Document:

<PAGE>
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                                                                               .
                                                                               .
                                                                   Exhibit 10.35

                         COMMERCIAL SECURITY AGREEMENT

<TABLE>
<CAPTION>
  PRINCIPAL      LOAN DATE    MATURITY       LOAN NO     CALL / COLL   ACCOUNT   OFFICER   INITIALS
-------------   ----------   ----------   ------------   -----------   -------   -------   --------
<S>             <C>          <C>          <C>            <C>           <C>       <C>       <C>
$2,000,000.00   05-14-2004   05-14-2006   77-100239-01                             MARK
</TABLE>

  References in the shaded area are for Lender's use only and do not limit the
         applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length limitations.

GRANTOR: PYRAMID BREWERIES INC.        LENDER: FIRST MUTUAL BANK
         91 SOUTH ROYAL BROUGHAM WAY           BUSINESS BANKING
         SEATTLE, WA 98134                     400 - 108TH AVE NE
                                               PO BOX 1647
                                               BELLEVUE, WA 98009
                                               (425) 453-5301

THIS COMMERCIAL SECURITY AGREEMENT dated May 14, 2004, is made and executed
between Pyramid Breweries Inc. ("Grantor") and First Mutual Bank ("Lender").

GRANT OF SECURITY INTEREST. For valuable consideration. Grantor grants to Lender
a security interest in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means
the following described property, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located, in which
Grantor is giving to Lender a security interest for the payment of the
Indebtedness and performance of all other obligations under the Note and this
Agreement:

     All Inventory, Chattel Paper, Accounts, Equipment and General Intangibles

In addition, the word "Collateral" also includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:

     (A) All accessions, attachments, accessories, tools, parts, supplies,
     replacements of and additions to any of the collateral described herein,
     whether added now or later.

     (B) All products and produce of any of the property described in this
     Collateral section.

     (C) All accounts, general intangibles, instruments, rents, monies,
     payments, and all other rights, arising out of a sale, lease, consignment
     or other disposition of any of the property described in this Collateral
     section.

     (D) All proceeds (including insurance proceeds) from the sale, destruction,
     loss, or other disposition of any of the property described in this
     Collateral section, and sums due from a third party who has damaged or
     destroyed the Collateral or from that party's insurer, whether due to
     judgment, settlement or other process.

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

Despite any other provision of this Agreement, Lender is not granted, and will
not have, a nonpurchase money security interest in household goods, to the
extent such a security interest would be prohibited by applicable law. In
addition, if because of the type of any Property, Lender is required to give a
notice of the right to cancel under Truth in Lending for the Indebtedness, then
Lender will not have a security interest in such Collateral unless and until
such a notice is given.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Grantor's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Grantor holds
jointly with someone else and all accounts Grantor may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Grantor authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts, and, at Lender's option, to
administratively freeze all such accounts to allow Lender to protect Lender's
charge and setoff rights provided in this paragraph.

GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With
respect to the Collateral, Grantor represents and promises to Lender that:

     PERFECTION OF SECURITY INTEREST. Grantor agrees to take whatever actions
     are requested by Lender to perfect and continue Lender's security interest
     in the Collateral. Upon request of Lender, Grantor will deliver to Lender
     any and all of the documents evidencing or constituting the Collateral, and
     Grantor will note Lender's interest upon any and all chattel paper and
     instruments if not delivered to Lender for possession by Lender. This is a
     continuing Security Agreement and will continue in effect even though all
     or any part of the Indebtedness is paid in full and even though for a
     period of time Grantor may not be Indebted to Lender.

     NOTICES TO LENDER. Grantor will promptly notify Lender in writing at
     Lender's address shown above (or such other addresses as Lender may
     designate from time to time) prior to any (1) change in Grantor's name; (2)
     change in Grantor's assumed business name(s); (3) change in the management
     of the Corporation Grantor; (4) change in the authorized signer(s); (5)
     change in Grantor's principal office address; (6) Change in Grantor's state
     of organization; (7) conversion of Grantor to a new or different type of
     business entity; No change in Grantor's name or state of organization will
     take effect until after Lender has received notice.

     NO VIOLATION. The execution and delivery of this Agreement will not violate
     any law or agreement governing Grantor or to which Grantor is a party, and
     its certificate or articles of incorporation and bylaws do not prohibit any
     term or condition of this Agreement.

     ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
     accounts, chattel paper, or general intangibles, as defined by the Uniform
     Commercial Code, the Collateral is enforceable in accordance with its
     terms, is genuine, and fully complies with all applicable laws and
     regulations concerning form, content and manner of preparation and
     execution, and all persons appearing to be obligated on the Collateral have
     authority and capacity to contract and are in fact obligated as they appear
     to be on the Collateral. At the time any account becomes subject to a
     security interest in favor of Lender, the account shall be a good and valid
     account representing an bonafide indebtedness incurred by the account
     debtor, for merchandise held subject to delivery instructions or previously
     shipped or delivered pursuant to a contract of sale, or for services
     previously performed by Grantor with or for the account debtor. So long as
     this Agreement remains in effect. Grantor shall not, without Lender's prior
     written consent, ** See Page 5 compromise, settle, adjust, or extend
     payment under or with regard to any such Accounts. There shall be no
     setoffs or counterclaims against any of the Collateral, and no agreement
     shall have been made under which any deductions or discounts may be claimed
     concerning the Collateral except those disclosed to Lender in writing.

     LOCATION OF THE COLLATERAL. Except in the ordinary course of Grantor's
     business, Grantor agrees to keep the Collateral (or to the extent the
     Collateral consists of intangible property such as accounts or general
     intangibles, the records concerning the Collateral) at Grantor's address
     shown above or at such other locations as are acceptable to Lender. Upon
     Lender's request, Grantor will deliver to Lender in form satisfactory to
     Lender a schedule of real properties and Collateral locations relating to
     Grantor's operations, including without limitation the following: (1) all
     real property Grantor owns or is purchasing; (2) all real property Grantor
     is renting or leasing; (3) all storage facilities Grantor owns, rents,
     leases, or uses; and (4) all other properties where Collateral is or may be
     located.

<PAGE>

                          COMMERCIAL SECURITY AGREEMENT
LOAN NO: 77-100239-01             (CONTINUED)                             PAGE 2

     and encumbrances except for the lien of this Agreement. No financing
     statement covering any of the Collateral is on file in any public office
     other than those which reflect the security interest created by this
     Agreement or to which Lender has specifically consented. Grantor shall
     defend Lender's rights in the Collateral against the claims and demands of
     all other persons.

     REPAIRS AND MAINTENANCE. Grantor agrees to keep and maintain, and to cause
     others to keep and maintain, the Collateral in good order, repair and
     condition at all times while this Agreement remains in effect. Grantor
     further agrees to pay when due all claims for work done on, or services
     rendered or material furnished in connection with the Collateral so that no
     lien or encumbrance may ever attach to or be filed against the Collateral.

     INSPECTION OF COLLATERAL. Lender and Lender's designated representatives
     and agents shall have the right at all reasonable times to examine and
     inspect the Collateral wherever located.

     TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
     assessments and liens upon the Collateral, its use or operation, upon this
     Agreement, upon any promissory note or notes evidencing the Indebtedness,
     or upon any of the other Related Documents. Grantor may withhold any such
     payment or may elect to contest any lien if Grantor is in good faith
     conducting an appropriate proceeding to contest the obligation to pay and
     so long as Lender's interest in the Collateral is not jeopardized in
     Lender's sole opinion. If the Collateral is subjected to a lien which is
     not discharged within fifteen (15) days, Grantor shall deposit with Lender
     cash, a sufficient corporate surety bond or other security satisfactory to
     Lender in an amount adequate to provide for the discharge of the lien plus
     any interest, costs, attorneys' fees or other charges that could accrue as
     a result of foreclosure or sale of the Collateral. In any contest Grantor
     shall defend itself and Lender and shall satisfy any final adverse judgment
     before enforcement against the Collateral. Grantor shall name Lender as an
     additional obligee under any surety bond furnished in the contest
     proceedings. Grantor further agrees to furnish Lender with evidence that
     such taxes, assessments, and governmental and other charges have been paid
     in full and in a timely manner. Grantor may withhold any such payment or
     may elect to contest any lien if Grantor is in good faith conducting an
     appropriate proceeding to contest the obligation to pay and so long as
     Lender's interest in the Collateral is not jeopardized.

     COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
     with all laws, ordinances, rules and regulations of all governmental
     authorities, now or hereafter in effect, applicable to the ownership,
     production, disposition, or use of the Collateral, including all laws or
     regulations relating to the undue erosion of highly-erodible land or
     relating to the conversion of wetlands for the production of an
     agricultural product or commodity. Grantor may contest in good faith any
     such law, ordinance or regulation and withhold compliance during any
     proceeding, including appropriate appeals, so long as Lender's interest in
     the Collateral, in Lender's opinion, is not jeopardized.

     HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
     never has been, and never will be so long as this Agreement remains a lien
     on the Collateral, used in violation of any Environmental Laws or for the
     generation, manufacture, storage, transportation, treatment, disposal,
     release or threatened release of any Hazardous Substance. The
     representations and warranties contained herein are based on Grantor's due
     diligence in investigating the Collateral for Hazardous Substances. Grantor
     hereby (1) releases and waives any future claims against Lender for
     indemnity or contribution in the event Grantor becomes liable for cleanup
     or other costs under any Environmental Laws, and (2) agrees to indemnify
     and hold harmless Lender against any and all claims and losses resulting
     from a breach of this provision of this Agreement. This obligation to
     indemnify shall survive the payment of the indebtedness and the
     satisfaction of this Agreement.

     MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
     risks insurance, including without limitation fire, theft and liability
     coverage together with such other insurance as Lender may require with
     respect to the Collateral, in form, amounts, coverages and basis reasonably
     acceptable to Lender and issued by a company or companies reasonably
     acceptable to Lender. Grantor, upon request of Lender, will deliver to
     Lender from time to time the policies or certificates of insurance in form
     satisfactory to Lender, including stipulations that coverages will not be
     cancelled or diminished without at least thirty (30) days' prior written
     notice to Lender and not including any disclaimer of the insurer's
     liability for failure to give such a notice. Each insurance policy also
     shall include an endorsement providing that coverage in favor of Lender
     will not be impaired in any way by any act, omission or default of Grantor
     or any other person. In connection with all policies covering assets in
     which Lender holds or is offered a security interest, Grantor will provide
     Lender with such loss payable or other endorsements as Lender may require.
     If Grantor at any time fails to obtain or maintain any insurance as
     required under this Agreement, Lender may (but shall not be obligated to)
     obtain such insurance as Lender deems appropriate, including if Lender so
     chooses "single interest insurance," which will cover only Lender's
     interest in the Collateral.

     APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
     any loss or damage to the Collateral. Lender may make proof of loss if
     Grantor fails to do so within fifteen (15) days of the casualty. All
     proceeds of any insurance on the Collateral, including accrued proceeds
     thereon, shall be held by Lender as part of the Collateral. If Lender
     consents to repair or replacement of the damaged or destroyed Collateral,
     Lender shall, upon satisfactory proof of expenditure, pay or reimburse
     Grantor from the proceeds for the reasonable cost of repair or restoration.
     If Lender does not consent to repair or replacement of the Collateral,
     Lender shall retain a sufficient amount of the proceeds to pay all of the
     Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
     not been disbursed within six (6) months after their receipt and which
     Grantor has not committed to the repair or restoration of the Collateral
     shall be used to prepay the Indebtedness.

     INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
     reserves for payment of insurance premiums, which reserves shall be created
     by monthly payments from Grantor of a sum estimated by Lender to be
     sufficient to produce, at least fifteen (15) days before the premium due
     date, amounts at least equal to the insurance premiums to be paid. If
     fifteen (15) days before payment is due, the reserve funds are
     insufficient, Grantor shall upon demand pay any deficiency to Lender. The
     reserve funds shall be held by Lender as a general deposit and shall
     constitute a non-interest-bearing account which Lender may satisfy by
     payment of the insurance premiums required to be paid by Grantor as they
     become due. Lender does not hold the reserve funds in trust for Grantor,
     and Lender is not the agent of Grantor for payment of the insurance
     premiums required to be paid by Grantor. The responsibility for the payment
     of premiums shall remain Grantor's sole responsibility.

     INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
     reports on each existing policy of insurance showing such information as
     Lender may reasonably request including the following: (1) the name of the
     insurer; (2) the risks insured; (3) the amount of the policy; (4) the
     property insured; (5) the then current value on the basis of which
     insurance has been obtained and the manner of determining that value; and
     (6) the expiration date of the policy. In addition, Grantor shall upon
     request by Lender (however not more often than annually) have an
     independent appraiser satisfactory to Lender determine, as applicable, the
     cash value or replacement cost of the Collateral.

     FINANCING STATEMENTS. Grantor authorizes Lender to file a UCC financing
     statement, or alternatively, a copy of this Agreement to perfect Lender's
     security interest. At Lender's request, Grantor additionally agrees to sign
     all other documents that are necessary to perfect, protect, and continue
     Lender's security interest in the Property. Grantor will pay all filing
     fees, title transfer fees, and other fees and costs involved unless
     prohibited by law or unless Lender is required by law to pay such fees and
     costs. Grantor irrevocably appoints Lender to execute documents necessary
     to transfer title if there is a default. Lender may file a copy of this
     Agreement as a financing statement. If Grantor changes Grantor's name or
     address, or the name or address of any person granting a security interest
     under this Agreement changes, Grantor will promptly notify the Lender of
     such change.

GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and Event of

<PAGE>

                          COMMERCIAL SECURITY AGREEMENT
LOAN NO: 77-100239-01              (CONTINUED)                            PAGE 3

will secure payment of these amounts. Such right shall be in addition to all
other rights and remedies to which Lender may be entitled upon Default.

DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:

     PAYMENT DEFAULT. Grantor fails to make any payment when due under the
     Indebtedness.

     OTHER DEFAULTS. Grantor fails to comply with or to perform any other term,
     obligation, covenant or condition contained in this Agreement or in any of
     the Related Documents or to comply with or to perform any term, obligation,
     covenant or condition contained in any other agreement between Lender and
     Grantor.

     DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
     under any loan, extension of credit, security agreement, purchase or sales
     agreement, or any other agreement, in favor of any other creditor or person
     that may materially affect any of Grantor's property or Grantor's or any
     Grantor's ability to repay the Indebtedness or perform their respective
     obligations under this Agreement or any of the Related Documents.

     FALSE STATEMENTS. Any warranty, representation or statement made or
     furnished to Lender by Grantor or on Grantor's behalf under this Agreement
     or the Related Documents is false or misleading in any material respect,
     either now or at the time made or furnished or becomes false or misleading
     at any time thereafter.

     DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
     ceases to be in full force and effect (including failure of any collateral
     document to create a valid and perfected security interest or lien) at any
     time and for any reason.

     INSOLVENCY. The dissolution or termination of Grantor's existence as a
     going business, the insolvency of Grantor, the appointment of a receiver
     for any part of Grantor's property, any assignment for the benefit of
     creditors, any type of creditor workout, or the commencement of any
     proceeding under any bankruptcy or insolvency laws by or against Grantor.

     CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
     forfeiture proceedings, whether by judicial proceeding, self-help,
     repossession or any other method, by any creditor of Grantor or by any
     governmental agency against any collateral securing the Indebtedness. This
     includes a garnishment of any of Grantor's accounts, including deposit
     accounts, with Lender. However, this Event of Default shall not apply if
     there is a good faith dispute by Grantor as to the validity or
     reasonableness of the claim which is the basis of the creditor or
     forfeiture proceeding and if Grantor gives Lender written notice of the
     creditor or forfeiture proceeding and deposits with Lender monies or a
     surety bond for the creditor or forfeiture proceeding, in an amount
     determined by Lender, in its sole discretion, as being an adequate reserve
     or bond for the dispute.

     EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
     to any guarantor, endorser, surety, or accommodation party of any of the
     Indebtedness or guarantor, endorser, surety, or accommodation party dies or
     becomes incompetent or revokes or disputes the validity of, or liability
     under, any Guaranty of the Indebtedness.

     ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
     condition, or Lender believes the prospect of payment or performance of the
     Indebtedness is impaired.

     CURE PROVISIONS. If any default, other than a default in payment is curable
     and if Grantor has not been given a notice of a breach of the same
     provision of this Agreement within the preceding twenty-four (24) months,
     it may be cured if Grantor, after receiving written notice from Lender
     demanding cure of such default: (1) cures the default within fifteen (15)
     days; or (2) if the cure requires more than fifteen (15) 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.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Washington Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:

     ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
     including any prepayment penalty which Grantor would be required to pay,
     immediately due and payable, without notice of any kind to Grantor.

     ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
     any portion of the Collateral and any and all certificates of title and
     other documents relating to the Collateral. Lender may require Grantor to
     assemble the Collateral and make it available to Lender at a place to be
     designated by Lender. Lender also shall have full power to enter upon the
     property of Grantor to take possession of and remove the Collateral. If the
     Collateral contains other goods not covered by this Agreement at the time
     of repossession, Grantor agrees Lender may take such other goods, provided
     that Lender makes reasonable efforts to return them to Grantor after
     repossession.

     SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
     or otherwise deal with the Collateral or proceeds thereof in Lender's own
     name or that of Grantor. Lender may sell the Collateral at public auction
     or private sale. Unless the Collateral threatens to decline speedily in
     value or is of a type customarily sold on a recognized market. Lender will
     give Grantor, and other persons as required by law, reasonable notice of
     the time and place of any public sale, or the time after which any private
     sale or any other disposition of the Collateral is to be made. However, no
     notice need be provided to any person who, after Event of Default occurs,
     enters into and authenticates an agreement waiving that person's right to
     notification of sale. The requirements of reasonable notice shall be met if
     such notice is given at least ten (10) days before the time of the sale or
     disposition. All expenses relating to the disposition of the Collateral,
     including without limitation the expenses of retaking, holding, insuring,
     preparing for sale and selling the Collateral, shall become a part of the
     Indebtedness secured by this Agreement and shall be payable on demand, with
     interest at the Note rate from date of expenditure until repaid.

     APPOINT RECEIVER. Lender shall have the right to have a receiver appointed
     to take possession of all or any part of the Collateral, with the power to
     protect and preserve the Collateral, to operate the Collateral preceding or
     pending foreclosure or sale, and to collect the Rents from the Collateral
     and apply the proceeds, over and above the cost of the receivership,
     against the Indebtedness. The receiver may serve without bond if permitted
     by law. Lender's right to the appointment of a receiver shall exist whether
     or not the apparent value of the Collateral exceeds the Indebtedness by a
     substantial amount. Employment by Lender shall not disqualify a person from
     serving as a receiver.

     COLLECT REVENUES, Apply Accounts. Lender, either itself or through a
     receiver, may collect the payments, rents, Income, and revenues from the
     Collateral. Lender may at any time in Lender's discretion transfer any
     Collateral into Lender's own name or that of Lender's nominee and receive
     the payments, rents, income, and revenues therefrom and hold the same as
     security for the Indebtedness or apply it to payment of the Indebtedness in
     such order of preference as Lender may determine. Insofar as the Collateral
     consists of accounts, general intangibles, insurance policies, instruments,
     chattel paper, choses in action, or similar property, Lender may demand,
     collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
     realize on the Collateral as Lender may determine, whether or not
     Indebtedness or Collateral is then due. For these purposes, Lender may, on
     behalf of and in the name of Grantor, receive, open and dispose of mail
     addressed to Grantor; change any address to which mail and payments are to
     be sent; and endorse notes, checks, drafts, money orders, documents of
     title, instruments and items pertaining to payment, shipment, or storage of
     any Collateral. To facilitate collection, Lender may notify account debtors
     and obligors on any Collateral to make payments directly to Lender.

     OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
     Lender may obtain a judgment against Grantor for any deficiency remaining
     on the Indebtedness due to Lender after application of all amounts received
     from the exercise of the rights provided in this Agreement. Grantor shall
     be liable for a deficiency even if the transaction described in this
     subsection is a sale of accounts or chattel paper.

<PAGE>

                          COMMERCIAL SECURITY AGREEMENT
LOAN NO: 77-100239-01              (CONTINUED)                            PAGE 4

     proceedings (including efforts to modify or vacate any automatic stay or
     injunction), appeals, and any anticipated post-judgment collection
     services. Grantor also shall pay all court costs and such additional fees
     as may be directed by the court.

     CAPTION HEADINGS. Caption headings in this Agreement are for convenience
     purposes only and are not to be used to interpret or define the provisions
     of this Agreement.

     GOVERNING LAW. This Agreement will be governed by, construed and enforced
     in accordance with federal law and the laws of the State of Washington.
     This Agreement has been accepted by Lender in the State of Washington.

     CHOICE OF VENUE. If there is a lawsuit, Grantor agrees upon Lender's
     request to submit to the jurisdiction of the courts or King County, State
     of Washington.

     PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
     preference claim in Grantor's bankruptcy will become a part of the
     Indebtedness and, at Lender's option, shall be payable by Grantor as
     provided in this Agreement.

     NO WAIVER BY LENDER. Lender shall not be deemed to have waived any rights
     under this Agreement unless such waiver is given in writing and signed by
     Lender. No delay or omission on the part of Lender in exercising any right
     shall operate as a waiver of such right or any other right. A waiver by
     Lender of a provision of this Agreement shall not prejudice or constitute a
     waiver of Lender's right otherwise to demand strict compliance with that
     provision or any other provision of this Agreement. No prior waiver by
     Lender, nor any course of dealing between Lender and Grantor, shall
     constitute a waiver of any of Lender's rights or of any of Grantor's
     obligations as to any future transactions. Whenever the consent of Lender
     is required under this Agreement, the granting of such consent by Lender in
     any instance shall not constitute continuing consent to subsequent
     instances where such consent is required and in all cases such consent may
     be granted or withheld in the sole discretion of Lender.

     NOTICES. Subject to applicable law, and except for notice required or
     allowed by law to be given in another manner, any notice required to be
     given under this Agreement shall be given in writing, and shall be
     effective when actually delivered, when actually received by telefacsimile
     (unless otherwise required by law), when deposited with a nationally
     recognized overnight courier, or, if mailed, when deposited in the United
     States mail, as first class, certified or registered mail postage prepaid,
     directed to the addresses shown near the beginning of this Agreement. Any
     party may change its address for notices under this Agreement by giving
     formal written notice to the other parties, specifying that the purpose of
     the notice is to change the party's address. For notice purposes, Grantor
     agrees to keep Lender informed at all times of Grantor's current address.
     Subject to applicable law, and except for notice required or allowed by law
     to be given in another manner, if there is more than one Grantor, any
     notice given by Lender to any Grantor is deemed to be notice given to all
     Grantors.

     POWER OF ATTORNEY. Grantor hereby appoints Lender as Grantor's irrevocable
     attorney-in-fact for the purpose of executing any documents necessary to
     perfect, amend, or to continue the security interest granted in this
     Agreement or to demand termination of filings of other secured parties.
     Lender may at any time, and without further authorization from Grantor,
     file a carbon, photographic or other reproduction of any financing
     statement or of this Agreement for use as a financing statement. Grantor
     will reimburse Lender for all expenses for the perfection and the
     continuation of the perfection of Lender's security interest in the
     Collateral.

     WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for the
     Indebtedness, Grantor irrevocably waives, disclaims and relinquishes all
     claims against such other person which Grantor has or would otherwise have
     by virtue of payment of the Indebtedness or any part thereof, specifically
     including but not limited to all rights of indemnity, contribution or
     exoneration.

     SEVERABILITY. If a court of competent jurisdiction finds any provision of
     this Agreement to be illegal, invalid, or unenforceable as to any
     circumstance, that finding shall not make the offending provision illegal,
     invalid, or unenforceable as to any other circumstance. If feasible, the
     offending provision shall be considered modified so that it becomes legal,
     valid and enforceable. If the offending provision cannot be so modified, it
     shall be considered deleted from this Agreement. Unless otherwise required
     by law, the illegality, invalidity, or unenforceability of any provision of
     this Agreement shall not affect the legality, validity or enforceability of
     any other provision of this Agreement.

     SUCCESSORS AND ASSIGNS. Subject to any limitations stated in this Agreement
     on transfer of Grantor's interest, this Agreement shall be binding upon and
     inure to the benefit of the parties, their successors and assigns. If
     ownership of the Collateral becomes vested in a person other than Grantor,
     Lender, without notice to Grantor, may deal with Grantor's successors with
     reference to this Agreement and the Indebtedness by way of forbearance or
     extension without releasing Grantor from the obligations of this Agreement
     or liability under the Indebtedness.

     SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
     warranties, and agreements made by Grantor in this Agreement shall survive
     the execution and delivery of this Agreement, shall be continuing in
     nature, and shall remain in full force and effect until such time as
     Grantor's Indebtedness shall be paid in full.

     TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
     Agreement.

     WAIVE JURY. ALL parties to this Agreement hereby waive the right to any
     jury trial in any action, proceeding, or counterclaim brought by any party
     against any other party.

DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code:

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

     BORROWER. The word "Borrower" means Pyramid Breweries Inc. and includes all
     co-signers and co-makers signing the Note.

     COLLATERAL. The word "Collateral" means all of Grantor's right, title and
     interest in and to all the Collateral as described in the Collateral
     Description section of this Agreement.

     DEFAULT. The word "Default" means the Default set forth in this Agreement
     in the section titled "Default".

     ENVIRONMENTAL LAWS. The words "Environmental Laws" mean any and all state,
     federal and local statutes, regulations and ordinances relating to the
     protection of human health or the environment, including without limitation
     the Comprehensive Environmental Response, Compensation, and Liability Act
     of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
     Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
     ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
     1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
     Section 6901, et seq., or other applicable state or federal laws, rules, or
     regulations adopted pursuant thereto.

     EVENT OF DEFAULT. The words "Event of Default" mean any of the events of
     default set forth in this Agreement in the default section of this
     Agreement.

     GRANTOR. The word "Grantor" means Pyramid Breweries Inc..

     GUARANTY. The word "Guaranty" means the guaranty from guarantor, endorser,
     surety, or accommodation party to Lender, including without limitation a
     guaranty of all or part of the Note.

     HAZARDOUS SUBSTANCES. The words "Hazardous Substances" mean materials that,
     because of their quantity, concentration or physical,

<PAGE>

                          COMMERCIAL SECURITY AGREEMENT
LOAN NO: 77-100239-01              (CONTINUED)                            PAGE 5

     agreements, guaranties, security agreements, mortgages, deeds of trust,
     security deeds, collateral mortgages, and all other instruments, agreements
     and documents, whether now or hereafter existing, executed in connection
     with the Indebtedness.

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 14, 2004.

GRANTOR:

PYRAMID BREWERIES INC.

By: /s/ JAMES K. HILGER
    ---------------------------------
    JAMES K. HILGER, CFO & SECRETARY
    OF PYRAMID BREWERIES INC.

                                (ILLEGIBLE DATA)

**   except in the ordinary course of its business, and where doing so would not
     cause a

<PAGE>

                                 PROMISSORY NOTE

<TABLE>
<CAPTION>
  PRINCIPAL      LOAN DATE    MATURITY       LOAN NO     CALL / COLL   ACCOUNT   OFFICER   INITIALS
-------------   ----------   ----------   ------------   -----------   -------   -------   --------
<S>             <C>          <C>          <C>            <C>           <C>       <C>       <C>
$2,000,000.00   05-14-2004   05-14-2006   77-100239-01                             MARK
</TABLE>

  References in the shaded area are for Lender's use only and do not limit the
         applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length limitations.

BORROWER: PYRAMID BREWERIES INC.        LENDER: FIRST MUTUAL BANK
          91 SOUTH ROYAL BROUGHAM WAY           BUSINESS BANKING
          SEATTLE, WA 98134                     400 - 108TH AVE NE
                                                PO BOX 1647
                                                BELLEVUE, WA 98009
                                                (425) 453-5301

<TABLE>
<S>                               <C>                    <C>
PRINCIPAL AMOUNT: $2,000,000.00   INITIAL RATE: 4.250%   DATE OF NOTE: May 14, 2004
</TABLE>

PROMISE TO PAY. Pyramid Breweries Inc. ("Borrower") promises to pay to First
Mutual Bank ("Lender"}, or order, in lawful money of the United States of
America, the principal amount of Two Million & 00/100 Dollars ($2,000,000.00) or
so much as may be outstanding, together with interest on the unpaid outstanding
principal balance of each advance. Interest shall be calculated from the date of
each advance until repayment of each advance.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on May 14, 2006. In addition, Borrower will pay
regular monthly payments of all accrued unpaid interest due as of each payment
date, beginning July 1, 2004, with all subsequent interest payments to be due on
the same day of each month after that. Unless otherwise agreed or required by
applicable law, payments will be applied first to any accrued unpaid interest;
then to principal; and then to any late charges. The annual interest rate for
this Note is computed on a 365/360 basis; that is, by applying the ratio of the
annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the prime rate as
published in "The Wall Street Journal" (the "Index"). The Index is not
necessarily the lowest rate charged by Lender on its loans. If the Index becomes
unavailable during the term or this loan, Lender may designate a substitute
index after notice to Borrower. Lender will tell Borrower the current Index rate
upon Borrower's request. The interest rate change will not occur more often than
each day following a change in the prime rate as published in The Wall Street
Journal. Borrower understands that Lender may make loans based on other rates as
well. The Index currently is 4.000% per annum. The interest rate to be applied
to the unpaid principal balance of this Note will be at a rate of 0.250
percentage points over the Index, resulting in an initial rate of 4.250% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.

PREPAYMENT. 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. Except for the foregoing, 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 of accrued unpaid interest.
Rather, early payments will reduce the principal balance due. Borrower agrees
not to send Lender payments marked "paid in full", "without recourse", or
similar language. If Borrower sends such a payment, Lender may accept it without
losing any of Lender's rights under this Note, and Borrower will remain
obligated to pay any further amount owed to Lender. All written communications
concerning disputed amounts, including any check or other payment instrument
that indicates that the payment constitutes "payment in full" of the amount owed
or that is tendered with other conditions or limitations or as full satisfaction
of a disputed amount must be mailed or delivered to: First Mutual Bank, P.O. Box
1647, 400 108th Ave NE Bellevue, WA 98009.

LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $25.00, whichever is greater.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, Lender, at its option, may, if permitted under applicable law,
increase the variable interest rate on this Note to 18.000% per annum. The
interest rate will not exceed the maximum rate permitted by applicable law.

