<PAGE>   1



                          LOAN MODIFICATION AGREEMENT

     THIS LOAN MODIFICATION AGREEMENT ("Agreement") is made and entered into as
of the 30th day of March, 1998 by and between FIRST UNION NATIONAL BANK,
successor by merger to Signet Bank (the "Bank"), and FREDERICK BREWING CO. (the
"Borrower").

                                    RECITALS

     R-1. The Bank is the owner and holder of a Promissory Note dated July 19,
1996 in the original principal amount of $1,500,000.00 executed by the Borrower
(as amended, modified, supplemented, extended, renewed or restated from time to
time, the "Note").

     R-2. The Note was issued in connection with a Loan and Financing Agreement
dated July 19, 1996 by and among the Bank, the Borrower and Maryland Economic
Development Corporation (as amended, modified, supplemented, extended, renewed
or restated from time to time, the "Loan Agreement").

     R-3. The Borrower's obligations under the Note and the Loan Agreement are
secured by, inter alia, a blanket security interest in the assets of the
Borrower, including, without limitation, the Borrower's present and future
accounts, contract rights, receivables, inventory, equipment, fixtures,
instruments and general intangibles (collectively, the "Collateral").

     R-4. The Maryland Industrial Development Financing Authority ("MIDFA")
insures a portion of the Obligations (as hereafter defined) pursuant to the
terms of an Insurance Agreement dated July 19, 1996 (the "Insurance Agreement").

     R-5. The terms of the Loan Agreement were modified pursuant to the terms of
a Forbearance Agreement dated February 27, 1997 and a letter agreement dated
January 9, 1998 (collectively, the "Modification Documents").

     R-6. The Loan (as hereafter defined) matures on July 1, 2006 (the "Maturity
Date").

     R-7. As of March 27, 1998, there was due and owing under the Note a total
of $1,331,927.57 (consisting of principal in the amount of $1,325,088.88 and
accrued interest in the amount of $6,838.69), plus attorneys' fees and expenses.
In addition, interest continues to accrue from March 27, 1998 at the per diem
rate of $264.41.

     R-8. The Borrower's obligations under the Note, the Loan Agreement and the
other Loan Documents (as hereafter defined) are hereafter collectively referred
to as the "Obligations." The Note, the Loan Agreement, this Agreement and all
documents previously, now or hereafter executed and delivered to evidence,
secure, guarantee or in connection with the Obligations, as the same may from
time to time be amended, modified, supplemented, extended, renewed or restated,
are hereafter collectively referred to as the "Loan Documents." The loan
evidenced by the Loan Documents is hereafter referred to as the "Loan."

     R-9. The Borrower has requested that certain of the terms of the Loan
Documents be modified in accordance with the terms and conditions of this
Agreement.

     NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

     1. RECITALS.

          The recitals to this Agreement are true and correct, and are
     incorporated into and made a substantive part of this Agreement.
<PAGE>   2

     2. CONFIRMATION AND RATIFICATION OF LOAN DOCUMENTS.

          The Borrower agrees that the Loan Documents are in full force and
     effect and that each Loan Document shall remain in full force and effect
     unless and until modified or amended in writing in accordance with its
     terms. The Borrower confirms and ratifies its obligations under the Loan
     Documents, and agrees that the execution and delivery of this Agreement
     shall not in any way diminish or invalidate any of its obligations under
     the Loan Documents. All parties hereto consent to the execution and
     delivery of this Agreement, and to all the provisions of this Agreement to
     the extent that such provisions may modify the terms and provisions of any
     of the Loan Documents.

     3. MODIFICATION OF MATURITY DATE.

          The Loan shall mature on April 1, 1999 (the "Amended Maturity Date").
     On the Amended Maturity Date, all of the Obligations, including all
     outstanding principal, accrued interest, outstanding late charges,
     outstanding fees and all other amounts due under the Loan Documents, shall
     be due and payable in full. the Bank shall have no obligation to consider
     or grant any extension of the Amended Maturity Date.

