KEG MANAGEMENT AGREEMENT


         This Keg  Management  Agreement  ("Agreement")  dated  effective  as of
February 21, 1997,  is between  MicroStar  Keg  Management,  L.L.C.,  a Delaware
Limited  Liability  Company whose address is P. O. Box 3129 Redmond,  Washington
98073   ("MicroStar")  and  Mendocino   Brewing  Company,   Inc.,  a  California
corporation, whose address is 13351 South Highway 101, Hopland, California 95449
(referred to herein and in the Exhibits  hereto  either as "Brewing  Company" or
"Mendocino").

                           RECITATIONS AND DEFINITIONS

1.  MicroStar is engaged in the logistical  management of stainless  steel kegs,
primarily   for  the  craft   beer/micro-brewing   industry  and  has  developed
proprietary concepts,  arrangements and systems for the ownership,  licensing of
the use of, tracking and retrieval of kegs.

2. Brewing  Company is engaged in the business of brewing premium and/or special
quality or custom beers and desires to more efficiently service existing markets
while  simultaneously  expanding its business in both existing and potential new
market areas.

3.  Brewing  Company  desires to utilize the  services of  MicroStar in order to
avoid the capital outlay and manpower/administrative  costs and risks associated
with keg  ownership,  thereby  enabling  Brewing  Company  to direct  additional
resources to its brewing business. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

4.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

5. For purposes of this  Agreement  the term "kegs" shall mean and refer to beer
kegs that are straight-sided  with a single opening and an American  Sankey-type
neck, having a full U.S. half-barrel (15.5 gallon) capacity,  with minimum chime
(skirt) thickness of 2.00 mm and minimum sidewall (body/shell) thickness of 1.32
mm which have not been used to store or transport wine, and which are capable of
being  cleaned  to  Brewing  Company's  reasonable  satisfaction  by  using  the
procedures specified in this Agreement.

         In  consideration  of the  premises  and of the  mutual  covenants  and
agreements of the parties as hereinbelow  set forth,  the parties have agreed as
follows:


<PAGE>

Section 1.        Procurement of Kegs, Delivery, and Acceptance.

                   1.1.     Purchase Agreement.

                   a. MicroStar will acquire from Brewing Company any kegs which
Brewing  Company  now or  hereafter  may own and desire to make  subject to this
Agreement,  provided that such kegs conform to the definition of "keg" set forth
in this  Agreement and are of a condition  and quality  acceptable to MicroStar.
The purchase price for any and all kegs purchased from Brewing  Company shall be
separately  agreed upon in writing after  verification  of condition and quality
and the quantity of kegs shall be subject to acquisition  audit  verification by
MicroStar.  The final acquisition inventory of kegs shall be approved in writing
by  authorized  representatives  of MicroStar  and Brewing  Company.  Payment by
MicroStar  for the kegs so  purchased  from Brewing  Company  shall be made when
MicroStar has verified that such kegs may be sold and assigned to MicroStar free
of any lien or encumbrance and the subject kegs have been  physically  marked by
MicroStar  with  its  proprietary  markings,  which  shall  be done  at  Brewing
Company's  facilities in lots no smaller than one hundred (100) kegs.  Placement
of physical  markings  shall be  performed  by  MicroStar's  field  personnel as
expeditiously  as possible and shall be initiated no more  frequently  than once
per month,  until all kegs so sold by Brewing  Company to  MicroStar  shall have
been  identified.  An appropriate  Bill of Sale identifying the kegs acquired by
MicroStar shall be executed and delivered  contemporaneously with the payment by
MicroStar.

                   b. In the event that Brewing  Company does not  presently own
kegs (as  herein  defined)  or does  not own a  sufficient  quantity  of kegs to
conduct  and/or expand its business,  or in the event that Brewing  Company does
not  desire to  subject  its  entire  existing  inventory  of owned kegs to this
Agreement,  Brewing  Company  shall provide  MicroStar  with a projection of its
anticipated  keg  requirements  during the period April 1, 1997 through June 30,
1997. Contemporaneously, with the furnishing of such ninety (90) day projection,
Brewing  Company  shall submit its initial  request for  deliveries  of kegs and
MicroStar  will thereupon  obtain and provide the requisite  quantity of kegs in
accordance with the provisions of Section 2.2 hereof.

                   1.2.     Incidents of Ownership and Control

                  All kegs  purchased by MicroStar  from Brewing  Company and/or
otherwise  obtained  and provided by  MicroStar  for purposes of this  Agreement
shall be owned and subject to the exclusive  right of control and disposition of
MicroStar,  subject  however  to the rights of Brewing  Company  hereunder  as a
licensee  of the  right to use  such  kegs for the  purposes  and in the  manner
contemplated  by this  Agreement.  Brewing  Company  agrees to  execute,  at the
request  of  MicroStar,  an  appropriate  statement  for  filing in the  Uniform
Commercial  Code  records of each  state in which  MicroStar  kegs are  utilized
hereunder for the purpose of providing notice of the existence of this Agreement
and of  MicroStar's  ownership of all kegs  licensed for Brewing  Company's  use
hereunder.  MicroStar  shall prepare the statements and file them at MicroStar's
sole expense.  After  termination of this  Agreement,  MicroStar  shall promptly
execute such  termination  statements  as Mendocino may  reasonably  request and
which Mendocino shall file at Mendocino's sole expense.

                            KEG MANAGEMENT AGREEMENT
                                     Page 2

<PAGE>


Section 2.        License of Keg Use

                   2.1      Basic Use Fee

                  Brewing Company shall pay a use fee of XXXXXXXXXXXXXXXXXXXXXXX
X per keg, per  filling,  which shall be invoiced and payable on net thirty (30)
day terms for each keg delivered to the Brewing Company  location(s)  designated
by Brewing Company.  Except as specifically provided below,  MicroStar shall pay
all freight and insurance costs  associated with the  transporting of empty kegs
to Mendocino  and shall bear all risk of loss of the empty kegs during  transit.
With respect to kegs so utilized by Brewing  Company which are filled by Brewing
Company and  delivered to the regional  wholesalers  identified in Exhibit "A-1"
hereto (whose proximity of location to Brewing Company  facilitates  MicroStar's
retrieval  administration)  the use fee shall be adjusted by rebate or credit to
Brewing Company in the amount of XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX per keg. If
applicable,  Brewing  Company  may  further  specify  on  Exhibit  "A-2" of this
Agreement up to three (3) local  wholesalers  which currently  impose no freight
charge  upon  Brewing  Company  for the  return of kegs,  provided  that (i) the
wholesalers so designated  agree to extend such free keg return  arrangements to
the keg  deliveries  to be made  pursuant  to this  agreement,  (ii) the timing,
quantities  and other  arrangements  relating to such keg returns are and remain
consistent with the specific  delivery terms prescribed by MicroStar,  and (iii)
Brewing  Company  agrees to assume  and be  responsible  for any and all cost of
freight for the return of all kegs from such designated local  wholesalers.  For
each full keg sold by Brewing Company to such designated local wholesalers,  the
applicable   adjustment  by  rebate  or  credit  to  Brewing   Company  will  be
XXXXXXXXXXXXXXXXXXXX  per keg  (resulting  in an  effective  use fee to  Brewing
Company hereunder of XXXXXXXXXXXXXXXXXXXX per keg). In the event that any one of
the above specified  requirements  for status as a designated  local  wholesaler
ceases to be  applicable,  then  effective  on the date such  requirement  is no
longer satisfied,  the affected  wholesaler shall automatically be regarded as a
regional wholesaler covered by Exhibit "A-1" of this Agreement.  With respect to
kegs used by Brewing  Company in on-site pub operations or  self-distributed  by
Brewing Company, the use fee shall be XXXXXXXXXXXXXXXXXXXX per keg, per filling.
Invoices for such fees will be based upon the monthly report of sales  submitted
by Brewing  Company to applicable  state  authorities in relation to its on-site
pub operations or self-distributed  sales, a copy of which shall be furnished to
MicroStar  at the time  such  report  is  filed.  The use fee is  subject  to an
increase of up to  XXXXXXXXXXXXXXXXX  during any given  twelve (12)  consecutive
month time period in the event of an increase  of  XXXXXXXXXXXXXXXXXXXXXXXXX  or
more in national or applicable  regional  trucking charges incurred by MicroStar
in relation to the  performance  of this  Agreement  during any such twelve (12)
consecutive  month time period.  MicroStar  shall provide  written notice thirty
(30) days in advance of any increase to the use fee.

