Exhibit 6.38Exhibit 10.38

| | BUSINESS LOAN AGREEMENT (ASSET BASED) | 
| | ------------------------------------- | 

|Principal$1,200,000.00                                                                                                                                                                                                      | Loan Date09-01-2003 | Maturity04-15-2004 | Loan No | Call / Coll | Account0010130085 | Officer*** | Initials
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ------------------ | ------- | ----------- | ----------------- | ---------- | --------
|References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or
item.Any item above containing "***" has been omitted due to text length limitations.

|Borrower: | PORTLAND BREWING COMPANY2730 NW 31ST AVENUEPORTLAND, OR  97210 | Lender: | Washington Mutual BankBeaverton Commercial Banking Center12655 SW Center Street, Suite 500
Beaverton, OR  97005
|--------- | -------------------------------------------------------------- | ------- | ---------------------------------------------------------------------------------------------------------------

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| | THIS
BUSINESS LOAN AGREEMENT (ASSET BASED) dated September 1, 2003, is made and executed
between PORTLAND BREWING COMPANY(Borrower) and Washington Mutual Bank
(Lender) on the following terms and conditions. Borrower has received priorcommercial loans from Lender or has applied to Lender for a commercial loan or
loans or other financial accommodations,including those which may be described on
any exhibit or schedule attached to this Agreement (Loan). Borrower
understands andagrees that: (A) in granting, renewing, or extending any Loan,
Lender is relying upon Borrowers representations, warranties,and agreements
as set forth in this Agreement; (B) the granting, renewing, or extending of any Loan by
Lender at all times shallbe subject to Lenders sole judgment and
discretion; and (C) all such Loans shall be and remain subject to the terms andconditions
of this Agreement.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | TERM.This Agreement shall be effective as of
September 1, 2003, and shall           continue in full force and effect until such time
as all of Borrowers           Loans in favor of Lender have been paid in full,
including principal, interest,           costs, expenses, attorneys fees, and other
fees and charges, or until such           time as the parties may agree in writing to
terminate this Agreement.
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| | ADVANCE
AUTHORITY.The following persons currently are authorized to request advances and
authorize payments under the line of credit until Lender receives from Borrower, at Lenders
address shown above, written notice of revocation of their authority: FREDERICK
BOWMAN, PRESIDENT of PORTLAND BREWING COMPANY; JEROME CHICVARA, CEO of PORTLAND BREWING
COMPANY; and JANET GOLDEN.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | LINE OF CREDIT.Lender agrees to make Advances to
Borrower from time to time from the date of this Agreement to the Expiration Date,
provided the aggregate amount of such Advances outstanding at any time does not exceed
the Borrowing Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows:
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| | Conditions
Precedent to Each Advance.Lenders obligation to make any Advance to or for the
account of Borrower under this Agreement is subject to the following conditions
precedent, with all documents, instruments, opinions, reports, and other items required
under this Agreement to be in form and substance satisfactory to Lender:
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| | (1)                           Lender shall have received
evidence that this Agreement and all Related           Documents have been duly
authorized, executed, and delivered by Borrower to           Lender.
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| | (2)                           Lender shall
have received such opinions of counsel, supplemental           opinions, and documents as
Lender may request.
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| | (3)                           The security interests in the           Collateral shall have
been duly authorized, created, and perfected with first           lien priority and shall
be in full force and effect.
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| | (4)
                           All guaranties required by
Lender for the credit facility(ies) shall have been           executed by each Guarantor,
delivered to Lender, and be in full force and           effect.
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| | (5)                           Lender, at its option
and for its sole benefit, shall have conducted           an audit of Borrowers
Accounts, Inventory, books, records, and operations,           and Lender shall be
satisfied as to their condition.
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| | (6)                           Borrower shall have           paid to Lender all
fees, costs, and expenses specified in this Agreement and the           Related Documents
as are then due and payable.
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| | (7)
                           There shall not exist at
the time of any Advance a condition which would           constitute an Event of Default
under this Agreement, and Borrower shall have           delivered to Lender the
compliance certificate called for in the paragraph below           titled Compliance
Certificate.
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| | Making
Loan Advances.     Advances under this credit facility, as well as directions for payment
from Borrowers accounts, may be requested orally or in writing by authorized
persons. Lender may, but need not, require that all oral requests be confirmed in
writing. Each Advance shall be conclusively deemed to have been made at the request of
and for the benefit of Borrower (1) when credited to any deposit account of Borrower
maintained with Lender or (2) when advanced in accordance with the instructions of an
authorized person. Lender, at its option, may set a cutoff time, after which all requests
for Advances will be treated as having been requested on the next succeeding Business Day.
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| | Mandatory
Loan Repayments.If at any time the aggregate principal amount
of the outstanding Advances shall exceed the applicable Borrowing Base, Borrower,
immediately upon written or oral notice from Lender, shall pay to Lender an amount equal
to the difference between the outstanding principal balance of the Advances and the
Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full the
aggregate unpaid principal amount of all Advances then outstanding and all accrued unpaid
interest, together with all other applicable fees, costs and charges, if any, not yet
paid.
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| | Loan
Account.     Lender shall maintain on its books a record of
account in which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility. Lender shall
provide Borrower with periodic statements of Borrowers account, which statements
shall be considered to be correct and conclusively binding on Borrower unless Borrower
notifies Lender to the contrary within thirty (30) days after Borrowers receipt of
any such statement which Borrower deems to be incorrect.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | COLLATERAL.To secure payment of the Primary Credit
Facility and performance of all                     other Loan, obligations and duties
owed by Borrower to Lender, Borrower (and                     others, if required) shall
grant to Lender Security Interests in such property                     and assets as
Lender may require. Lenders Security Interests in the
                    Collateral shall be continuing liens and shall include the proceeds
and products                     of the Collateral, including without limitation the
proceeds of any insurance.                     With respect to the Collateral, Borrower
agrees and represents and warrants to                     Lender:
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| | Perfection
of Security Interests.Borrower agrees to execute financing statements and all
documents perfecting Lenders Security Interest and to take whatever other actions
are requested by Lender to perfect and continue Lenders Security Interests in the
Collateral. Upon request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note Lenders
interest upon any and all chattel paper and instruments if not delivered to Lender for
possession by Lender. Contemporaneous with the execution of this Agreement, Borrower will
execute one or more UCC financing statements and any similar statements as may be
required by applicable law, and Lender will file such financing statements and all such
similar statements in the appropriate location or locations. Borrower hereby appoints
Lender as its irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue any Security Interest. Lender may at any time, and
without further authorization from Borrower, file a carbon, photograph, facsimile, or
other reproduction of any financing statement for use as a financing statement. Borrower
will reimburse Lender for all expenses for the perfection, termination, and the
continuation of the perfection of Lenders security interest in the Collateral.
Borrower promptly will notify Lender before any change in Borrowers name including
any change to the assumed business names of Borrower. Borrower also promptly will notify
Lender before any change in Borrowers Social Security Number or Employer
Identification Number. Borrower further agrees to notify Lender in writing prior to any
change in address or location of Borrowers principal governance office or should
Borrower merge or consolidate with any other entity.
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| | Collateral
Records.     Borrower does now, and at all times hereafter shall, keep correct and
accurate records of the Collateral, all of which records shall be available to Lender or
Lenders representative upon demand for inspection and copying at any reasonable
time. With respect to the Accounts, Borrower agrees to keep and maintain such records as
Lender may require, including without limitation information concerning Eligible Accounts
and Account balances and agings. Records related to Accounts (Receivables) are or will be
located at 2730 NW 31st Avenue, Portland, OR 97210 and 4670-T SW Pacific Avenue,
Beaverton, OR 97005. With respect to the Inventory, Borrower agrees to keep and maintain
such records as Lender may require, including without limitation information concerning
Eligible Inventory and records itemizing and describing the kind, type, quality, and
quantity of Inventory, Borrowers Inventory costs and selling prices, and the daily
withdrawals and additions to Inventory. Records related to Inventory are or will be
located at 2730 NW 31st Avenue, Portland, OR 97210 and 4670-T SW Pacific Avenue,
Beaverton, OR 97005. The above is an accurate and complete list of all locations at which
Borrower keeps or maintains business records concerning Borrowers collateral.
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| | Collateral
Schedules.     Concurrently with the execution and delivery of this Agreement, Borrower
shall execute and deliver to Lender schedules of Accounts and Inventory and schedules of
Eligible Accounts and Eligible Inventory in form and substance satisfactory to the
Lender. Thereafter supplemental schedules shall be delivered according to the following
schedule: With respect to Eligible Accounts, schedules shall be delivered monthly, in a
form and substance acceptable to Lender.. With respect to Eligible Inventory, schedules
shall be delivered monthly, in a form and substance acceptable to Lender.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Representations
and Warranties Concerning Accounts.With respect to the Accounts, Borrower represents
and warrants to Lender: (1) Each Account represented by Borrower to be an Eligible
Account for purposes of this Agreement conforms to the requirements of the definition of
an Eligible Account; (2) All Account information listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; and (3) Lender, its assigns, or
agents shall have the right at any time and at Borrowers expense to inspect,
examine, and audit Borrowers records and to confirm with Account Debtors the
accuracy of such Accounts.
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| | BUSINESS LOAN AGREEMENT (ASSET BASED)(Continued) | Page 2
| | ------------------------------------------------ | ------