     4. MODIFICATION OF INTEREST RATE.

          Effective as of April 30, 1998, the Obligations shall bear interest at
     a variable rate equal to the Bank's Prime Rate (as hereafter defined), plus
     one and one-quarter percent (1 1/4%) per annum. As used herein, "Prime
     Rate" means the rate of interest established by the Bank from time to time
     as its "prime rate." Such rate is set by the Bank as a general reference
     rate of interest, taking into account such factors as it may deem
     appropriate, and the Borrower understands that it is not necessarily the
     lowest or best rate actually charged to any customer, that it may not
     correspond with future increases or decreases in interest rates charged by
     other lenders or market rates in general, and that the Bank may make
     various commercial or other loans at rates of interest having no
     relationship to the Prime Rate. Without notice to the Borrower or anyone
     else, the Prime Rate shall automatically fluctuate upward and downward as
     and in the amount by which the Bank's prime rate fluctuates.

     5. MODIFICATION OF FINANCIAL COVENANTS.

             5.1 Current Ratio (Loan Agreement Section 5.2(b)). The Borrower
        shall maintain a ratio of current assets to current liabilities of not
        less than 1.0 to 1 as of the calendar quarter ending March 31, 1998 and
        each calendar quarter thereafter.

             5.2 Cash Flow to Debt Service Ratio (Loan Agreement Section
        5.2(e)). The Bank shall waive any default arising from the Borrower's
        failure to comply with the cash flow to debt service ratio for the
        calendar quarters ending March 31, 1998, June 30, 1998 and September 30,
        1998. This waiver is a one-time waiver and is expressly limited to any
        default arising from the Borrower's failure to comply with the cash flow
        to debt service ratio for the calendar quarters ending March 31, 1998,
        June 30, 1998 and September 30, 1998. Notwithstanding anything to the
        contrary herein, this waiver shall not constitute a waiver of any other
        default or event of default under any of the Loan Documents (whether
        declared, undeclared or known or unknown), including, without
        limitation, any default or event of default based on the Borrower's
        failure to comply with any other financial covenant set forth in the
        Loan Documents. The Borrower shall maintain a cash flow to debt service
        ratio of not less than 1.0 to 1 as of the calendar quarter ending
        December 31, 1998 and each calendar quarter thereafter. For purposes of
        calculating the cash flow to debt service ratio: (a) "cash flow" shall
        mean the net income plus depreciation and amortization expense of the
        Borrower, and shall be measured based on the last ninety (90) days of
        the calendar quarter annualized by a factor of (4); and (b) "debt
        service" shall mean, for each period during which cash flow is measured,
        the current maturities of long term debt of the Borrower (including,
        without limitation, the current portion of capital lease obligations)
        due and/or paid during such period.
<PAGE>   3

     6. LOAN MODIFICATION FEE.

          The Borrower shall pay to the Bank, in addition to the other
     Obligations, a loan modification fee in the amount of $25,000.00 in two
     installments. The first installment, in the amount of $10,000.00, shall be
     due and payable on June 30, 1998. The second installment, in the amount of
     $15,000.00, shall be due and payable on September 30, 1998.

     7. FEES AND EXPENSES.

          The Borrower shall be responsible for all fees and expenses, including
     all attorneys' fees and expenses, incurred by the Bank in connection with
     the negotiation and preparation of this Agreement and with the enforcement
     of the Bank's rights under the Loan Documents, which fees and expenses
     shall be considered part of the Obligations.

     8.  REPLACEMENT FINANCING.

          The Borrower shall use best efforts to secure debt and/or equity
     financing in an amount sufficient to pay in full the Obligations prior to
     the Amended Maturity Date. The Borrower shall provide to the Bank such
     written reports as the Bank may from time to time request regarding the
     status of the Borrower's efforts to secure replacement financing.

     9.  BORROWER'S REPRESENTATIONS AND WARRANTIES.

          As inducement to enter into this Agreement, the Borrower hereby
     represents and warrants to the Bank as follows:

             9.1.  Authorization and Validity. The execution and delivery of
        this Agreement and any related documents by the Borrower and the
        performance of its obligations hereunder have been duly authorized, and
        this Agreement constitutes the legal, valid and binding obligation of
        the Borrower in accordance with its terms.

