U. S. Small Business Administration

                      Certified Development Company Program

                                   "504" NOTE

                       Loan Number CDC-L 919-628-30-04-MD

                                                             Baltimore, Maryland
                                                             -------------------
                                                                (city and state)


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$     1,000,000.00                   (Date)  April 15,  1997
 ------------------------                    ---------------

For value received, the Undersigned promises to pay to the order of

                      Mid Atlantic Business Finance Company
                      -------------------------------------
                           Payee (development company)

at its office in (city and State)  Baltimore,  Maryland,  or upon  assignment or
transfer  of  this  Note  by  the  Payee,  and  written  notice  thereof  to the
Undersigned,  at such other place as may be designated from time to time by said
assignee                  or                   transferee,                   ONE
MILLION------------------------------------------dollars,
                        (Write out amount)
with interest on the outstanding  balance at 7.368% per annum  commencing on May
14, 1997 (date of Debenture).

         Loan payments shall be made in equal  installments,  each in the amount
of $8,570.98,  commencing on the first day of June, 1997, and continuing due and
payable on the first day of each month  thereafter  until May 1, 2017,  when the
full unpaid balance of principal and interest  shall become due and payable.  In
addition to the aforesaid loan payments,  forth in the Servicing Agent Agreement
(SBA Form 1506) attached to and incorporated into this Note.

         This  Promissory  Note  evidences and related  Collateral is given,  to
secure a loan made by the Payee to the  Undersigned and such Note and Collateral
will be assigned by Payee to the Small business  Administration  (SBA) to secure
the guaranty by SBA pursuant to 503 (a) of the Small Business Investment Act [15
U.S.C.  697  (a)],  of a  Debenture  to be  issued  and sold by the  Payee  (the
"Debenture"), which is hereby incorporated herein by reference.

         All payments under this note shall be applied in this order:  (1)to the
servicing fees set forth in the Servicing Agent Agreement,  (2) to interest, (3)
to principal, (4) to the late fee set forth in this Note.

Late Charge
- -----------

In the event Payee or its Agent or  assignee  accepts a late  payment  after the
fifteenth day of the month in which such payment is due, the Undersigned  agrees
to pay a late  payment  charge  equal  to five  percent  of the late  amount  or
$100.00,  whichever  is  greater,  as  compensation  for  additional  collection
efforts.

Definitions
- -----------

The term "Indebtedness" as used herein shall mean the indebtedness  evidenced by
the Note, including principal, interest, service fees, late payment charges, and
expenses  including  but not  limited  to the  expenses  related to the care and
preservation  of  Collateral  and  interest  at the note rate  thereon,  whether
contingent,  now due or  hereafter  to become  due,  and the  stated  prepayment
premium, if applicable. The term "Collateral" as used in this Note shall mean


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any  funds,  guaranties,  or other  property,  or rights  therein  of any nature
whatsoever,   or  the  proceeds   thereof,   which  are,  or  hereafter  may  be
hypothecated,   directly  or  indirectly,  by  the  Undersigned  or  others,  in
connection with, or as security for, the  Indebtedness or any part thereof.  The
Collateral,  and each part thereof,  shall secure the Indebtedness and each part
thereof.  The  covenants  and  conditions  set  forth  or  referred  to  in  any
instruments of hypothecation constituting the Collateral are hereby incorporated
in this Note as covenants and conditions of the Undersigned  with the same force
and effect as though such covenants and conditions  were fully set forth herein.
The  term  "CSA"  shall  mean  the  Central  Servicing  Agent  appointed  by the
development  company (SBA Form 1506) and accepted by the  Undersigned to receive
all payments by the Undersigned  under this Note. The term  "Undersigned"  shall
mean the borrower  under this Note and, if the  operating  small concern for the
benefit of which this loan is made is not the  borrower,  such  operating  small
concern.



