BUSINESS LOAN AGREEMENT

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  Principal   Loan Date   Maturity  Loan No Call/Coll  Account Officer Initials
$2,500,000.00 02-02-2001 08-02-2001  9001    4A0/6100  1049968   610
------------- ---------- ---------- ------- --------- -------- ------- ---------
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  containing  "***" has been  omitted  due to text  length  limitations.
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Borrower:                          Lender:
  Portland Brewing Company              Washington Mutual Bank dba Western Bank
  2730 N.W. 31st Avenue                 Beaverton Business Banking Center
  Portland, OR  97210                   12655 SW Center Street, Suite 500
                                        Beaverton, OR  97005

THIS  BUSINESS  LOAN  AGREEMENT  dated  February 2, 2001,  is made and  executed
between  Portland Brewing Company  ("Borrower")  and Washington  Mutual Bank dba
Western Bank  ("Lender") on the  following  terms and  conditions.  Borrower has
received  prior  commercial  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 and agrees 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,  and (B) all such
Loans shall be and remain subject to the terms and conditions of this Agreement.

TERM.  This  Agreement  shall be  effective  as of February  2, 2001,  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.

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  perfecting
     Lender's Security  Interests;  (4) evidence of insurance as required below;
     (5) guaranties;  (6) 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.

     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.

     Payment of Fees and Expenses.  Borrower shall have paid to Lender all fees,
     charges,  and other expenses which are then due and payable as specified in
     this Agreement or any Related Document.

     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.

     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 and validly existing, 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,  and has
     obtained all  necessary  filings,  governmental  licenses and approvals for
     each state in which Borrower is doing business, in both cases 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 its
     principle  office  at 2730 NW  31st  Avenue,  Portland,  OR  97210.  Unless
     Borrower has designated otherwise in writing,  this is the principle office
     at which  Borrower  keeps its  books  and  records  including  its  records
     concerning the Collateral. Borrower will notify Lender of any change in the
     location  of  Borrower's  principle  office.  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.

     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:  See
     Addendum.

     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 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.

     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.

     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. See Addendum.

     Hazardous Substances.  Except as disclosed to and acknowledged by Lender in
     writing or as permitted by law, 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.

     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.
<PAGE>
                             BUSINESS LOAN AGREEMENT
08-16-1999                         (Continued)                           Page 2
Loan No. 9001
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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.

     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. See Addendum.

     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.

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.

     Financial  Records.  Maintain its books and records  sufficient  to prepare
     financial  statements  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.

     Financial Statements.  See Addendum.

     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:

         Other  Requirements.  Cash Coverage  Ratio to be at least 1.00 to 1.00,
         tested on a annual  basis.  "Cash  Coverage  Ratio" shall mean net cash
         after  operations  divided by financing costs plus,  current portion of
         long-term debt excluding this loan plus capital expenditures.

         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.

     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

              Harmer Mill & Logging Supply Co.            $2,500,000.00
              MacTarnahan Limited Partnership             $2,500,000.00
              Robert M. MacTarnahan                       $2,500,000.00
              MacTarnahan Family Trust                    $2,500,000.00

     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.

     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. See Addendum.

     Performance.  Perform  and  comply,  in a timely  manner,  with all  terms,
     conditions,  and provisions set forth in this Agreement, and in the Related
     Documents.  Borrower  shall  notify  Lender  immediately  in writing of any
     default in connection with any such 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 and at the time of each  disbursement  of Loan proceeds,
     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.
<PAGE>
                             BUSINESS LOAN AGREEMENT
08-16-1999                         (Continued)                           Page 3
Loan No. 9001
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     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, or consolidate with any
     other entity,  change its name, dissolve or transfer or sell Collateral out
     of the ordinary  course of business,  (3) pay any  dividends on  Borrower's
     stock  (other  than  dividends  payable in its stock),  or (4)  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,  or (2) 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  has with
Lender; or (B) Borrower or any Guarantor becomes insolvent,  files a petition in
bankruptcy or similar proceedings, or is adjudged a bankrupt.