DEFAULT. Each of the following shall constitute an event of default ("Event of
Default") under this Note:

     PAYMENT DEFAULT. Borrower fails to make any payment when due under this
     Note.

     OTHER DEFAULTS. Borrower fails to comply with or to perform any other term,
     obligation, covenant or condition contained in this Note or in any or the
     related documents or to comply with or to perform any term, obligation,
     covenant or condition contained in any other agreement between Lender and
     Borrower.

     DEFAULT IN FAVOR OF THIRD PARTIES. Borrower or any Grantor defaults under
     any loan, extension of credit, security agreement, purchase or sales
     agreement, or any other agreement, in favor of any other creditor or person
     that may materially affect any of Borrower's property or Borrower's ability
     to repay this Note or perform Borrower's obligations under this Note or any
     of the related documents.

     FALSE STATEMENTS. Any warranty, representation or statement made or
     furnished to Lender by Borrower or on Borrower's behalf under this Note or
     the related documents is false or misleading in any material respect,
     either now or at the time made or furnished or becomes false or misleading
     at any time thereafter.

     INSOLVENCY. The dissolution or termination of Borrower's existence as a
     going business, the insolvency of Borrower, the appointment of a receiver
     for any part of Borrower's property, any assignment for the benefit of
     creditors, any type of creditor workout, or the commencement of any
     proceeding under any bankruptcy or insolvency laws by or against Borrower.

     CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
     forfeiture proceedings, whether by judicial proceeding, self-help,
     repossession or any other method, by any creditor of Borrower or by any
     governmental agency against any collateral securing the loan. This includes
     a garnishment of any of Borrower's accounts, including deposit accounts,
     with Lender. However, this Event of Default shall not apply if there is a
     good faith dispute by Borrower as to the validity or reasonableness of the
     claim which is the basis of the creditor or forfeiture proceeding and if
     Borrower gives Lender written notice of the creditor or forfeiture
     proceeding and deposits with Lender monies or a surety bond for the
     creditor or forfeiture proceeding, in an amount determined by Lender, in
     its sole discretion, as being an adequate reserve or bond for the dispute.

     EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
     to any guarantor, endorser, surety, or accommodation party of any of the
     indebtedness or any guarantor, endorser, surety, or accommodation party
     dies or becomes incompetent, or revokes or disputes the validity of, or
     liability under, any guaranty of the indebtedness evidenced by this Note.
     In the event of a death, Lender, at its option, may, but shall not be
     required to, permit the guarantor's estate to assume unconditionally the
     obligations arising under the guaranty in a manner satisfactory to Lender,
     and, in doing so, cure any Event of Default.

     ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
     condition, or Lender believes the prospect of payment or performance of
     this Note is impaired.

     CURE PROVISIONS. 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 twenty-four (24) months, it may
     be cured if Borrower, after receiving written notice from Lender demanding
     cure of such default: (1) cures the default within fifteen (15) days; or
     (2) if the cure requires more than fifteen (15) 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, and then
Borrower will pay that amount.

ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect
this Note if Borrower does not pay. Borrower will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees, expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), and appeals. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law.

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other.

GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of

<PAGE>

                                 PROMISSORY NOTE
LOAN NO: 77-100239-01              (CONTINUED)                            PAGE 2

Washington. This Note has been accepted by Lender in the State of Washington.

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of King County, State of Washington.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $22.00 If Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.

RIGHT OF SETOFF. To the extent permitted by applicable law. Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts, and, at Lender's option, to
administratively freeze all such accounts to allow Lender to protect Lender's
charge and setoff rights provided in this paragraph.

COLLATERAL. Borrower acknowledges this Note is secured by the following
collateral described in the security instrument listed herein: inventory,
chattel paper, accounts, equipment and general intangibles described in a
Commercial Security Agreement dated May 14, 2004.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or as
provided in this paragraph. Lender may, but need not. require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following person currently is authorized to request
advances and authorize payments under the line of credit until Lender receives
from Borrower, at Lender's address shown above, written notice of revocation of
his or her authority: James K. Hilger. Borrower agrees to be liable for all sums
either: (A) advanced in accordance with the instructions of an authorized person
or (B) credited to any of Borrower's accounts with Lender. The unpaid principal
balance owing on this Note at any time may be evidenced by endorsements on this
Note or by Lender's internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note if: (A) Borrower
or any guarantor is in default under the terms of this Note or any agreement
that Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (B) Borrower or any guarantor ceases
doing business or is insolvent; (C) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; or (D) Borrower has applied funds provided pursuant
to this Note for purposes other than those authorized by Lender.

PENALTY FOR NOT REPORTING FINANCIAL INFORMATION TIMELY. If the Financial
Information which is described in more detail in the Business Loan Agreement or
Commercial Guaranty is not received within ninety (90) days of the due date, the
Lender reserves the right to increase the current Note rate by one-half percent
(0.50%) per annum, until the required Financial Information is received.

ANNUAL LINE OF CREDIT CLEANUP. Borrower agrees to pay line of credit to $0.00
for 30 consecutive days at least once per loan year. (12-month period commencing
on the date of this Note).

AUTOMATIC PAYMENT REQUIREMENT. Borrower agrees to make the monthly loan payments
under the terms of the Promissory Note from a First Mutual Bank deposit account
as long as there is an outstanding balance owed under the terms of the
Promissory Note or in the event the Promissory Note evidences a line of credit.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and
upon Borrower's heirs, personal representatives, successors and assigns, and
shall inure to the benefit of Lender and its successors and assigns.

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
presentment, demand for payment, 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. The obligations
under this Note are joint and several.

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.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:

PYRAMID BREWERIES INC.

By: /s/ JAMES K. HILGER
    ---------------------------------
    JAMES K. HILGER, CFO & SECRETARY
    OF PYRAMID BREWERIES INC.

                                (ILLEGIBLE DATA)

<PAGE>

                      BUSINESS LOAN AGREEMENT (ASSET BASED)

<TABLE>
<CAPTION>
  PRINCIPAL      LOAN DATE    MATURITY       LOAN NO     CALL / COLL   ACCOUNT   OFFICER   INITIALS
-------------   ----------   ----------   ------------   -----------   -------   -------   --------
<S>             <C>          <C>          <C>            <C>           <C>       <C>       <C>
$2,000,000.00   05-14-2004   05-14-2006   77-100239-01                             MARK
</TABLE>

    References in the shaded area are for Lender's use only and do not limit
       the applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length limitations.

BORROWER: PYRAMID BREWERIES INC.        LENDER: FIRST MUTUAL BANK
          91 SOUTH ROYAL BROUGHAM WAY           BUSINESS BANKING
          SEATTLE, WA 98134                     400 - 108TH AVE NE
                                                PO BOX 1647
                                                BELIEVUE, WA 98009
                                                (425) 453-5301

THIS BUSINESS LOAN AGREEMENT (ASSET BASED) dated May 14, 2004, is made and
executed between Pyramid Breweries Inc. ("Borrower") and First Mutual Bank
("Lender") on the following terms and conditions. Borrower has received prior
commercial loans from Lender or has applied to Lender for a commercial loan or
loans or other financial accommodations, including those which may be described
on any exhibit or schedule attached to this Agreement ("Loan"). Borrower
understands and agrees that: (A) In granting, renewing, or extending any Loan,
Lender is relying upon Borrower's representations, warranties, and agreements as
set forth in this Agreement; (B) the granting, renewing, or extending of any
Loan by Lender at all times shall be subject to Lender's sole judgment and
discretion; and (C) all such Loans shall be and remain subject to the terms and
conditions of this Agreement.

TERM. This Agreement shall be effective as of May 14, 2004, and shall continue
in full force and effect until such time as all of Borrower's Loans in favor of
Lender have been paid in full, including principal, interest, costs, expenses,
attorneys' fees, and other fees and charges, or until such time as the parties
may agree in writing to terminate this Agreement.

ADVANCE AUTHORITY. The following person currently is authorized to request
advances and authorize payments under the line of credit until Lender receives
from Borrower, at Lender's address shown above, written notice of revocation of
his or her authority: JAMES K. HILGER.

LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows:

     CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
     Advance to or for the account of Borrower under this Agreement is subject
     to the following conditions precedent, with all documents, instruments,
     opinions, reports, and other items required under this Agreement to be in
     form and substance satisfactory to Lender:

          (1) Lender shall have received evidence that this Agreement and all
          Related Documents have been duly authorized, executed, and delivered
          by Borrower to Lender.

          (2) Lender shall have received such opinions of counsel, supplemental
          opinions, and documents as Lender may request.

          (3) The security interests in the Collateral shall have been duly
          authorized, created, and perfected with first lien priority and shall
          be in full force and effect.

          (4) All guaranties required by Lender for the credit facility(ies)
          shall have been executed by each Guarantor, delivered to Lender, and
          be in full force and effect.

          (5) Prior to the initial Advance, Lender, at its option and for its
          sole benefit, shall have conducted an audit of Borrower's Accounts,
          books, records, and operations, and Lender shall be satisfied as to
          their condition.

          (6) Borrower shall have paid to Lender all fees, costs, and expenses
          specified in this Agreement and the Related Documents as are then due
          and payable.

     MAKING LOAN ADVANCES. Advances under this credit facility, as well as
     directions for payment from Borrower's accounts, may be requested orally or
     in writing by authorized persons. Lender may, but need not, require that
     all oral requests be confirmed in writing. Each Advance shall be
     conclusively deemed to have been made at the request of and for the benefit
     of Borrower (1) when credited to any deposit account of Borrower maintained
     with Lender or (2) when advanced in accordance with the instructions of an
     authorized person. Lender, at its option, may set a cutoff time, after
     which all requests for Advances will be treated as having been requested on
     the next succeeding Business Day.

     MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount of
     the outstanding Advances shall exceed the applicable Borrowing Base,
     Borrower, immediately upon written or oral notice from Lender, shall pay to
     Lender an amount equal to the difference between the outstanding principal
     balance of the Advances and the Borrowing Base. On the Expiration Date,
     Borrower shall pay to Lender in full the aggregate unpaid principal amount
     of all Advances then outstanding and all accrued unpaid interest, together
     with all other applicable fees, costs and charges, if any, not yet paid.

     LOAN ACCOUNT. Lender shall maintain on its books a record of account in
     which Lender shall make entries for each Advance and such other debits and
     credits as shall be appropriate in connection with the credit facility.
     Lender shall provide Borrower with periodic statements of Borrower's
     account, which statements shall be considered to be correct and
     conclusively binding on Borrower unless Borrower notifies Lender to the
     contrary within thirty (30) days after Borrower's receipt of any such
     statement which Borrower deems to be incorrect.

COLLATERAL. To secure payment of the Primary Credit Facility and performance of
all other Loan, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such property
and assets as Lender may require. Lender's Security Interests in the Collateral
shall be continuing liens and shall include the proceeds and products of the
Collateral, including without limitation the proceeds of any insurance. With
respect to the Collateral, Borrower agrees and represents and warrants to
Lender:

     PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute all documents
     perfecting Lender's Security Interest and to take whatever actions are
     requested by Lender to perfect and continue Lender's Security Interests in
     the Collateral. Upon request of Lender, Borrower will deliver to Lender any
     and all of the documents evidencing or constituting the Collateral, and
     Borrower will note Lender's interest upon any and all chattel paper and
     instruments if not delivered to Lender for possession by Lender.
     Contemporaneous with the execution of this Agreement, Borrower will execute
     one or more UCC financing statements and any similar statements as may be
     required by applicable law, and Lender will file such financing statements
     and all such similar statements in the appropriate location or locations.
     Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the
     purpose of executing any documents necessary to perfect or to continue any
     Security Interest. Lender may at any time, and without further
     authorization from Borrower, file a carbon, photograph, facsimile, or other
     reproduction of any financing statement for use as a financing statement.
     Borrower will reimburse Lender for all expenses for the perfection,
     termination, and the continuation of the perfection of Lender's security
     interest in the Collateral. Borrower promptly will notify Lender before any
     change in Borrower's name including any change to the assumed business
     names of Borrower. Borrower also promptly will notify Lender before any
     change in Borrower's Social Security Number or Employer Identification
     Number. Borrower further agrees to notify Lender in writing prior to any
     change in address or location of Borrower's principal governance office or
     should Borrower merge or consolidate with any other entity.

     COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
     keep correct and accurate records of the Collateral, all of which records
     shall be available to Lender or Lender's representative upon demand for
     inspection and copying at any reasonable time. With respect to the
     Accounts, Borrower agrees to keep and maintain such records as Lender may
     require, including without limitation information concerning Eligible
     Accounts and Account balances and agings. Records related to Accounts
     (Receivables) are or will be located at 91 South Royal Brougham Way,
     Seattle, WA 98134. The above is an accurate and complete list of all
     locations at which Borrower keeps or maintains business records concerning
     Borrower's collateral.

     COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this
     Agreement, Borrower shall execute and deliver to Lender schedules of
     Accounts and schedules of Eligible Accounts in form and substance
     satisfactory to the Lender. Thereafter supplemental schedules shall be
     delivered according to the following schedule: With respect to Eligible
     Accounts, schedules shall be delivered 30 days after month end.

     REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
     Accounts, Borrower represents and warrants to Lender: (1) Each Account
     represented by Borrower to be an Eligible Account for purposes of this
     Agreement conforms to the requirements of the definition of an Eligible
     Account: (2) All Account information listed on schedules delivered to
     Lender will be true and correct, subject to immaterial variance; and (3)
     Lender, its assigns, or agents shall have the right at any time and at
     Borrower's expense to inspect, examine, and audit Borrower's records and to
     confirm with Account Debtors the accuracy of such Accounts.

<PAGE>

                      BUSINESS LOAN AGREEMENT (ASSET BASED)
LOAN NO: 77-100239-01                   (CONTINUED)                       PAGE 2

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender's satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.

     LOAN DOCUMENTS. Borrower shall provide to Lender the following documents
     for the Loan: (1) the Note; (2) Security Agreements granting to Lender
     security interests in the Collateral; (3) financing statements and all
     other documents perfecting Lender's Security Interests; (4) evidence of
     insurance as required below; (5) together with all such Related Documents
     as Lender may require for the Loan: all in form and substance satisfactory
     to Lender and Lender's counsel.

     BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
     substance satisfactory to Lender properly certified resolutions, duly
     authorizing the execution and delivery of this Agreement, the Note and the
     Related Documents. In addition, Borrower shall have provided such other
     resolutions, authorizations, documents and instruments as Lender or its
     counsel, may require.

     FEES AND EXPENSES UNDER THIS AGREEMENT. Borrower shall have paid to Lender
     all fees, costs, and expenses specified in this Agreement and the Related
     Documents as are then due and payable.

     REPRESENTATIONS AND WARRANTIES. The representations and warranties set
     forth in this Agreement, in the Related Documents, and in any document or
     certificate delivered to Lender under this Agreement are true and correct.