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| | Representations
and Warranties Concerning Inventory.With respect to the Inventory, Borrower
represents and warrants to Lender: (1) All Inventory represented by Borrower to be
Eligible Inventory for purposes of this Agreement conforms to the requirements of the
definition of Eligible Inventory; (2) All Inventory values listed on schedules delivered
to Lender will be true and correct, subject to immaterial variance; (3) The value of the
Inventory will be determined on a consistent accounting basis; (4) Except as agreed to
the contrary by Lender in writing, all Eligible Inventory is now and at all times
hereafter will be in Borrowers physical possession and shall not be held by others
on consignment, sale on approval, or sale or return; (5) Except as reflected in the
Inventory schedules delivered to Lender, all Eligible Inventory is now and at all times
hereafter will be of good and merchantable quality, free from defects; (6) Eligible
Inventory is not now and will not at any time hereafter be stored with a bailee,
warehouseman, or similar party without Lenders prior written consent, and, in such
event, Borrower will concurrently at the time of bailment cause any such bailee,
warehouseman, or similar party to issue and deliver to Lender, in form acceptable to
Lender, warehouse receipts in Lender name evidencing the storage of Inventory; and (7)
Lender, its assigns, or agents shall have the right at any time and at Borrowers
expense to inspect and examine the Inventory and to check and test the same as to
quality, quantity, value, and condition.
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| | Notification
Basis.Borrower agrees and understands that this Loan shall be on a notification
basis pursuant to which Lender shall directly collect and receive all proceeds and
payments from the Accounts in which Lender has a security interest. In order to
facilitate the foregoing, Borrower agrees to deliver to Lender, upon demand, any and all
of Borrowers records, ledger sheets, payment cards, and other documentation, in the
form requested by Lender, with regard to the Accounts. Borrower further agrees that
Lender shall have the right to notify each Account Debtor, pay such proceeds and payments
directly to Lender, and to do any and all other things as Lender may deem to be necessary
and appropriate, within its sole discretion, to carry out the terms and intent of this
Agreement. Lender shall have the further right, where appropriate and within Lenders
sole discretion, to file suit, either in its own name or in the name of Borrower, to
collect any and all such Accounts. Borrower further agrees that Lender may take such
other actions, either in Borrowers name or Lenders name, as Lender may deem
appropriate within its sole judgment, with regard to collection and payment of the
Accounts, without affecting the liability of Borrower under this Agreement or on the
Indebtedness.
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CONDITIONS PRECEDENT TO EACH
ADVANCE.Lenders obligation to make the initial Advance and each subsequent
Advance under this Agreement shall be subject to the fulfillment to Lenders
satisfaction of all of the conditions set forth in this Agreement and in the Related
Documents.

| | Loan
Documents.     Borrower shall provide to Lender the following documents for the Loan: (1)
the Note; (2) Security Agreements granting to Lender security interests in the
Collateral; (3) financing statements and all other documents perfecting Lenders
Security Interests; (4) evidence of insurance as required below; (5) guaranties; (6)
subordinations; (7) together with all such Related Documents as Lender may require for
the Loan; all in form and substance satisfactory to Lender and Lenders counsel.
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| | Borrowers
Authorization.     Borrower shall have provided in form and substance satisfactory to
Lender properly certified resolutions, duly authorizing the execution and delivery of
this Agreement, the Note and the Related Documents. In addition, Borrower shall have
provided such other resolutions, authorizations, documents and instruments as Lender or
its counsel, may require.
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| | Fees
and Expenses Under This Agreement.Borrower shall have paid to Lender all fees,
costs, and expenses specified in this Agreement and the Related Documents as are then due
and payable.
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| | Representations
and Warranties.The representations and warranties set forth in this Agreement, in
the Related Documents, and in any document or certificate delivered to Lender under this
Agreement are true and correct.
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| | No
Event of Default.There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement or under any Related Document.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

