Document:

LOAN
      AND SECURITY AGREEMENT

     

    This
      Loan
      and Security Agreement (this “Agreement”)
      is
      executed by and among Marquette Business Credit, Inc., a Minnesota corporation
      (“Lender”),
      Mendocino Brewing Company, Inc., a California corporation (“Mendocino
      Brewing”)
      and
      Releta Brewing Company LLC, a Delaware limited liability company (“Releta
      Brewing”);
      together with Mendocino Brewing, collectively referred to herein as the
“Borrowers”),
      as of
      November 16, 2006. Lender and Borrowers hereby agree as follows:

     

    ARTICLE
      I —
      DEFINITIONS

     

    Section
      1.1  Definitions.
      When
      used in this Agreement, the capitalized terms set forth below shall have the
      definitions assigned to such terms below:

     

    “Account
      Debtor”
means
      a
      Person who is obligated on an account.

     

    “Affiliate”
of
      a
      Person means another Person which, directly or indirectly, controls, is
      controlled by, or is under common control with, such former Person. For the
      purposes of this definition, “control” (including, with correlative meanings,
      the terms “controlled by” and “under common control with”), as used with respect
      to any Person, means the possession, directly or indirectly, of the power to
      direct or cause the direction of the management and policies of such Person,
      whether through ownership of voting securities or partnership or other
      interests, by contract or otherwise.

     

    “Agricultural
      Lien Statute”
means,
      collectively, each statute, law or regulation (or other mandatory provision
      of
      state or local law) that could either (a) create or give rise to an
“agricultural lien” (as defined in the UCC) in or against any portion of the
      products purchased, stored or otherwise handled by any Person from whom any
      Borrower purchases Inventory (or by any other Person from whom such first Person
      purchases or otherwise receives goods in the ordinary course of business),
      or
      (b) create a Lien against, or impose a trust upon, some portion of either
      Borrower's inventory (and/or the accounts receivable derived therefrom) for
      the
      benefit of unpaid agricultural producers, any broker acting on behalf of an
      agricultural producer, any cooperative whose members consist of agricultural
      producers or any other Person that purchases goods from an agricultural producer
      in the ordinary course of business. Without limiting the generality of the
      foregoing, the term “Agricultural Lien Statute” shall specifically include each
      of the following statutes: Article 20 of the New York Agriculture and Markets
      Law and Section 55631, et
      seq.
      of Food
      and Agricultural Code of California.

     

    “Authorized
      Representatives”
means
      any officers or employees of the Borrowing Agent designated by the Borrowing
      Agent for purposes of giving and receiving notices hereunder, requesting and
      repaying Loans, agreeing to rates of interest and otherwise transacting business
      with the Lender hereunder.

     

    “Availability”
means,
      as of any date, the positive difference between (a) an amount equal to the
      lesser of (i) the Revolving Facility Limit or (ii) the Borrowing Base on such
      date, and (b) the aggregate outstanding principal amount of the Revolving
      Loans on such date.

     

    “Base
      Rate”
means
      the one-month or 30 day LIBOR rate quoted by Lender from The
      Wall Street Journal,
      which
      shall be that one-month or 30 day LIBOR rate in effect on the first day of
      each
      calendar month, adjusted for any reserve requirement and any subsequent costs
      arising from a change in government regulation, such rate to be reset on the
      first day of each succeeding calendar month. If the initial advance of any
      Loan
      occurs other than on the first day of the month, the initial one-month or 30
      day
      LIBOR rate shall be that one-month or 30 day LIBOR rate in effect on the date
      of
      such initial advance, which rate plus the Applicable Margin described on
Schedule
      A,
      shall
      be in effect for the remaining days of the month of such initial advance; such
      one-month or 30 day LIBOR rate to be reset at on the first day of each
      succeeding month. Lender’s internal records of applicable interest rates shall
      be determinative in the absence of manifest error.

     

    
      
        
        

      

      
        
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    “Benefit
      Plan”
means
      a
      defined benefit plan as defined in Section 3(35) of ERISA (other than a
      Multiemployer Plan) in respect of which a Person or any Related Company is,
      or
      within the immediately preceding 6 years was, an “employer” as defined in
      Section 3(5) of ERISA, including such plans as may be established after the
      date
      hereof.

     

    “Blocked
      Account”
means
      an account maintained with a Collecting Bank pursuant to a Blocked Account
      Agreement.

     

    “Blocked
      Account Agreement”
means
      an agreement among one or more of the Borrowers, Lender, and a Collecting Bank
      concerning the collection of payments which represent the proceeds of accounts
      or of any other Collateral.

     

    “Borrowing
      Agent”
means
      Mendocino Brewing.

     

    “Borrowing
      Base”
shall
      have the meaning provided in Section
      1.1
      of
Schedule
      A
      hereto.

     

    “Borrowing
      Base Certificate”
means
      a
      certificate in the form of Exhibit
      A
      attached
      hereto.

     

    “Capex
      Loan”
shall
      have the meaning assigned to such term in Section
      2.5(a).

     

    “Capex
      Loan Advance Rate”
shall
      mean a percentage equal to eighty percent (80%) of the original invoice amount
      of the capital assets acquired in connection with the relevant Qualified Capital
      Expenditure.

     

    “Capex
      Loan Amount”
shall
      mean an amount equal to $650,000, it being understood and agreed that in no
      event shall the aggregate principal amount of all Capex Loans advanced by the
      Lender from time to time exceed $650,000.

     

    “Capex
      Note”
shall
      have the meaning assigned to such term in Section
      2.5(a).

     

    “Capital
      Expenditures”
means,
      with respect to any Person, all expenditures made and liabilities incurred
      for
      the acquisition of assets (including by entry into a Capitalized Lease) which
      are required to be capitalized in accordance with GAAP.

     

    “Capitalized
      Lease”
means
      a
      lease that is required to be capitalized for financial reporting purposes in
      accordance with GAAP.

     

    “Capitalized
      Lease Obligation”
means
      Indebtedness represented by obligations under a Capitalized Lease, and the
      amount of such Indebtedness shall be the capitalized amount of such obligations
      determined in accordance with GAAP.

     

    “Code”
means
      the Internal Revenue Code of 1986, as amended from time to time, or any
      successor statute, together with all regulations promulgated with respect
      thereto.