     NO EVENT OF DEFAULT. There shall not exist at the time of any Advance a
     condition which would constitute an Event of Default under this Agreement
     or under any Related Document.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:

     ORGANIZATION. Borrower is a corporation for profit which is, and at all
     times shall be, duly organized, validly existing, and in good standing
     under and by virtue of the laws of the State of Washington Borrower has the
     full power and authority to own its properties and to transact the business
     in which it is presently engaged or presently proposes to engage. Borrower
     maintains an office at 91 South Royal Brougham Way, Seattle, WA 98134.
     Unless Borrower has designated otherwise in writing, the principal office
     is the office at which Borrower keeps its books and records including its
     records concerning the Collateral. Borrower will notify Lender prior to any
     change in the location of Borrower's state of organization or any change in
     Borrower's name. Borrower shall do all things necessary to preserve and to
     keep in full force and effect its existence, rights and privileges, and
     shall comply with all regulations, rules, ordinances, statutes, orders and
     decrees of any governmental or quasi-governmental authority or court
     applicable to Borrower and Borrower's business activities.

     ASSUMED BUSINESS NAMES. Borrower has filed or recorded all documents or
     filings required by law relating to all assumed business names used by
     Borrower. Excluding the name of Borrower, the following is a complete list
     of all assumed business names under which Borrower does business:

     AUTHORIZATION. Borrower's execution, delivery, and performance of this
     Agreement and all the Related Documents have been duly authorized by all
     necessary action by Borrower and do not conflict with, result in a
     violation of, or constitute a default under (1) any provision of (a)
     Borrower's articles of incorporation or organization, or bylaws, or (b) any
     agreement or other instrument binding upon Borrower or (2) any law,
     governmental regulation, court decree, or order applicable to Borrower or
     to Borrower's properties.

     FINANCIAL INFORMATION. Each of Borrower's financial statements supplied to
     Lender truly and completely disclosed Borrower's financial condition as of
     the date of the statement, and there has been no material adverse change in
     Borrower's financial condition subsequent to the date of the most recent
     financial statement supplied to Lender. Borrower has no material contingent
     obligations except as disclosed in such financial statements.

     LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
     Borrower is required to give under this Agreement when delivered will
     constitute legal, valid, and binding obligations of Borrower enforceable
     against Borrower in accordance with their respective terms.

     PROPERTIES. Except as contemplated by this Agreement or as previously
     disclosed in Borrower's financial statements or in writing to Lender and as
     accepted by Lender, and except for property tax liens for taxes not
     presently due and payable, Borrower owns and has good title to all of
     Borrower's properties free and clear of all Security Interests, and has not
     executed any security documents or financing statements relating to such
     properties. All of Borrower's properties are titled in Borrower's legal
     name, and Borrower has not used or filed a financing statement under any
     other name for at least the last five (5) years.

     HAZARDOUS SUBSTANCES. Except as disclosed to and acknowledged by Lender in
     writing. Borrower represents and warrants that: (1) During the period of
     Borrower's ownership of Borrower's Collateral, there has been no use,
     generation, manufacture, storage, treatment, disposal, release or
     threatened release of any Hazardous Substance by any person on, under,
     about or from any of the Collateral. (2) Borrower has no knowledge of, or
     reason to believe that there has been (a) any breach or violation of any
     Environmental Laws; (b) any use, generation, manufacture, storage,
     treatment, disposal, release or threatened release of any Hazardous
     Substance on, under, about or from the Collateral by any prior owners or
     occupants of any of the Collateral; or (c) any actual or threatened
     litigation or claims of any kind by any person relating to such matters.
     (3) Neither Borrower nor any tenant, contractor, agent or other authorized
     user of any of the Collateral shall use, generate, manufacture, store,
     treat, dispose of or release any Hazardous Substance on, under, about or
     from any of the Collateral; and any such activity shall be conducted in
     compliance with all applicable federal, state, and local laws, regulations,
     and ordinances, including without limitation all Environmental Laws.
     Borrower authorizes Lender and its agents to enter upon the Collateral to
     make such inspections and tests as Lender may deem appropriate to determine
     compliance of the Collateral with this section of the Agreement. Any
     inspections or tests made by Lender shall be at Borrower's expense and for
     Lender's purposes only and shall not be construed to create any
     responsibility or liability on the part of Lender to Borrower or to any
     other person. The representations and warranties contained herein are based
     on Borrower's due diligence in investigating the Collateral for hazardous
     waste and Hazardous Substances. Borrower hereby (1) releases and waives any
     future claims against Lender for indemnity or contribution in the event
     Borrower becomes liable for cleanup or other costs under any such laws, and
     (2) agrees to indemnify and hold harmless Lender against any and all
     claims, losses, liabilities, damages, penalties, and expenses which Lender
     may directly or indirectly sustain or suffer resulting from a breach of
     this section of the Agreement or as a consequence of any use, generation,
     manufacture, storage, disposal, release or threatened release of a
     hazardous waste or substance on the Collateral. The provisions of this
     section of the Agreement, including the obligation to indemnify, shall
     survive the payment of the Indebtedness and the termination, expiration or
     satisfaction of this Agreement and shall not be affected by Lender's
     acquisition of any interest in any of the Collateral, whether by
     foreclosure or otherwise.

     LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
     proceeding or similar action (including those for unpaid taxes) against
     Borrower is pending or threatened, and no other event has occurred which
     may materially adversely affect Borrower's financial condition or
     properties, other than litigation, claims, or other events, if any, that
     have been disclosed to and acknowledged by Lender in writing.

     TAXES. To the best of Borrower's knowledge, all of Borrower's tax returns
     and reports that are or were required to be filed, have been filed, and all
     taxes, assessments and other governmental charges have been paid in full,
     except those presently being or to be contested by Borrower in good faith
     in the ordinary course of business and for which adequate reserves have
     been provided.

     LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing.
     Borrower has not entered into or granted any Security Agreements, or
     permitted the filing or attachment of any Security interests on or
     affecting any of the Collateral directly or indirectly securing repayment
     of Borrower's Loan and Note, that would be prior or that may in any way be
     superior to Lender's Security Interests and rights in and to such
     Collateral.

     BINDING EFFECT. This Agreement, the Note, all Security Agreements (if any),
     and all Related Documents are binding upon the signers thereof, as well as
     upon their successors, representatives and assigns, and are legally
     enforceable in accordance with their respective terms.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect. Borrower will:

     NOTICES OF CLAIMS AND LITIGATION. Promptly inform Lender in writing of (1)
     all material adverse changes in Borrower's financial condition, and (2) all
     existing and all threatened litigation, claims, investigations,
     administrative proceedings or similar actions affecting Borrower or any
     Guarantor which could materially affect the financial condition of Borrower
     or the financial condition of any Guarantor.

     FINANCIAL RECORDS. Maintain its books and records in accordance with GAAP,
     applied on a consistent basis, and permit Lender to examine and audit
     Borrower's books and records at all reasonable times.

     FINANCIAL STATEMENTS. Furnish Lender with the following:

          ANNUAL STATEMENTS. As soon as available, but in no event later than
          one-hundred-twenty (120) days after the end of each fiscal year,
          Borrower's balance sheet and income statement for the year ended,
          audited by a certified public accountant satisfactory to Lender.

          INTERIM STATEMENTS. As soon as available, but in no event later than
          thirty (30) days after the end of each fiscal quarter, Borrower's
          balance sheet and profit and loss statement for the period ended,
          prepared by Borrower.

<PAGE>

                      BUSINESS LOAN AGREEMENT (ASSET BASED)
LOAN NO: 77-100239-01                   (CONTINUED)                       PAGE 3

          ADDITIONAL REQUIREMENTS.

          ACCOUNTS RECEIVABLE AGING REPORT. As soon as available, but in no
          event later than thirty (30) days after the end of each month,
          Borrower's Accounts Receivable Aging Report, aged by invoice date,
          prepared by Borrower.

          BORROWING CERTIFICATE. As soon as available, but in no event later
          than thirty (30) days after the end of each month. Borrowing
          Certificate for the period ended, prepared by Borrower.

          CUSTOMER LISTING. Borrower to provide annual detailed customer
          listing.

     All financial reports required to be provided under this Agreement shall be
     prepared in accordance with GAAP, applied on a consistent basis, and
     certified by Borrower as being true and correct.

     ADDITIONAL INFORMATION. Furnish such additional information and statements,
     as Lender may request from time to time.

     INSURANCE. Maintain fire and other risk insurance, public liability
     insurance, and such other insurance as Lender may require with respect to
     Borrower's properties and operations, in form, amounts, coverages and with
     insurance companies acceptable to Lender. Borrower, upon request of Lender,
     will deliver to Lender from time to time the policies or certificates of
     insurance in form satisfactory to Lender, including stipulations that
     coverages will not be cancelled or diminished without at least thirty (30)
     days prior written notice to Lender. Each insurance policy also shall
     include an endorsement providing that coverage in favor of Lender will not
     be impaired in any way by any act, omission or default of Borrower or any
     other person. In connection with all policies covering assets in which
     Lender holds or is offered a security interest for the Loans, Borrower will
     provide Lender with such lender's loss payable or other endorsements as
     Lender may require.

     INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
     each existing insurance policy showing such information as Lender may
     reasonably request, including without limitation the following: (1) the
     name of the insurer; (2) the risks insured; (3) the amount of the policy;
     (4) the properties insured; (5) the then current property values on the
     basis of which insurance has been obtained, and the manner of determining
     those values; and (6) the expiration date of the policy. In addition, upon
     request of Lender (however not more often than annually), Borrower will
     have an independent appraiser satisfactory to Lender determine, as
     applicable, the actual cash value or replacement cost of any Collateral.
     The cost of such appraisal shall be paid by Borrower.

     OTHER AGREEMENTS. Comply with all terms and conditions of all other
     agreements, whether now or hereafter existing, between Borrower and any
     other party and notify Lender immediately in writing of any default in
     connection with any other such agreements.

     LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
     operations, unless specifically consented to the contrary by Lender in
     writing.

     TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
     indebtedness and obligations, including without limitation all assessments,
     taxes, governmental charges, levies and liens, of every kind and nature,
     imposed upon Borrower or its properties, income, or profits, prior to the
     date on which penalties would attach, and all lawful claims that, if
     unpaid, might become a lien or charge upon any of Borrower's properties,
     income, or profits.

     PERFORMANCE. Perform and comply, in a timely manner, with all terms,
     conditions, and provisions set forth in this Agreement, in the Related
     Documents, and in all other instruments and agreements between Borrower and
     Lender. Borrower shall notify Lender immediately in writing of any default
     in connection with any agreement.

     OPERATIONS. Maintain executive and management personnel with substantially
     the same qualifications and experience as the present executive and
     management personnel; provide written notice to Lender of any change in
     executive and management personnel; conduct its business affairs in a
     reasonable and prudent manner.

     ENVIRONMENTAL STUDIES. Promptly conduct and complete, at Borrower's
     expense, all such investigations, studies, samplings and testings as may be
     requested by Lender or any governmental authority relative to any
     substance, or any waste or by-product of any substance defined as toxic or
     a hazardous substance under applicable federal, state, or local law, rule,
     regulation, order or directive, at or affecting any property or any
     facility owned, leased or used by Borrower.

     COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Comply with all laws,
     ordinances, and regulations, now or hereafter in effect, of all
     governmental authorities applicable to the conduct of Borrower's
     properties, businesses and operations, and to the use or occupancy of the
     Collateral, including without limitation, the Americans With Disabilities
     Act. Borrower may contest in good faith any such law, ordinance, or
     regulation and withhold compliance during any proceeding, including
     appropriate appeals, so long as Borrower has notified Lender in writing
     prior to doing so and so long as, in Lender's sole opinion, Lender's
     interests in the Collateral are not jeopardized. Lender may require
     Borrower to post adequate security or a surety bond, reasonably
     satisfactory to Lender, to protect Lender's interest.

     INSPECTION. Permit employees or agents of Lender at any reasonable time to
     inspect any and all Collateral for the Loan or Loans and Borrower's other
     properties and to examine or audit Borrower's books, accounts, and records
     and to make copies and memoranda of Borrower's books, accounts, and
     records. If Borrower now or at any time hereafter maintains any records
     (including without limitation computer generated records and computer
     software programs for the generation of such records) in the possession of
     a third party, Borrower, upon request of Lender, shall notify such party to
     permit Lender free access to such records at all reasonable times and to
     provide Lender with copies of any records it may request, all at Borrower's
     expense.

     ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
     with any and all Environmental Laws; not cause or permit to exist, as a
     result of an intentional or unintentional action or omission on Borrower's
     part or on the part of any third party, on property owned and/or occupied
     by Borrower, any environmental activity where damage may result to the
     environment, unless such environmental activity is pursuant to and in
     compliance with the conditions of a permit issued by the appropriate
     federal, state or local governmental authorities; shall furnish to Lender
     promptly and in any event within thirty (30) days after receipt thereof a
     copy of any notice, summons, lien, citation, directive, letter or other
     communication from any governmental agency or instrumentality concerning
     any intentional or unintentional action or omission on Borrower's part in
     connection with any environmental activity whether or not there is damage
     to the environment and/or other natural resources.

     ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
     notes, mortgages, deeds of trust, security agreements, assignments,
     financing statements, instruments, documents and other agreements as Lender
     or its attorneys may reasonably request to evidence and secure the Loans
     and to perfect all Security Interests.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Borrower's failure to discharge or pay when due any amounts
Borrower is required to discharge or pay under this Agreement or any Related
Documents, Lender on Borrower's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on any Collateral and paying all
costs for insuring, maintaining and preserving any Collateral. All such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Borrower. All such expenses will become a
part of the Indebtedness and, at Lender's option, will (A) be payable on demand;
(B) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note's
maturity.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

     CONTINUITY OF OPERATIONS. (1) Engage in any business activities
     substantially different than those in which Borrower is presently engaged,
     (2) cease operations, liquidate, merge, transfer, acquire or consolidate
     with any other entity, change its name, dissolve or transfer or sell
     Collateral out of the ordinary course of business, or

     AGREEMENTS. Borrower will not enter into any agreement containing any
     provisions which would be violated or breached by the performance of
     Borrower's obligations under this Agreement or in connection herewith.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(A) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes
incompetent or becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse
change in Borrower's financial condition, in the financial condition of any

<PAGE>

                      BUSINESS LOAN AGREEMENT (ASSET BASED)
LOAN NO: 77-100239-01              (CONTINUED)                            PAGE 4

Guarantor, or in the value of any Collateral securing any Loan; or (D) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender.

RIGHT OF SETOFF. To the extent permitted by applicable law. Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts, and, at Lender's option, to
administratively freeze all such accounts to allow Lender to protect Lender's
charge and setoff rights provided in this paragraph.

DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:

     PAYMENT DEFAULT. Borrower fails to make any payment when due under the
     Loan.

     OTHER DEFAULTS. Borrower fails to comply with or to perform any other term,
     obligation, covenant or condition contained in this Agreement or in any of
     the Related Documents or to comply with or to perform any term, obligation,
     covenant or condition contained in any other agreement between Lender and
     Borrower.

     DEFAULT IN FAVOR OF THIRD PARTIES. Borrower or any Grantor defaults under
     any loan, extension of credit, security agreement, purchase or sales
     agreement, or any other agreement, in favor of any other creditor or person
     that may materially affect any of Borrower's or any Grantor's property or
     Borrower's or any Grantor's ability to repay the Loans or perform their
     respective obligations under this Agreement or any of the Related
     Documents.

     FALSE STATEMENTS. Any warranty, representation or statement made or
     furnished to Lender by Borrower or on Borrower's behalf under this
     Agreement or the Related Documents is false or misleading in any material
     respect, either now or at the time made or furnished or becomes false or
     misleading at any time thereafter.