RIGHT OF SETOFF.  See Addendum.

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 and the
     amount is  accelerated  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, the Note, 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.

     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.

     See Addendum.

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.

GUARANTOR'S SUBMISSION OF FINANCIAL STATEMENTS AND TAX RETURNS.  Borrower agrees
that,  while this  Agreement is in effect,  Guarantor will furnish to Lender the
following:

1) Corporate  Guarantor's  Financial  Statement  for such yearly  period,  to be
compiled by a Certified  Public  Accountant and certified as correct to the best
knowledge and belief by Guarantor and Individual Guarantor's Financial Statement
for such yearly  period,  to be prepared  and  certified  as correct to the best
knowledge  and  belief  by  Guarantor.  Guarantors  Financial  Statements  to be
received within 60 days of year-end.

2) Promptly  after the filing  thereof and in any event within 30 days after the
filing  thereof,  a copy of  Guarantor's  filed federal and state tax returns to
include all supplemental schedules, together with K-1's.

3)  Guarantor's Financial Statements to be submitted with Tax Returns.

4) Guarantor's to provide on a quarterly basis,  evidence of combined  liquidity
(including any retirement accounts) of at least $3 million.

OTHER  PROVISION.  The  purpose  of this  loan is to  refinance  debt  owing the
MacTarnahan  Limited  Partnership.  In turn, the MacTarnahan Limited Partnership
agrees to retire  $900,000.00  in debt owing Bank of the  Northwest and purchase
$1,000,000.00  minimum six month Time  Certificate  of Deposit  from the Western
Bank division of Washington Mutual Bank.

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
<PAGE>
                             BUSINESS LOAN AGREEMENT
08-16-1999                         (Continued)                           Page 4
Loan No. 9001
--------------------------------------------------------------------------------

     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.  Subject to  securities  laws,  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  making  the  Loan,  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 making of the Loan and delivery to Lender of
     the Related  Documents,  shall be continuing in nature, and shall remain in
     full force and effect until such time as Borrower's  Indebtedness  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.

     See Addendum.

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:

     Advance.  The word "Advance" means a disbursement of Loan funds made, or to
     be made,  to  Borrower  or on  Borrower's  behalf  on a line of  credit  or
     multiple advance basis under the terms and conditions of this Agreement.

     Agreement. The word "Agreement" means this Business Loan Agreement, as this
     Business  Loan  Agreement  may be  amended or  modified  from time to time,
     together  with  all  addendum,  exhibits  and  schedules  attached  to this
     Business Loan Agreement from time to time.

     Borrower. The word "Borrower" means Portland Brewing Company, and all other
     persons and entities signing the Note in whatever capacity.

     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, chattel mortgage, 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.

     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.

     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
<PAGE>
                             BUSINESS LOAN AGREEMENT
08-16-1999                         (Continued)                           Page 5
Loan No. 9001
--------------------------------------------------------------------------------

     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.

     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.

     Lender.  The word "Lender" means  Washington  Mutual Bank dba Western 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 Borrower in the principal
     amount of $2,500,000.00  dated February 2, 2001, 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. See Addendum.

     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.

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 AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREMENT IS DATED
FEBRUARY 2, 2001.

BORROWER:

Portland Brewing Company


By:
   --------------------------------------------------
    Charles A. Adams, President/CEO of Portland
    Brewing Company



LENDER:

WASHINGTON MUTUAL BANK DBA WESTERN BANK


By:
   --------------------------------------------------
    Authorized Signer





<PAGE>
                             BUSINESS LOAN AGREEMENT
08-16-1999                         (Continued)                           Page 6
Loan No. 9001
--------------------------------------------------------------------------------

                       ADDENDUM TO BUSINESS LOAN AGREEMENT



         This Addendum To Business Loan  Agreement  ("Addendum")  is attached to
and by this  reference  is  made a part of the  Business  Loan  Agreement  dated
February 2, 2001,  and executed in connection  with the Loan between  Washington
Mutual Bank doing business as Western Bank ("Western Bank") and Portland Brewing
Company.  To the extent there is an inconsistency  between this Addendum and the
Business Loan Agreement, this Addendum will control.