     

    “Collateral”
means
      and includes all of each Borrower’s now owned or hereafter acquired personal
      property and assets, whether tangible or intangible, including without
      limitation all of each Borrower’s right, title and interest in and to each of
      the following, wherever located and whether now existing or hereafter arising
      or
      acquired: (a) all accounts, (b) all inventory, (c) all equipment
      and fixtures (except as set forth below), (d) all contract rights,
      (e) all general intangibles, including without limitation payment
      intangibles and software, (f) all Intellectual Property, (g) all
      deposit accounts, cash, drafts, certificates of deposit, and general and special
      deposits, (h) all investment property and financial assets (other than (i)
      margin stock within the meaning of Regulation U of the Board of Governors of
      the
      Federal Reserve System, and (ii) the equity interest of any Borrower in its
      subsidiaries), (i) all instruments, (j) all chattel paper, including
      without limitation, electronic chattel paper, (k) all goods and all
      accessions thereto, (1) all documents, (m) all letter of credit
      rights, (n) all insurance and certificates of insurance pertaining to any
      and all items of Collateral, (o) all books and records, (p) all files,
      correspondence, computer programs, tapes, disks and related data processing
      software and other media which contain information identifying or pertaining
      to
      any of the Collateral or any Account Debtor or showing the amounts thereof
      or
      payments thereon or otherwise necessary or helpful in the realization thereon
      or
      the collection thereof, (q) all cash deposited with any Affiliate of
      Lender, (r) those commercial tort claims, if any, described on Schedule
      1.1
      hereto,
      and (s) any and all products and cash and non-cash proceeds of the foregoing
      (including, but not limited to, any claims to any items referred to in this
      definition and any claims against third parties for loss of, damage to or
      destruction of any or all of the Collateral or for proceeds payable under or
      unearned premiums with respect to policies of insurance) in whatever form.
      Notwithstanding anything to the contrary contained herein, the term “Collateral”
shall not include any of either Borrower’s now owned or hereafter acquired real
      property or any buildings, structures or improvements now or hereafter erected
      on such real property.

     

    
      
        
        

      

      
        
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    “Collecting
      Bank”
means
      any banking institution with which a Blocked Account has been established
      pursuant to a Blocked Account Agreement.

     

    “Concentration
      Limit”
shall
      have the meaning provided in Section
      1.1
      of
Schedule
      A
      hereto.

     

    “Contract
      Rate”
shall
      have the meaning provided in Section
      1.1
      of
Schedule
      A
      hereto.

     

    “Cross
      Aging Percentage”
shall
      have the meaning provided in Section
      1.1
      of
Schedule
      A
      hereto.

     

    “Default”
means
      any of the events specified in Section
      10.1
      that,
      with the passage of time or giving of notice or both, would constitute an Event
      of Default.

     

    “Default
      Rate”
means
      the Contract Rate plus three percent (3%) per
      annum.

     

    “Dollar”
and
      “$”
means
      freely transferable United States dollars.

     

    “EBITDA”
means,
      for any period, the sum of (a) Net Income (or Net Loss) (including gains and
      losses from the sales of assets in the ordinary course of business) for such
      period, (b) the provision for income taxes allocable to such period,
      (c) the interest expense for such period, and (d) any depreciation or
      amortization expenses incurred in determining Net Income (or Net Loss) for
      such
      period (where the items set forth in sections (a) - (d) above are determined
      without duplication and on a consolidated basis and, where applicable, in
      accordance with GAAP).

     

    “Eligible
      Accounts”
shall
      mean, with respect to each Borrower, all accounts of such Borrower which are
      deemed by Lender in the exercise of its commercially reasonable discretion
      to be
      eligible for inclusion in the calculation of the Borrowing Base, net of any
      and
      all interest, finance charges, sales tax, fees, returns, discounts, claims,
      credits, charges, contra accounts, exchange contracts or other allowances,
      offsets and rights of offset, deductions, counterclaims, disputes, rejections,
      shortages or other defenses and all credits owed or allowed by such Borrower
      upon any of its accounts and further reduced by the aggregate amount of all
      reserves, limits and deductions provided for in this definition and elsewhere
      in
      this Agreement. In no event shall Eligible Accounts include the
      following:

     

    (a)  accounts
      which remain unpaid more than ninety (90) days past their invoice
      dates;

     

    
      
        
        

      

      
        
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    (b)  accounts
      which are not due and payable within thirty (30) days after their invoice
      dates;

     

    (c)  accounts
      owing by a single Account Debtor if more than the Cross Aging
      Percentage of
      such
      accounts is ineligible pursuant to clauses (a) or (b) above;

     

    (d)  accounts
      with respect to which the Account Debtor is an Affiliate of any
      Borrower;

     

    (e)  accounts
      with respect to which the obligation of payment by the Account Debtor is or
      may
      be conditional for any reason whatsoever including, without limitation, accounts
      arising with respect to goods that were (i) not sold on an absolute basis,
      (ii) sold on a bill and hold sale basis, (iii) sold on a consignment
      sale basis, (iv) sold on a guaranteed sale basis, (v) sold on a sale
      or return basis, or (vi) sold on the basis of any other similar
      understanding;

     

    (f)  accounts
      with respect to which the Account Debtor is not a resident or citizen of, or
      otherwise located in, the continental United States of America or a province
      of
      Canada (other than Quebec), or with respect to which the Account Debtor is
      not
      subject to service of process in the continental United States of America or
      a
      province of Canada (other than Quebec), unless such accounts are backed in
      full
      by irrevocable letters of credit or credit insurance in form and substance
      satisfactory to Lender issued or confirmed by a domestic commercial bank
      acceptable to Lender and which, if a letter of credit, is in the possession
      of
      Lender and which, if credit insurance, is payable to Lender;

     

    (g)  accounts
      with respect to which the Account Debtor is the United States of America or
      any
      other federal governmental body, or any state, county or local governmental
      authority, or (in each case) any department, agency or instrumentality thereof,
      unless such accounts are duly assigned to Lender in compliance with all
      applicable governmental requirements (including, without limitation, the Federal
      Assignment of Claims Act of 1940, as amended, if applicable), or in compliance
      with all applicable state law requirements (if any), as applicable, and such
      assignment has been accepted and acknowledged by the appropriate government
      officers;