     INSOLVENCY. The dissolution or termination of Borrower's existence as a
     going business, the insolvency of Borrower, the appointment of a receiver
     for any part of Borrower's property, any assignment for the benefit of
     creditors, any type of creditor workout, or the commencement of any
     proceeding under any bankruptcy or insolvency laws by or against Borrower.

     DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
     ceases to be in full force and effect (including failure of any collateral
     document to create a valid and perfected security interest or lien) at any
     time and for any reason.

     CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
     forfeiture proceedings, whether by judicial proceeding, self-help,
     repossession or any other method, by any creditor of Borrower or by any
     governmental agency against any collateral securing the Loan. This includes
     a garnishment of any of Borrower's accounts, including deposit accounts,
     with Lender. However, this Event of Default shall not apply if there is a
     good faith dispute by Borrower as to the validity or reasonableness of the
     claim which is the basis of the creditor or forfeiture proceeding and if
     Borrower gives Lender written notice of the creditor or forfeiture
     proceeding and deposits with Lender monies or a surety bond for the
     creditor or forfeiture proceeding, in an amount determined by Lender, in
     its sole discretion, as being an adequate reserve or bond for the dispute.

     EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
     to any Guarantor of any of the Indebtedness or any Guarantor dies or
     becomes incompetent, or revokes or disputes the validity of, or liability
     under, any Guaranty of the Indebtedness. In the event of a death, Lender,
     at its option, may, but shall not be required to, permit the Guarantor's
     estate to assume unconditionally the obligations arising under the guaranty
     in a manner satisfactory to Lender, and, in doing so, cure any Event of
     Default.

     ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
     condition, or Lender believes the prospect of payment or performance of the
     Loan is impaired.

     RIGHT TO CURE. If any default, other than a default on Indebtedness, is
     curable and if Borrower or Grantor, as the case may be, has not been given
     a notice of a similar default within the preceding twenty-four (24) months,
     it may be cured if Borrower or Grantor, as the case may be, after receiving
     written notice from Lender demanding cure of such default: (1) cure the
     default within fifteen (15) days; or (2) if the cure requires more than
     fifteen (15) days, immediately initiate steps which Lender deems in
     Lender's sole discretion to be sufficient to cure the default and
     thereafter continue and complete all reasonable and necessary steps
     sufficient to produce compliance as soon as reasonably practical.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
further Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.

ADDITIONAL REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that
Financial Statements as described herein also means any and all tax returns
provided to Lender by Borrower or Guarantor.

PENALTY FOR NOT REPORTING FINANCIAL INFORMATION TIMELY. If the Financial
Information which is described in more detail in the Business Loan Agreement or
Commercial Guaranty is not received within ninety (90) days of the due date, the
Lender reserves the right to increase the then current Note rate by one-half
percent (0.50%) per annum, until the required Financial Information is received.

ANNUAL LINE OF CREDIT CLEANUP. Borrower agrees to pay line of credit to $0.00
for 30 consecutive days at least once per loan year (12-month period commencing
on the date of this Note).

AUTOMATIC PAYMENT REQUIREMENT. Borrower agrees to make the monthly loan payments
under the terms of the Promissory Note from a First Mutual Bank deposit account
as long as there is an outstanding balance owed under the terms of the
Promissory Note or in the event the Promissory Note evidences a line of credit.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

     AMENDMENTS. This Agreement, together with any Related Documents,
     constitutes the entire understanding and agreement of the parties as to the
     matters set forth in this Agreement. No alteration of or amendment to this
     Agreement shall be effective unless given in writing and signed by the
     party or parties sought to be charged or bound by the alteration or
     amendment.

     ATTORNEYS' FEES; EXPENSES. Borrower agrees to pay upon demand all of
     Lender's costs and expenses, including Lender's attorneys' fees and
     Lender's legal expenses, incurred in connection with the enforcement of
     this Agreement. Lender may hire or pay someone else to help enforce this
     Agreement, and Borrower shall pay the costs and expenses of such
     enforcement. Costs and expenses include Lender's attorneys' fees and legal
     expenses whether or not there is a lawsuit, including attorneys' fees and
     legal expenses for bankruptcy proceedings (including efforts to modify or
     vacate any automatic stay or injunction), appeals, and any anticipated
     post-judgment collection services. Borrower also shall pay all court costs
     and such additional fees as may be directed by the court.

     CAPTION HEADINGS. Caption headings in this Agreement are for convenience
     purposes only and are not to be used to interpret or define the provisions
     of this Agreement.

     CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
     sale or transfer, whether now or later, of one or more participation
     interests in the Loan to one or more purchasers, whether related or
     unrelated to Lender. Lender may provide, without any limitation whatsoever,
     to any one or more purchasers, or potential purchasers, any information or
     knowledge Lender may have about Borrower or about any other matter relating
     to the Loan, and Borrower hereby waives any rights to privacy Borrower may
     have with respect to such matters. Borrower additionally waives any and all
     notices of sale of participation interests, as well as all notices of any
     repurchase of such participation interests. Borrower also agrees that the
     purchasers of any such participation interests will be considered as the
     absolute owners of such interests in the Loan and will have all the rights
     granted under the participation agreement or agreements governing the sale
     of such participation interests. Borrower further waives all rights of
     offset or counterclaim that it may have now or later against Lender or
     against any purchaser of such a participation interest and unconditionally
     agrees that either Lender or such purchaser may enforce Borrower's
     obligation under the Loan irrespective of the failure or insolvency of any
     holder of any interest in the Loan. Borrower further agrees that the
     purchaser of any such participation interests may enforce its interests
     irrespective of any personal claims or defenses that Borrower may have
     against Lender.

     GOVERNING LAW. This Agreement will be governed by, construed and enforced
     in accordance with federal law and the laws of the State of Washington.
     This Agreement has been accepted by Lender in the State of Washington.

<PAGE>

                      BUSINESS LOAN AGREEMENT (ASSET BASED)
LOAN NO: 77-100239-01              (CONTINUED)                            PAGE 5

     CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's
     request to submit to the jurisdiction of the courts of King County, State
     of Washington.

     NO WAIVER BY LENDER. Lender shall not be deemed to have waived any rights
     under this Agreement unless such waiver is given in writing and signed by
     Lender. No delay or omission on the part of Lender in exercising any right
     shall operate as a waiver of such right or any other right. A waiver by
     Lender of a provision of this Agreement shall not prejudice or constitute a
     waiver of Lender's right otherwise to demand strict compliance with that
     provision or any other provision of this Agreement. No prior waiver by
     Lender, nor any course of dealing between Lender and Borrower, or between
     Lender and any Grantor, shall constitute a waiver of any of Lender's rights
     or of any of Borrower's or any Grantor's obligations as to any future
     transactions. Whenever the consent of Lender is required under this
     Agreement, the granting of such consent by Lender in any instance shall not
     constitute continuing consent to subsequent instances where such consent is
     required and in all cases such consent may be granted or withheld in the
     sole discretion of Lender.

     NOTICES. Subject to applicable law, and except for notice required or
     allowed by law to be given in another manner, any notice required to be
     given under this Agreement shall be given in writing, and shall be
     effective when actually delivered, when actually received by telefacsimile
     (unless otherwise required by law), when deposited with a nationally
     recognized overnight courier, or, if mailed, when deposited in the United
     States mail, as first class, certified or registered mail postage prepaid,
     directed to the addresses shown near the beginning of this Agreement. Any
     party may change its address for notices under this Agreement by giving
     formal written notice to the other parties, specifying that the purpose of
     the notice is to change the party's address. For notice purposes, Borrower
     agrees to keep Lender informed at all times of Borrower's current address.
     Subject to applicable law, and except for notice required or allowed by law
     to be given in another manner, if there is more than one Borrower, any
     notice given by Lender to any Borrower is deemed to be notice given to all
     Borrowers.

     SEVERABILITY. If a court of competent jurisdiction finds any provision of
     this Agreement to be illegal, invalid, or unenforceable as to any
     circumstance, that finding shall not make the offending provision illegal,
     invalid, or unenforceable as to any other circumstance. If feasible, the
     offending provision shall be considered modified so that it becomes legal,
     valid and enforceable. If the offending provision cannot be so modified, it
     shall be considered deleted from this Agreement. Unless otherwise required
     by law, the illegality, invalidity, or unenforceability of any provision of
     this Agreement shall not affect the legality, validity or enforceability of
     any other provision of this Agreement.

     SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
     provisions of this Agreement makes it appropriate, including without
     limitation any representation, warranty or covenant, the word "Borrower" as
     used in this Agreement shall include all of Borrower's subsidiaries and
     affiliates. Notwithstanding the foregoing however, under no circumstances
     shall this Agreement be construed to require Lender to make any Loan or
     other financial accommodation to any of Borrower's subsidiaries or
     affiliates.

     SUCCESSORS AND ASSIGNS. All covenants and agreements by or on behalf of
     Borrower contained in this Agreement or any Related Documents shall bind
     Borrower's successors and assigns and shall inure to the benefit of Lender
     and its successors and assigns. Borrower shall not, however, have the right
     to assign Borrower's rights under this Agreement or any interest therein,
     without the prior written consent of Lender.

     SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
     that in extending Loan Advances, Lender is relying on all representations,
     warranties, and covenants made by Borrower in this Agreement or in any
     certificate or other instrument delivered by Borrower to Lender under this
     Agreement or the Related Documents. Borrower further agrees that regardless
     of any investigation made by Lender, all such representations, warranties
     and covenants will survive the extension of Loan Advances and delivery to
     Lender of the Related Documents, shall be continuing in nature, shall be
     deemed made and redated by Borrower at the time each Loan Advance is made,
     and shall remain in full force and effect until such time as Borrower's
     Indebtedness shall be paid in full, or until this Agreement shall be
     terminated in the manner provided above, whichever is the last to occur.

     TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
     Agreement.

     WAIVE JURY. All parties to this Agreement hereby waive the right to any
     jury trial in any action, proceeding, or counterclaim brought by any party
     against any other party.

DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. Accounting
words and terms not otherwise defined in this Agreement shall have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect on the date of this Agreement:

     ACCOUNT. The word "Account" means a trade account, account receivable,
     other receivable, or other right to payment for goods sold or services
     rendered owing to Borrower (or to a third party grantor acceptable to
     Lender).

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

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

     BORROWER. The word "Borrower" means Pyramid Breweries Inc. and includes all
     co-signers and co-makers signing the Note.

     BORROWING BASE. The words "Borrowing Base" mean, as determined by Lender
     from time to time, the lesser of (1) $2,000,000.00 or (2) 75.000% of the
     aggregate amount of Eligible Accounts (not to exceed in corresponding Loan
     amount based on Eligible Accounts $2,000,000.00).

     BUSINESS DAY. The words "Business Day" mean a day on which commercial banks
     are open in the State of Washington.

     COLLATERAL. The word "Collateral" means all property and assets granted as
     collateral security for a Loan, whether real or personal property, whether
     granted directly or indirectly, whether granted now or in the future, and
     whether granted in the form of a security interest, mortgage, collateral
     mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage,
     collateral chattel mortgage, chattel trust, factor's lien, equipment trust,
     conditional sale, trust receipt, lien, charge, lien or title retention
     contract, lease or consignment intended as a security device, or any other
     security or lien interest whatsoever, whether created by law, contract, or
     otherwise. The word Collateral also includes without limitation all
     collateral described in the Collateral section of this Agreement.

     ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean at any time, all of
     Borrower's Accounts which contain selling terms and conditions acceptable
     to Lender. The net amount of any Eligible Account against which Borrower
     may borrow shall exclude all returns, discounts, credits, and offsets of
     any nature. Unless otherwise agreed to by Lender in writing, Eligible
     Accounts do not include:

          (1) Accounts with respect to which the Account Debtor is employee or
          agent of Borrower.

          (2) Accounts with respect to which the Account Debtor is a subsidiary
          of, or affiliated with Borrower or its shareholders, officers, or
          directors.

          (3) Accounts with respect to which goods are placed on consignment,
          guaranteed sale, or other terms by reason of which the payment by the
          Account Debtor may be conditional.

          (4) Accounts with respect to which the Account Debtor is not a
          resident of the United States, except to the extent such Accounts are
          supported by insurance, bonds or other assurances satisfactory to
          Lender.

          (5) Accounts with respect to which Borrower is or may become liable to
          the Account Debtor for goods sold or services rendered by the Account
          Debtor to Borrower.

          (6) Accounts which are subject to dispute, counterclaim, or setoff.

          (7) Accounts with respect to which the goods have not been shipped or
          delivered, or the services have not been rendered, to the Account
          Debtor.

          (8) Accounts with respect to which Lender, in its sole discretion,
          deems the creditworthiness or financial condition of the Account
          Debtor to be unsatisfactory.

          (9) Accounts of any Account Debtor who has filed or has had filed
          against it a petition in bankruptcy or an application for relief under
          any provision of any state or federal bankruptcy, insolvency, or
          debtor-in-relief acts; or who has had appointed a trustee, custodian,
          or receiver for the assets of such Account Debtor; or who has made an
          assignment for the benefit of creditors or has become insolvent or
          fails generally to pay its debts (including its payrolls) as such
          debts become due.

          (10) Accounts with respect to which the Account Debtor is the United
          States government or any department or agency of the United States.

<PAGE>

                      BUSINESS LOAN AGREEMENT (ASSET BASED)
LOAN NO: 77-100239-01             (CONTINUED)                             PAGE 6

          (11) Accounts which have not been paid in full within 90 days from the
          invoice date. The entire balance of any Account of any single Account
          Debtor will be ineligible whenever the portion of the Account which
          has not been paid within 90 days from the invoice date is in excess of
          10.000% of the total amount outstanding on the Account.

          (12) See additional requirements for this Line of Credit in the
          Customer Borrowing Plan Assigned Accounts Receivable.

     ENVIRONMENTAL LAWS. The words "Environmental Laws" mean any and all state,
     federal and local statutes, regulations and ordinances relating to the
     protection of human health or the environment, including without limitation
     the Comprehensive Environmental Response. Compensation, and Liability Act
     of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
     Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
     ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
     1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
     Section 6901, et seq., or other applicable state or federal laws, rules, or
     regulations adopted pursuant thereto.

     EVENT OF DEFAULT. The words "Event of Default" mean any of the events of
     default set forth in this Agreement in the default section of this
     Agreement.

     EXPIRATION DATE. The words "Expiration Date" mean the date of termination
     of Lender's commitment to lend under this Agreement.

     GAAP. The word "GAAP" means generally accepted accounting principles.

     GRANTOR. The word "Grantor" means each and all of the persons or entities
     granting a Security interest in any Collateral for the Loan, including
     without limitation all Borrowers granting such a Security Interest.

     GUARANTOR. The word "Guarantor" means any guarantor, surety, or
     accommodation party of any or all of the Loan.

     GUARANTY. The word "Guaranty" means the guaranty from Guarantor to Lender,
     including without limitation a guaranty of all or part of the Note.