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Prepayment
- ----------

Payment of the entire outstanding  balance of the Indebtedness may be made prior
to the maturity date hereof, timing to be arranged with Payee or SBA as assignee
but no partial  prepayments may be made. The amount required to prepay this Note
shall be the aggregate of the Indebtedness  including interest to the prepayment
(repurchase)  date,  and any prepayment  premium  required by the schedule to be
attached  to this Note and  incorporated  by this  reference.  For  purposes  of
prepayment  the  repurchase  date is the next  semi-annual  payment  date on the
Debenture.  The  Undersigned  must make a written  request for prepayment to the
payee or SBA as assignee  at least  forty-five  (45) days before the  prepayment
date.  Ten (10)  business  days  prior to the  scheduled  refundable  good faith
deposit of one  thousand  dollars  ($1,000) to the CSA.  Such  deposit  shall be
applied in full to the repurchase price of said debenture and shall be forfeited
if undersigned fails to pay the designated total prepayment amount to the CSA on
the designated  prepayment  date, as compensation  for the cost of arranging the
failed prepayment.

Acceleration
- ------------

The Indebtedness shall immediately become due and payable,  upon the appointment
of  a  receiver  or  liquidator,  whether  voluntary  or  involuntary,  for  the
Undersigned  or for any of its property,  or upon the filing of a petition by or
against the Undersigned under provisions of any State or Federal  insolvency law
or under the provisions of the Bankruptcy Code of 1978 or upon the making by the
Undersigned of an assignment  for the benefit of its  creditors.  Payee with the
consent of SBA, or SBA as assignee is  authorized  to declare all or any part of
the  Indebtedness  immediately  due and payable upon the happening of any of the
following events:  (1) Failure to pay any part of the Indebtedness when due; (2)
nonperformance  by the  Undersigned  of any  agreement  with,  or any  condition
imposed by, the development company or SBA; (3) failure of the Undersigned or


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any person acting on behalf of the Undersigned to disclose any material fact, in
any  application,  declaration  or other document  delivered to the  development
company or SBA or any misrepresentation by or for the benefit of the Undersigned
in such  document;  (4)  the  reorganization,  merger  or  consolidation  of the
Undersigned without prior written consent of the development company and SBA, or
the making of an agreement therefor; (5) the sale of the Collateral, or any part
of it or any  interest  in it,  or any  agreement  that the  Collateral  will be
alienated by the  Undersigned,  or any alienation of the Collateral by operation
of law or otherwise;  (6) the Undersigned's  failure duty to account, to Payee's
or SBA's (as assignee)  satisfaction,  at such time or times as may be required,
for any of the Collateral,  or proceeds thereof,  coming into the control of the
Undersigned;  (7) the institution of any suit affecting the  Undersigned  deemed
otherwise;  (8) any change, without prior written approval by SBA, affecting ten
or more percent in the legal or equitable ownership of the Undersigned;  (9) any
change in the respective ownerships of the Undersigned;  (10) if the Undersigned
and/or its affiliates  acquire  directly or indirectly an ownership  interest of
ten or more percent in the development company;  (11) any other event prohibited
by the related  security or other  instruments;  or (12) any failure to exercise
its rights under this  paragraph  shall not  constitute a waiver  thereof.  Upon
acceleration  pursuant to this paragraph,  the indebtedness shall be computed in
the same  manner  as is set  forth for the  prepayment  amount in the  preceding
paragraph captioned "Prepayment".

Collateral
- ----------

Upon the nonpayment of the Indebtedness,  or any part thereof, when due, whether
by  acceleration  or  otherwise,  Payee with SBA's consent or SBA as assignee is
empowered to sell,  assign,  and deliver the whole or any part of the Collateral
at public or private sale. After deducting all expenses  incidental to such sale
or sales, Payee or SBA as assignee may apply the proceeds thereof to the payment
of the Indebtedness as it shall deem proper.  The Undersigned  hereby waives all
rights to redemption or appraisement  whether  empowered,  to convert into money
all or any  part of the  Collateral,  by suit or  otherwise,  and to  surrender,
compromise,  release,  renew,  extend,  exchange,  or substitute any item of the
collateral in transactions with the Undersigned or any third party. Whenever any
item of the  collateral  shall not be paid when due,  or  otherwise  shall be in
default, whether or not the Indebtedness,  or any rights and powers with respect
to such  item of the  Collateral  as are  granted  in  respect  thereof  in this
paragraph in case of nonpayment of the Indebtedness,  or any part thereof,  when
due.  None of the  rights,  remedies,  privileges,  or powers of Payee or SBA as
assignee  expressly  provided  for herein shall be  exclusive,  but each of them
shall be  cumulative  with and in  addition  to every  other  such  power now or
hereafter  existing in favor of Payee or SBA as  assignee,  whether at law or in
equity, by statute or otherwise.