     

    (h)  accounts
      (i) with respect to which any Borrower is or may be liable to the Account
      Debtor for goods sold or services rendered by such Account Debtor, but only
      to
      the extent of such liability to such Account Debtor or (ii) with respect to
      which such Account Debtor disputes the amount owed but only that portion of
      such
      accounts which such Account Debtor disputes;

     

    (i)  accounts
      with respect to which the goods giving rise thereto have not been shipped and
      delivered to and accepted as satisfactory by the applicable Account Debtor
      or
      with respect to which the services performed giving rise thereto have not been
      completed and accepted as satisfactory by the applicable Account
      Debtor;

     

    (j)  accounts
      which are not invoiced within three (3) days after the shipment and delivery
      to
      and acceptance by said Account Debtor of the goods giving rise thereto or the
      performance of the services giving rise thereto;

     

    (k)  accounts
      which are not subject to a first priority perfected security interest in favor
      of Lender;

     

    
      
        
        

      

      
        
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    (l)  accounts
      with respect to which there exists any Lien in favor of any Person other than
      Lender, unless such Lien has been fully and unconditionally subordinated to
      the
      Lender’s security interest pursuant to a written agreement in form and substance
      acceptable to the Lender in its commercially reasonable discretion;

     

    (m)  that
      portion of the aggregate account balance owed by a single Account Debtor which
      exceeds the Concentration Limit;

     

    (n)  accounts
      with respect to which the Account Debtor is located in any state requiring
      the
      filing of a Notice of Business Activities Report or similar report in order
      to
      permit the applicable Borrower to seek judicial enforcement in such state of
      payment of such account, unless such Borrower has qualified to do business
      in
      such state or has filed a Notice of Business Activities Report or equivalent
      report for the then current year;

     

    (o)  accounts
      which represent a progress billing or which arise in connection with any
      pre-billing; 

     

    (p)  accounts
      with respect to which there are proceedings or actions which are then threatened
      or pending against the Account Debtor or to which such Account Debtor is a
      party
      which might result in any material adverse change in such Account Debtor’s
      financial condition or in its ability to pay any account in full when
      due;

     

    (q)  accounts
      which arose out of a contract or order which, by its terms, forbids, restricts
      or makes void or unenforceable the assignment by the applicable Borrower to
      the
      Lender of such account;

     

    (r)  accounts
      with respect to which possession and/or control of the goods sold giving rise
      thereto is held, maintained or retained by the applicable Borrower or any
      Affiliate of such Borrower (or by any lender or custodian of such Borrower
      or
      any Affiliate of such Borrower) for the account of or subject to further and/or
      future direction from the Account Debtor with respect thereto;

     

    (s)  accounts
      which, in any way, violate or fail to meet any warranty, representation or
      covenant contained in the Loan Documents relating directly or indirectly to
      the
      applicable Borrower’s accounts;

     

    (t)  accounts
      with respect to which the applicable Borrower has failed to observe and comply
      with all laws of the jurisdiction in which the Account Debtor with respect
      to
      such Account is located which, if not observed or complied with, would deny
      such
      Borrower access to the courts of such jurisdiction;

     

    (u)  accounts
      which arise outside of the ordinary course of the applicable Borrower’s
      business;

     

    (v)  accounts
      which are evidenced by chattel paper or instruments unless the Lender has
      specifically agreed to include each such account as an Eligible Account, in
      which case (i) only payments then due and payable under such chattel paper
      or
      instrument shall be included as an Eligible Account and (ii) the originals
      of
      such chattel paper or instruments have been assigned and delivered to the Lender
      in a manner satisfactory to the Lender; and

     

    (w)  accounts
      that Lender, in its commercially reasonable discretion, has determined to be
      ineligible.

     

    
      
        
        

      

      
        
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    “Eligible
      Inventory”
means,
      with respect to each Borrower, as at any date of determination, all inventory
      owned by and in the possession of such Borrower and located in the United States
      of America that Lender, in its commercially reasonable discretion, deems to
      be
      eligible for borrowing purposes. Without limiting the generality of the
      foregoing, unless otherwise agreed by Lender, the following are not Eligible
      Inventory:

     

    (a)  finished
      goods which are produced under a contract brewing agreement or are otherwise
      specific to a particular customer;

     

    (b)  finished
      goods which do not meet the specifications of the purchase order for such
      goods;

     

    (c)  inventory
      which Lender determines, in its commercially reasonable discretion, to be
      unacceptable for borrowing purposes;

     

    (d)  inventory
      with respect to which Lender does not have a valid, first priority and fully
      perfected security interest;

     

    (e)  inventory
      with respect to which there exists any Lien in favor of any Person other than
      Lender, unless such Lien has been fully and unconditionally subordinated to
      the
      Lender’s security interest pursuant to a written agreement in form and substance
      acceptable to the Lender in its commercially reasonable discretion;

     

    (f)  inventory
      which has been consigned to such Borrower;

     

    (g)  packaging
      and shipping materials, products and labels, with the exclusion of generic,
      unbranded and unlabeled bottles;

     

    (h)  inventory
      that is slow-moving or obsolete or returned or repossessed or used goods taken
      in trade;

     

    (i)  inventory
      consisting of consumables (i.e. chemicals used in the brewing
      process);

     

    (j)  inventory
      produced in violation of the Fair Labor Standards Act, in particular provisions
      contained in Title 29 U.S.C. 215 (a)(i); 

     

    (k)  inventory
      that violates or fails to meet any warranty, representation or covenant
      contained in the Loan Documents relating directly or indirectly to the
      applicable Borrower’s inventory; 

     

    (l)  inventory
      that was purchased from a Person who did not comply with the Food Security
      Act;

     

    (m)  inventory
      that is located outside of the continental United States; and

     

    (n)  inventory
      located at a location for which Lender does not have a valid landlord’s or
      warehouseman’s waiver or subordination on terms and conditions acceptable to
      Lender in its commercially reasonable discretion and inventory located at any
      location other than those listed on Schedule
      5.1(o).