REPRESENTATIONS AND WARRANTIES:

         ASSUMED  BUSINESS  NAMES.  Assumed  business names under which Borrower
does business: MacTarnahan Brewing Company, Saxer Brewing Company and Nor'wester
Brewing.

         PROPERTIES and LIEN PRIORITY.  As previously  disclosed to Lender, each
of the following items are a "Permitted Lien":

         1.   Western  Bank.  To secure a $1 million  revolving  line of credit,
              Western Bank holds a security  interest in the following assets of
              the Borrower, whether now owned or hereafter acquired, whether now
              existing or  hereafter  arising  and  wherever  located  ("Line of
              Credit Collateral"):

                  All accounts and  inventory  and any chattel paper and general
                  intangibles relating to the accounts and inventory;

                  All  attachments,   accessions,   accessories,  tools,  parts,
                  supplies,  increases, and additions to and all replacements of
                  and substitutions for any property described above;

                  All products  and produce of any of the property  described in
                  this Line of Credit Collateral section;

                  All accounts, general intangibles, instruments, rents, monies,
                  payments,  and all other rights, arising out of a sale, lease,
                  or other disposition of any of the property  described in this
                  Line of Credit Collateral section;

                  All proceeds  (including  insurance  proceeds)  from the sale,
                  destruction, loss, or other disposition of any of the property
                  described in this Line of Credit Collateral section;

                  All records and data relating to any of the property described
                  in this Line of Credit Collateral section, whether in the form
                  of a writing, photograph, microfilm microfiches, or electronic
                  media,  together  with all of  Borrower's  right,  title,  and
                  interest in and to all computer  software required to utilize,
                  create,  maintain,  and  process  any such  records or data on
                  electronic media.

         Western Bank's lien in the Line of Credit  Collateral is subordinate to
the Indebtedness of this Agreement. This means that in the event of liquidation,
all funds from  liquidation  of  collateral  are to be first applied to the term
loan and then to the revolving line of credit.

         2.   Lake Oswego Brewing Company Liquidating Trust. Lake Oswego Brewing
              Company  Liquidating  Trust as  successor  to Lake Oswego  Brewing
              Company  fka Saxer  Brewing  Company  ("Saxer")  holds a  security
              interest in the following Intellectual Property, which interest is
              subordinate to Western Bank:

                           The  brands of Saxer and  Nor'wester,  including  the
                  trademarks,   trade  names,  and  logos,  and  label  designs,
                  recipes,  imagery and records and the goodwill for such items,
                  and any other intangible and intellectual property relating to
                  such brands, including all products, trade secrets,  know-how,
                  processes,  methods, plans, research data, marketing plans and
                  strategies,  forecasts, websites and domain names, trademarks,
                  service marks,  trade names,  patents and patent  rights,  any
                  other  identifying  mark or name of the  products,  logos  and
                  copyrights and all  applications  and goodwill for such items,
                  and  all  registrations  and  pending  applications   relating
                  thereto,  which  Secured  Party owns or is using in connection
                  with the  Business  or the use of which is  necessary  for the
                  conduct of the Business as currently being conducted,  as more
                  specifically described on Exhibit 1.1(a). "Business" means the
                  business  and  operation  of a brewery  and  self-distribution
                  operation.

         3.   MacTarnahan  Limited  Partnership and Harmer Mill & Logging Supply
              Co.  MacTarnahan  Limited  Partnership  and Harmer  Mill & Logging
              Supply Co. as  successor  in  interest  to Bank of America  hold a
              first  security  interest  in certain  assets of  Borrower - which
              interest will be terminated in connection with this Indebtedness.