     HAZARDOUS SUBSTANCES. The words "Hazardous Substances" mean materials that,
     because of their quantity, concentration or physical, chemical or
     infectious characteristics, may cause or pose a present or potential hazard
     to human health or the environment when improperly used, treated, stored,
     disposed of, generated, manufactured, transported or otherwise handled. The
     words "Hazardous Substances" are used in their very broadest sense and
     include without limitation any and all hazardous or toxic substances,
     materials or waste as defined by or listed under the Environmental Laws.
     The term "Hazardous Substances" also includes, without limitation,
     petroleum and petroleum by-products or any fraction thereof and asbestos.

     INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
     the Note or Related Documents, including all principal and interest
     together with ail other indebtedness and costs and expenses for which
     Borrower is responsible under this Agreement or under any of the Related
     Documents.

     LENDER. The word "Lender" means First Mutual Bank, its successors and
     assigns.

     LOAN. The word "Loan" means any and all loans and financial accommodations
     from Lender to Borrower whether now or hereafter existing, and however
     evidenced, including without limitation those loans and financial
     accommodations described herein or described on any exhibit or schedule
     attached to this Agreement from time to time.

     NOTE. The word "Note" means the Note executed by Pyramid Breweries Inc. in
     the principal amount of $2,000,000.00 dated May 14, 2004, together with all
     renewals of, extensions of, modifications of, refinancings of,
     consolidations of, and substitutions for the note or credit agreement.

     PRIMARY CREDIT FACILITY. The words "Primary Credit Facility" mean the
     credit facility described in the Line of Credit section of this Agreement.

     RELATED DOCUMENTS. The words "Related Documents" mean all promissory notes,
     credit agreements, loan agreements, environmental agreements, guaranties,
     security agreements, mortgages, deeds of trust, security deeds, collateral
     mortgages, and all other instruments, agreements and documents, whether now
     or hereafter existing, executed in connection with the Loan.

     SECURITY AGREEMENT. The words "Security Agreement" mean and include without
     limitation any agreements, promises, covenants, arrangements,
     understandings or other agreements, whether created by law, contract, or
     otherwise, evidencing, governing, representing, or creating a Security
     Interest.

     SECURITY INTEREST. The words "Security Interest" mean, without limitation,
     any and all types of collateral security, present and future, whether in
     the form of a lien, charge, encumbrance, mortgage, deed of trust, security
     deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel
     mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
     trust receipt, lien or title retention contract, lease or consignment
     intended as a security device, or any other security or lien interest
     whatsoever whether created by law, contract, or otherwise.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT (ASSET BASED) AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN
AGREEMENT (ASSET BASED) IS DATED MAY 14, 2004.

BORROWER:

PYRAMID BREWERIES INC.

By: /s/ JAMES K. HILGER
    ---------------------------------
    JAMES K. HILGER, CFO & SECRETARY
    OF PYRAMID BREWERIES INC.

LENDER:

FIRST MUTUAL BANK

By: /s/ SANDY L. TAMIESIE
    ---------------------------------
    AUTHORIZED SIGNER

                                (ILLEGIBLE DATA)

<PAGE>

     ADDENDUM TO BUSINESS LOAN AGREEMENT (ASSET BASED) AND RELATED DOCUMENTS

     THIS ADDENDUM TO BUSINESS LOAN AGREEMENT (ASSET BASED) AND RELATED
DOCUMENTS (the "Addendum") is made this 14th day of May, 2004, and is
incorporated into and shall be deemed to amend and supplement the Business Loan
Agreement (Asset Based) of the same date (the "Loan Agreement"), between Pyramid
Breweries, Inc. (the "Borrower") and First Mutual Bank ("Lender") and the
Related Documents (as that term is defined in the Loan Agreement). Terms defined
in the Loan Agreement shall have the same meanings when used in this Addendum.
Any conflict between the provisions of the Related Documents and the Addendum
shall be resolved in favor of the Addendum. The covenants and agreements of this
Addendum, shall be incorporated into and shall amend and supplement the
covenants and agreements of the Loan Agreement and Related Documents as if this
Addendum were a part of the Loan Agreement and Related Documents and all
references to the Related Documents shall mean the Related Documents as so
amended and supplemented.

                              ADDITIONAL AGREEMENTS

     In addition to the covenants and agreements made in the Loan Agreement and
the Related Documents, Borrower and Lender further covenant and agree as
follows;

1.   COLLATERAL

     The Collateral for the Loan shall consist of the Borrower's assets
described in the Commercial Security Agreement dated as of May 14, 2004, made by
Borrower, as grantor, and Lender.

2.   GUARANTIES

     There are no guaranties required for the Loan.

3.   HAZARDOUS SUBSTANCES

     Lender acknowledges that Borrower uses and stores Hazardous Substances in
the ordinary course of its business and that use and storage of Hazardous
Substances by Borrower in the ordinary course of its business in compliance with
Environmental Laws shall not constitute an Event of Default under the Loan
Agreement or other Related Documents.

4.   OTHER AGREEMENTS

     The Section titled "Other Agreements" in the Loan Agreement is amended by
inserting the word "material" after the word "other" and before the word
"agreements".

ADDENDUM TO BUSINESS LOAN AGREEMENT                                       PAGE 1
[/addendum to loan agreement 5-04]                                      05/13/04

<PAGE>

5.   CONTINUITY OF OPERATIONS

     The Section titled "Continuity of Operations" in the Loan Agreement is
amended by deleting all of subpart (3) thereof relating to dividends. Lender
hereby acknowledges and consents to Borrower's acquisition of Portland Brewing
Company.

6.   CHANGE IN OWNERSHIP

     The Section titled "Change in Ownership" in the Loan Agreement and in the
Promissory Note is hereby deleted.

7.   ANNUAL LINE OF CREDIT CLEANUP

     The Section titled "Annual Line of Credit Cleanup" in the Loan Agreement
and in the Promissory Note is amended by replacing "calendar year" with "loan
year (the 12 month period commencing on the date of this Agreement)", Loan year
as defined in the Note.

8.   ELIGIBLE ACCOUNTS

     The definition of "Eligible Accounts" is amended by adding at the end of
subpart (5): "are netted to the extent of any liability owed to the Account
Debtor".

9.   APPLICATION OF INSURANCE PROCEEDS

     Lender agrees that Borrower may retain all insurance proceeds for loss or
damage to Collateral in an amount of $100,000 or less provide no Event of
Default then exists.

10.  INSURANCE RESERVES

     Lender agrees that Lender may not require reserves for insurance unless and
until an Event of Default occurs.

11.  GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS

     Lender agrees that Lender will not notify account debtors to make payments
directly to Lender unless an Event of Default then exists.

12.  REASONABLE NOTICE PRIOR TO ENTRY ON TO PREMISE/INSPECTION

     Whenever, under the terms of the Loan Agreement or any other Related
Document, Lender shall have the right to enter on to Borrower's property or
inspect Borrower's property, books and records, Lender agrees to give Borrower
reasonable prior notice of such event provided Borrower is not in Default.

ADDENDUM TO BUSINESS LOAN AGREEMENT                                       PAGE 2
[/addendum to loan agreement 5-04]                                      05/13/04

<PAGE>

13.  DISCLOSURE SCHEDULE

     Attached hereto is a schedule setting forth certain disclosures of Borrower
with respect to the representations and warranties set forth in the Loan
Agreement and Related Documents.

     This Addendum may be executed in one or more counterparts, each of which
shall constitute an original agreement, but all of which together shall
constitute one and the same agreement.

     ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.

             [The remainder of this page intentionally left blank.]

ADDENDUM TO BUSINESS LOAN AGREEMENT                                       PAGE 3
[/addendum to loan agreement 5-041]                                     05/13/04

<PAGE>

     IN WITNESS WHEREOF, Lender and Borrower have caused this Addendum to be
duly executed by the respective duly authorized signatories, as of the date
first above written.

                                        FIRST MUTUAL BANK

                                        By /s/ SANDY L. TAMIESIE
                                           -------------------------------------
                                        Name: SANDY L. TAMIESIE
                                        Title: SR. VICE PRESIDENT

                                        PYRAMID BREWERIES INC., a Washington
                                        corporation

                                        By /s/ JAMES K. HILGER
                                           -------------------------------------
                                        Name: JAMES K. HILGER
                                        Title: CFO

ADDENDUM TO BUSINESS LOAN AGREEMENT                                       PAGE 4
[/addendum to loan agreement 5-04]                                      05/13/04

<PAGE>

                               DISCLOSURE SCHEDULE
           TO FIRST MUTUAL BANK BUSINESS LOAN AGREEMENT (ASSET BASED)

     1.   ORGANIZATION

     2.   ASSUMED BUSINESS NAMES

     3.   AUTHORIZATION

     4.   FINANCIAL INFORMATION

     5.   LEGAL EFFECT

     6.   PROPERTIES

     7.   HAZARDOUS SUBSTANCES

     8.   LITIGATION AND CLAIMS

     9.   LITIGATION AND CLAIMS

     10.  TAXES

     11.  LIEN PRIORITY

     12.  BINDING EFFECT

ADDENDUM TO BUSINESS LOAN AGREEMENT                                       PAGE 5
[/addendum to loan agreement 5-04]                                      05/13/04

<PAGE>

      CORPORATE RESOLUTION TO BORROW / GRANT COLLATERAL / SUBORDINATE DEBT

<TABLE>
<CAPTION>
  PRINCIPAL      LOAN DATE    MATURITY       LOAN NO     CALL/COLL   ACCOUNT   OFFICER   INITIALS
-------------   ----------   ----------   ------------   ---------   -------   -------   --------
<S>             <C>          <C>          <C>            <C>         <C>       <C>       <C>
$2,000,000.O0   05-l4-2004   03-31-2006   77-100239.01                          MARK
</TABLE>

  References in the shaded area are for Lender's use only and do not limit the
         applicability of this document to any particular loan or item.
Any Item above containing **** has been ommitted due to text length limitations

CORPORATION: PYRAMID BREWERIES INC.        LENDER: FIRST MUTUAL BANK
             91 SOUTH ROYAL BROUGHAM WAY           BUSINESS BANKING
             SEATTLE, WA 98134                     400 - 102TH AVE NE
                                                   PO BOX 1647
                                                   BELLEVUE, WA 98009
                                                   (425) 453-5301

WE, THE UUNDERSIGNED, DO HEREBY CERTIFY THAT:

THE CORPORATION'S EXISTENCE. The complete and correct name of the Corporation is
Pyramid Breweries Inc. ("Corporation"). The Corporation is a corporation for
profit which is, and at all times shall be, duly organized, validly existing,
and in good standing under and by virtue of the laws of the State of Washington.
The Corporation has the full power and authority to own its proportion and to
transact the business in which it is presently engaged or presently proposed to
engage. The Corporation maintains an office at 91 South Royal Brougham Way,
Seattle, WA 98134. Unless the Corporation has designated otherwise in writing,
the principal office is the office at which the Corporation keeps its books and
records. The Corporation will notify Lendor prior to any change in the location
of The Corporation's state of organization or any change in The Corporation's
name. The Corporation shall do all things necessary to preserve and to keep in
full force and effect its existence, rights and privileges, and shall comply
with all regulations, rules, ordinances, statutes, orders and decrees of any
governmental or quasi-governmental authority or court applicable to the
Corporation and The Corporation's business activities.

RESOLUTIONS ADOPTED. At a meeting of the Directors of the Corporation, or if the
Corporation is a close corporation having no Board of Directors than at a
meeting of the Corporation's shareholders, duly called and held on May 14, 2004,
at which a quorum was present and voting, or by other duly authorized action in
lieu of a meeting, the resolutions set forth in this Resolution were adopted.

OFFICER. The following named person is an officer of Pyramid Breweries Inc.

<TABLE>
<CAPTION>
NAMES             TITLES            AUTHORIZED   ACTUAL SIGNATURES
-----             ------            ----------   -----------------
<S>               <C>               <C>          <C>

James K. Hilger   CFO & Secretary        Y       X /s/ James K. Hilger
                                                   -------------------
</TABLE>

ACTIONS AUTHORIZED. The authorized person listed above may enter into any
agreements of any nature with Lender, and those agreements will bind the
Corporation. Specifically, but without limitation, the authorized, person is
authorized empowered, and directed to do the following for and on behalf of the
Corporation.

     BORROW MONEY. To borrow as a cosigner or otherwise, from time to time from
     Lender, on such terms as may be agreed upon between the Corporation and
     Lender, such sum or sums of money as in his or her judgement should be
     borrowed, without limitation.

     EXECUTE NOTES. To execute and deliver to Lender the promissory note or
     notes, or other evidence of the Corporation's credit accommodations, on
     Lender's forms, at such rates of interest and on such terms as may be
     agreed upon, evidencing the sums of money so borrowed or any of the
     Corporation's indebtedness to Lender, and also to execute and deliver to
     Lender one or more renewals, extensions, modifications, refinancing,
     consolidations, or substitutions for one or more or of the notes, any
     portion of the notes or any other evidence of credit accommodations.

     GRANT SECURITY. To mortage, pledge, transfer, endorse, hypothecate, or
     otherwise encumber and deliver to Lender any property now or hereafter
     belonging to the Corporation or in which the Corporation now or hereafter
     may have an interest, including without limitation all of the Corporation's
     real property and all of the Coproration's personal property (tangible or
     intangible), as security for the payment of any loans or credit
     accommodations so obtained, any promissory notes so executed (including any
     amendments to or modifications, renewable and extensions of such promissory
     notes), or any other or further indebtedness of the Coproration to Lender
     at any time owing, however the same may be evidenced. Such property may be
     mortgaged, pledged, transferred, endorsed, hypothecated or encumbered at
     the time such loans are obtained on such indebtedness is incurred, or at
     any other time or times, and may be either in addition to or in lieu of any
     property therefore mortgaged, pledged, transferred, endorsed, hypothecated
     or encumbered.

     EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
     mortgage, dead of trust, pledge agreement, hypothecation agreement, and
     other security agreements and financing statements which Lender may require
     and which shall evidence the terms and conditions under and pursuant to
     which such liens and encumbrances, or any of them, are given and also to
     execute and deliver to Lender any other written instruments, any chattel
     paper, or any other collateral, of any kind or nature which Lender may deem
     neccessary or proper in connection with or pertaining to the giving of the
     liens and encumbrances.

     SUBORDINATION. To subordinate, in all respects, any and all present and
     future indebtedness, obligations, liabilities, claims, rights, and demands
     of any kind which may be owed, now or hereafter, from any person or entity
     to the Corporation to all present and future indebtedness, obligations,
     liabilities, claims, rights, and demands of any kind which may be owed,
     now or hereafter, from such person or entity to Lender ("Subordinated
     indebtedness"), together with subordination by the Corporation of any and
     all security interests of any kind, whether now existing or hereafter
     acquired, securing payment or performance of Subordinated indebtedness; all
     on such subordination terms as may be agreed upon between the Corporation's
     Officers and Lender and in such amounts so in his or her judgement should
     be subordinated.

     NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
     trade acceptions, promissory notes, or other evidences of indebtedness
     payable to or belonging to the Corporation or in which the Corporation may
     have an interest, and either to receive cash for the same or to cause such
     proceeds to the credited to the Corporation's account with Lender, or to
     cause such other disposition of the proceeds derived therefrom as no or one
     may deem advisable.