     

    It
      is
      expressly understood and agreed that any hops, malt or other grain products
      or
      derivatives, whether located at a facility owned or leased by a Borrower or
      otherwise, that are covered by a negotiable warehouse receipt, nonnegotiable
      warehouse receipt, scale weight ticket or load slip, or by any other evidence
      of
      ownership or document of title, that is not in the physical possession of the
      applicable Borrower or the Lender shall in no event constitute Eligible
      Inventory. 

     

    
      
        
        

      

      
        
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    “Environmental
      Laws”
means
      all federal, state, local and foreign laws now or hereafter in effect relating
      to pollution or protection of the environment, including laws relating to
      emissions, discharges, releases or threatened releases of pollutants,
      contaminants, chemicals or industrial, toxic or hazardous substances or wastes
      or otherwise relating to the manufacture, processing, distribution, use,
      treatment, storage, disposal, removal, transport or handling of pollutants,
      contaminants, chemicals or industrial, toxic or hazardous substances or wastes,
      and any and all regulations, notices or demand letters issued, entered,
      promulgated or approved thereunder.

     

    “ERISA”
means
      the Employee Retirement Income Security Act of 1974, as in effect from time
      to
      time, and any successor statute, and any rule or regulation issued
      thereunder.

     

    “Event
      of Default”
means
      any of the events specified in Section
      10.1.

     

    “Financial
      Statements”
shall
      have the meaning provided in Section
      1.1
      of
Schedule
      A
      hereto.

     

    “Fixed
      Charge Coverage Ratio”
shall
      have the meaning provided in Section
      1.1
      of
Schedule
      A
      hereto.

     

    “Food
      Security Act”
means
      7
      U.S.C. Section 1631, and any successor statute thereto, together with each
      state
      statute establishing a “central filing system” (as defined in 7 U.S.C. Section
      1631) that has been certified by the Secretary of the United States Department
      of Agriculture.

     

    “GAAP”
means
      generally accepted accounting principles and practices consistently
      applied.

     

    “Grower
      Payables”
means,
      collectively, all unpaid amounts payable by Borrowers (or any of them), in
      the
      aggregate, for the purchase of inventory from any “Producer” as defined in
      Article 20 of the New York Agriculture and Markets Law, from any “Producer” as
      defined in the Food and Agricultural Code of California or from any other Person
      engaged in a farming operation, or from any broker or agent selling on behalf
      of
      any such Producer or other Person, or from any cooperative whose owners/members
      consist of any such Producer or other Persons.

     

    “Grower
      Payables Reserve”
means
      a
      reserve in such amount as the Lender shall determine from time to time is
      necessary to cover the aggregate liability of all Borrowers for Grower Payables;
      provided,
      however, that the amount of such reserve shall be reduced, dollar for dollar,
      by
      the amount of each Grower Payable with respect to which the applicable payee
      has
      waived and disclaimed any Lien or other interest such payee might otherwise
      have
      or be entitled to in all or any portion of the Collateral, which waiver and
      disclaimer shall be made pursuant to a written document in form and substance
      acceptable to the Lender.

     

    “Indebtedness”
means,
      without duplication, (a) all Liabilities, (b) all obligations for
      Money Borrowed or for the deferred purchase price of property or services or
      in
      respect of reimbursement obligations under letters of credit, (c) all
      obligations represented by bonds, debentures, notes and accepted drafts that
      represent extensions of credit, (d) Capitalized Lease Obligations,
      (e) all obligations (including, during the noncancellable term of any lease
      in the nature of a title retention agreement, all future payment obligations
      under such lease discounted to their present value in accordance with GAAP)
      secured by any Lien to which any property or asset owned or held by a Person
      is
      subject, whether or not the obligation secured thereby shall have been assumed
      by such Person, (f) all obligations of other Persons which such Person has
      guaranteed, including, but not limited to, all obligations of such Person
      consisting of recourse liability with respect to accounts sold or otherwise
      disposed of by such Person, and (g) in the case of each Borrower, the
      Loans.

     

    
      
        
        

      

      
        
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    “Intellectual
      Property”
means,
      as to any Person, all of such Person’s then owned and existing and future
      acquired or arising patents, patent rights, copyrights, works which are the
      subject of copyrights, trademarks, service marks, trade names, trade styles,
      patent, trademark and service mark applications, and all licenses and rights
      related to any of the foregoing, and all rights to sue for past, present and
      future infringements of any of the foregoing.

     

    “Inventory
      Advance Rate”
shall
      have the meaning provided in Section
      1.1 of
      Schedule
      A
      hereto.

     

    “Inversiones”
means
      Inversiones Mirabel S.A., a company incorporated in Panama.

     

    “Investment”
means
      any investment, whether by means of share purchase, loan, advance, purchase
      of
      debt instrument, extension of credit (other than (i) accounts receivable
      arising from the sale of goods or services in the ordinary course of business,
      and (ii) notes, accepted in the ordinary course of business, evidencing
      overdue accounts receivable arising in the ordinary course of business), capital
      contribution, acquisition of real or personal property (other than personal
      property acquired in the ordinary course of business) or otherwise, in or to
      any
      Person, the guaranty of any Indebtedness of any Person or the subordination
      of
      any claim against any Person to other indebtedness of such Person.

     

    “Lender’s
      Office”
means
      the office of Lender located at 1660 S. Highway 100, Suite 146, Minneapolis,
      MN
      55416-1524, Attention: Credit Department, or
      such
      other office as Lender may designate from time to time. 

     

    “Liabilities”
means
      all liabilities of a Person determined in accordance with GAAP.

     

    “Lien”
means,
      with respect to any Person, any security interest, chattel mortgage, charge,
      mortgage, deed to secure debt, deed of trust, lien, pledge, Capitalized Lease,
      conditional sale or other title retention agreement covering, or any trust
      upon,
      or any other security interest or encumbrance of any kind in respect of, any
      property of such Person or upon the income or profits therefrom.

     

    “Loans”
means
      the Revolving Loans, the Capex Loans and the Term Loan.

     

    “Loan
      Documents”
means,
      collectively, this Agreement, each agreement or document now or hereafter
      executed and delivered by any Person to evidence or secure, in whole or in
      part,
      the Obligations and each other instrument, agreement and document now or
      hereafter executed and delivered in connection with this Agreement or the
      Loans.