REPRESENTATIONS AND WARRANTIES.Borrower represents and warrants to Lender, as of the date of this Agreement, as of
the date of each disbursement of loan proceeds, as of the date of any renewal, extension
or modification of any Loan, and at all times any Indebtedness exists:

| | Organization.
                        Borrower is a corporation for profit which
is, and at all times shall be, duly           organized, validly existing, and in good
standing under and by virtue of the           laws of the State of Oregon. Borrower is
duly authorized to transact business in           all other states in which Borrower is
doing business, having obtained all           necessary filings, governmental licenses
and approvals for each state in which           Borrower is doing business. Specifically,
Borrower is, and at all times shall           be, duly qualified as a foreign corporation
in all states in which the failure           to so qualify would have a material adverse
effect on its business or financial           condition. Borrower has the full power and
authority to own its properties and           to transact the business in which it is
presently engaged or presently proposes           to engage. Borrower maintains an office
at 2730 NW 31ST AVE, PORTLAND, OR           97210-1718. Unless Borrower has designated
otherwise in writing, the principal           office is the office at which Borrower
keeps its books and records including its           records concerning the Collateral.
Borrower will notify Lender prior to any           change in the location of Borrowers
state of organization or any change in           Borrowers name. Borrower shall do
all things necessary to preserve and to           keep in full force and effect its
existence, rights and privileges, and shall           comply with all regulations, rules,
ordinances, statutes, orders and decrees of           any governmental or
quasi-governmental authority or court applicable to Borrower           and Borrowers
business activities.
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| | Assumed
Business Names.Borrower has filed or recorded all documents
or filings required by law relating to all assumed business names used by Borrower.
Excluding the name of Borrower, the following is a complete list of all assumed business
names under which Borrower does business:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Borrower                 | Assumed Business Name         | Filing Location | Date      
|------------------------ | ----------------------------- | --------------- | ----------
|                         |                               |                 |           
|PORTLAND BREWING COMPANY | MACTARNAHAN'S BREWING COMPANY | SALEM, OR       | 09-27-1999
|                         | SAXER BREWING COMPANY         | SALEM, OR       | 03-29-2000
|                         | NOR'WESTER BREWING COMPANY    | SALEM, OR       | 02-22-2000

| | Authorization.
                        Borrowers execution, delivery, and
performance of this Agreement and all           the Related Documents have been duly
authorized by all necessary action by           Borrower and do not conflict with, result
in a violation of, or constitute a           default under (1) any provision of Borrowers
articles of incorporation or           organization, or bylaws, or any agreement or other
instrument binding upon           Borrower or (2) any law, governmental regulation, court
decree, or order           applicable to Borrower or to Borrowers properties.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Financial
Information.Each of Borrowers financial statements supplied to Lender truly
and completely disclosed Borrowers financial condition as of the date of the
statement, and there has been no material adverse change in Borrowers financial
condition subsequent to the date of the most recent financial statement supplied to
Lender. Borrower has no material contingent obligations except as disclosed in such
financial statements.
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| | Legal
Effect.     This Agreement constitutes, and any instrument or
agreement Borrower is required to give under this Agreement when delivered will
constitute legal, valid, and binding obligations of Borrower enforceable against Borrower
in accordance with their respective terms.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Properties.                        Except
as contemplated by this Agreement or as previously disclosed in           Borrowers
financial statements or in writing to Lender and as accepted by           Lender, and
except for property tax liens for taxes not presently due and           payable, Borrower
owns and has good title to all of Borrowers properties           free and clear of
all Security Interests, and has not executed any security           documents or
financing statements relating to such properties. All of           Borrowers
properties are titled in Borrowers legal name, and           Borrower has not used
or filed a financing statement under any other name for at           least the last five
(5) years.
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| | Hazardous
Substances.Except as disclosed to and acknowledged by Lender
in writing, Borrower represents and warrants that: (1) During the period of Borrowers
ownership of Borrowers Collateral, there has been no use, generation, manufacture,
storage, treatment, disposal, release or threatened release of any Hazardous Substance by
any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge
of, or reason to believe that there has been (a) any breach or violation of any
Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal,
release or threatened release of any Hazardous Substance on, under, about or from the
Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual
or threatened litigation or claims of any kind by any person relating to such matters.
(3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of
the Collateral shall use, generate, manufacture, store, treat, dispose of or release any
Hazardous Substance on, under, about or from any of the Collateral; and any such activity
shall be conducted in compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation all Environmental Laws.
Borrower authorizes Lender and its agents to enter upon the Collateral to make such
inspections and tests as Lender may deem appropriate to determine compliance of the
Collateral with this section of the Agreement. Any inspections or tests made by Lender
shall be at Borrowers expense and for Lenders purposes only and shall not be
construed to create any responsibility or liability on the part of Lender to Borrower or
to any other person. The representations and warranties contained herein are based on
Borrowers due diligence in investigating the Collateral for hazardous waste and
Hazardous Substances. Borrower hereby (1) releases and waives any future claims against
Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or
other costs under any such laws, and (2) agrees to indemnify and hold harmless Lender
against any and all claims, losses, liabilities, damages, penalties, and expenses which
Lender may directly or indirectly sustain or suffer resulting from a breach of this
section of the Agreement or as a consequence of any use, generation, manufacture,
storage, disposal, release or threatened release of a hazardous waste or substance on the
Collateral, or as a result of a violation of any Environmental Laws. The provisions of
this section of the Agreement, including the obligation to indemnify, shall survive the
payment of the Indebtedness and the termination, expiration or satisfaction of this
Agreement and shall not be affected by Lenders acquisition of any interest in any
of the Collateral, whether by foreclosure or otherwise.
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| | BUSINESS LOAN AGREEMENT (ASSET BASED)(Continued) | Page 3
| | ------------------------------------------------ | ------

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| | Litigation
and Claims.     No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which may materially
adversely affect Borrowers financial condition or properties, other than
litigation, claims, or other events, if any, that have been disclosed to and acknowledged
by Lender in writing.
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| | Taxes.To the best of Borrowers knowledge, all of Borrowers
tax           returns and reports that are or were required to be filed, have been filed,
and           all taxes, assessments and other governmental charges have been paid in
full,           except those presently being or to be contested by Borrower in good faith
in the           ordinary course of business and for which adequate reserves have been
provided.
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| | Lien
Priority.     Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the Collateral
directly or indirectly securing repayment of Borrowers Loan and Note, that would be
prior or that may in any way be superior to Lenders Security Interests and rights
in and to such Collateral.
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| | Binding
Effect.This Agreement, the Note, all Security Agreements (if
any), and all Related Documents are binding upon the signers thereof, as well as upon
their successors, representatives and assigns, and are legally enforceable in accordance
with their respective terms.
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AFFIRMATIVE COVENANTS.     Borrower
covenants and agrees with Lender that, so long as this Agreement remains in effect,
Borrower will:

| | Notices
of Claims and Litigation.Promptly inform Lender in writing
of (1) all material adverse changes in Borrowers financial condition, and (2) all
existing and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any Guarantor.
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| | Financial
Records.     Maintain its books and records in accordance with
GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrowers
books and records at all reasonable times.
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| | Financial
Statements.      Furnish Lender with the following:
| | -------------------------------------------------------------