         4.   Guarantors  of Revolving  Line of Credit.  The  guarantors  of the
              revolving line of credit, MacTarnahan Limited Partnership,  Harmer
              Mill & Logging Supply Co., Robert M. MacTarnahan,
<PAGE>
                             BUSINESS LOAN AGREEMENT
08-16-1999                         (Continued)                           Page 7
Loan No. 9001
--------------------------------------------------------------------------------

              Charles A. Adams and Charles A. Adams  Living  Trust hold a junior
              security interest in the Line of Credit Collateral, subject to the
              liens of Western Bank and Saxer.

         5.   Pitney Bowes Credit  Corporation.  Pitney Bowes Credit Corporation
              has filed a UCC financing statement relating to the mailing system
              and a copier.

         6.   Provident  Capital  Group Inc.  Provident  Capital  Group Inc. has
              filed a UCC financing statement relating to the telephone system.

AFFIRMATION COVENANTS:

         FINANCIAL STATEMENTS.  Furnish Lender with the following:

         Monthly Statements. As soon as available, but in no event later than 30
days after the end of each month,  Borrower's unaudited balance sheet and profit
and loss statement for the month ended, prepared by Borrower.

         Quarterly Statements.  As soon as available, but in no event later than
30 days after the filing of the Borrower's Form 10-QSBs with the SEC, Borrower's
unaudited  balance sheet and profit and loss  statement  for the quarter  ended,
prepared by Borrower.

         Annual Statements. As soon as available, but in no event later than 120
days after the Borrower's fiscal year end,  Borrower's  balance sheet and profit
and loss statement for the year ended,  audited by a certified public accountant
satisfactory to Lender.

         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, except that unaudited quarterly
and  monthly  financial  statements  will be subject to changes  resulting  from
audit, year end adjustments and without notes.

         TAXES,  CHARGES  AND LIENS.  Provided,  however,  Borrower  will not be
required to pay and discharge any such assessment,  tax,  charge,  levy, lien or
claim so long as (a) the  legality of the same shall be  contested in good faith
by appropriate proceedings, and (b) Borrower shall have established on its books
adequate reserves with respect to such contested assessment,  tax, charge, levy,
lien or claim in accordance with GAAP.

RIGHT OF SETOFF.  Lender shall not have a security interest in, nor shall Lender
set off  against  amounts due under this  Agreement,  the sums in any account of
Borrower maintained with Lender.

DEFAULT.  Notwithstanding  the  foregoing,  Borrower  will not be in  default as
provided  unless and until (a) Lender  gives to Borrower  written  notice of the
alleged default  specifying that the default be cured within the time allowed by
this Business Loan Agreement, and (b) Borrower fails to cure the alleged default
within such time period.  With respect to a failure to make a payment hereunder,
the amount of time allowed to cure the default shall be ten days  following such
written  notice from Lender.  With respect to any other  default,  the amount of
time  allowed  for cure shall be 30 days  following  written  notice of default;
provided,  however, in the event a default reasonably requires more than 30 days
for cure,  Borrower shall not be deemed in default so long as Borrower commences
cure  within  such  30-day  period and  thereafter  diligently  pursues  cure to
completion.

COMMITMENT. The intent of this financing is to provide financing on a short-term
basis  followed by an  amortized  term loan once the  Guarantors  determine  the
nature of the  collateral  that will secure the loan,  with longer  amortization
schedules provided for real estate collateral.  If a properly  underwritten term
loan cannot be approved at maturity  because of Borrower's  inadequate cash flow
to service  payments,  the  Guarantors  will be  required  to assume the debt or
secure the debt with income producing commercial properties so that the loan may
be amortized within Lender's underwriting standards.

The term of this Loan is six months with an option to renew for an additional 90
days.