     

    “Lockbox”
shall
      have the meaning provided in Section
      1.1
      of
Schedule
      A
      hereto.

     

    “Material
      Adverse Change”
means
      any act, omission, event or undertaking which would, singly or in the aggregate,
      have a materially adverse effect upon (a) the business, assets, properties,
      liabilities, condition (financial or otherwise), results of operations or
      business prospects of any Borrower or any of its subsidiaries, (b) upon the
      ability of any Borrower or any of its subsidiaries to perform any obligations
      under this Agreement or any other Loan Document to which it is a party, or
      (c) the legality, validity, binding effect, enforceability or admissibility
      into evidence of any Loan Document or the ability of Lender to enforce any
      rights or remedies under or in connection with any Loan Document.

     

    “Material
      Agreement”
means
      any contract, agreement, commitment, arrangement or instrument to which, as
      of
      any date, any Borrower is a party or by which any Borrower or any of its
      properties is bound, including any contract brewing agreement, license
      agreement, distribution agreement, promissory note, indenture, loan agreement,
      mortgage, lease, or deed, in each case the cancellation, termination or
      non-existence of which could constitute a Material Adverse Change.

     

    
      
        
        

      

      
        
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    “Maximum
      Rate”
shall
      have the meaning provided in Section
      3.8.

     

    “Money
      Borrowed”
means
      Indebtedness (i) that is represented by notes payable, drafts accepted,
      bonds, debentures or similar instruments that represent extensions of credit,
      (ii) upon which interest charges are customarily paid (other than trade
      Indebtedness), (iii) that was issued or assumed as full or partial payment
      for property, (iv) that is evidenced by a guarantee (but only if the
      obligations guaranteed would otherwise qualify as Money Borrowed), or
      (v) that constitutes a Capitalized Lease Obligation.

     

    “Multiemployer
      Plan”
means
      a
“multiemployer plan” as defined in Section 4001(a)(3) of ERISA to which any
      Borrower or a Related Company is required to contribute or has contributed
      within the immediately preceding 6 years.

     

    “Net
      Income”
or
      “Net
      Loss”
means,
      with respect to any Person, the net income or net loss of such Person for the
      period in question (after provision for income taxes) determined in accordance
      with GAAP, provided
      that the
      impact of any extraordinary gains and any extraordinary non-cash losses, in
      each
      case as determined in accordance with GAAP, shall be excluded from the
      determination of “Net Income” and “Net Loss.”

     

    “Net
      Worth”
of
      any
      Person means the total shareholders’ or members’ equity (including capital
      stock, additional paid-in capital and retained earnings, after deducting
      treasury stock) which would appear as such on a balance sheet of such Person
      prepared in accordance with GAAP.

     

    “New
      York Banking Day”
means
      any day (other than a Saturday or Sunday) on which commercial banks are open
      for
      business in New York, New York.

     

    “Note”
shall
      mean the Revolving Note, the Capex Note, the Term Loan Note and any other
      promissory note of the Borrowers, or any one or more of them, evidencing any
      loan or advance (including but not limited to the Loans) made by the Lender
      to
      the Borrowers, or any one or more of them, pursuant to this Agreement, as the
      same may be amended, modified, restated or replaced from time to
      time.

     

    “Obligations”
shall
      mean (i) all Loans or other advances made by Lender to Borrowers (or any of
      them) pursuant to this Agreement or otherwise, (ii) all future advances or
      other value, of whatever class or for whatever purpose, at any time hereafter
      made or given by Lender to Borrowers (or any of them), whether or not the
      advances or value are given pursuant to a commitment and whether or not such
      Borrower(s) is (are) indebted to Lender at the time of such advance;
      (iii) any and all other debts, liabilities and obligations of every kind
      and character of Borrowers (or any of them) to Lender, whether now or hereafter
      existing, and regardless of whether such present or future debts, liabilities
      or
      obligations are direct or indirect, primary or secondary, joint, several, or
      joint and several, fixed or contingent, and regardless of whether such present
      or future debts, liabilities or obligations may, prior to their acquisition
      by
      Lender, be or have been payable to, or be or have been in favor of, some other
      Person or have been acquired by Lender in a transaction with one other than
      a
      Borrower (it being contemplated that Lender may make such acquisitions from
      others), howsoever such debts, liabilities or obligations shall arise or be
      incurred or evidenced; (iv) any and all other debts, liabilities and
      obligations of every kind and character of Borrowers (or any of them) to any
      Affiliate of Lender, whether now or hereafter existing, and regardless of
      whether such present or future debts, liabilities or obligations are direct
      or
      indirect, primary or secondary, joint, several, or joint and several, fixed
      or
      contingent, and regardless of whether such present or future debts, liabilities
      or obligations may, prior to their acquisition by such Affiliate, be or have
      been payable to, or be or have been in favor of, some other Person or have
      been
      acquired by such Affiliate in a transaction with one other than a Borrower
      (it
      being contemplated that Affiliates of Lender may make such acquisitions from
      others), howsoever such debts, liabilities or obligations shall arise or be
      incurred or evidenced; (v) interest on all of the debts, liabilities and
      obligations set forth above; (vi) all costs, fees and expenses payable by
      Borrowers (or any of them) to Lender or any Affiliate of Lender pursuant to
      any
      of the Loan Documents; and (vii) any and all renewals, extensions,
      modifications and increases of the debts, liabilities and obligations set forth
      above, or any part thereof.

     

    
      
        
        

      

      
        
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    “Operating
      Lease”
means
      any lease (other than a lease constituting a Capitalized Lease) of real or
      personal property determined in accordance with GAAP.

     

    “PACA”
means,
      collectively, (a) the Perishable Agricultural Commodities Act, 1930, as amended
      (7 U.S.C. § 499(e)(c)(2) et. seq.), together with all rules and regulations
      relating thereto or promulgated thereunder (including 7 C.F.R. § 46.1 et seq.),
      and (b) any other state law or regulation of similar import.

     

    “PACA
      Payables”
means,
      collectively, all unpaid amounts payable by any Borrower for the purchase of
      “Perishable Agricultural Commodities” (as defined in PACA) acquired by Borrower
      as a “dealer” (as defined in PACA). PACA Payables shall include, without
      limitation, the amount of any outstanding uncashed checks issued by any Borrower
      in payment of PACA Payables to the extent not otherwise included in the amount
      of PACA Payables.