| | Annual
Statements.As soon as available, but in no event later than one-hundred-twenty (120)
days after the end of each fiscal year, Borrowers balance sheet and income
statement for the year ended, audited by a certified public accountant satisfactory to
Lender.
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| | Interim
Statements.As soon as available, but in no event later than
thirty (30) days after the end of each month, Borrowers balance sheet and profit
and loss statement for the period ended, prepared by Borrower.
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| | Tax
Returns.As soon as available, but in no event later than thirty (30) days after the
applicable filing date for the tax reporting period ended, Federal and other governmental
tax returns, prepared by Borrower.
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| | Additional
Requirements.
| | ------------------------

| | Borrower
agrees to furnish Lender with the following Guarantor information:
| | ---------------------------------------------------------------------------

| | Guarantors
Personal Financial Statement.As soon as available, but in no event later than one
hundred twenty (120) days after the anniversary of the previous statement, Guarantors
personal financial statement, in form and substance satisfactory to Lender.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Guarantors
Tax Return.As soon as available, but in no event later than thirty (30) days after
the applicable filing date for the tax reporting period ended, Federal and other
governmental tax returns, prepared by Guarantor. All Company Tax Returns, whether
Borrowers or Guarantors, shall include supplemental schedules and copies of
K-1s. Aging and Listing of Accounts Receivable and Payable.Borrower and
Lender agree that Borrower will provide Lender with a detailed aging of Borrowers
accounts receivable and accounts payable within thirty (30) days from each month end.
Each aging shall include an explanation of any adjustments made at the end of that month
and shall be in a form acceptable to Lender.
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| | Inventory
Listing.     Borrower and Lender agree that Borrower will provide Lender with a detailed
listing of inventory within thirty (30) days from each month end, together with an
explanation of any adjustments made at the end of that month, all in a form acceptable to
Lender.
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| | All
financial reports required to be provided under this Agreement shall be prepared in
accordance with GAAP, applied on a consistent basis, and certified by Borrower as being
true and correct.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Additional
Information.      Furnish such additional information and statements, as Lender may request
from time to time.
| | -------------------------------------------------------------------------------------------------------------------------

| | Financial
Covenants and Ratios.Comply with the following covenants and ratios:
| | ------------------------------------------------------------------------------

| | Minimum
Income and Cash flow Requirements.Other Cash Flow requirements are as follows:
| | --------------------------------------------------------------------------------------

| | Debt
Service Coverage Ratio.Debt Service Coverage Ratio is
defined as Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
divided by the sum of interest expense, CPLTD and dividends. In addition, Borrower shall
comply with the following cash flow ratio requirements:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Debt
Service Coverage Ratio.Maintain a ratio of Debt Service Coverage in excess of 1.000 to
1.000.
| | --------------------------------------------------------------------------------------------------

| | Tangible
Net Worth Requirements.Borrower shall comply with the following net worth ratio
requirements:
| | ------------------------------------------------------------------------------------------------------

| | Debt
/ Worth  Ratio.      Maintain a ratio of Debt / Worth not in excess of 2.250 to 1.000.  The
ratio "Debt / Worth" means                 Borrower's Total Liabilities divided by
Borrower's Tangible Net Worth.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Except
as provided above, all computations made to determine compliance with the requirements
contained in this paragraph shall be made in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by Borrower as being
true and correct.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Insurance.
                        Maintain fire and other risk insurance,
public liability insurance, and such           other insurance as Lender may require with
respect to Borrowers properties           and operations, in form, amounts,
coverages and with insurance companies           acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender           from time to time the policies or
certificates of insurance in form satisfactory           to Lender, including
stipulations that coverages will not be canceled or           diminished without at least
ten (10) days prior written notice to Lender. Each           insurance policy also shall
include an endorsement providing that coverage in           favor of Lender will not be
impaired in any way by any act, omission or default           of Borrower or any other
person. In connection with all policies covering assets           in which Lender holds
or is offered a security interest for the Loans, Borrower           will provide Lender
with such lenders loss payable or other endorsements           as Lender may
require.
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| | Insurance
Reports.Furnish to Lender, upon request of Lender, reports on each existing
insurance policy showing such information as Lender may reasonably request, including
without limitation the following: (1) the name of the insurer; (2) the risks insured; (3)
the amount of the policy; (4) the properties insured; (5) the then current property
values on the basis of which insurance has been obtained, and the manner of determining
those values; and (6) the expiration date of the policy. In addition, upon request of
Lender (however not more often than annually), Borrower will have an independent
appraiser satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Guaranties.
                        Prior to disbursement of any Loan proceeds,
furnish executed guaranties of the           Loans in favor of Lender, executed by the
guarantors named below, on           Lenders forms, and in the amounts and under
the conditions set forth in           those guaranties.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Names of Guarantors          | Amounts      
|---------------------------- | -------------
|ROBERT M MACTARNAHAN         | $1,200,000.00
|R M MACTARNAHAN TRUST        | $1,200,000.00
|MACTARNAHAN LTD PARTNERSHIP  | $1,200,000.00
|HARMER MILL & LOGGING SUPPLY | $1,200,000.00

| | Subordination.
                        Prior to disbursement of any Loan proceeds,
deliver to Lender a subordination           agreement on Lenders forms, executed by
Borrowers creditor named           below, subordinating all of Borrowers
indebtedness to such creditor, or           such lesser amount as may be agreed to by
Lender in writing, and any security           interests in collateral securing that
indebtedness to the Loans and security           interests of Lender.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name of Creditor                | Total Amount of Debt
|------------------------------- | --------------------
|MacTarnahan Limited Partnership | $2,000,000.00       

| | Other
Agreements.     Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other such
agreements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loan
Proceeds.     Use all Loan proceeds solely for Borrowers
business operations, unless specifically consented to the contrary by Lender in writing.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | BUSINESS LOAN AGREEMENT (ASSET BASED)(Continued) | Page 4
| | ------------------------------------------------ | ------

