.
 
REGISTRATION NO.
 
ASSIGNED TO
MENDOCINO BREWING COMPANY
word mark
 
76/049,154
 
2,441,141
 
BFI Business Finance
             
RED TAIL ALE word mark
 
75/098,240
 
2,032,382
 
BFI Business Finance
             
RED TAIL design mark
 
74/734,783
 
2,011,817
 
BFI Business Finance
             
BLUE HERON PALE ALE design mark
 
74/734,782
 
2,011,816
 
BFI Business Finance
             
EYE OF THE HAWK SELECT ALE word mark
 
74/093,799
 
1,673,594
 
BFI Business Finance
             
EYE OF THE HAWK SPECIAL EDITION
ANNIVERSARY ALE design mark
 
74/734,781
 
2,011,815
 
BFI Business Finance
             
YULETIDE PORTER word mark
 
74/093,789
 
1,666,891
 
BFI Business Finance
             
BREWSLETTER word mark
 
74/312,700
 
1,768,639
 
BFI Business Finance
             
PEREGRINE GOLDEN ALE word mark
 
76/029,927
 
2,475,522
 
BFI Business Finance
             
HOPLAND BREWERY word mark
 
76/128,830
 
2,509,464
 
BFI Business Finance
             
BLACK EYE ALE word mark
 
76/202,158
 
2,667,078
 
BFI Business Finance
       
 
   
SUN LAGER PREMIUM HANDCRAFTED
BREW word and design mark
 
76/079,875
 
2,583,446
 
BFI Business Finance
             
WHITE HAWK ORIGINAL IPA word and design mark
 
78/304,844
 
2,956,999
 
BFI Business Finance
             
BLUE HERON word mark
 
78/117,249
 
Concurrent Use Proceeding Pending; subject to concurrent use by Bridgepoint
Brewing Company
 
BFI Business Finance
             
BLACK HAWK STOUT word mark
 
78/835,504
 
Not Available
Use, by agreement with Hiram Walker & Sons, Inc., subject to the restriction
that it be used solely to identify and distinguish malt beverage products
namely, beer, ale and stout, and only in conjunction with the words “Mendocino
Brewing Company.”
 
N/A
             

 
MARK
 
SERIAL NO.
 
REGISTRATION NO.
 
ASSIGNED TO

RAPTOR RED LAGER word and design mark
 
78/304,831
 
3,113,619
 
BFI Business Finance
             
TALON BARLEY WINE ALE word mark
 
 
 
Borrower intends to register with USPTO
 
N/A
             
TALON BARLEY WINE ALE word and design mark
 
 
 
Borrower intends to register with USPTO
 
N/A

 
Releta Brewing:

MARK
 
SERIAL NO.
 
REGISTRATION NO.
 
ASSIGNED TO
FAT BEAR word mark
 
75/375,457
 
2,267,709
[registration cancelled - Section 8; new application to be filed for same]
 
 
BFI Business Finance
             
WHITEFACE word mark
 
75/375,229
 
2,322,226
[registration will be cancelled - Section 8; new application to be filed for
same]
 
BFI Business Finance
             
SARATOGA CLASSIC PILSNER word
mark
 
75/647,278
 
2,396,601
 
BFI Business Finance

 

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