     

    “PACA
      Reserve”
shall
      mean a reserve in such amount as Bank shall determine from time to time is
      necessary to cover the Borrowers’ aggregate liability for PACA
      Payables.

     

    “PBGC”
means
      the Pension Benefit Guaranty Corporation or any successor agency.

     

    “Permitted
      Indebtedness”
shall
      have the meaning provided in Section
      1.1
      of
Schedule
      A
      hereto.

     

    “Permitted
      Investments”
means,
      with respect to each Borrower, Investments of such Borrower in
      (a) negotiable certificates of deposit issued by any commercial bank having
      capital and surplus in excess of $100,000,000, and (b) any direct
      obligation of the United States of America or any agency or instrumentality
      thereof which has a remaining maturity at the time of repurchase of not more
      than one year and repurchase agreements relating to the same. 

     

    “Permitted
      Liens”
means:
      (a) Liens securing taxes, assessments and other governmental charges or
      levies (excluding any Lien imposed pursuant to any of the provisions of ERISA)
      or the claims of materialmen, mechanics, carriers, warehousemen or landlords
      for
      labor, materials, supplies or rentals incurred in the ordinary course of
      business, but (i) in all cases, only if payment shall not at the time be
      past due, and (ii) in the case of warehousemen or landlords controlling
      locations where inventory is located, only if such liens have been waived or
      subordinated to the security interest of Lender in a manner satisfactory to
      Lender; (b) the Liens described on Schedule
      5.1(g)
      attached
      hereto and made a part hereof; and (c) Liens in favor of
      Lender.

     

    “Person”
means
      an individual, corporation, limited liability company, partnership, joint
      venture, association, trust or unincorporated organization or a government
      or
      any agency or political subdivision thereof.

     

    “Prohibited
      Distribution”
by
      any
      Person means (a) the retirement, redemption, purchase, or other acquisition
      for value of any capital stock or other equity securities or partnership
      interests issued by such Person, (b) the declaration or payment of any
      dividend or distribution on or with respect to any such securities (excluding
      distributions made solely in shares of stock of the same class) or partnership
      interests, (c) any loan or advance by such Person to, or other Investment
      by such Person in, any other Person, and (d) any other payment by such
      Person in respect of such securities or partnership interests, without the
      prior
      written consent of Lender, which consent shall not be unreasonably
      withheld.

     

    
      
        
        

      

      
        
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    “Prohibited
      Payment”
means
      (a) any redemption, repurchase or prepayment or other retirement, prior to
      the stated maturity thereof or prior to the due date of any regularly scheduled
      installment or amortization payment with respect thereto, of any Indebtedness
      of
      a Person (other than the Obligations and trade debt), (b) the payment by
      any Person of the principal amount of or interest on any Indebtedness (other
      than trade debt) owing to an Affiliate of such Person, and (c) any payment
      with respect to any Subordinated Indebtedness that is made in violation of
      the
      subordination agreement relating thereto.

     

    “Qualified
      Capital Expenditure”
shall
      mean a Capital Expenditure which meets the following requirements:

     

    (a)  the
      applicable Borrower shall have paid (or shall cause to be paid contemporaneously
      with the funding of the applicable Capex Loan), in cash, the full original
      invoice cost of the capital assets acquired with such Capital Expenditure,
      and
      such Borrower shall have provided (or shall provide within five (5) days
      following the funding of the applicable Capex Loan) to the Lender copies of
      the
      original invoice and the canceled check for payment or other evidence of payment
      in full;

     

    (b)  it
      is
      made in the ordinary course of the applicable Borrower’s business;

     

    (c)  the
      capital assets acquired with such Capital Expenditure consist solely of one
      or
      more items of production equipment which are intended for direct use in the
      applicable Borrower’s primary business of producing and distributing beer and
      malt beverages for the specialty “craft” segment of the beer market (without
      limiting the generality of the foregoing, it is expressly understood and agreed
      that in no event shall Capital Expenditures for such items as computers,
      telephone systems, office machinery, office equipment, furniture, fixtures,
      appliances, vehicles and other similar non-production equipment constitute
      “Qualified Capital Expenditures” hereunder);

     

    (d)  no
      portion thereof consists of any soft costs relating to the acquisition of the
      applicable capital assets (for purposes hereof the term “soft costs” shall
      include, but shall not be limited to, all taxes, delivery charges, setup fees,
      installation costs, insurance and other similar charges and costs);

     

    (e)  no
      portion thereof has been paid by or financed with any other Person;

     

    (f)  no
      portion of the capital assets acquired with such Capital Expenditure are located
      outside of the continental United States;

     

    (g)  the
      capital assets acquired with such Capital Expenditure are located on premises
      that are either owned by the applicable Borrower or leased by such Borrower
      (provided that in the case of leased premises the Lender has received a
      landlord’s waiver acceptable to the Lender with respect to such leased
      premises);

     

    (h)  the
      capital assets acquired with such Capital Expenditure are presently in good
      and
      workable condition, ordinary wear and tear excepted;

     

    (i)  the
      capital assets acquired with such Capital Expenditure are not subject to any
      prior assignment, claim or Lien other than (i) a first priority Lien in favor
      of
      the Lender, and (ii) Liens consented to by the Lender in writing;

     

    (j)  the
      capital assets acquired with such Capital Expenditure comply with the applicable
      Borrower’s specifications and have been delivered to and accepted by such
      Borrower;

     

    
      
        
        

      

      
        
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    (k)  there
      exists no dispute with respect thereto between the applicable Borrower and
      the
      manufacturer or supplier of the capital assets acquired with such Capital
      Expenditure including, without limitation, warranties or other
      claims;

     

    (l)  the
      capital assets acquired with such Capital Expenditure do not, in any way violate
      or fail to meet any warranty, representation or covenant contained in the Loan
      Documents relating directly or indirectly to such assets;

     

    (m)  the
      Lender has determined in its commercially reasonable discretion that the capital
      assets acquired with such Capital Expenditures are not unacceptable due to
      age,
      type, condition or quality (without limiting the generality of the foregoing,
      it
      is expressly understood and agreed that any capital asset acquired or first
      used
      by the applicable Borrower (whether pursuant to a Capitalized Lease or
      otherwise) more than twelve (12) months prior to the date of the applicable
      Capex Loan request is unacceptable due to age, unless such capital asset is
      included on a fixed asset appraisal (in form and substance acceptable to the
      Lender in its commercially reasonable discretion) prepared by an independent
      appraiser acceptable to the Lender in its commercially reasonable discretion
      no
      more than twelve (12) months prior to the date of such Capex Loan request);
      and

     

    (n)  the
      Capital Expenditure is not made in payment of obligations arising under any
      Capitalized Lease, except to the extent such obligations are satisfied in full
      by such payment and the liability related to such Capitalized Lease is removed
      from the applicable Borrower’s balance sheet in accordance with
      GAAP.

