Savings Bank
OF MENDOCINO COUNTY
A Full Service Commercial Bank

                                PROMISSORY NOTE
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<CAPTION>
Principal   Loan Date     Maturity      Loan No    Call    Collateral   Account   Officer   Initials
<S>         <C>           <C>           <C>                                         <C>
$2,700,000  12-17-1997    12-01-2012    973101R                                     MJL
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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.
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</TABLE>
<TABLE>
<CAPTION>
<S>                                                              <C>
Borrower: Mendocino Brewing Company,                     Lender: SAVINGS BANK OF MENDOCINO COUNTY
          a California Corporation                               MAIN OFFICE
          P.O. Box 400                                           P.O. Box 3600
          Hopland, CA 95449                                      200 N. School Street
                                                                 Ukiah, CA 95482
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Principal Amount: $2,700,000.00        Initial Rate: 10.000%        Date of Note: December 17, 1997
</TABLE>

PROMISE TO PAY. Mendocino Brewing Company, a California Corporation ("Borrower")
promises to pay to SAVINGS  BANK OF MENDOCINO  COUNTY  ("Lender"), or order,  in
lawful  money of the  United  States of  America,  the  principal  amount of Two
Million Seven Hundred Thousand & 00/100 Dollars  ($2,700,000.00),  together with
interest on the unpaid  principal  balance from December 17, 1997, until paid in
full.

PAYMENT.  Subject to any payment  changes  resulting  from changes in the Index,
Borrower will pay this loan in 179 regular  payments of $24,433.54  each and one
irregular last payment estimated at  $1,873,346.03.  Borrower's first payment is
due January 1, 1998, and all subsequent payments are due on the same day of each
month after that. Borrower's final payment due December 1, 2012, will be for all
principal and all accrued interest not yet paid.  Payments include principal and
interest.  Interest on this Note is computed on a 30/360 simple  interest basis;
that is, with the  exception of odd days in the first  payment  period,  monthly
interest is calculated by applying the ratio of the annual  interest rate over a
year of 360 days, multiplied by the outstanding principal balance, multiplied by
a month of 30 days.  Interest for the odd days is calculated on the basis of the
actual days to the next full month and a 360-day year.  Borrower will pay Lender
at Lender's  address  shown above or at such other place as Lender may designate
in writing. Unless otherwise agreed or required by applicable law, payments will
be  applied  first  to  accrued  unpaid  interest,  then to  principal,  and any
remaining amount to any unpaid collection costs and late charges.

VARIABLE INTEREST RATE. The Interest rate on this Note is subject to change from
time to time  based on  changes  in an  index  which  is the  Treasury  Constant
Maturity Index for 5 Year Treasuries (the "Index"). The index is not necessarily
the lowest  rate  charged by Lender on its loans and is set by using the Federal
Reserve's  Statistical  Sheet to establish the Treasury  Constant Maturity Index
for five year  maturities TWO MONTHS PRIOR to the scheduled rate change.  If the
Treasury Constant Maturity Index is no longer available,  then Lender may select
an Index to  substitute.  Lender will tell  Borrower the current Index rate upon
Borrower's  request.  Borrower  understands  that Lender may make loans based on
other  rates as well.  The  interest  rate change will not occur more often than
each FIVE  YEARS.  The change  date will be every five years on the  anniversary
date of the first payment date,  using the effective stated index ten days prior
to the change date. The Index  currently is 5.830% per annum.  The interest rate
to be applIed to the unpaid principal  balance of this Note will be at a rate of
4.170 percentage points over the Index,  resulting in an initial rate of 10.000%
per annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.  Whenever  increases occur
in the  interest  rate,  Lender,  at its  option,  may  do  one or  more  of the
following:  (a) increase  Borrower's payments to ensure Borrower's loan will pay
off by its original final maturity  date,  (b) increase  Borrower's  payments to
cover accruing interest, (c) increase the number of Borrower's payments, and (d)
continue  Borrower's  payments at the same amount and increase  Borrower's final
payment.

PREPAYMENT;  MINIMUM  INTEREST  CHARGE.  Borrower  agrees that all loan fees and
other  prepaid  finance  charges are earned fully as of the date of the loan and
will not be subject to refund  upon early  payment  (whether  voluntary  or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower  understands that Lender is entitled to a
minimum interest charge of $100.00.  Other than Borrower's obligation to pay any
minimum  interest  charge,  Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early  payments will not,  unless agreed
to by Lender in writing,  relieve Borrower of Borrower's  obligation to continue
to make  payments  under the  payment  schedule.  Rather,  they will  reduce the
principal balance due and may result in Borrower making fewer payments.

LATE  CHARGE.  If a payment  is 15 days or more late,  Borrower  will be charged
5.000% of the regularly scheduled payment.

DEFAULT.  Borrower  will be in  default  if any of the  following  happens:  (a)
Borrower  fails to make any payment when due.  (b)  Borrower  breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement  related to this Note, or in any other  agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower  or on  Borrower's  behalf is false or  misleading  in any  material
respect  either  now or at the time  made or  furnished.  (d)  Borrower  becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against  Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's  property on or in which Lender
has a  lien  or  security  interest.  This  Includes  a  garnishment  of  any of
Borrower's  accounts  with Lender.  (f) Any  guarantor  dies or any of the other
events described in this default section occurs with respect to any guarantor of
this  Note.  (g) A  material  adverse  change  occurs  in  Borrower's  financial
condition,  or Lender  believes  the prospect of payment or  performance  of the
Indebtedness is impaired. (h) Lender in good faith deems itself insecure.