                   2.2      Delivery of Kegs per Brewing Company's Requirements

                  Brewing  Company shall notify  MicroStar of Brewing  Company's
specific keg delivery date requirements by written notice,  including  facsimile
transmittal or other  notification  arrangements  approved in writing by Brewing
Company and  MicroStar,  to be received  not less than thirty (30) days prior to
Brewing  Company's  requested  delivery  dates.  Such  notice  shall  include  a
specification  of all requested  keg  quantities in lots of two hundred (200) or
more.

                            KEG MANAGEMENT AGREEMENT
                                     Page 3

<PAGE>

MicroStar  will  forward  a  written  confirmation  of its  receipt  of  Brewing
Company's notice of requirements by facsimile or U.S. Mail prior to the close of
the  business  day  following  the date of  MicroStar's  receipt of such notice.
Brewing  company  shall use its best  efforts to ensure that  Brewing  Company's
inventory of MicroStar kegs does not exceed Brewing Company's actual thirty (30)
day requirements.  In the event that Brewing Company's  requirements at any time
or for any reason (e.g. seasonal product demand, business expansion,  etc.) will
exceed its most recently specified prior requirements by twenty percent (20%) or
more  and/or  relate to  deliveries  to new  locations  of  Brewing  Company  or
wholesalers,  Brewing  Company  shall be  required  to provide  ninety (90) days
advance  written  notice to  MicroStar  of such  requirements.  MicroStar  shall
endeavor to effectuate the delivery of the requested kegs to Brewing  Company at
its designated locations within the continental United States in accordance with
Brewing Company's timely  notification of keg  requirements.  All kegs delivered
hereunder shall conform to the keg standard  specified herein and shall not have
been utilized to store or transport wine. Delivery shall be deemed to conform to
the  requirements  of this  Agreement  if the actual  time of delivery is within
seventy-two  (72)  hours  prior  or  subsequent  to the  specifically  requested
delivery time and the  quantities so delivered  (not counting any delivered kegs
which are not in good and useable  condition  as  determined  by  inspection  by
Mendocino) are within a ten percent (10%) variance of the specifically requested
quantity of kegs.  In the event that  MicroStar is unable to meet the  foregoing
requirements  of a  conforming  delivery  to Brewing  Company,  MicroStar  shall
perform as soon as possible  thereafter and shall impose no use fee with respect
to any such  non-conforming  keg shipment.  In the event that any non-conforming
kegs are delivered to Mendocino,  Mendocino  shall  segregate and securely store
such kegs until MicroStar has arranged,  at MicroStar's expense, for the pick-up
and transportation of such kegs, which pick-up and  transportation  arrangements
shall be concluded  and  implemented  within thirty (30) days of the date of any
such   non-conforming   delivery.   The  parties   acknowledge  and  agree  that
non-conforming  delivery(ies)  give Brewing  Company a right to  terminate  this
Agreement pursuant to the terms of Section 11.6 of this Agreement.

                  If  Mendocino  in its  judgment  would  suffer  a  significant
impairment by MicroStar's inability to meet the requirements of a conforming keg
shipment,  Mendocino may at its option  purchase kegs from any source to fulfill
the shortage.  If after such an event(s)  Mendocino elects not to terminate this
agreement  pursuant to Section 11.6,  MicroStar must purchase and take ownership
of the kegs from Mendocino for purposes of this  agreement at  Mendocino's  cost
which includes shipping and handling.

Section 3.        Arrangements and Agreements with Wholesalers

                   3.1.     Notification and  Compliance  Obligations of Brewing
                            Company

                   a. Brewing  Company will join with  MicroStar in the issuance
of a notice to all wholesalers to which Brewing Company delivers product in kegs
subject to this Agreement that such kegs shipped by Brewing Company are owned by
MicroStar as of the effective  date  specified in such notice (being the date on
which keg  ownership  was  acquired by  MicroStar  hereunder).  Such notice will
further  evidence  the  authority of  MicroStar  to collect and  administer  the
deposits  required to be made by wholesalers in accordance  with this Agreement,
to perform audits as contemplated  by this  Agreement,  and to retrieve all kegs
delivered  to the  wholesaler.  The  form of  notice  of  terms  and  conditions
applicable to wholesalers  is attached

                            KEG MANAGEMENT AGREEMENT
                                     Page 4

<PAGE>

hereto as Exhibit "B" and is intended to apprise  wholesalers  of the rights and
responsibilities  of  MicroStar  pursuant to this  agreement  and to express and
evidence the  agreement of  wholesalers  to the specified  terms and  conditions
applicable to wholesalers.

                  Brewing  Company will require in  pertinent  negotiations  and
agreements with its wholesalers that all wholesalers agree to remit to MicroStar
a security deposit based upon the amount of XXXXXXXXXXXXXXXXXXXXXXXX per keg, to
be  billed  by and paid to  MicroStar  to cover  the loss  (based on a charge of
XXXXXXXXXXXXXXXXXXXXXXXXXX   XXXXXXXXXXXXXXX  per  keg)  of  any  keg  owned  by
MicroStar that cannot be located by such wholesaler. Execution of Exhibit "B" by
Brewing  Company and a  wholesaler  constitutes  compliance  with the  foregoing
sentence. As set forth in the form of notice of terms and conditions attached as
Exhibit "B",  wholesalers shall be required to acknowledge that periodic charges
to and withdrawals  from the security deposit will be made by MicroStar for kegs
that cannot be located and that credit  memos will be issued  whenever  kegs are
returned  and  whenever  kegs   previously   classified  as  lost  are  located.
Wholesalers  will be invoiced in the amount of XXXXXXX as a "loss" call whenever
any loss is charged to the deposit and will  receive a credit memo and refund of
a previously  billed lost keg charge  whenever  such "lost" keg for which a loss
charge was made is located and returned.