     

    “Related
      Company”
means,
      as to any Person, any (a) corporation which is a member of the same
      controlled group of corporations (within the meaning of Section 414(b) of the
      Code) as such Person, (b) partnership or other trade or business (whether
      or not incorporated) under common control (within the meaning of Section 414(c)
      of the Code) with such Person, or (c) member of the same affiliated service
      group (within the meaning of Section 414(m) of the Code) as such Person or
      any
      corporation described in clause
      (a)
      above or
      any partnership, trade or business described in clause
      (b)
      above.

     

    “Reserve”
at
      any
      time shall mean the PACA Reserve (if any), plus
      the
      Grower Payables Reserve (if any), plus
      the
      aggregate amount of royalties and similar charges owed by the Borrowers (or
      any
      of them) to Kingfisher America, Inc., a Delaware corporation, UBI, UBSN or
      any
      other Affiliate of a Borrower, plus
      an
      amount from time to time established by Lender in its commercially reasonable
      discretion as a reserve in reduction of the Borrowing Base in respect of
      contingencies or other potential factors (such as, without limitation, rebates,
      sales taxes, property taxes, installation and delivery expenses, and warranties)
      which could adversely affect or otherwise reduce the anticipated amount of
      timely collections in payment of Eligible Accounts or the value (whether at
      cost, market or orderly liquidation value) of Eligible Inventory. The “Reserve,”
if any from time to time, does not represent cash funds. For purposes of this
      definition and determining the Borrowing Base and without limiting Lender’s
      other discretion as described above, Lender specifically reserves the right
      to
      establish additional commercially reasonable reserves in respect of: any claims,
      interests, or rights (including Liens) of any Person (“Priming
      Interests”),
      whether arising pursuant to an Agricultural Lien Statute or otherwise, which
      (A)
      as of the date Lender learns or is notified of the existence of the applicable
      Priming Interest, has priority over the Liens of Lender on any or all of the
      Collateral or (B) will have priority over the Liens of Lender on any or all
      of
      the Collateral after any required notice or filing, the passage of time, the
      satisfaction of any other condition, or otherwise.

     

    “Revolving
      Facility Limit”
shall
      have the meaning provided in Section
      1.1
      of
Schedule
      A
      hereto.

     

    “Revolving
      Loans”
means
      the advances made to Borrowers pursuant to Section
      2.1.

     

    
      
        
        

      

      
        
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    “Schedule
      of Accounts”
means
      a
      schedule delivered by Borrowers to Lender pursuant to the provisions of
Section
      8.3(a).

     

    “Schedule
      of Inventory”
means
      a
      schedule delivered by Borrowers to Lender pursuant to the provisions of
Section
      8.3(c).

     

    “Solvent”
means,
      when used in connection with any Person, that such Person has assets of a fair
      value which exceeds the amount required to pay its debts (including contingent,
      subordinated, unmatured and unliquidated liabilities) as they become absolute
      and matured, and that such Person is able to, and anticipates that it will
      be
      able to, meet its debts as they mature and has adequate capital to conduct
      the
      business in which it is or proposes to be engaged.

     

    “State
      of Organization”
shall
      have the meaning provided in Section
      1.1
      of
Schedule
      A
      hereto.

     

    “Subordinated
      Indebtedness”
means
      Indebtedness of Borrowers (or any of them) to a third Person (i) that has
      been approved in writing by Lender and (ii) that has been subordinated to
      the payment of the Obligations pursuant to a written subordination agreement
      executed by Lender and the holder of such Indebtedness containing terms
      acceptable to Lender in its commercially reasonable discretion.

     

    “Tangible
      Net Worth”
means
      (a) the combined Net Worth of Borrowers at the time in question (excluding
      the financial condition of all Persons other than the Borrowers), less
      (b) the amount of all intangible items, investments in subsidiaries,
      amounts due from Affiliates, employees, officers, managers, directors, members
      and shareholders, and all other items which should properly be treated as
      intangibles in accordance with GAAP, plus (c) the Subordinated Indebtedness
      of Borrowers.

     

    “Term
      Loan”
means
      the advances made to Borrower pursuant to Section
      2.4.

     

    “Termination
      Date”
shall
      have the meaning provided in Section
      1.1
      of
Schedule
      A
      hereto.

     

    “Termination
      Event”
means
      (a) a “Reportable Event” as defined in Section 4043 of ERISA, but excluding
      any such event as to which the PBGC has by regulation waived the requirement
      of
      Section 4043(a) of ERISA that it be notified within thirty days of the
      occurrence of such event, provided however, that a failure to meet the minimum
      funding standard of Section 412 of the Code and of Section 302 of ERISA shall
      be
      a Reportable Event regardless of the issuance of any such waiver of the notice
      requirement in accordance with either Section 4043(a) of ERISA or Section 412(d)
      of the Code, (b) the filing of a notice of intent to terminate a Benefit
      Plan or the treatment of a Benefit Plan amendment as a termination under Section
      4041 of ERISA, or (c) the institution of proceedings to terminate a Benefit
      Plan by the PBGC under Section 4042 of ERISA or the appointment of a trustee
      to
      administer any Benefit Plan. 

     

    “Total
      Credit Facility”
shall
      have the meaning provided in Section
      1.1
      of
Schedule
      A
      hereto.

     

    “UBA”
means
      United Breweries of America, Inc., a Delaware corporation.

     

    “UBH”
means
      United Breweries Holdings Limited, an Indian public limited
      company.