If any default,  other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same  provision  of this Note  within
the preceding twelve (12) months,  it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default:  (a) cures the default  within one (1) days; or (b) if the
cure requires more than one (1) days,  immediately  initiates steps which Lender
deems in  Lender's  sole  discretion  to be  sufficient  to cure the default and
thereafter continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.

LENDER'S  RIGHTS.  Upon default,  Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest  immediately  due,  without
notice,  and then Borrower will pay that amount.  Lender may hire or pay someone
else to help collect this Note if Borrower does not pay.  Borrower also will pay
Lender that amount.  This includes,  subject to any limits under applicable law,
Lender's  attorneys' fees and Lander's legal expenses  whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings
(including  efforts  to modify  or vacate  any  automatic  stay or  injunction),
appeals, and any anticipated  post-judgment  collection services.  Borrower also
will pay any court costs,  in addition to all other sums  provided by law.  This
Note has been  delivered  to  Lender  and  accepted  by  Lender  in the State of
California.  If there Is a lawsuit,  Borrower  agrees upon  Lender's  request to
submit to the  jurisdiction  of the  courts of  MENDOCINO  County,  the State of
California.  This Note shall be governed by and construed in accordance with the
laws of the State of California.

DISHONORED  ITEM FEE.  Borrower  will pay a fee to Lender of $10.00 if  Borrower
makes a payment on Borrower's loan and the check or
<PAGE>
12-17-1997                     PROMISSORY NOTE                          Page   2
Loan No 973101R                  (Continued)
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preauthorized charge with which Borrower pays is later dishonored.

COLLATERAL  Borrower  acknowledges  this Note is secured  by, in addition to any
other collateral, a Deed of Trust dated December 17, 1997, to a trustee in favor
of Lender on real property  located in MENDOCINO  County,  State of  California.
That agreement contains the following due on sale provision:  Lender may, at its
option,  declare  immediately  due and payable all sums  secured by this Deed of
Trust upon the sale or transfer,  without the Lender's prior written consent, of
all or any part of the Real Property,  or any interest in the Real  Property.  A
"sale or transfer" means the conveyance of Real Property or any right,  title or
interest therein;  whether legal, beneficial or equitable;  whether voluntary or
involuntary;  whether by outright sale, deed,  installment  sale contract,  land
contract,  contract for deed,  leasehold interest with a term greater than three
(3) years,  lease-option  contract, or by sale,  assignment,  or transfer of any
beneficial  interest in or to any land trust holding title to the Real Property,
or by any other method of conveyance of Real Property  interest.  If any Trustor
is a  corporation,  partnership  or limited  liability  company,  transfer  also
includes any change in ownership of more than  twenty-five  percent (25%) of the
voting stock,  partnership interests or limited liability company interests,  as
the case may be, of Trustor.  However,  this option  shall not be  exercised  by
Lender if such exercise is prohibited by applicable law.

ADDITIONAL  PROVISIONS.  THIS  NOTE IS  SECURED  BY A DEED OF TRUST OF EVEN DATE
HEREWTH AND A SECURITY AGREEMENT DATED 9/25/96.

MULTIPLE INTEREST RATE/FLOOR: Not withstanding anything to the contrary that may
be contained in this note and the loan documents, Lender and borrower agree that
at the time of  the first  interest  rate  adjustment  (5 year anniversary)  the
interest  rate on the loan will not be greater than 12.000% or less than 7.500%;
further,   at  the  time  of  the  second  interest  rate  adjustment  (10  year
anniversary)  the interest  rate on the loan will not be greater than 13.000% or
less than 7.500%.

GENERAL  PROVISIONS.  Lender may delay or forgo  enforcing  any of its rights or
remedies under this Note without losing them.  Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations,  presentment, demand for payment, protest and
notice  of  dishonor.  Upon any  change in the terms of this  Note,  and  unless
otherwise  expressly stated in writing, no party who signs this Note, whether as
maker,  guarantor,  accommodation  maker or  endorser,  shall be  released  from
liability.  All such parties  agree that Lender may renew or extend  (repeatedly
and for any length of time) this loan,  or  release  any party or  guarantor  or
collateral;  or  impair,  fail to  realize  upon or  perfect  Lender's  security
interest in the collateral; and take any other action deemed necessary by Lender
without the  consent of or notice to anyone.  All such  parties  also agree that
Lender may modify this loan  without  the  consent of or notice to anyone  other
than the party with whom the modification is made.

PRIOR TO SIGNING THIS NOTE,  BORROWER READ AND  UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE,  INCLUDING THE VARIABLE  INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.


BORROWER:

Mendocino Brewing Company, a California Corporation

By: /s/ Michael Laybourn, President  By: /s/ Jerome Merchant
   --------------------------------     ----------------------------------------
        Michael Laybourn, President     Jerome Merchant, Chief Financial Officer

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