     FURTHER ACTS. In the assets of lines of credit, to designate additional or
     alternative individuals as being authorized to request advances under such
     lines, and in all asset, to do and perform such other acts and things, to
     pay and all fees and costs, and to execute and deliver such other documents
     and agreements, including agreements waiving the right to a trial by jury,
     as the officer may in his or her discretion deem reasonably necessary or
     proper in order to carry into effect the provisions of this Resolution. The
     following person currently is authorized to request advances and authorize
     payments under the line of credit until Lender receives from the
     Corporation at Lender's address shown above, written notice of revocation
     of his or her authority: James K. Hilger.

ASSUMED BUSINESS NAMES. The Corporation has filed or recorded all documents or
fillings required by law related to all assumed business names used by the
Corporation. Excluding the name of the Corporation, the following is a
complete list of all assumed business names under which the Corporation does
business: NONE.

NOTICES TO LENDER. The Corporation will promptly notify Lender in writing at
Lender's address shown above (or such other addressess as Lender may designate
from time to time) prior to any (A) change in the Corporation's name (B) change
in the Corporation's assumed business name(s); (C) change in the management of
the Corporation; (D) change in the authorized signer(s); (E) change in the
Corporation's principal office address; (F) change in the Corporation's state of
organization; (G) conversion of the Corporation to a new or different type of
business entity; or (H) change in any other aspect of the Corporation that
directly or indirectly relates to any agreements between the Corporation and
Lender. No change in the Corporation's name or state of organization will take
effect until after Lender has received notice.

REGISTERED AGENT FOR SERVICE. The Corporation shall, at all times, have an
appointed registered agent for service. Said registered agent shall be described
in the organizational documents of the Corporation. Corporation hereby agrees
that the registered agent will not at any time during the loan, be changed
without the prior written consent and acknowledgement of Lender. If Corporation
fails to obtain Lender's consent to change the registered agent described in the
organizational documents of said Corporation, and that agent is changed without
Lender's knowledge, Corporation agrees that Lender's legal service to the agent
described in the organizational documents of said Corporation will be considered
as legal serivce to Corporation without exception.

CERTIFICATION CONCERNING OFFICERS AND RESOLUTIONS. The officer named above is
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupies the position set opposite his or her respective name. This
Resolution now stands of record on the books of the Corporation, is in full
force and effect, and has not been modified or revoked in any manner whatsoever.

SHAREHOLDER APPROVAL. At a special meeting of the shareholders of the
Corporation, duly called and held (or by consent of the shareholders in
accordance with the laws of the State of Washington), not less than the required
percentage of shareholders adopted or consented to all the resolutions set forth
in this Resolution.

<PAGE>

      CORPORATE RESOLUTION TO BORROW / GRANT COLLATERAL / SUBORDINATE DEBT
LOAN NO: 77-100239-01              (CONTINUED)                            PAGE 2

NO CORPORATE SEAL. The Corporation has no corporate seal, and therefore, no
seal is affixed to this Resolution.

CONTINUING VALIDITY. Any and all acts authorized pursuant to this Resolution and
performed prior to the passage of this Resolution are hereby ractified and
approved. This Resolution shall be continuing, shall remain in full force and
affect and Lender may rely on it until written notice of its revocation shall
have been delivered to and received by Lender at Lender's address shown above
(or such addressess as Lender may designate from time to time). Any such notice
shall not affect any of the Corporation's agreements or commitments in affect at
the time notice is given.

IN TESTIMONY WHEREOF, We have hereunto set our hand and attest that the
signature set opposite the name listed above is his or her genuing signature.

We each have read all the provisions of this Resolution, and we each personally
and on behalf of the Corporation certify that all statements and representations
made in this Resolution are true and correct. This Corporate Resolution to
Borrow/Grant Collateral/Subordinate Debt is dated May 14, 2004.

                                        CERTIFIED TO AND ATTESTED BY:

                                        /s/ JAMES K. HILGER
                                        ----------------------------------------
                                        JAMES K. HILGER, CFO & SECRETARY OF
                                        PYRAMID BREWERIES INC.

                                        /s/ GEORGE HANCOCK
                                        ----------------------------------------
                                        GEORGE HANCOCK, CEO OF PYRAMID
                                        BREWERIES INC.

NOTE: If the officer signing this Resolution is designated by the foregoing
document as one of the officers authorized to act on the Corporation's behalf,
it is advised to have this Resolution signed by atleast one non authorized
officer of the Corporation.

                                (ILLEGIBLE DATA)

<PAGE>

                            CHANGE IN TERMS AGREEMENT

<TABLE>
<CAPTION>
  PRINCIPAL      LOAN DATE    MATURITY       LOAN NO     CALL / COLL   ACCOUNT   OFFICER   INITIALS
-------------   ----------   ----------   ------------   -----------   -------   -------   --------
<S>             <C>          <C>          <C>            <C>           <C>       <C>       <C>
$2,500,000.00   05-14-2004   03-31-2007   77-100239-01                             MARK
</TABLE>

  References in the shaded area are for Lender's use only and do not limit the
         applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length limitations.

BORROWER: PYRAMID BREWERIES INC.        LENDER: FIRST MUTUAL BANK
          91 SOUTH ROYAL BROUGHAM WAY           PO BOX 1647
          SEATTLE, WA 98134                     BELLEVUE, WA 98009-1647
                                                (425) 455-7300

<TABLE>
<S>                               <C>                    <C>
PRINCIPAL AMOUNT: $2,500,000.00   INITIAL RATE: 8.500%   DATE OF AGREEMENT: MARCH 7, 2006
</TABLE>

DESCRIPTION OF EXISTING INDEBTEDNESS. A Promissory Note dated May 14, 2004 in
the original principal amount of $2,000,000.00, together with all renewals of,
extensions of, modifications of, refinancings of, consolidations of, and
substitutions for the note or credit agreement. The Promissory Note evidences a
revolving line of credit.

DESCRIPTION OF CHANGE IN TERMS. The maximum principal amount available under
this Line of Credit is increased to $2,500,000.00.

The maturity date of the Promissory Note is extended to March 31, 2007.

The interest rate to be applied to the unpaid principal balance of the Note will
be at a rate of 1.00% over the Index.

The Business Loan Agreement dated February 9, 2005 is modified as follows:

MINIMUM EBITDA. Maintain minimum cumulative EBITDA as follows:

<TABLE>
<S>                                      <C>
Six months ending June 30, 2006          $  650,000.00
Nine months ending September 30, 2006    $1,750,000.00
Twelve months ending December 31, 2006   $2,100,000.00
</TABLE>

Borrower agrees to pay Line of Credit to $0.00 for 30 consecutive days at least
once per calendar year.

STANDBY LETTER OF CREDIT. A Standby Letter of Credit in the amount of
$345,000.00, which will be secured by this Line of Credit, will be issued in
conjunction with this increase. The amount available under the Line of Credit
will be reduced by $345,000.00, to be used solely for draws in partial or full
under Letter of Credit #124, dated March 10, 2006, and issued by First Mutual
Bank in favor of California First Leasing Corporation, whose address is 18201
Von Karman Avenue, Suite 800, Irvine, CA 92612. At no such time will the funds,
in the amount of $345,000.00, be available until the Letter of Credit is
cancelled.

CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obiigation(s). It is the intention of Lender to retain as liable parties
all makers and endorsers of the original obligation(s), including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by virtue of this
Agreement. If any person who signed the original obligation does not sign this
Agreement below, then all persons signing below acknowledge that this Agreement
is given conditionally, based on the representation to Lender that the
non-signing party consents to the changes and provisions of this Agreement or
otherwise will not be released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions.

PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS AGREEMENT. BORROWER AGREES TO THE TERMS OF THE AGREEMENT.

BORROWER:

PYRAMID BREWERIES INC.

BY:
    ---------------------------------
    JASON REES, VICE PRESIDENT OF
    FINANCE OF PYRAMID
    BREWERIES INC.

                                (ILLEGIBLE DATA)

<PAGE>

                     DISBURSEMENT REQUEST AND AUTHORIZATION

<TABLE>
<CAPTION>
  PRINCIPAL      LOAN DATE    MATURITY       LOAN NO     CALL / COLL   ACCOUNT   OFFICER   INITIALS
-------------   ----------   ----------   ------------   -----------   -------   -------   --------
<S>             <C>          <C>          <C>            <C>           <C>       <C>       <C>
$2,500,000.00   05-14-2004   03-31-2007   77-100239-01                             MARK
</TABLE>

  References in the shaded area are for Lender's use only and do not limit the
         applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length limitations.

BORROWER: PYRAMID BREWERIES INC.        LENDER: FIRST MUTUAL BANK
          91 SOUTH ROYAL BROUGHAM WAY           PO BOX 1647
          SEATTLE, WA 98134                     BELLEVUE, WA 98009-1647
                                                (425) 455-7300

LOAN TYPE. This is a Variable Rate Nondisclosable Revolving Line of Credit Loan
to a Corporation for $2,500,000.00 due on March 31, 2007. The reference rate
(prime rate as published by "The Wall Street Journal", currently 7.500%) is
added to the margin of 1.000%, resulting in an initial rate of 8.500.

PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:

     [ ]  PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT.

     [X]  BUSINESS (INCLUDING REAL ESTATE INVESTMENT).

SPECIFIC PURPOSE. The specific purpose of this loan is: Working Capital.

DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $2,500,000.00 as follows:

<TABLE>
<S>                                        <C>
UNDISBURSED FUNDS:                         $2,057,584.09
OTHER DISBURSEMENTS:                       $  410,515.91
   $410,515.91 Current Principal Balance
TOTAL FINANCED PREPAID FINANCE CHARGES:    $   31,900.00
   $25,000.00 Line Modification Fee
   $6,900.00 Letter of Credit Fee
                                           -------------
NOTE PRINCIPAL:                            $2,500,000.00
</TABLE>

FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED MARCH 7, 2006.

BORROWER:

PYRAMID BREWERIES INC.

BY:
    ---------------------------------
    JASON REES, VICE PRESIDENT OF
    FINANCE OF PYRAMID
    BREWERIES INC.

                                (ILLEGIBLE DATA)

<PAGE>

      CORPORATE RESOLUTION TO BORROW / GRANT COLLATERAL / SUBORDINATE DEBT

<TABLE>
<CAPTION>
  PRINCIPAL      LOAN DATE    MATURITY       LOAN NO     CALL/COLL   ACCOUNT   OFFICER   INITIALS
-------------   ----------   ----------   ------------   ---------   -------   -------   --------
<S>             <C>          <C>          <C>            <C>         <C>       <C>       <C>
$2,000,000.O0   05-l4-2004   03-31-2006   77-100239.01                          MARK
</TABLE>

  References in the shaded area are for Lender's use only and do not limit the
          applicability of this document to any particular loan or item
Any item above containing "***" has been omitted due to text length limitations

CORPORATION: PYRAMID BREWERIES INC.        LENDER: FIRST MUTUAL BANK
             91 SOUTH ROYAL BROUGHAM WAY           BUSINESS BANKING
             SEATTLE. WA 98134                     400 - L08TH AVE NE
                                                   PO BOX 1647
                                                   BELLOVUE, WA 98009
                                                   (425) 453-5301

I. THE UNDERSIGNED. DO HEREBY CERTIFY THAT:

THE CORPORATION'S EXISTENCE, The complete and correct name of the Corporation is
Pyramid Breweries Inc. ("Corporation"). The Corporation is a corporation for
profit which is, and at all times shall be, duly organized, validly existing,
and in good standing under and by virtue of the laws of the State of Washington.
The Corporation is duly authorized to transact business in all other states in
which the Corporation is doing business, having obtained all necessary filings,
governmental licenses and approvals for each state in which the Corporation is
doing business. Specifically, the Corporation is, and at all times shall be,
duly qualified as a foreign corporation in all states in which the failure to so
qualify would have a material adverse effect on its business or financial
condition. The Corporation has the full power and authority to own its
properties and to transact the business in which it is presently engaged or
presently proposes to engage. The Corporation maintains an office at 91 South
Royal Brougham Way, Seattle, WA 98134, Unless the Corporation has designated
otherwise in writing, the principal office is the office at which the
Corporation keeps its books and records. The Corporation will notify Lender
prior to any change in the location of The Corporation's state of organization
or any change in The Corporation's name. The Corporation shall do all things
necessary to preserve and to keep in full force end effect its existence, rights
and privileges, and shall comply with all regulations, rules, ordinances,
statutes, orders and decrees of any governmental or quasi-governmental authority
or court applicable to the Corporation and The Corporation's business
activities.

RESOLUTIONS ADOPTED. At a meeting of the Directors of the Corporation, or if the
Corporation is a close corporation having no Board of Directors then at a
meeting of the Corporation's shareholders, duly called and held on November 4,
2005, at which a quorum was present and voting or by other duly authorized
action in lieu of a meeting, the resolutions set forth in this Resolution were
adopted

OFFICER. The following named person is on officer of Pyramid Breweries Inc:

<TABLE>
<CAPTION>
NAMES        TITLES              AUTHORIZED   ACTUAL SIGNATURES
-----        ------              ----------   -----------------
<S>          <C>                 <C>          <C>

Jason Rees   Vice President of        Y       X /s/ JASON REES
             Finance                            --------------------------------
</TABLE>

ACTIONS AUTHORIZED. The authorized person listed above may enter into any
agreements of any nature with Lender, and those agreements will bind the
Corporation. Specifically, but without limitation, the authorized person is
authorized, empowered, and directed to do the following for and on behalf of the
Corporation:

     BORROW MONEY. To borrow, as a cosigner or otherwise, from time to time from
     Lender, on such terms as may be agreed upon between the Corporation and
     Lender, such sum or sums of money as in his or her judgment should be
     borrowed, without limitation

     EXECUTE NOTES. To execute and deliver to Lender the promissory note or
     notes, or other evidence of the Corporation's credit accommodations, on
     Lender's forms, at such rates of Interest and on such terms as may be
     agreed upon, evidencing the sums of money so borrowed or any of the
     Corporation's indebtedness to Lender, and also to execute and deliver to
     Lender one or more renewals, extensions, modifications, refinancings,
     consolidations, or substitutions for one or more of the notes, any portion
     of the notes. or any other evidence of credit accommodations.

     GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
     otherwise encumber and deliver to Lender any property now or hereafter
     belonging to the Corporation or in which the Corporation now or hereafter
     may have an interest, including without limitation all of the Corporation's
     real property and all of the Corporation's personal property (tangible or
     intangible), as security for the payment of any loans or credit
     accommodations so obtained, any promissory notes so executed (including any
     amendments to or modifications, renewals, and extensions of such promissory
     notes), or any other or further indebtedness of the Corporation to Lender
     at any time owing, however the same may be evidenced. Such property may be
     mortgaged, pledged, transferred, endorsed, hypothecated or encumbered at
     the time such loans are obtained or such indebtedness is incurred, or at
     any other time or times, and may be either in addition to or in lieu of any
     property theretofore mortgaged, pledged, transferred, endorsed,
     hypothecated or encumbered

     EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
     mortgage, deed of trust, pledge agreement, hypothecation agreement, and
     other security agreements and financing statements which Lender may require
     and which shall evidence the terms and conditions under and pursuant to
     which such liens and encumbrances, or any of them, are given; and also to
     execute and deliver to Lender any other written instruments, any chattel
     paper, or any other collateral, of any kind or nature, which Lender may
     deem necessary or proper in connection with or pertaining to the giving of
     the liens and encumbrances.