---

| | Taxes,
Charges and Liens.     Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed upon Borrower
or its properties, income, or profits, prior to the date on which penalties would attach,
and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrowers
properties, income, or profits.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Performance.Perform and comply, in a timely manner, with all terms,
conditions, and           provisions set forth in this Agreement, in the Related
Documents, and in all           other instruments and agreements between Borrower and
Lender. Borrower shall           notify Lender immediately in writing of any default in
connection with any           agreement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Operations.
                        Maintain executive and management personnel
with substantially the same           qualifications and experience as the present
executive and management personnel;           provide written notice to Lender of any
change in executive and management           personnel; conduct its business affairs in a
reasonable and prudent manner.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Environmental
Studies.     Promptly conduct and complete, at Borrowers expense, all such
investigations, studies, samplings and testings as may be requested by Lender or any
governmental authority relative to any substance, or any waste or by-product of any
substance defined as toxic or a hazardous substance under applicable federal, state, or
local law, rule, regulation, order or directive, at or affecting any property or any
facility owned, leased or used by Borrower.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Compliance
with Governmental Requirements.Comply with all laws, ordinances, and regulations,
now or hereafter in effect, of all governmental authorities applicable to the conduct of
Borrowers properties, businesses and operations, and to the use or occupancy of the
Collateral, including without limitation, the Americans With Disabilities Act. Borrower
may contest in good faith any such law, ordinance, or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Borrower has notified
Lender in writing prior to doing so and so long as, in Lenders sole opinion, Lenders
interests in the Collateral are not jeopardized. Lender may require Borrower to post
adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lenders
interest.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inspection.Permit employees or agents of Lender at any reasonable time
to inspect any           and all Collateral for the Loan or Loans and Borrowers
other properties           and to examine or audit Borrowers books, accounts, and
records and to make           copies and memoranda of Borrowers books, accounts,
and records. If           Borrower now or at any time hereafter maintains any records
(including without           limitation computer generated records and computer software
programs for the           generation of such records) in the possession of a third
party, Borrower, upon           request of Lender, shall notify such party to permit
Lender free access to such           records at all reasonable times and to provide
Lender with copies of any records           it may request, all at Borrowers
expense.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Compliance
Certificates.     Unless waived in writing by Lender, provide
Lender at least annually, with a certificate executed by Borrowers chief financial
officer, or other officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the certificate,
no Event of Default exists under this Agreement.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Environmental
Compliance and Reports.Borrower shall comply in all respects with any and all
Environmental Laws; not cause or permit to exist, as a result of an intentional or
unintentional action or omission on Borrowers part or on the part of any third
party, on property owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental activity is pursuant to
and in compliance with the conditions of a permit issued by the appropriate federal,
state or local governmental authorities; shall furnish to Lender promptly and in any
event within thirty (30) days after receipt thereof a copy of any notice, summons, lien,
citation, directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission on Borrowers
part in connection with any environmental activity whether or not there is damage to the
environment and/or other natural resources.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Additional
Assurances.Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements, assignments, financing
statements, instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all Security Interests.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

LENDERS EXPENDITURES.If
any action or proceeding is commenced that would materially affect Lenders interest
in the Collateral or if Borrower fails to comply with any provision of this Agreement or
any Related Documents, including but not limited to Borrowers failure to discharge
or pay when due any amounts Borrower is required to discharge or pay under this Agreement
or any Related Documents, Lender on Borrowers behalf may (but shall not be obligated
to) take any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and other claims,
at any time levied or placed on any Collateral and paying all costs for insuring,
maintaining and preserving any Collateral. All such expenditures incurred or paid by
Lender for such purposes will then bear interest at the rate charged under the Note from
the date incurred or paid by Lender to the date of repayment by Borrower. All such
expenses will become a part of the Indebtedness and, at Lenders option, will (A) be
payable on demand; (B) be added to the balance of the Note and be apportioned among and be
payable with any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a
balloon payment which will be due and payable at the Notes maturity.

NEGATIVE COVENANTS.Borrower
covenants and agrees with Lender that while this Agreement is in effect, Borrower shall
not, without the prior written consent of Lender:

| | Indebtedness
and Liens.     (1) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this Agreement, create,
incur or assume indebtedness for borrowed money, including capital leases, (2) sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any
of Borrowers assets (except as allowed as Permitted Liens), or (3) sell with
recourse any of Borrowers accounts, except to Lender.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Continuity
of Operations.     (1) Engage in any business activities
substantially different than those in which Borrower is presently engaged, (2) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other entity,
change its name, dissolve or transfer or sell Collateral out of the ordinary course of
business, or (3) pay any dividends on Borrowers stock (other than dividends payable
in its stock), provided, however that notwithstanding the foregoing, but only so long as
no Event of Default has occurred and is continuing or would result from the payment of
dividends, if Borrower is a Subchapter S Corporation (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock
to its shareholders from time to time in amounts necessary to enable the shareholders to
pay income taxes and make estimated income tax payments to satisfy their liabilities
under federal and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of Borrowers stock,
or purchase or retire any of Borrowers outstanding shares or alter or amend Borrowers
capital structure.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loans,
Acquisitions and Guaranties.(1) Loan, invest in or advance
money or assets, (2) purchase, create or acquire any interest in any other enterprise or
entity, or (3) incur any obligation as surety or guarantor other than in the ordinary
course of business.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CESSATION OF ADVANCES.If
Lender has made any commitment to make any Loan to Borrower, whether under this Agreement
or under any other agreement, Lender shall have no obligation to make Loan Advances or to
disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of
this Agreement or any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or
becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (C) there occurs a material adverse change in Borrowers financial
condition, in the financial condition of any Guarantor, or in the value of any Collateral
securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such Guarantors guaranty of the Loan or any other loan with Lender;
or (E) Lender in good faith deems itself insecure, even though no Event of Default shall
have occurred.

RIGHT OF SETOFF.     To the extent
permitted by applicable law, Lender reserves a right of setoff in all Borrowers
accounts with Lender (whether checking, savings, or some other account). This includes all
accounts Borrower holds jointly with someone else and all accounts Borrower may open in
the future. However, this does not include any IRA or Keogh accounts, or any trust
accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness
against any and all such accounts.

DEFAULT.              Each
of the following shall constitute an Event of Default under this           Agreement::

| | Payment
Default.      Borrower fails to make any payment when due under the Loan.
| | ---------------------------------------------------------------------------------

| | Other
Defaults.Borrower fails to comply with or to perform any
other term, obligation, covenant or condition contained in this Agreement or in any of
the Related Documents or to comply with or to perform any term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Default
in Favor of Third Parties.     Borrower or any Grantor defaults under any loan, extension
of credit, security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of Borrowers or
any Grantors property or Borrowers or any Grantors ability to repay the
Loans or perform their respective obligations under this Agreement or any of the Related
Documents.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | False
Statements.Any warranty, representation or statement made or furnished to Lender by
Borrower or on Borrowers behalf under this Agreement or the Related Documents is
false or misleading in any material respect, either now or at the time made or furnished
or becomes false or misleading at any time thereafter.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | BUSINESS LOAN AGREEMENT (ASSET BASED)(Continued) | Page 5
| | ------------------------------------------------ | ------