             9.2.  Compliance With Other Instruments. The Borrower is not in
        default under any provision of its articles of incorporation, by-laws or
        other organizational documents, if applicable, or of any existing
        judgment, decree, law, governmental order, rule or regulation applicable
        to the Borrower, or of any agreement or other instrument to which the
        Borrower is a party or by which its assets are bound. The execution and
        delivery by the Borrower of this Agreement and related documents, the
        consummation of the transactions herein and therein contemplated, and
        the compliance with the terms and provisions hereof and thereof, (a) has
        not and will not constitute or result in a breach of the Borrower's
        articles of incorporation, by-laws or other organizational documents, if
        applicable, any presently existing applicable law, order, writ,
        injunction or decree of any court or governmental department,
        commission, board, bureau, agency or instrumentality, or (b) conflict or
        be inconsistent with or result in any breach of any of the terms,
        covenants, conditions or provisions thereof, or constitute a default
        under any indenture, mortgage, deed of trust, lease, sublease,
        instrument, document, agreement or contract of any kind to which the
        Borrower is a party or by which the Borrower may be bound or subject.

             9.3.  Benefit. The Borrower has derived direct or indirect benefit
        from this Agreement and the transactions contemplated hereby.

             9.4.  Engagement of Counsel. The Borrower has engaged (or has had
        the opportunity to engage) independent legal counsel of its choice to
        review this Agreement and any related documents. The Borrower
        acknowledges that it is executing and delivering this Agreement and any
        related documents voluntarily, without coercion or duress of any kind,
        and with full understanding of its content and meaning.

             9.5.  Truth of Representations. Any and all documents, reports,
        certificates and statements provided to the Bank by or on behalf of the
        Borrower in connection with the transactions
<PAGE>   4

        contemplated hereby are true, correct and complete, do not contain any
        untrue statements of material fact and do not omit any facts to make
        information contained therein not misleading.

             9.6. Litigation.  There is no litigation, at law or in equity, nor
        any proceeding before any federal, state or other governmental or
        administrative agency or any arbitrator pending or to the knowledge of
        the Borrower threatened against the Borrower, except as has been
        disclosed to the Bank in writing.

     10. RELEASE OF BANK.

          The Borrower hereby RELEASES and FOREVER WAIVES and RELINQUISHES all
     claims, demands, obligations, liabilities and causes of action of
     whatsoever kind or nature, whether known or unknown, which it has, may
     have, or might have or assert now or in the future against the Bank and/or
     its current or former directors, officers, employees, representatives,
     insurers, attorneys, agents, successors or assigns, or any affiliates,
     subsidiaries or related entities of the Bank and/or its current or former
     directors, officers, employees, representatives, insurers, attorneys,
     agents, successors or assigns, or any affiliates, subsidiaries or related
     entities of the Bank and/or their directors, officers, employees,
     representatives, insurers, attorneys, agents, successors or assigns
     (collectively, the "Bank Group"), directly or indirectly, arising out of,
     based upon or in any manner connected with any Prior Related Event. As used
     herein, the term "Prior Related Event" means any transaction, event,
     circumstance, action, failure to act or occurrence of any sort or type,
     whether known or unknown, arising out of or related in any way to the Loan,
     the Obligations, all or any of the Loan Documents, the Collateral, MIDFA,
     the Insurance Agreement, the Modification Documents and/or the relationship
     among the Borrower and the Bank Group which occurred, existed, was taken,
     permitted or begun prior to the execution of this Agreement. The execution
     of this Agreement by the Bank shall not constitute an acknowledgement or
     admission by the Bank of any liability for any matter or precedent upon
     which any liability may be asserted.

     11. GENERAL PROVISIONS.

             11.1 Headings.  The headings and subheadings in this Agreement are
        intended for convenience only and shall not be used or deemed to limit
        or diminish any of the provisions hereof.

             11.2 Construction.  Unless the context requires otherwise, singular
        nouns and pronouns used in this Agreement shall be deemed to include the
        plural, and pronouns of one gender shall be deemed to include the
        equivalent pronoun of the other gender.