     SUBORDINATION. To subordinate. in all respects, any and all present and
     future indebtedness, obligations, liabilities, claims, rights, and demands
     of any kind which may be owed, now or hereafter, from any person or entity
     to the Corporation to all present and future indebtedness, obligations,
     liabilities, claims, rights, and demands of any kind which may be owed, now
     or hereafter, from such person or entity to Lender ("Subordinated
     Indebtedness"), together with subordination by the Corporation of any and
     all security interests of any kind, whether now existing or hereafter
     acquired, securing payment or performance of the Subordinated Indebtedness;
     all on such subordination terms as may be agreed upon between the
     Corporation's Officers and Lender and in such amounts as in his or her
     judgment should be subordinated.

     NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
     trade acceptances, promissory notes, or other evidences of indebtedness
     payable to or belonging to the Corporation or in which the Corporation may
     have an interest, and either to receive cash for the same or to cause such
     proceeds to be credited to the Corporation's account with Lender, or to
     cause such other disposition of the proceeds derived therefrom as he or she
     may deem advisable

     FURTHER ACTS. In the case of lines of credit, to designate additional or
     alternate Individuals as being authorized to request advances under such
     lines, and in all cases, to do and perform such other acts and things, to
     pay any end ail fees and costs, and to execute and deliver such other
     documents and agreements, including agreements waiving the right to a trial
     by jury, as the officer may in his or her discretion deem reasonably
     necessary or proper in order to carry into effect the provisions of this
     Resolution. The following person currently is authorized to request
     advances and authorize payments under the line of credit until Lender
     receives from the Corporation, at Lender's address shown above, written
     notice of revocation of his or her authority: JASON REES, VICE PRESIDENT OF
     PYRAMID BREWERIES INC.

ASSUMED BUSINESS NAMES. The Corporation has filed or recorded all documents or
filings required by low relating to all assumed business names used by the
Corporation. Excluding the name of the Corporation. the following is a complete
list of all assumed business names under which the Corporation does business:
None..

NOTICES TO LENDER. The Corporation will promptly notify Lender In writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (A) change in the Corporation's name; (B) change
in the Corporation's assumed business name(s); (C) change in the management of
the Corporation; (D) change in the authorized signer(s); (E) change in the
Corporation's principal office address; (F) change in the Corporation's state of
organization; (G) conversion of the Corporation to a new or different type of
business entity; or (H) change in any other aspect of the Corporation that
directly or Indirectly relates to any agreements between the Corporation and
Lender. No change in the Corporation's name or state of organization will take
effect until after Lender has received notice

REGISTERED AGENT FOR SERVICE. The Corporation shall, at all times, have an
appointed registered agent for service. Said registered agent shall be described
in the organizational documents of the Corporation. Corporation hereby agrees
that the registered agent will not, at any time during the loan, be changed
without the prior written consent and acknowledgment of Lender. If Corporation
fails to obtain Lender's consent to change the registered agent described in the
organizational documents of said Corporation, and that agent is changed without
Lender's knowledge, Corporation agrees that Lender's legal service to the agent
described in the organizational documents of said Corporation will be considered
as legal service to Corporation without exception

CERTIFICATION CONCERNING OFFICERS AND RESOLUTIONS. The officer named above is
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupies the position set opposite his or her respective name. This
Resolution now stands of record on the books of the Corporation, is in full
force and effect, and has not been modified or revoked in any manner whatsoever

<PAGE>

      CORPORATE RESOLUTION TO BORROW / GRANT COLLATERAL / SUBORDINATE DEBT
LOAN NO: 77-100239-01                     (CONTINUED)                     PAGE 2

SHAREHOLDER APPROVAL. At a special meeting of the shareholders of the
Corporation, duly called and held for by consent of the shareholders in
accordance with the laws of the State of Washington), not less than the required
percentage of shareholders adopted or consented to all the resolutions set forth
in this Resolution

NO CORPORATE SEAL. The Corporation has no corporate seal, and therefore, no seal
is affixed to this Resolutions.

CONTINUING VALIDITY. Any and all acts authorized pursuant to this Resolution and
performed prior to the passage of this Resolution are hereby ratified and
approved. This Resolution shall be continuing, shall remain in full force and
effect and Lender may rely on it until written notice of its revocation shall
have been delivered to and received by Lender at Lender's address shown above
(or such addresses as Lender may designate from time to time). Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.

IN TESTIMONY WHEREOF, I have hereunto set my hand and attest that the signature
set opposite the name listed above is his or her genuine signature.

I HAVE READ ALL THE PROVISIONS OF THIS RESOLUTION, AND ON BEHALF OF THE
CORPORATION CERTIFY THAT ALL STATEMENTS AND REPRESENTATIONS MADE IN THIS
RESOLUTION ARE TRUE AND CORRECT. THIS CORPORATE RESOLUTION TO BORROW / GRANT
COLLATERAL/SUBORDINATE DEBT IS DATED NOVEMBER 4, 2005.

                                        CERTIFIED TO AND ATTESTED BY:

                                        X /s/ JASON REES
                                          --------------------------------------
                                          JASON REES, VICE PRESIDENT OF FINANCE
                                          OF PYRAMID BREWERIES INC.

NOTE: If the officer signing this Resolution is designated by the foregoing
document as one of the officers authorized to act on the Corporation's behalf.
It is advisable to have this Resolution signed by all least one non-authorized
officer of the Corporation.

                                (ILLEGIBLE DATA)

<PAGE>

                            CHANGE IN TERMS AGREEMENT

<TABLE>
<CAPTION>
PRINCIPAL        LOAN DATE    MATURITY       LOAN NO     CALL / COLL   ACCOUNT   OFFICER   INITIALS
-------------   ----------   ----------   ------------   -----------   -------   -------   --------
<S>             <C>          <C>          <C>            <C>           <C>       <C>       <C>
$2,000,000.00   05-14-2004   03-31-2006   77-100239-01                           MARK
</TABLE>

  References in the shaded area are for Lender's use only and do not limit the
          applicability of this document to any particular loan or Item.
Any Item above containing "***" has been omitted due to text length limitations.

BORROWER: PYRAMID BREWERIES INC.        LENDER: FIRST MUTUAL BANK
          91 SOUTH ROYAL BROUGHAM WAY           BUSINESS BANKING
          SEATTLE, WA 98134                     400- 108TH AVE NE
                                                PO BOX 1647
                                                BELLEVUE, WA 98009
                                                (425) 453-5301

<TABLE>
<S>                               <C>                   <C>
PRINCIPAL AMOUNT: $2,000,000.00   INITIAL RATE: 9.000%  DATE OF AGREEMENT: NOVEMBER 14, 2005
</TABLE>

DESCRIPTION OF EXISTING INDEBTEDNESS. A Promissory Note dated May 14, 2004 in
the original principal amount of $2,000,000.00, together with all renewals of,
extensions of, modifications of, refinancings of, consolidations of, and
substitutions for the note or credit agreement. The promissory note evidences a
revolving line of credit.

DESCRIPTION OF CHANGE IN TERMS. The maturity date of the Promissory Note is
extended to March 31, 2006.

CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obligation(s). It is the intention of Lender to retain as liable parties
all makers and endorsers of the original obligation(s), including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by virtue of this
Agreement. If any person who signed the original obligation does not sign this
Agreement below, then all persons signing below acknowledge that this Agreement
is given conditionally, based on the representation to Lender that the
non-signing party consents to the changes and provisions of this Agreement or
otherwise will not be released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions

PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS AGREEMENT. BORROWER AGREES TO THE TERMS OF THE AGREEMENT

BORROWER:

PYRAMID BREWERIES INC.

By: /s/ JASON REES
    ---------------------------------
    JASON REES, VICE PRESIDENT OF
    FINANCE OF PYRAMID
    BREWERIES INC.

                                (ILLEGIBLE DATA)

<PAGE>

                     DISBURSEMENT REQUEST AND AUTHORIZATION

<TABLE>
<CAPTION>
PRINCIPAL        LOAN DATE    MATURITY       LOAN NO     CALL / COLL   ACCOUNT   OFFICER   INITIALS
---------       ----------   ----------   ------------   -----------   -------   -------   --------
<C>             <C>          <C>          <C>            <C>           <C>       <C>       <C>
$2,000,000.00   05-14-2004   03-31-2006   77-100239-01                           MARK
</TABLE>

  References in the shaded area are for Lender's use only and do not limit the
          applicability of this document to any particular loan or Item.
Any item above containing "***" has been omitted due to text length limitations.

BORROWER: PYRAMID BREWERIES INC.        LENDER: FIRST MUTUAL BANK
          91 SOUTH ROYAL BROUGHAM WAY           BUSINESS BANKING
          SEATTLE, WA 98134                     400 - 108TH AVE NE
                                                PO BOX 1647
                                                BELLEVUE, WA 98009
                                                (425) 453-5301

LOAN TYPE. This is a Variable Rate Nondisclosable Revolving Line of Credit Loan
to a Corporation for $2,000,000.00 due on March 31, 2006. The reference rate
(prime rate as published by "The Wall Street Journal", currently 7.000%) is
added to the margin of 2.000%, resulting in an initial rate of 9.000.

PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:

     [ ]  Personal, Family, or Household Purposes or Personal investment.

     [X]  Business (Including Real Estate Investment).

SPECIFIC PURPOSE. The specific purpose of this loan is: Working Capital.

DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $2,000,000.00 as follows:

<TABLE>
<S>                  <C>
Undisbursed Funds:   $2,000,000.00
                     -------------
Note Principal:      $2,000,000.00
</TABLE>

CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:

<TABLE>
<S>                                     <C>
PREPAID FINANCE CHARGES PAID IN CASH:
   $3,750.00 Extension Fee              $3,750.00
                                        ---------
TOTAL CHARGES PAID IN CASH:             $3,750.00
</TABLE>

FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED NOVEMBER 14, 2005.

BORROWER:

PYRAMID BREWERIES INC.

By: /s/ JASON REES
    ---------------------------------
    JASON REES, VICE PRESIDENT OF
    FINANCE OF PYRAMID
    BREWERIES INC.

                                (ILLEGIBLE DATA)<PAGE>

                                                                   Exhibit 10.36

                             PYRAMID BREWERIES, INC.

                           DIRECTORS COMPENSATION PLAN

     1. Purpose. The purpose of the Directors Compensation Plan (the "Plan") is
to compensate non-employee directors of Pyramid Breweries, Inc. (the "Company")
for their service on the Company's Board of Directors.

     2. Annual Compensation. Each non-employee director of the Company shall
receive annual compensation of $10,000 (a retainer payable in advance), subject
to adjustment pursuant to Section 3(b) below. Such compensation shall be payable
to the non-employee directors immediately following each annual meeting of
shareholders for services as a director until the next annual meeting of
shareholders. At the time of each director's first payment (after appointment
date) for annual or quarterly based payments, a pro rata payment will also be
will be made for any prior stub period between date of appointment and the first
annual/quarterly payment date.

     3. Form of Annual Compensation.

          (a) The annual compensation to the non-employee directors shall be
paid in either shares of the Company's common stock or cash, at the choice of
each individual Director. The shares of common stock payable to directors on the
annual meeting date shall be valued at the last sale price of the Company's
common stock on the Nasdaq Stock Market on the date of the annual meeting for
which the compensation is payable.

          (b) No fractional shares shall be issued under this Plan. The shares
issuable hereunder shall be rounded to the nearest whole share.

     4. Meeting Fees. Each non-employee director of the Company shall receive
additional compensation of $1,500 per Board Meeting, $750 per Audit Committee
Meeting, and $500 per Compensation Committee Meeting. All other committee
meetings and so called "short meetings" of the full board (generally a
telephonic call under one hour) shall be compensated at $500 per meeting.
Payment of the fees will be made within 30 days of each meeting and the Chairman
of the Board will so designate and notate the nature of each full board meeting
(regular or short) at the start of each meeting for clarification.

     5. Board Chairman Fee. The Chairman of the Board shall be receive
additional compensation of $10,000 per annum. Payment will be made on a
quarterly basis.

     6. Committee Chair Fee. The Chairperson of each committee shall receive
additional compensation of $2,500 per annum. Payment of the fees will be made on
a quarterly basis.

     7. Per Diem Fees. Each non-employee director shall be paid a fee of $1000
per diem for any project work outside of the Normal Board Duties that the
director is requested to perform by the Board. An example of such work would
include screening candidates for the CEO position, or doing research on a
subject selected by the Board of Directors. Written

<PAGE>

invoices and requests for payment are to be forwarded to the Chairman of The
Board for approval and subsequent submission to the VP of Finance before payment
is made.

     8. Out of Pocket Expenses. Each non-employee director will be reimbursed
for necessary travel, lodging and other expenses incurred in attending meetings.
Reimbursement will be made upon proper submittal.

     9. Stock Option Grants. Each non-employee director of the Company shall
receive an annual option grant of 5,000 shares of common stock made under the
Non-Employee Directors Stock Option Plan. The grant is to have an exercise price
at the market value as of the close of business on the date of the annual
meeting and is fully vested and exercisable as of that date.

     10. Amendment and Termination. This plan may be amended or terminated at
any time by resolution of the board of directors.

Note: Attached is a summary chart of the fee schedule.

                                       2

<PAGE>

                             PYRAMID BREWERIES, INC.
      BOARD OF DIRECTORS FEE SCHEDULE SUMMARY (NON-EMPLOYEE DIRECTORS ONLY)

<TABLE>
<CAPTION>
BOARD POSITION                                SERVICE                 FEE AND BASIS                      WHEN PAYABLE
--------------                                -------                 -------------                      ------------
<S>                                   <C>                      <C>                         <C>
Board Director (incl. Chair)          Board Service -- annual  $10,000 per annum           Upon Annual Shareholder Meeting for the
                                                                                           ensuing year of service (1)(2)
Board Director (incl. Chair)          Board Service -- annual  5,000 Stock Option Grants   Upon each Annual Shareholder Meeting
Board Chairman                        Board Service - annual   $10,000 per annum           Quarterly calendar basis (1)
Board Director (incl. Chair)          Board meeting            $1,500 per meeting -        Within 30 days of meeting
                                                               standard
                                                               $500 per meeting - "short"
Board Director (incl. Chair)          Board "quick" meeting    $500 per quick meeting      Within 30 days of meeting
Audit Committee Member (incl. Chair)  Committee meeting        $750 per meeting            Within 30 days of meeting
Audit Committee Chairman              Comm. Service -- annual  $2,500 per annum            Quarterly calendar basis (1)
Comp. Committee Member (incl. Chair)  Committee meeting        $500 per meeting            Within 30 days of meeting
Comp. Committee Chairman              Comm. Service -- annual  $2,500 per annum            Quarterly calendar basis (1)
Other Committee Member (incl. Chair)  Committee meeting        $500 per meeting            Within 30 days of meeting
Other Committee Chairman              Comm. Service -- annual  $2,500 per annum            Quarterly calendar basis (1)
Board Director                        Per diem special work    $1,000 per day              Within 30 days of billing
</TABLE>

NOTES:

(1)  At the time of each director's first payment (after appointment date) for
     annual or quarterly based payments, a pro rata payment will also be will be
     made for any prior stub period between date of appointment and the first
     annual/quarterly payment date.

(2)  Payable in stock or cash at director's election, subject to blackout and
     other restrictions.

(3)  All other director payment details (e.g. out of pocket expenses, option
     pricing) given in Directors Compensation Plan document.

                                       3

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