                   b.  Pursuant  to  the  notice  of  terms  and  conditions  to
wholesalers,  all  wholesalers  shall be required  to provide a monthly  written
report  of  movement  of  MicroStar  kegs  in a form  prescribed  by  MicroStar,
including  inventory by brewer (including  Brewing Company and any other brewers
contracting  with  MicroStar  who deliver  product to the affected  wholesaler),
empty kegs on hand and kegs in the retail system.  Wholesalers  shall also agree
to respond to weekly verbal  inquiries by MicroStar  representatives  concerning
the extent of empty MicroStar kegs in the wholesaler's  system.  MicroStar shall
be  authorized  to conduct  periodic  audits of the  wholesaler's  inventory  of
MicroStar  kegs,  including  kegs in the retail  system,  which  audits  will be
performed  either quarterly or  semi-annually,  depending upon the extent of the
wholesaler's  inventory and any  discrepancies  ascertained as a result of prior
audits, etc.

                   c. In the event that a  wholesaler  to whom  Brewing  Company
delivers product fails to remit the security deposit of XXXXXXXXXXXXXXXXXXXXXXXX
per keg to MicroStar  within ninety (90) days after  MicroStar's date of invoice
for such  deposit,  then  Brewing  Company  agrees  to  promptly  issue  Brewing
Company's own invoice to the affected  wholesaler and to use reasonable  efforts
to collect the applicable  deposit and remit the same to MicroStar.  Upon making
such  payments,  Brewing  Company  shall then be  subrogated  to the claims that
MicroStar had against the wholesaler.

                   d.  With   respect   to  any   on-site   pub   sales   and/or
self-distributed  sales,  Brewing  Company shall be subject to all of the terms,
obligations, and conditions applicable to wholesalers, including but not limited
to deposits, loss fees, audits, etc., as set forth in this Agreement.

Section 4.  Trademark License

         Brewing Company hereby licenses to MicroStar,  for the limited purposes
of producing mandatory self-adhesive producing brewer/product labels and without
direct  monetary

                            KEG MANAGEMENT AGREEMENT
                                     Page 5

<PAGE>

compensation from MicroStar,  Brewing  Company's  registered  trademarks,  trade
names,  slogans, and trade dress to the extent that any of these are depicted on
the label.  Brewing  Company  will have the  ownership  of and  copyright in any
artwork created for the label(s). MicroStar may not use such copyrighted artwork
for purposes  other than the mandatory  labels,  and MicroStar  obtains no other
rights to Brewing Company's  registered  trademarks,  trade names,  slogans, and
trade dress or their use.  Except as  expressly  provided,  no right,  property,
license,  permission or interest of any kind in or to the use of any  trademark,
trade  name,  color  combination,  insignia  or device  owned or used by Brewing
Company is or is intended to be given or transferred to or acquired by MicroStar
by the execution, performance or nonperformance of this Agreement or any part of
it.  MicroStar  shall  not  permit  any  other  brewer or  product  producer  to
distribute its products in any keg bearing  Brewing  Company's  logo,  label, or
other identifying mark.

Section 5.  Confidentiality; SEC Reporting

         MicroStar and Brewing Company must hold in strictest confidence and may
not  disclose  to others or use other than for  purposes of this  Agreement  any
data,  reports,  writings and communications and any other information  provided
to,  learned by or made  available  to them by the other  party in the course of
this Agreement  (collectively  referred to as "Information") except as the other
party  expressly  authorizes  in  writing.  Mendocino  may  file a copy  of this
Agreement  as an exhibit to any filing  required of Mendocino  under  federal or
state       securities       laws,       with      dollar       amounts      and
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX   XXXXXX   omitted   pursuant  to  a
confidentiality  request to the extent  permitted  by the agency  with which the
report is  filed.  Both  MicroStar  and  Brewing  Company  acknowledge  that all
Information  provided  or  learned  by them in  connection  with this  Agreement
constitutes  trade secret data and/or  proprietary  information  of great value.
Both MicroStar and Brewing Company agree not to use such  Information in any way
for  their own  benefit.  This  obligation  of  strict  confidentiality  is also
applicable  to  each  party's  employees.  It  continues  for  so  long  as  the
information remains confidential. In the event that either party receives notice
of an attempt by anyone to obtain a court order compelling any disclosure of any
Information, they shall immediately notify the other party.

         Nothing in this section in any way restricts or impairs  either party's
right to use, disclose or otherwise deal with any Information or data which:

          1)  at the time of disclosure is generally  available to the public or
              thereafter  become  available  to the  public  by  publication  or
              otherwise through no act of that party;

          2)  that party can demonstrate was within its possession  prior to the
              time of  disclosure  and was not acquired  directly or  indirectly
              from the other party or any person,  firm or corporation acting on
              its behalf, or

          3)  is  independently  made  available  as a matter of right to either
              party by a third party who is under no confidentiality  obligation
              to the other party.

Section 6:  Indemnity

                            KEG MANAGEMENT AGREEMENT
                                     Page 6

<PAGE>

         Each party must indemnify and hold harmless the other party,  the other
party's  parents,  subsidiaries  and  affiliated  companies,  and  all of  their
respective officers, managers, directors,  employees and agents from any and all
liabilities,  damages,  claims, suits, judgments,  costs and expenses (including
reasonable attorney's fees and court costs),  directly or indirectly incurred in
relation to third party claims against a party hereto as a result of:

          1)  the  actions,  including  but not limited to  negligence,  of that
              party  relating  to this  Agreement  and the  performance  of this
              Agreement;

          2)  the  breach of any of the  provisions  of this  Agreement  by that
              party;

          3)  alleged patent,  trademark or copyright infringement or any claims
              by third  persons  based upon or arising  out of or in  connection
              with any statements,  illustrations,  research data,  advertising,
              product  claims,  representations  or warranties of that party for
              the purposes of this Agreement;

          4)  any and all claims,  demands,  actions, and causes of action which
              are hereafter made or brought against that party by any person for
              the  recovery of damage for the injury,  illness,  or death of any
              person  which is caused  or  alleged  to have  been  caused by any
              services/products provided by the other party hereto.

         These obligations survive the termination of this Agreement.

Section 7.  Insurance

         MicroStar and Brewing Company each must carry and maintain at their own
expense  and in full  force  and  effect at all  times  during  the term of this
Agreement and for one (1) year thereafter Commercial General Liability Insurance
with a limit of liability of no less than XXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.

         The insurance coverage required under this section must:

          1)  include contractual  liability coverage which specifically insures
              the hold harmless and  indemnification  provisions of Section 6 of
              this Agreement;

          2)  be secured  and  maintained  under an  occurrence  form  policy or
              coverage form reasonably acceptable to the other party's insurance
              department;

          3)  be placed with an insurer of recognized responsibility;

          4)  name the other party and affiliated companies as "additional named
              insured" and

          5)  provide for at least  thirty (30) days advance  written  notice to
              the other party of any  cancellation or any material change in the
              coverage;

          6)  provide  transit  coverage for shipments  authorized by such party
              and the bill of lading will be so termed.