---

| | Insolvency.The dissolution or termination of Borrowers existence as a going
          business, the insolvency of Borrower, the appointment of a receiver for any part
          of Borrowers property, any assignment for the benefit of creditors, any
          type of creditor workout, or the commencement of any proceeding under any
          bankruptcy or insolvency laws by or against Borrower.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Defective
Collateralization.This Agreement or any of the Related Documents ceases to be in full
force and effect (including failure of any collateral document to create a valid and
perfected security interest or lien) at any time and for any reason.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Creditor
or Forfeiture Proceedings.Commencement of foreclosure or forfeiture proceedings,
whether by judicial proceeding, self-help, repossession or any other method, by any
creditor of Borrower or by any governmental agency against any collateral securing the
Loan. This includes a garnishment of any of Borrowers accounts, including deposit
accounts, with Lender. However, this Event of Default shall not apply if there is a good
faith dispute by Borrower as to the validity or reasonableness of the claim which is the
basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice
of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond
for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole
discretion, as being an adequate reserve or bond for the dispute.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Events
Affecting Guarantor.Any of the preceding events occurs with respect to any Guarantor
of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or
disputes the validity of, or liability under, any Guaranty of the Indebtedness. In the
event of a death, Lender, at its option, may, but shall not be required to, permit the
Guarantors estate to assume unconditionally the obligations arising under the
guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event of Default.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Change
in Ownership.      Any change in ownership of twenty-five percent (25%) or more of the common
stock of Borrower.
| | -----------------------------------------------------------------------------------------------------------------------

| | Adverse
Change.     A material  adverse change occurs in Borrower's  financial  condition,  or Lender
believes the prospect of payment      or performance of the Loan is impaired.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Insecurity.    
          Lender in good faith believes itself insecure.
| | ------------------------------------------------------------------------

| | Right
to Cure.If any default, other than a default on Indebtedness, is curable and if
Borrower or Grantor, as the case may be, has not been given a notice of a similar default
within the preceding twelve (12) months, it may be cured (and no Event of Default will
have occurred) if Borrower or Grantor, as the case may be, after receiving written notice
from Lender demanding cure of such default: (1) cure the default within fifteen (15) days;
or (2) if the cure requires more than fifteen (15) days, immediately initiate steps which
Lender deems in Lenders sole discretion to be sufficient to cure the default and
thereafter continue and complete all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EFFECT OF AN EVENT OF DEFAULT.If any Event of Default shall occur, except where otherwise provided in this Agreement
or the Related Documents, all commitments and obligations of Lender under this Agreement
or the Related Documents or any other agreement immediately will terminate (including any
obligation to make further Loan Advances or disbursements), and, at Lenders option,
all Indebtedness immediately will become due and payable, all without notice of any kind
to Borrower, except that in the case of an Event of Default of the type described in the
Insolvency subsection above, such acceleration shall be automatic and not
optional. In addition, Lender shall have all the rights and remedies provided in the
Related Documents or available at law, in equity, or otherwise. Except as may be
prohibited by applicable law, all of Lenders rights and remedies shall be cumulative
and may be exercised singularly or concurrently. Election by Lender to pursue any remedy
shall not exclude pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Borrower or of any Grantor shall not affect
Lenders right to declare a default and to exercise its rights and remedies.

MISCELLANEOUS PROVISIONS.      The
following miscellaneous provisions are a part of this Agreement:

| | Amendments.This Agreement, together with any Related Documents, constitutes the entire
          understanding and agreement of the parties as to the matters set forth in this
          Agreement. No alteration of or amendment to this Agreement shall be effective
          unless given in writing and signed by the party or parties sought to be charged
          or bound by the alteration or amendment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Attorneys
Fees; Expenses.Borrower agrees to pay upon demand all of Lenders costs and
expenses, including Lenders attorneys fees and Lenders legal expenses,
incurred in connection with the enforcement of this Agreement. Lender may hire or pay
someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses
of such enforcement. Costs and expenses include Lenders attorneys fees and
legal expenses whether or not there is a lawsuit, including attorneys fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection services.
Borrower also shall pay all court costs and such additional fees as may be directed by the
court.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Caption
Headings.Caption headings in this Agreement are for convenience purposes only and are
not to be used to interpret or define the provisions of this Agreement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consent
to Loan Participation.Borrower agrees and consents to Lenders sale or transfer,
whether now or later, of one or more participation interests in the Loan to one or more
purchasers, whether related or unrelated to Lender. Lender may provide, without any
limitation whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with
respect to such matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such participation
interests. Borrower also agrees that the purchasers of any such participation interests
will be considered as the absolute owners of such interests in the Loan and will have all
the rights granted under the participation agreement or agreements governing the sale of
such participation interests. Borrower further waives all rights of offset or counterclaim
that it may have now or later against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either Lender or such purchaser may
enforce Borrowers obligation under the Loan irrespective of the failure or
insolvency of any holder of any interest in the Loan. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests irrespective of
any personal claims or defenses that Borrower may have against Lender.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Governing
Law.     This Agreement will be governed by, construed and enforced in accordance with
federal law and the laws of the State of Oregon. This Agreement has been accepted
by Lender in the State of Oregon.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | No
Waiver by Lender.Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay or
omission on the part of Lender in exercising any right shall operate as a waiver of such
right or any other right. A waiver by Lender of a provision of this Agreement shall not
prejudice or constitute a waiver of Lenders right otherwise to demand strict
compliance with that provision or any other provision of this Agreement. No prior waiver
by Lender, nor any course of dealing between Lender and Borrower, or between Lender and
any Grantor, shall constitute a waiver of any of Lenders rights or of any of
Borrowers or any Grantors obligations as to any future transactions. Whenever
the consent of Lender is required under this Agreement, the granting of such consent by
Lender in any instance shall not constitute continuing consent to subsequent instances
where such consent is required and in all cases such consent may be granted or withheld in
the sole discretion of Lender.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Notices.     
                    Any notice required to be given under this Agreement shall be given in writing,
          and shall be effective when actually delivered, when actually received by
          telefacsimile (unless otherwise required by law), when deposited with a
          nationally recognized overnight courier, or, if mailed, when deposited in the
          United States mail, as first class, certified or registered mail postage
          prepaid, directed to the addresses shown near the beginning of this Agreement.
          Any party may change its address for notices under this Agreement by giving
          formal written notice to the other parties, specifying that the purpose of the
          notice is to change the partys address. For notice purposes, Borrower
          agrees to keep Lender informed at all times of Borrowers current address.
          Unless otherwise provided or required by law, if there is more than one
          Borrower, any notice given by Lender to any Borrower is deemed to be notice
          given to all Borrowers.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Severability.     
                    If a court of competent jurisdiction finds any provision of this Agreement to
          be illegal, invalid, or unenforceable as to any circumstance, that finding shall
          not make the offending provision illegal, invalid, or unenforceable as to any
          other circumstance. If feasible, the offending provision shall be considered
          modified so that it becomes legal, valid and enforceable. If the offending
          provision cannot be so modified, it shall be considered deleted from this
          Agreement. Unless otherwise required by law, the illegality, invalidity, or
          unenforceability of any provision of this Agreement shall not affect the
          legality, validity or enforceability of any other provision of this Agreement.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Subsidiaries
and Affiliates of Borrower.     To the extent the context of any provisions of this
Agreement makes it appropriate, including without limitation any representation, warranty
or covenant, the word Borrower as used in this Agreement shall include all of
Borrowers subsidiaries and affiliates. Notwithstanding the foregoing however, under
no circumstances shall this Agreement be construed to require Lender to make any Loan or
other financial accommodation to any of Borrowers subsidiaries or affiliates.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Successors
and Assigns.All covenants and agreements contained by or on behalf of Borrower shall
bind Borrowers successors and assigns and shall inure to the benefit of Lender and
its successors and assigns. Borrower shall not, however, have the right to assign
Borrowers rights under this Agreement or any interest therein, without the prior
written consent of Lender.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Survival
of Representations and Warranties.Borrower understands and agrees that in extending
Loan Advances, Lender is relying on all representations, warranties, and covenants made by
Borrower in this Agreement or in any certificate or other instrument delivered by Borrower
to Lender under this Agreement or the Related Documents. Borrower further agrees that
regardless of any investigation made by Lender, all such representations, warranties and
covenants will survive the extension of Loan Advances and delivery to Lender of the
Related Documents, shall be continuing in nature, shall be deemed made and redated by
Borrower at the time each Loan Advance is made, and shall remain in full force and effect
until such time as Borrowers Indebtedness
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | BUSINESS LOAN AGREEMENT (ASSET BASED)(Continued) | Page 6
| | ------------------------------------------------ | ------