             11.3 Further Assurances and Corrective Instruments.  The parties to
        this Agreement shall execute, acknowledge and deliver, or cause to be
        executed, acknowledged and delivered, from time to time, such
        supplements hereto and such further instruments and documents as may be
        required to facilitate the carrying out of the intentions of the parties
        to this Agreement.

             11.4. Survival; Successors and Assigns. All covenants, agreements,
        representations and warranties made herein, and in the documents
        executed in connection with this Agreement, shall continue in full force
        and effect. Whenever in this Agreement any of the parties hereto is
        referred to, such reference shall be deemed to include the successors
        and assigns of such party.

             11.5. Waiver of Jury Trial. All parties to this Agreement agree
        that any suit, action or proceeding brought or instituted by any party
        hereto or any successor or assign of any party which in any way relates,
        directly or indirectly, to the Loan, the Obligations, all or any of the
        Loan documents, the Collateral, MIDFA, the Insurance Agreement, the
        Modification Documents and/or the relationship among the Borrower and
        the Bank Group shall be tried only by a court and not a jury. EACH PARTY
        HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT,
        ACTION OR PROCEEDING. The Borrower represents, acknowledges and agrees
        that this provision is a specific and material aspect of this Agreement
        between the parties and that the Bank would not agree to the terms of
        this Agreement if this waiver of jury trial provision were not a part of
        this Agreement. The Borrower represents, acknowledges and agrees that
        this
<PAGE>   5

        waiver is knowingly, intelligently and voluntarily made, that neither
        the Bank nor any person acting on behalf of the Bank has made any
        representations to induce this waiver of trial by jury, that the
        Borrower has been represented (or has had the opportunity to be
        represented) in the signing of this Agreement and in the making of this
        waiver by independent legal counsel selected by the Borrower and that
        the Borrower has had the opportunity to discuss this waiver with
        counsel.

             11.6. Modification. No modification of any provision of this
        Agreement, or of any document executed in connection with this
        Agreement, shall in any event be effective unless the same is in
        writing, and then such modification shall be effective only in the
        specific instance or for the purpose for which given.

             11.7. Waiver. Neither any failure nor any delay on the part of any
        of the parties in exercising any right, power or remedy under this
        Agreement, any documents executed in connection with this Agreement or
        under applicable law shall operate as a waiver thereof, nor shall a
        single or partial exercise thereof preclude any other or further
        exercises thereof or the exercise of any other right, power or remedy.

             11.8. Severability. It any term, provision or condition, or any
        part hereof, of this Agreement, or any of the documents executed in
        connection with this Agreement, shall for any reason be found or held to
        be invalid or unenforceable by any court or governmental agency of
        competent jurisdiction, such invalidity or unenforceability shall not
        affect the remainder of such term, provision or condition or any other
        term, provision or condition, and this Agreement, and all documents
        executed in connection with this Agreement, shall survive and be
        construed as if such invalid or unenforceable term, provision or
        condition had not been contained therein.

             11.9. Merger and Integration. This Agreement, and the documents
        executed in connection with this Agreement, contain the entire agreement
        of the parties hereto with respect to the matters covered and the
        transactions contemplated hereby, and no other agreement, statement or
        promise made by any party hereto, or any employee, officer, agent or
        attorney of any party hereto, shall be valid or binding.

             11.10. No Release or Discharge.  Except as expressly provided
        herein, nothing contained in this Agreement is intended to or shall act
        to nullify, discharge or release any obligations or to release any
        collateral. Except to the extent of any express conflict with this
        Agreement, each and every of the terms and conditions of the Loan
        Documents shall remain in full force and effect.
<PAGE>   6

             11.11. Notices.  Any notices required or permitted by this
        Agreement shall be in writing and shall be deemed delivered if delivered
        by hand, by overnight mail or by certified mail, return receipt
        requested, as follows, unless such address is changed by written notice
        hereunder:

<TABLE>
<S>                     <C>
If to the Bank:         First Union National Bank
                        1970 Chain Bridge Road
                        7th Floor, South Tower
                        McLean, Virginia 22102
                        ATTN: Mr. David A. Dix, Vice President
with a copy to:         Richard M. Kremen, Esquire
                        Piper & Marbury L.L.P.
                        Charles Center South
                        36 South Charles Street
                        Baltimore, Maryland 21201
If to the Borrower:     Frederick Brewing Co.
                        4607 Wedgewood Boulevard
                        Frederick, Maryland 21703
                        ATTN: Mr. Kevin E. Brannon, Chairman
                        and Chief Executive Officer

with a copy to:
                        -----------------------------
                        -----------------------------
                        -----------------------------
                        -----------------------------
</TABLE>

             11.12. Applicable Law.  The performance, construction and
        enforcement of this Agreement and the documents executed in connection
        with this Agreement shall be governed by the laws of the State of
        Maryland.

             11.13. Time of Essence.  Time is of the essence.

11.14. Counterparts.  This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
        constitute one and the same agreement.

             11.15. Binding Effect.  This Agreement shall have no effect unless
        and until it has been executed by all parties.

     IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed, this Agreement under seal as of the day and year first written above.

WITNESS/ATTEST:                         FIRST UNION NATIONAL BANK,
                                        successor by merger to Signet Bank

                                        By:                        (SEAL)
------------------------                   -----------------------
                                        Name:
                                             ---------------------

                                        Title:
                                              --------------------

WITNESS/ATTEST:
<PAGE>   7

FREDERICK BREWING CO.

                                 By:                         (SEAL)
----------------------              -------------------------
                                 Name:
                                      -----------------------
                                 Title:
                                       ----------------------
<PAGE>   8

STATE OF ____________________________________)
                                                          ) ss:
CITY/COUNTY OF  ___________________________ )

     I HEREBY CERTIFY that on this      day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared                               , known to me or satisfactorily proven to
be the person whose name is subscribed to the foregoing Loan Modification
Agreement, who acknowledged himself/herself to be the
of First Union National Bank, and that he/she being authorized to do so,
executed the foregoing Loan Modification Agreement for the purposes therein
contained.

                                          --------------------------------------
                                          Notary Public

My commission expires: ________________

STATE OF ____________________________________)
                                                          ) ss:
CITY/COUNTY OF  ___________________________ )

     I HEREBY CERTIFY that on this      day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared                     , known to me or satisfactorily proven to be the
person whose name is subscribed to the foregoing Loan Modification Agreement,
who acknowledged himself/herself to be the                of Frederick Brewing
Co., and that he/she being authorized to do so, executed the foregoing Loan
Modification Agreement for the purposes therein contained.

                                          --------------------------------------
                                          Notary Public

My commission expires: ________________
<PAGE>   9

                         CONSENT OF MARYLAND INDUSTRIAL
                        DEVELOPMENT FINANCING AUTHORITY

     The Maryland Industrial Development Financing Authority ("MIDFA") hereby
acknowledges and consents to the foregoing Loan Modification Agreement by and
between First Union National Bank, successor by merger to Signet Bank (the
"Bank"), and Frederick Brewing Co. (the "Borrower").

     MIDFA reaffirms to the Bank MIDFA's obligations under the Insurance
Agreement dated July 19, 1996 between MIDFA and the Bank relating to the
$1,500,000.00 loan to the Borrower.

WITNESS/ATTEST:                            MARYLAND INDUSTRIAL DEVELOPMENT
                                           FINANCING AUTHORITY

                                           By:                      (SEAL)
                                              ----------------------
                                           Name:
                                                --------------------
                                           Title:
                                                 -------------------


STATE OF __________________________________ )
                                            ) ss:
CITY/COUNTY OF  ___________________________ )

     I HEREBY CERTIFY that on this      day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared                               , known to me or satisfactorily proven to
be the person whose name is subscribed to the foregoing Loan Modification
Agreement, who acknowledged himself/herself to be the
of the Maryland Industrial Development Financing Authority, and that he/she
being authorized to do so, executed the foregoing Loan Modification Agreement
for the purposes therein contained.

                                          --------------------------------------
                                          Notary Public

My commission expires: ________________