                            KEG MANAGEMENT AGREEMENT
                                     Page 7

<PAGE>

         Neither party may cancel any insurance  policy  maintained  pursuant to
the  requirements  of this  paragraph  without the prior written  consent of the
other.  Upon written  request,  a certificate  of insurance  will be sent to the
requesting party.

Section 8.        Term and Exclusivity of Agreement

                   8.1.     Term of Agreement

                  This Agreement shall be for an initial term of five (5) years.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXX In the event that no such  election to  terminate  is made,  the five (5)
year term of this  Agreement  shall  commence on October 1, 1997 or on the first
day of the month  next  following  the month in which  Mendocino's  monthly  keg
requirements hereunder first exceed five thousand (5,000) kegs.

                   8.2.     Exclusivity of Arrangements

                  Except in the instance of Brewing  Company's  retention of any
pre-existing  owned keg  inventory  for its own local  market  use,  during  the
initial and any  extended  term of this  Agreement,  Brewing  Company  shall use
MicroStar  as the  exclusive  source of all beer kegs  utilized  in its  brewing
operation.  Without limitation of and subject to the foregoing,  Brewing Company
agrees that during the term of this agreement or any extension  hereof,  Brewing
Company shall not conclude or enter into any agreement or understanding with any
third-party  regarding sale of any of its Sankey kegs or regarding the purchase,
lease or licensing of any kegs (whether of the Sankey type or otherwise) for use
in Brewing  Company's  business,  except as  provided in the last  paragraph  of
Section 2.2.

Section 9:        Cleaning of Kegs

                   9.1.     Cleaning Responsibilities of Brewing Company

                  Brewing Company  acknowledges the  responsibility to clean all
kegs  delivered to Brewing  Company by MicroStar in accordance  with the minimum
washing  standards  for either a  sterilizing  sequence  (steam) or a sanitizing
sequence  (oxine) and to implement  the quality  control  checks  prescribed  by
MicroStar, as specifically set forth in Exhibit "C" hereto.

Section 10:       Information and Records/Accounting Procedures

                            KEG MANAGEMENT AGREEMENT
                                     Page 8

<PAGE>

                   10.1.    Responsibilities of Brewing Company

                  During  the  term of this  Agreement,  Brewing  Company  shall
provide  MicroStar  with  copies of all bills of lading  from all of its brewery
locations for all draft beer shipments to wholesalers  within  twenty-four  (24)
hours of the time of shipment.  Additionally,  Brewing  Company  shall  maintain
accurate records  reflecting  monthly beginning and ending  inventories of kegs,
keg locations and  verification  of deliveries of kegs from MicroStar to Brewing
Company and of all deliveries to  wholesalers,  and shall provide copies of such
records to MicroStar on a monthly  basis.  Brewing  Company agrees to report all
requisite information on such forms as MicroStar may from time-to-time prescribe
and furnish for such purposes.

                  Brewing    Company   shall   not    knowingly    utilize   any
MicroStar-owned  kegs in its operations  which are not  specifically  subject to
this    agreement.    Brewing    Company   shall   be   charged   the   sum   of
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX  per keg for any keg  subject  to this
agreement  which an audit  substantiates  to have been lost while under  Brewing
Company's control.

                   10.2.    Responsibilities of MicroStar

                  MicroStar  shall provide to Brewing  Company such  information
and records as may be appropriate to substantiate  all use fees, and all charges
and credits associated with the deposit  arrangements to be established  between
Brewing  Company and  wholesalers  in accordance  with the provisions of Section
3.1.b. hereof.

                   10.3.    Audit Rights of the Parties

                  MicroStar  and  Brewing  Company  each shall have the right to
review and audit at reasonable intervals the records and information  maintained
or acquired by the other party hereto for the purpose of determining,  verifying
or  analyzing  any  deliveries,  retrievals,  charges or credits  arising in the
course of performance of this Agreement. Audits shall be conducted during normal
business hours with 24 hours advance notice given during normal  business hours.
Any expenses  incurred by a party in relation to record  keeping or reporting of
information contemplated by this Agreement,  shall be borne by the party charged
with maintaining such records and providing such information.  Expenses incurred
by a party in relation to audits performed hereunder shall be borne by the party
undertaking such audit.

                   10.4.    Accounting Procedures

                  The initial accounting  procedures formulated by MicroStar are
set forth in Exhibit "D" hereto.  MicroStar  may only  supplement  or revise the
procedures as set forth in Exhibit "D" hereto with the express  written  consent
of Brewing  Company.  The  accounting  procedures are not intended to impose any
material obligation on Brewing Company that is not set forth in the body of this
Agreement.  In the event of any conflict  between the accounting  procedures and
this Agreement, this Agreement shall control.

Section 11:       Miscellaneous

                            KEG MANAGEMENT AGREEMENT
                                     Page 9

<PAGE>

                   11.1.    Amendment and Supplementation

                  This  Agreement  and the  Exhibits  hereto  may be  amended or
supplemented  only by a written  instrument  executed by  MicroStar  and Brewing
Company.

                   11.2.    Independent Contractor

                  This   Agreement  does  not  constitute  or  give  rise  to  a
partnership between the parties. All operations by each party under the terms of
this  Agreement  are carried on by it as  independent  contractor  and not as an
agent for the other.

                   11.3.   Third-Party Beneficiary Status

                  To the extent  necessary to accord MicroStar the full scope of
entitlements, rights and authorities in relation to Brewing Company's agreements
and  arrangements  with wholesalers as contemplated  hereby,  MicroStar shall be
recognized as a third-party  beneficiary of such  agreements  and  arrangements.
Brewing Company is an intended third-party beneficiary or all provisions of this
Agreement  concerning  limitations  on  the  use  of  the  kegs  by  others  and
limitations on the use of Brewing Company's trademarks, labels, and logos.

                    11.4.   Force Majeure

                  Subject to the rights and  obligations  of the  parties  under
Section  11.6,  in the  event  that any  obligation  hereunder,  other  than the
obligation to remit any payment due hereunder, cannot be timely performed due to
circumstances  beyond the reasonable  control of a party hereto, the time period
for the  performance of such obligation  shall be reasonably  extended until the
conditions  precluding,  impairing or delaying  performance  have been resolved.
Notwithstanding the foregoing,  as a general and overarching principle,  nothing
in this Agreement  precludes Brewing Company from obtaining the use of kegs from
other  sources  during  any  period  during  which  MicroStar  fails to  provide
sufficient quantities of kegs to Brewing Company.

                   11.5.    Producing Brewer/Product Label

                  MicroStar  has designed a pro forma  producing  brewer/product
label for participants in the MicroStar program. Utilizing the basic MicroStar -
prescribed form, Brewing Company will be responsible for preparing a final label
form and requesting and obtaining a Certificate of Label approval  ("COLA") from
the Bureau of Alcohol, Tobacco and Firearms. Additionally,  Brewing Company will
be responsible for requesting and obtaining any and all requisite approvals from
the  requisite  authorities  in states where Brewing  Company's  products are is
distributed  in MicroStar  kegs.  Copies of  Certificates  or other  evidence of
Federal and State label approval, as applicable, shall be furnished to MicroStar
upon  request.  Brewing  Company  shall  duly  affix  the  MicroStar  prescribed
self-adhesive  label in a manner which  completely  covers any prior producer or
brewer  label and  expressly  agrees not to ship its  products in any kegs which
reflect the label of a prior producer/brewer utilizing such keg. MicroStar shall
impose an identical  obligation on all future users of kegs with whom  MicroStar
contracts,  and

                            KEG MANAGEMENT AGREEMENT
                                     Page 10

<PAGE>

shall use MicroStar's  reasonable best efforts to obtain similar agreements with
all existing users of MicroStar kegs.