---

| | shall be paid in full, or until this
Agreement shall be terminated in the manner provided above, whichever is the last to
occur.
| | --------------------------------------------------------------------------------------------------------------------------------

| | Time is of the Essence.      Time is of the essence in the performance of this Agreement.
| | -----------------------------------------------------------------------------------------

DEFINITIONS.The following capitalized words and terms shall have the following meanings
          when used in this Agreement. Unless specifically stated to the contrary, all
          references to dollar amounts shall mean amounts in lawful money of the United
          States of America. Words and terms used in the singular shall include the
          plural, and the plural shall include the singular, as the context may require.
          Words and terms not otherwise defined in this Agreement shall have the meanings
          attributed to such terms in the Uniform Commercial Code. Accounting words and
          terms not otherwise defined in this Agreement shall have the meanings assigned
          to them in accordance with generally accepted accounting principles as in effect
          on the date of this Agreement:

| | Account.The word Account means a trade account, account receivable,
          other receivable, or other right to payment for goods sold or services rendered
          owing to Borrower (or to a third party grantor acceptable to Lender).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Account
Debtor.      The words "Account Debtor" mean the person or entity obligated upon an Account.
| | ----------------------------------------------------------------------------------------------------

| | Advance.The word Advance means a disbursement of Loan funds made, or to
          be made, to Borrower or on Borrowers behalf under the terms and conditions
          of this Agreement.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Agreement.The word Agreement means this Business Loan Agreement (Asset
          Based), as this Business Loan Agreement (Asset Based) may be amended or modified
          from time to time, together with all exhibits and schedules attached to this
          Business Loan Agreement (Asset Based) from time to time.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Borrower.     
                    The word Borrower means PORTLAND BREWING COMPANY, and all other
          persons and entities signing the Note in whatever capacity.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Borrowing
Base.The words Borrowing Base mean The words Borrowing Base
mean, as determined by Lender from time to time, the lesser of (1) $1,200,000.00or
(2) 80.000%of the aggregate amount of Eligible Accounts.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Beginning
on October 31, 2003, the inventory advance will be incrementally decreased, as the
following table shows:
| | -------------------------------------------------------------------------------------------------------------------

| | Date              | Advance Rate           | 
| | ----------------- | ---------------------- | 
| | Through 10/31/03  | 50%                    | 
| | 11/01/03-11/30/03 | 40%                    | 
| | 12/01/03-12/31/03 | 30%                    | 
| | 01/01/04-01/31/04 | 20%                    | 
| | 02/01/04-02/28/04 | 10%                    | 
| | 03/01/04-maturity | No Inventory Advances. | 

| | Business
Day.      The words "Business Day" mean a day on which commercial banks are open in the State
of Oregon.
| | -----------------------------------------------------------------------------------------------------------------

| | Collateral.The word Collateral means all property and assets granted as
          collateral security for a Loan, whether real or personal property, whether
          granted directly or indirectly, whether granted now or in the future, and
          whether granted in the form of a security interest, mortgage, collateral
          mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage,
          collateral chattel mortgage, chattel trust, factors lien, equipment trust,
          conditional sale, trust receipt, lien, charge, lien or title retention contract,
          lease or consignment intended as a security device, or any other security or
          lien interest whatsoever, whether created by law, contract, or otherwise. The
          word Collateral also includes without limitation all collateral described in the
          Collateral section of this Agreement.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Eligible
Accounts.The words Eligible Accounts mean at any time, all of
Borrowers Accounts which contain selling terms and conditions acceptable to Lender.
The net amount of any Eligible Account against which Borrower may borrow shall exclude all
returns, discounts, credits, and offsets of any nature. Unless otherwise agreed to by
Lender in writing, Eligible Accounts do not include:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (1)
    Accounts with respect to which the Account Debtor is employee or
agent of           Borrower.
| | -----------------------------------------------------------------------------------------------------

| | (2)     
               Accounts with respect to which the Account Debtor is a subsidiary of, or
          affiliated with Borrower or its shareholders, officers, or directors.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3)     
               Accounts with respect to which goods are placed on consignment, guaranteed
          sale, or other terms by reason of which the payment by the Account Debtor may be
          conditional.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4)     
    Accounts with respect to which Borrower is or may become liable to the Account
          Debtor for goods sold or services rendered by the Account Debtor to Borrower.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5)     
               Accounts which are subject to dispute, counterclaim, or setoff.
| | ---------------------------------------------------------------------------------------

| | (6)     
               Accounts with respect to which the goods have not been shipped or delivered, or
          the services have not been rendered, to the Account Debtor.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7)     
               Accounts with respect to which Lender, in its sole discretion, deems the
          creditworthiness or financial condition of the Account Debtor to be
          unsatisfactory.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8)     
               Accounts of any Account Debtor who has filed or has had filed against it a
          petition in bankruptcy or an application for relief under any provision of any
          state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has
          had appointed a trustee, custodian, or receiver for the assets of such Account
          Debtor; or who has made an assignment for the benefit of creditors or has become
          insolvent or fails generally to pay its debts (including its payrolls) as such
          debts become due.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (9)     
               Accounts with respect to which the Account Debtor is the United States
          government or any department or agency of the United States.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (10)     
                Accounts which have not been paid in full within 90 daysfrom the
          invoice date. The entire balance of any Account of any single Account Debtor
          will be ineligible whenever the portion of the Account which has not been paid
          within 90 days from the invoice date is in excess of 10.000%of
          the total amount outstanding on the Account.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Eligible
Inventory.      The words "Eligible Inventory" mean at any time, all of Borrower's Inventory
as defined below except:
| | ------------------------------------------------------------------------------------------------------------------------------