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The  Undersigned  agrees to take all necessary  steps to administer,  supervise,
preserve,  and protect the  Collateral;  and  regardless  of any action taken by
Payee or SBA as assignee, there shall be no duty upon Payee or SBA as assignee


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in this respect. The Undersigned shall pay all expenses of any nature, including
but no limited to reasonable  attorney's  fees and costs,  which Payee or SBA as
assignee  may  deem  necessary  in  connection  with  the  satisfaction  of  the
Indebtedness or the administration, preservation (including, but not limited to,
adequate insurance of), or the realization upon the Collateral. Payee with SBA's
consent or SBA as  assignee  is  authorized  to pay at any time and from time to
time any or all of such  expenses,  add the amount of such payment to the amount
of the  Indebtedness,  and charge interest  thereon at the rate specified by any
indulgence,  including  but  not  limited  to (a)  any  renewal,  extension,  or
modification  which  Payee or SBA as  assignee  may grant  with  respect  to the
Indebtedness  or any part thereof,  or (b) any surrender,  compromise,  release,
exchange, or substitution which Payee or SBA as assignee may grant in respect of
the  Collateral,  or (c) any  indulgence  granted in  respect  to any  endorser,
guaranty,  and any  other  document  (or any of  them),  sold,  transferred,  or
pledged,  shall  forthwith  become  vested with and entitled to exercise all the
powers and rights given by this Note as if said purchaser, transferee, or pledge
were originally named as Payee in the Note.
                                                 FREDERICK  BREWING  CO.

Witness:  /s/ Carole S. Gould                        By:   /s/ Kevin E. Brannon
          -------------------                              ---------------------

                                                  [Title]  Chairman

                               [Name of Undersigned]       Kevin E. Brannon
                                                           ----------------

         In consideration of the guarantee by Small Business Administration of a
Debenture  in the  amount  of  $1,000,000.00,  issued by  Mid-Atlantic  Business
Finance Company hereby assigns and transfers
       (Development Company)
all rights, title and interest in this Note to the Small Business
Administration.


                                    SEAL             The Mid-Atlantic Business
                                 Finance Company
                                                        ---------------

                               By: /s/ Paula Kligg
                                                          ---------------



         Attest   /s/ Allison F. Crispell
                  -----------------------

         See attached Addendum for confession of Judgment Clause

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                              Addendum to 504 Note
                                  SBA Form 1505
                          Loan # CDC-L 919-628-30-04-MD
                       dated this 15th day of April, 1997

                          CONFESSION OF JUDGMENT CLAUSE
                          -----------------------------

         If  payment of the  indebtedness  evidenced  by this Note,  or any part
thereof,  shall  not be  made  when  due and at  maturity,  by  acceleration  or
otherwise,  the undersigned  hereby  authorize(s) and empower(s) any attorney of
any Court of Record  within the United States to appear for the  undersigned  in
any  Court,  or before any Clerk  thereof,  and  confess  judgment  against  the
undersigned  either jointly or severally in favor of the Holder of this Note for
the amount then due thereon,  with the interest thereon  aforementioned  and the
cost of suit and attorney's  fees of fifteen per cent (%15),  hereby waiving and
releasing  all errors and all rights of  exemption,  appeal,  stay of execution,
inquisition  and extension upon any levy or real estate or personal  property to
which the  undersigned  may  otherwise  by entitled  under the laws of any State
hereafter be passed.  If this Note is referred to any  attorney for  collection,
and payment is obtained  without the entry of a judgment,  then the  undersigned
shall pay to Holder  attorney's fees in the amount  aforesaid.  If there be more
than one undersigned, their liability shall be joint and several, any use of the
singular herein may also refer to the plural and vice versa,  and the use of any
gender shall be applicable to all genders.

          The undersigned acknowledge(s) that this Addendum is a continuation of
504 Note, SBA Form 1505, dated April 15, 1997 evidencing a loan in the amount of
$1,000,000.00 to Frederick Brewing Co., and that they have read all of the pages
of said Note and this Addendum is incorporated by reference therein.

         IN WITNESS THE  EXECUTION OF THIS NOTE UNDER SEAL,  on the day and year
first above written.

                                          FREDERICK BREWING CO.


Witness:    /s/ Craig J. O'Connor         /s/ Kevin E. Brannon
            ---------------------         --------------------
                                          Kevin E. Brannon
                                          Chairman

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