                   11.6.    Changes in Economic Conditions/Right of Termination

                  In  the  event  that  as a  result  of  business  or  economic
developments  occurring  after the  effective  date  hereof,  including  without
limitation any  determination by Brewing Company that the economic  consequences
of this Agreement are unacceptable, and any decision by Brewing Company to cease
or diminish  production of draft beer,  the  transactions  contemplated  by this
Agreement  cannot be  implemented  or continued by a party hereto  without undue
cost,  loss or  detriment  to such party,  the party  experiencing  such adverse
consequences  shall have the right,  upon notification to the other party of the
particulars of such developments, to cancel this Agreement effective thirty (30)
days  after  the  giving  of such  written  notice.  In the  event  of any  such
termination,  Brewing Company shall repurchase kegs from MicroStar in a quantity
equal to three  times the  average  monthly keg  deliveries  to Brewing  Company
effectuated  during the  immediately  preceding  six (6) month  period (the "Keg
Purchase  Quantity")  at prices set forth in Exhibit "E" based on the age of the
keg. The kegs to be  purchased  pursuant to this Section 11.6 shall be such kegs
as  are  then  currently  available  for  disposition  by  MicroStar  and  it is
understood  by the  parties  hereto  that the age of the kegs  which may then be
available  cannot  presently be  ascertained.  The requisite  quantities of kegs
shall be delivered  monthly in prorated  portions by MicroStar at its sole cost,
risk and expense to Brewing Company's designated location(s) over an approximate
three (3) month period.  After  confirmation  of delivery of conforming  kegs, a
Bill of Sale will be delivered  assigning  title to the kegs to Brewing  Company
free and  clear of any lien or  security  interest  and  Brewing  Company  shall
contemporaneously remit payment for all kegs so purchased.

                  If  the  foregoing   right  of  termination  is  exercised  by
MicroStar,  MicroStar  shall,  upon the request of Brewing  Company,  allow this
Agreement to remain in effect for sixty (60) days after the otherwise applicable
effective date of termination in order to afford Brewing  Company an opportunity
to arrange  financing for the purchase of the kegs Brewing  Company is obligated
to purchase  hereunder.  In such  event,  the  quantity  of kegs  subject to the
purchase  obligation shall be delivered  monthly in prorated portions to Brewing
Company's  designated  location(s)  over an  approximate  three (3) month period
commencing at the end of such sixty (60) day extension.  In the event of Brewing
Company's  exercise of the foregoing right of termination for economic  reasons,
Brewing  Company  agrees not to utilize the  services of any company  engaged in
performing the same or substantially  similar services to those of MicroStar for
a period of three (3) years from the date of such termination.

                   XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

                   11.7.    Choice of Law

                            KEG MANAGEMENT AGREEMENT
                                     Page 11

<PAGE>

                  This Agreement and the  performance  hereof shall be construed
in  accordance  with,  and  governed  by  the  internal  laws  of the  state  of
California.

                   11.8.    Ad Valorem or Use Taxes

                  Any  ad  valorem,  personal  property,  use or  similar  taxes
imposed  as  a  result  of  Brewing   Company's   physical  custody  or  use  of
MicroStar-owned  kegs shall be the responsibility of Brewing Company.  MicroStar
shall not seek  reimbursement  from Brewing Company of any personal  property or
similar taxes paid by MicroStar.

                   11.9.    Notices

                  Notices and  communications  required or  permitted  hereunder
shall be in writing and any  communication  hereunder shall be deemed to be duly
made if actually delivered,  transmitted by facsimile, or mailed, prepaid to the
parties as follows:

         MicroStar Keg Management, L.L.C.        Mendocino Brewing Company, Inc.
         8567 154th Ave. N.E.                    13351 South Highway 101
         Redmond, Washington  98052              Hopland, California  95449
         Attention:  Robert M. Imeson            Attention: Michael Laybourn
         FAX (206) 883-6300                      and Norman H. Franks
                                                 FAX (707) 744-1910

                  MicroStar shall send a copy of any notice to Mendocino, at the
same time and in the same or equivalent manner, to:

                      Enterprise Law Group, Inc.
                      Menlo Oaks Corporate Center
                      4400 Bohannon Drive, Suite 280
                      Menlo Park, California 94025-1041
                      Attention: Wayland M. Brill, Esq./Nelson D. Crandall, Esq.
                      (415) 462-4747 (FAX)
                      (415) 462-4700 (Voice)

A party may change its address for  purposes of this  Section 11.9 by giving the
other party written notice of the new address in the manner set forth above.


                   11.10.   Captions

                  The  headings  and   captions  in  this   Agreement   are  for
convenience  only  and  shall  not  be  considered  a  part  of  or  affect  the
construction or interpretation of any provision of this Agreement.

                   11.11.   Exhibits

                            KEG MANAGEMENT AGREEMENT
                                     Page 12

<PAGE>

                  All Exhibits  attached to or referred to in this Agreement are
incorporated into and made a part of this Agreement.  However, in the event of a
conflict,  the  terms of this  Agreement  shall  supersede  those of an  Exhibit
hereto.

         THIS  AGREEMENT  is executed  on the date set forth below each  party's
respective signature.

                                                MICROSTAR KEG MANAGEMENT, L.L.C.


                                                By:      /s/ Michael H. Leede
                                                   -----------------------------
                                                Name:    Michael H. Leede
                                                     ---------------------------
                                                Title:   Manager
                                                     ---------------------------
                                                Date:    February 28, 1997
                                                     ---------------------------

                                                MENDOCINO BREWING COMPANY, INC.

                                                By:      /s/ Norman H. Franks
                                                   -----------------------------
                                                Name:    Norman H. Franks
                                                     ---------------------------
                                                Title:  Vice President and Chief
                                                     ---------------------------
                                                        Financial Officer
                                                     ---------------------------
                                                Date:
                                                     ---------------------------


                            KEG MANAGEMENT AGREEMENT
                                     Page 13


<PAGE>





                    EXHIBIT "A-1" TO KEG MANAGEMENT AGREEMENT





                          List of Regional Wholesalers









<PAGE>




                    EXHIBIT "A-2" TO KEG MANAGEMENT AGREEMENT





                            List of Local Wholesalers








<PAGE>


                     EXHIBIT "B" TO KEG MANAGEMENT AGREEMENT

MICROSTAR KEG MANAGEMENT, L.L.C.
P. O. Box 3129
Redmond, Washington  98073



                                                      ____________________, 1997


TO:  ALL  WHOLESALERS   PURCHASING  FROM  Mendocino   Brewing   Company,   Inc.,
("MENDOCINO")

RE:     KEG MANAGEMENT  AGREEMENT  CONCLUDED BETWEEN  ____________ AND MICROSTAR
KEG MANAGEMENT, L.L.C.; TERMS AND CONDITIONS APPLICABLE TO WHOLESALERS

Mendocino delivers its products in kegs to ____________________  ("Wholesaler").
Mendocino and  MicroStar  Keg  Management,  L.L.C.  ("MicroStar")  hereby notify
Wholesaler  that effective  ________________,  1997 all shipments from Mendocino
will  be  made  in  kegs  owned  by   MicroStar   and  subject  to   MicroStar's
administration and retrieval rights and responsibilities  under a Keg Management
Agreement  between  Mendocino  and MicroStar  dated , 1997 ("the Keg  Management
Agreement").