| | (1)     
               Inventory which is not owned by Borrower free and clear of all security
          interests, liens, encumbrances, and claims of third parties.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2)     
               Inventory which Lender, in its sole discretion, deems to be obsolete,
          unsalable, damaged, defective, or unfit for further processing.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3)     
               Packaging Materials.
| | --------------------------------------------

| | Environmental
Laws.     The words Environmental Laws mean any and all state, federal and
local statutes, regulations and ordinances relating to the protection of human health or
the environment, including without limitation the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (CERCLA),
the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 (SARA),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state
or federal laws, rules, or regulations adopted pursuant thereto or intended to protect
human health or the environment.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Event
of Default.The words Event of Default mean any of the events of default
set forth in this Agreement in the default section of this Agreement.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | Expiration
Date.The words Expiration Date mean the date of termination of
Lenders commitment to lend under this Agreement.
| | -----------------------------------------------------------------------------------------------------------------------------

| | GAAP.     
         The word GAAP means generally accepted accounting principles.
| | -----------------------------------------------------------------------------------

| | Grantor.The word Grantor means each and all of the persons or entities
          granting a Security Interest in any Collateral for the Loan, including without
          limitation all Borrowers granting such a Security Interest.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Guarantor.The-word Guarantor means any guarantor, surety, or
          accommodation party of any or all of the Loan.
| | -----------------------------------------------------------------------------------------------------------------------

| | Guaranty.     
                    The word Guaranty means the guaranty from Guarantor to Lender,
          including without limitation a guaranty of all or part of the Note.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Hazardous
Substances.The words Hazardous Substances mean materials that, because of
their quantity, concentration or physical, chemical or infectious characteristics, may
cause or pose a present or potential hazard to human health or the environment when
improperly used, treated, stored, disposed of, generated, manufactured, transported or
otherwise handled. The words Hazardous Substances are used in their very
broadest sense and include without limitation any and all hazardous or toxic substances,
materials or waste as defined by or listed under the Environmental Laws. The term
Hazardous Substances also includes, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | BUSINESS LOAN AGREEMENT (ASSET BASED)(Continued) | Page 7
| | ------------------------------------------------ | ------

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| | Indebtedness.The word Indebtedness means the indebtedness evidenced by the
          Note or Related Documents, including all principal and interest together with
          all other indebtedness and costs and expenses for which Borrower is responsible
          under this Agreement or under any of the Related Documents.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inventory.The word Inventory means all of Borrowers raw materials,
          work in process, finished goods, merchandise, parts and supplies, of every kind
          and description, and goods held for sale or lease or furnished under contracts
          of service in which Borrower now has or hereafter acquires any right, whether
          held by Borrower or others, and all documents of title, warehouse receipts,
          bills of lading, and all other documents of every type covering all or any part
          of the foregoing. Inventory includes inventory temporarily out of
          Borrowers custody or possession and all returns on Accounts.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Lender.The word Lender means Washington Mutual Bank, its successors
          and assigns.
| | --------------------------------------------------------------------------------------------

| | Loan.The word Loan means any and all loans and financial
          accommodations from Lender to Borrower whether now or hereafter existing, and
          however evidenced, including without limitation those loans and financial
          accommodations described herein or described on any exhibit or schedule attached
          to this Agreement from time to time.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Note.     
                    The word Note means the Note executed by PORTLAND BREWING COMPANY
          in the principal amount of $1,200,000.00 dated September 1, 2003, together with
          all renewals of, extensions of, modifications of, refinancings of,
          consolidations of, and substitutions for the note or credit agreement.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Permitted
Liens.     The words Permitted Liens mean (1) liens and security interests
securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or
similar charges either not yet due or being contested in good faith; (3) liens of
materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the
ordinary course of business and securing obligations which are not yet delinquent; (4)
purchase money liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure indebtedness outstanding
on the date of this Agreement or permitted to be incurred under the paragraph of this
Agreement titled Indebtedness and Liens; (5) liens and security interests
which, as of the date of this Agreement, have been disclosed to and approved by the Lender
in writing; and (6) those liens and security interests which in the aggregate constitute
an immaterial and insignificant monetary amount with respect to the net value of
Borrowers assets.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Primary
Credit Facility.     The words Primary Credit Facility mean the credit
facility described in the Line of Credit section of this Agreement.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | Related
Documents.The words Related Documents mean all promissory notes, credit
agreements, loan agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, security deeds, collateral mortgages, and all other
instruments, agreements and documents, whether now or hereafter existing, executed in
connection with the Loan.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Security
Agreement.The words Security Agreement mean and include without
limitation any agreements, promises, covenants, arrangements, understandings or other
agreements, whether created by law, contract, or otherwise, evidencing, governing,
representing, or creating a Security Interest.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Security
Interest.The words Security Interest mean, without limitation, any and
all types of collateral security, present and future, whether in the form of a lien,
charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop
pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factors lien,
equipment trust, conditional sale, trust receipt, lien or title retention contract, lease
or consignment intended as a security device, or any other security or lien interest
whatsoever whether created by law, contract, or otherwise.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Tangible
Net Worth.The words Tangible Net Worth mean Borrowers total assets
excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights,
organizational expenses, and similar intangible items, but including leaseholds and
leasehold improvements) less total debt.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

UNDER OREGON LAW, MOST AGREEMENTS,
PROMISES AND COMMITMENTS MADE BY US (LENDER) AFTER OCTOBER 3, 1989 CONCERNING LOANS AND
OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR
SECURED SOLELY BY THE BORROWERS RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION
AND BE SIGNED BY US TO BE ENFORCEABLE.

BORROWER ACKNOWLEDGES HAVING READ
ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT (ASSET BASED) AND BORROWER AGREES TO
ITS TERMS. THIS BUSINESS LOAN
AGREEMENT (ASSET BASED) IS DATED SEPTEMBER 1, 2003.

BORROWER:

PORTLAND BREWING COMPANY

By:/s/ FREDERICK BOWMAN
        FREDERICK BOWMAN, President of PORTLAND   
     BREWING COMPANY

LENDER:

WASHINGTON MUTUAL BANK

By:/s/ JEFFREY D. AULD
        Authorized Signer

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