Addendum agreed to:

Western Bank initial:              PORTLAND BREWING COMPANY initial:
                      --------                                     --------
<PAGE>
                             BUSINESS LOAN AGREEMENT
08-16-1999                         (Continued)                           Page 8
Loan No. 9001
--------------------------------------------------------------------------------

                                 Exhibit 1.1(a)
                              Intellectual Property

I.       Trademarks:

               Principal Register
               ------------------

         Trademark                       Reg. No.       Date of Registration

         DESIGN MARK                     2,071,565      June 17, 1997

         NOR'WESTER                      1,933,576      November 7, 1995

         *DESIGN MARK                    1,980,810      June 18, 1996

         THREE FINGER JACK               1,953,027      January 30, 1996

         *PEACH CREME                    1,987,342      July 16, 1996

         *BLACKSMITH                     2,063,825      May 20, 1997


               Supplemental Register
               ---------------------

         SAXER                           2,074,635      June 24, 1997


               Principal and/or Supplemental Register
               --------------------------------------

         SAXER'S LEMON LAGER             2,085,118      July 29, 1997










<PAGE>
                             BUSINESS LOAN AGREEMENT
08-16-1999                         (Continued)                           Page 9
Loan No. 9001
--------------------------------------------------------------------------------

               Unregistered Trademarks
               -----------------------

         SAXER BOCK
         SAXER DARK BOCK
         SAXER JACK FROST
         SAXER LEMON LAGER
         SAXER PILSNER
         SAXER HEFEDUNKEL
         NOR'WESTER HEFEWEIZEN
         NOR'WESTER MT. ANGEL OKTOBERFEST
         NOR'WESTER OREGON PALE ALE
         NOR'WESTER RASPBERRY WEIZEN
         NOR'WESTER SMITH ROCK BOCK
         NOR'WESTER BREWING COMPANY
         NOR'WESTER WHITE FOREST ALE
         *WILLAMETTE VALLEY BREWING COMPANY
         HENRY SAXER PUBLIC LAGER
         HENRY SAXER DARK LAGER

        *To the extent of Saxer's interest in *-ed marks

         II.    Marks/Brands/Names:
                o   Saxer                        o   Nor'Wester
                o   Saxer Bock                   o   Nor'Wester Oregon Pale Ale
                o   Saxer Lemon Lager            o   Nor'Wester Hefeweizen
                o   Saxer Dark Bock              o   Nor'Wester Raspberry Weizen
                o   Saxer Hefedunkel             o   Nor'Wester Smith Rock Bock
                o   Saxer Pilsner                o   Nor'Wester Mt. Angel
                o   Saxer JackFrost                             Oktoberfest
                o   Henry Saxer Public Lager     o   Nor'Wester White Forest
                o   Henry Saxer Dark Lager       o   Nor'Wester Brewing Company

III.     Intellectual Know How
         o   Brewing records, available formulas, access to brewing personnel
         o   Marketing Plans, Distributor relations, Retail relations
         o   All proprietary information relating to business

IV.      Distribution Rights
         o   Self Distribution  (on-premise)  rights for Multnomah,  Washington,
             Clackamas  and Yamhill  Counties  for Saxer,  Nor'Wester  and Henry
             Saxer draught and bottled products.

V.       Web Domain Names
         o   Saxerbeer.com
         o   Norwester.com

VI.      Packaging Art
                o   Saxer Bock                   o   Nor'Wester Oregon Pale Ale
                o   Saxer Lemon Lager            o   Nor'Wester Hefeweizen
                o   Saxer Dark Bock              o   Nor'Wester Raspberry Weizen
                o   Saxer Hefedunkel             o   Nor'Wester Smith Rock Bock
                o   Saxer Pilsner                o   Nor'Wester Mt. Angel
                o   Saxer JackFrost                             Oktoberfest
                o   Henry Saxer Public Lager     o   Nor'Wester White Forest
                o   Henry Saxer Dark Lager