Pursuant  to the Keg  Management  Agreement,  Mendocino  is  required  to obtain
Wholesaler's   agreement  to  the  terms  and   conditions   applicable  to  the
MicroStar-owned  kegs and to the  administrative  services  being  performed  by
MicroStar for Mendocino. The pertinent requirements applicable to Wholesaler are
as follows:

         1) Deposits. A deposit computed based upon the amount of XXXXXX per keg
("the Deposit") for each MicroStar keg delivered to Wholesaler will be billed to
Wholesaler by MicroStar and shall be payable directly to MicroStar.  The Deposit
shall  serve as  security  to  MicroStar  against  the loss of any keg  owned by
MicroStar,  based on a charge of XXXXXXX  per keg,  for any keg the  location of
which  cannot be  ascertained.  Periodic  charges  to and  withdrawals  from the
Deposit will be made for kegs which cannot be located.  Similarly,  credit memos
will be issued  by  MicroStar  whenever  kegs are  returned  and  whenever  kegs
previously  classified as lost are located.  Wholesaler  will be invoiced in the
amount of XXXXXXX as a loss call whenever any loss is charged to the Deposit and
will receive a credit memo from MicroStar and refund of the loss call whenever a
previously lost keg for which a loss charge was made is located and returned.

         2) Audits.  Wholesaler  shall be required to provide a monthly  written
report of the movement of MicroStar kegs in the form(s) prescribed by MicroStar,
including  inventory  by  brewer  (including  Mendocino  and any  other  brewers
contracting  with MicroStar who deliver  product to  Wholesaler),  empty kegs on
hand and kegs in the retail system.  Wholesaler also agrees to respond to weekly
verbal  inquiries by MicroStar  representatives  concerning  the extent of empty
MicroStar kegs in Wholesaler's system.  MicroStar shall be authorized to conduct
periodic audits of Wholesaler's  inventory of MicroStar kegs,  including kegs in
the  retail  system,   which  audits  will  be  performed  either  quarterly  or
semi-annually,  depending  upon the  extent of  Wholesaler's  inventory  and any
discrepancies ascertained as a result of prior audits, etc.

Wholesaler's  acceptance  of deliveries of MicroStar  kegs from  Mendocino  will
evidence Wholesaler's agreement to the foregoing terms, conditions and policies.

Please  confirm  receipt  of  this  notice  and  Wholesaler's  agreement  to the
foregoing  terms by  signing  below  and  returning  a copy of this  notice  and
agreement to MicroStar at the address shown above.

Mendocino Brewing Company, Inc.                 MICROSTAR KEG MANAGEMENT, L.L.C.

By:                                             By:
   -----------------------------                   -----------------------------

ACKNOWLEDGED AND AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN:

WHOLESALER:

By:
   -----------------------------


<PAGE>


                     EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT

                  MINERAL WASHING/STERILIZING SEQUENCE (STEAM)


WASH HEAD

Purge out ullage beer with air until clear.                              3 sec.
Pre-rinse keg with fresh or recovered water.                             8 sec.
Purge out ore-rinse water with air.                                      5 sec.
Hot caustic or acid wash.                                               12 sec.
Low flow hot caustic or acid wash                                       12 sec.
Purge out hot caustic or acid to recovery tank with air.                 6 sec.
Final rinse keg with hot water.                                         12 sec.
Low flow hot water rinse.                                               12 sec.
Purge out hot water rinse with steam.                                   18 sec.
Pressurize to 20 p.s.i.g. with steam.                                    1 sec.
Release pressure from process head.                                      1 sec.

STERILIZE HOLD STATION

Steam                                                                   60 sec.

RACKING HEAD

Steam conn. head and keg neck.                                           5 sec.
Steam pressure release from keg.                                         5 sec.
Gas purge keg.                                                           8 sec.
Counter pressurize to 20 p.s.i.g.                                        2 sec.
Product fill.                                                           50 sec.
Spear out.                                                               1 sec.
Water scavenge and/or gas scavenge.                                      5 sec.

                                  Page 1 of 5

<PAGE>

                     EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT


                   MINERAL WASHING/SANITIZING SEQUENCE (OXINE)


WASH HEAD

Purge out ullage beer with air until clear.                              3 sec.
Pre-rinse keg with Oxine water.                                          8 sec.
Purge out Oxine water with air.                                          5 sec.
Hot caustic or acid wash.                                               12 sec.
Low flow hot caustic or acid wash                                       12 sec.
Purge out hot caustic or acid to recovery tank with air.                 6 sec.
Final rinse keg with Oxine water.                                       12 sec.
Low flow Oxine water rinse.                                             12 sec.
Oxine water fill.                                                       18 sec.
Spear out.                                                               1 sec.
Purge head.                                                              1 sec.

SANITIZE HOLD STATION

Oxine sanitize hold.                                                    60 sec.

RACKING HEAD

Gas purge Oxine water from keg.                                         10 sec.
Gas counter pressurize to 20 p.s.i.g.                                    2 sec.
Product fill.                                                           50 sec.
Spear out.                                                               1 sec.
Oxine water scavenge and/or gas scavenge                                 4 sec.

                                  Page 2 of 5

<PAGE>

                     EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT


                                    KEG PLANT
                             QUALITY CONTROL CHECKS


 A.   DETERGENT TANK TITRATION

The detergent  set,  detergent  tank(s),  Quality  Control checks should be made
before  starting and at least twice during each eight (8) hour operating  shift.
Adjust frequency to meet the Quality Control  department  "comfort  level".  The
acid titration level (phosphoric)  should be in the range of 0.25% to maximum of
0.4% v/v and alkali titration level (caustic) in the range of 1.5 to 2.0% v/v.

 B.   KEG WATER CARRY-OVER AND TITRATION CHECKS

 1) After the keg has  completed the wash head(s)  sequence(s),  the keg must be
allowed to continue through the sterilizing sequence and then rejected (stopped)
immediately prior to commencing the racking head(s) sequence(s). When the keg is
retrieved at the  discharge  end of the  machine,  the keg can be cooled down by
placing a cold water hose over the outer  surfaces (if steam is used). A Quality
Control  keg  coupler  or funnel  coupler  (with the C02 and beer  check  valves
removed)  is then used to tap the keg.  The keg must be  inverted  to remove the
contents via the C02 port of the coupler by allowing the keg to drain or forcing
the  contents  out with air or C02. The  condensate  or rinse  residuals in a 50
liter or 1/2 half barrel keg normally  measures between 40 to 80 ml.. A limit of
100 ml. should be set as a maximum  allowable limit. If the levels are in excess
of these amounts then the machine  operation must be checked  together with that
of the steam quality and relevant steam main condensate traps.

2) The condensate  obtained from the keg can be titrated to ensure that there is
no acid and/or alkali carry-over from the wash heads.

NOTE 1: For this  check the pH. of the  condensate  should be a known  factor if
steam is used for purging.

NOTE 2: This check  should be carried out once a day for each  machine  lane and
then reduced to the Quality Control department "comfort level".

 3)  Another  keg is used to do a similar  check  after it has been  allowed  to
complete the sequences through the racker head(s) up to the point of immediately
prior to commencing the beer filling sequence.  Reject the keg prior to starting
the beer filling  sequence and remove the conveyor  after  discharging  from the
machine.  When  checking for the quantity of  condensate  present in the keg, it
should be less than 15 ml.

                                  Page 3 of 5

<PAGE>


                     EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT


NOTE: This check should be carried out once a day for each machine lane and then
reduced to the Quality Control department "comfort level".



 C.   MICROBIOLOGICAL CHECKS TO THE KEG

Introduce  a liter of  sterile  liquid,  (preferably  beer),  into a keg  having
completed the sequence as described in Procedure 3) above,  via a sterilized keg
valve and  "funnel"  coupler.  This allows the keg to be checked  for  microbial
integrity by removing 250 ml. of the sterile liquid into a sterile flask.  Split
the sample into two, 100 ml.  samples via Millipore  type  membranes,  plate and
incubate the membranes on agar suitable for aerobic and anaerobic organisms.

Methods of doing this vary slightly.  The main objective,  however, is to ensure
that consistency in sampling is maintained,  i.e. having  introduced the sterile
liquid into the keg,  each keg should be rotated a set number of times to ensure
all surfaces have been covered equally before it is extracted.  A known quantity
should always go into the keg and a known  quantity  should always be extracted,
filtered and plated.

NOTE 1: This procedure should be carried out at least once every two weeks.

NOTE: 2: Funnel couplers can be purchased via IDD to suit your keg valve type.

 D.   AFTER A C.I.P. SEQUENCE

After the  C.I.P.  sequence,  the  process  mains,  bright  beer tank and racker
connection head(s),  can be swabbed and checked for visual cleanliness to ensure
that the cleaning operation frequencies are effective and adequate.

NOTE: This should be carried out at least once a week.

 E.   BEER STABILITY SAMPLING

Samples are taken from the bright beer tank and keg at a frequency  laid down by
the brewery  Quality  Control  department.  A suitable  stability test is to set
aside a keg of beer from the leg line after  filling and  "forcing" the contents
by leaving the keg in an environment of 70(degree) F. (21(degree)C). Taste, odor
and  clarity  tests can then be taken  after 72 hours and at  regular  durations
thereafter as desired to suit the Quality Control departments standards.

SUMMARY

It is possible to determine  the  following  about the keg machine  function and
cleaning procedures from the aforementioned.

                                  Page 4 of 5

<PAGE>

                     EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT


1)   The wash water and detergent is being cleared from the keg by the final C02
     or steam purge sequence on the final wash head.

2)   The final  rinse  water on the final wash head is  removing  the  detergent
     residual from the keg.

3)   The C02 purge is removing the  condensate  trace from the keg on the racker
     head prior to filling with beer.

4)   The microbial  integrity,  via steam sterilizing or Oxine (Cl02) sanitizing
     of the keg is being achieved.

5)   The separate  plant C.I.P.  sequence is effective in removing all traces of
     beer protein and other residuals from the keg plant connection  head(s) and
     piping system(s).

6)   The cleanliness and microbial integrity is being maintained by the separate
     plant C.I.P. regime.

If you have any questions,  please contact Jeff Gunn at IDD Process & Packaging,
Inc. 1-800-621-4144 or 805-529-9890.

                                  Page 5 of 5

<PAGE>



                        MICROSTAR KEG MANAGEMENT, L.L.C.
                              ACCOUNTING PROCEDURES

         These accounting  procedures are subject to the terms and conditions of
         the Keg Management  Agreement between MicroStar and Brewing Company. In
         the event of any conflict between these  accounting  procedures and the
         Keg Management  Agreement (for this purpose, not including this Exhibit
         as part of such Agreement) the Agreement shall control.

Standard Accounting procedures:

Procedure: The ongoing standard policy is as follows:

 1.  Brewing  Company shall order kegs 30 days prior to any  requested  delivery
     date.  Brewing Company will be required to provide ninety (90) days advance
     written  notice to MicroStar for all orders which are 20% or more in excess
     of normal order quantity. All orders will be confirmed by fax or US mail by
     close of next business day. All Order(s) shall be deemed  incomplete if not
     confirmed by MicroStar.

 2.  Brewing  Company  will be invoiced  XXXXXX per keg upon the receipt of each
     delivery of kegs (30 day terms).  This  invoicing  is generated by shipment
     date and cross checked with the bill of lading  returned by Brewing Company
     and trucking  company  invoice.  In the event of delinquent  payment of any
     invoice,  MicroStar  has the right to suspend  deliveries of kegs and/or to
     require future payments to be made prior to delivery of kegs.

 3.  Brewing  Company  must  provide  MicroStar  with a bill of  lading  for all
     shipments  from  Brewing  Company to its  wholesaler(s)  within 24 hours of
     shipment.  This bill of lading will be required for  inventory  control and
     will  generate an invoicing of deposit to  wholesaler.  Brewing  Company is
     held  responsible  for  lost/unaccounted  for kegs under Brewing  Company's
     control (subject to XXXX per lost keg fee).

 4.  If  Brewing  Company   effectuates  a  shipment  to  agreed  upon  regional
     wholesaler(s)  identified in Exhibit "A-1" to the Keg Management Agreement,
     a XXXXX credit rebate will be provided to Brewing Company by MicroStar.  If
     applicable, Brewing Company may further specify on Exhibit "A-2" to the Keg
     Management  Agreement  up to three (3) local  wholesalers  which  currently
     impose no  freight  charge  upon  Brewing  Company  for the return of kegs,
     provided that (i) the  wholesalers so designated  agree to extend such free
     keg return  arrangements  to the keg deliveries to be made pursuant to this
     agreement,  (ii) the timing,  quantities and other arrangements relating to
     such keg returns are and remain consistent with the specific delivery terms
     prescribed by MicroStar,  and (iii) Brewing Company agrees to assume and be
     responsible for any and all cost of freight for the return of all kegs from
     such  designated  local  wholesalers.  For each  full  keg sold by  Brewing
     Company to such designated local wholesalers,  the applicable adjustment by
     rebate or credit to Brewing  Company will be  XXXXXXXXXXXXXXXXXXXX  per keg
     (resulting   in   an   effective   use   fee   to   Brewing    Company   of
     XXXXXXXXXXXXXXXXXXXX  per  keg).  In the  event  that any one of the  above
     specified  requirements for status as a designated local wholesaler  ceases
     to be applicable, then effective on the date such

                     EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
                                     Page 2

<PAGE>

     requirement  is  no  longer  satisfied,   the  affected   wholesaler  shall
     automatically be regarded as a regional wholesaler covered by Exhibit "A-1"
     to  the  Keg  Management  Agreement.   This  information  concerning  local
     shipments  and  return of kegs  from  specific  wholesalers  shall be cross
     checked against the bill of lading and/or the signed loading  report.  Such
     credit will be applied to Brewing  Company's next invoice for kegs or, if a
     net  credit  is  generated,  the  credit  will be  refunded  during  normal
     processing  within 30 days. With respect to kegs used by Brewing Company in
     on-site pub  operations  or  self-distributed  sales,  the use fee shall be
     XXXXXXXXXXXXXXXXXXXX  per keg, per filling.  Invoices for such fees will be
     based upon the  monthly  report of sales  submitted  by Brewing  Company to
     applicable  state  authorities in relation to its on-site pub operations or
     self-distributed  sales, a copy of which shall be furnished to MicroStar at
     the time such report is filed.

 5.  MicroStar will invoice  wholesaler for a deposit of XXXXXX per keg from the
     bill of  lading  or,  if no bill of  lading,  a signed  loading  report  as
     provided by Brewing Company.

 6.  MicroStar  will  credit  wholesaler  for each  empty keg  shipped  from the
     wholesaler  by and at the  direction  of  MicroStar.  The  credit  will  be
     generated by the bill of lading on shipment  and will be corrected  for any
     errors for incorrect shipments including wrong kegs being shipped, mistakes
     in  number  of  kegs  and the  damage  of kegs  at  wholesaler  level.  The
     information  on shipment  errors will be provided by Brewing  Company  upon
     Brewing Company's receipt of such kegs.

 7.  Brewing  Company is  required  to provide a written  monthly  keg  movement
     report including opening inventory,  number of kegs received from MicroStar
     during the month,  shipments  out  (summarized  by  wholesaler)  and ending
     inventory.   Brewing   Company   will  also   provide   MicroStar   or  its
     representative  with state and  federal  tax  reports  for purpose of cross
     checking shipments upon request.

 8.  Brewing  Company shall be subject to  inspection  and audit of inventory by
     MicroStar  during  Brewing  Company's  normal  business  hours with 24 hour
     notice (to be given during normal business hours).

 9.  Brewing  Company will be responsible  for  inventorying  kegs received from
     MicroStar  as to the number of kegs  received,  verification  of  MicroStar
     ownership of kegs and identification of any damaged kegs.

 10. Wholesaler  refund  credits  will be  adjusted  for wrong  kegs  shipped to
     Brewing Company or damage which occurs at its level.

                     EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
                                     Page 2


<PAGE>


                     EXHIBIT "E" TO KEG MANAGEMENT AGREEMENT




Mendocino Brewing Company, Inc.
13351 South Highway 101,
Hopland, California  95449
Attention: Mr. Michael Lovett

                                               RE:  Keg Purchase  Terms Pursuant
                                                    to   Section   11.6  of  Keg
                                                    Management Agreement

<TABLE>
MicroStar Keg Management,  L.L.C.  ("MicroStar")  and Mendocino Brewing Company,
Inc.  ("Mendocino")  are parties to a Keg Management  Agreement  dated effective
_______________,  1997.  The  following  table  specifies  the  prices  at which
individual  kegs are to be valued for purchase by Mendocino  pursuant to Section
11.6 of the Keg Management Agreement:
<CAPTION>
         ===================================================================================================
                          AGE OF KEGS (YEARS)                                      VALUE
<S>                          <C>                                                  <C>
         ---------------------------------------------------------------------------------------------------
                               XXXXXXXX                                           XXXXXX
         ---------------------------------------------------------------------------------------------------
                              XXXXXXXXXX                                          XXXXXX
         ---------------------------------------------------------------------------------------------------
                              XXXXXXXXXX                                          XXXXXX
         ---------------------------------------------------------------------------------------------------
                              XXXXXXXXXX                                          XXXXXX
         ---------------------------------------------------------------------------------------------------
                              XXXXXXXXXX                                          XXXXXX
         ---------------------------------------------------------------------------------------------------
                              XXXXXXXXXX                                          XXXXXX
         ---------------------------------------------------------------------------------------------------
                              XXXXXXXXXX                                          XXXXXX
         ---------------------------------------------------------------------------------------------------
                              XXXXXXXXXX                                          XXXXXX
         ---------------------------------------------------------------------------------------------------
                              XXXXXXXXXX                                          XXXXXX
         ---------------------------------------------------------------------------------------------------
                              XXXXXXXXXXX                                         XXXXXX
         ---------------------------------------------------------------------------------------------------
                             XXXXXXXXXXXX                                         XXXXXX
         ---------------------------------------------------------------------------------------------------
                             XXXXXXXXXXXX                                         XXXXXX
         ---------------------------------------------------------------------------------------------------
                             XXXXXXXXXXXX                                         XXXXXX
         ---------------------------------------------------------------------------------------------------
                             XXXXXXXXXXXX                                         XXXXXX
         ---------------------------------------------------------------------------------------------------
                             XXXXXXXXXXXX                                         XXXXXX
         ---------------------------------------------------------------------------------------------------
                               XXXXXXXXX                                           XXX
         ===================================================================================================
</TABLE>
         The specified  values are subject to  verification by Mendocino of each
keg's condition at time of purchase as being in good working order in compliance
with all applicable laws and regulations and prevailing industry standards,  and
without unusual or excessive wear and/or unusual or excessive body,  neck, valve
or chimb damage.

<PAGE>

Mendocino Brewing Company, Inc.
Page 2

         This joint memorandum is subject to the terms and conditions of the Keg
Management  Agreement between MicroStar and Brewing Company. In the event of any
conflict  between this joint  memorandum and the Keg  Management  Agreement (for
this  purpose,  not  including  this  Exhibit  as part of such  Agreement),  the
Agreement shall control.

         The kegs to be purchased pursuant to Section 11.6 shall be such kegs as
are then currently available for disposition by MicroStar Keg Management, L.L.C.
and it is  understood  by the parties  hereto that the age of the kegs which may
then be available  cannot  presently  be  ascertained.  Mendocino  may refuse to
purchase any keg that does not conform to the above  conditions.  The  requisite
quantities of kegs shall be delivered  monthly in prorated portions by MicroStar
Keg  Management,  L.L.C.  to Mendocino  designated  location over an approximate
three (3) month period.  After  confirmation  of delivery of conforming  kegs, a
Bill of Sale will be delivered  assigning  title to Mendocino  free and clear of
any lien or  security  interest  and  Mendocino  shall  contemporaneously  remit
payment for all kegs so purchased.

         This  joint  memorandum  shall  serve to  confirm  that  the  foregoing
valuations shall apply in the case of a purchase  right/obligation accruing upon
termination.


                    EXHIBIT "E" TO KEG MANAGEMENT AGREEMENT