     

    “UBI”
means
      United Breweries International (U.K.), Limited, a United Kingdom private limited
      company.

     

    “UBSN”
means
      UBSN Limited, a United Kingdom private limited company.

     

    
      
        
        

      

      
        
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    “UCC”
means
      the Uniform Commercial Code as in effect from time to time in the State of
      Minnesota, including without limitation, any amendments thereto which are
      effective after the date hereof.

     

    “Unfunded
      Vested Liabilities”
shall
      mean, with respect to each Borrower, the amount (if any) by which (i) the
      actuarial present value of accumulated benefits under a Benefit Plan which
      are
      vested exceeds (ii) such Benefit Plan’s net assets available for benefits (all
      as determined in connection with the filing of such Borrower’s most recent
      Annual Report on Form 5500) but only to the extent such excess would, if such
      Benefit Plan were to terminate as of such date, represent a liability of such
      Borrower or any ERISA Affiliate to the PBGC under Title IV of ERISA. In each
      case the foregoing determination shall be made as of the most recent date prior
      to the filing of said Annual Report as of which such actuarial present value
      of
      accumulated Plan benefits is determined.

     

    Section
      1.2  UCC
      Terms.
      Terms
      defined in the UCC (such as, but not limited to, accounts, chattel paper,
      commercial tort claims, contract rights, deposit account, documents, equipment,
      financial assets, general intangibles, goods, instruments, investment property,
      inventory and proceeds), as and when used (without being capitalized) in this
      Agreement or the Loan Documents, shall have the meanings given to such terms
      in
      the UCC.

     

    Section
      1.3  Accounting
      Terms and Determinations.
      Unless
      otherwise specified herein, all accounting terms used herein shall be
      interpreted, all determinations with respect to accounting matters hereunder
      shall be made, and all financial statements and certificates and reports as
      to
      financial matters required to be furnished to the Lender hereunder shall be
      prepared, in accordance with GAAP, applied on a basis consistent with the
      audited financial statements of Borrowers referenced in Section
      5.1(k).

     

    ARTICLE
      II — CREDIT
      FACILITIES 

     

    Section
      2.1  Revolving
      Loans.
      Subject
      to the terms and conditions of this Agreement, prior to the Termination Date
      Lender shall make advances to Borrowers under the revolving credit facility
      provided for under this Agreement in an amount not to exceed outstanding at
      any
      time the lesser of (a) the Revolving Facility Limit and (b) the
      Borrowing Base. Borrowers may borrow, repay and reborrow the principal of the
      Revolving Loans in accordance with the terms of this Agreement.

     

    Section
      2.2  Advances
      Under the Revolving Loan.
      A
      request for an advance of a Revolving Loan shall be made, or shall be deemed
      to
      be made, in the following manner:

     

    (a)  Any
      request by the Borrowing Agent for a Loan shall be in writing (via email,
      facsimile or an updated Borrowing Base Certificate), and must be given so as
      to
      be received by the Lender not later than 12:00 noon, Minneapolis, Minnesota
      time, on the date of the requested advance. Each such request shall specify
      the
      effective date of the borrowing, the amount of the requested advance and which
      Borrower will be the recipient of such advance. The Borrowing Agent’s failure to
      comply with the provisions of this Section
      2.2(a)
      with
      respect to any Loan shall not in any manner affect the joint and several
      obligation of each Borrower to repay such Loan in accordance with the terms
      of
      this Agreement. 

     

    (b)  Unless
      payment is otherwise made by a Borrower, the becoming due of any amount required
      to be paid under any Loan Document or of any Obligation shall be deemed to
      be a
      request for an advance under the Revolving Loan on the due date in the amount
      required to pay such amount, and such request shall be irrevocable.
      Lender
      shall
      not have any obligation to any Borrower to honor any such deemed request for
      an
      advance but may do so in its sole and absolute discretion and without regard
      to
      the existence of, and without being deemed to have waived, any Default or Event
      of Default.

     

    
      
        
        

      

      
        
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    Section
      2.3  Repayment
      of the Revolving Loans.
      The
      Revolving Loans shall be repaid as follows: (a) unless accelerated in
      accordance with the terms hereof, the outstanding principal amount of, and
      all
      accrued and unpaid interest on, the Revolving Loans is due and payable, without
      demand, on the Termination Date; (b) if at any time the principal of, and
      interest upon, the aggregate outstanding Revolving Loans exceeds the lesser
      of
      (i) the Revolving Facility Limit or (ii) the Borrowing Base, Borrowers
      jointly and severally agree to immediately repay the Revolving Loans in the
      amount of such excess; and (c) each Borrower hereby instructs Lender to
      repay the Revolving Loans on any day in an amount equal to the amount received
      by Lender on such day pursuant to Section
      6.2.

     

    Section
      2.4  Term
      Loan.

     

    (a)  Subject
      to the terms and conditions hereof, Lender agrees to make a Term Loan to
      Borrowers in the amount equal to $1,525,000. Borrower agrees to repay to Lender
      the Term Loan, together with interest thereon, in the manner provided herein.
      The principal owing hereunder in respect of the Term Loan at any given time
      shall equal the aggregate initial amount of the advance made as the Term Loan
      minus all principal payments thereon received by Lender in respect of the Term
      Loan. Amounts repaid in respect of the Term Loan may not be reborrowed
      hereunder.

     

    (b)  The
      aggregate principal balance of the Term Loan shall be paid, jointly and
      severally, by Borrowers to Lender in monthly installments, due and payable
      on
      the first day of each calendar month, commencing on December 1, 2006. Each
      monthly principal installment shall be in an amount equal to the original
      principal balance of the Term Loan divided by eighty-four (84), provided that
      the remaining unpaid principal balance of the Term Loan and all accrued interest
      thereon shall be due and payable on the earliest of (i) the payment of the
      remaining unpaid principal balance of the Revolving Loans, (ii) the Termination
      Date and (iii) acceleration of the maturity of the Term Loan in accordance
      with
      the terms hereof.

     

    (c)  Borrowers
      shall prepay the Term Loan from the proceeds of insurance or condemnation awards
      paid in respect of any equipment in which Lender has a security interest. Such
      prepayments shall be applied first to accrued but unpaid interest and the
      balance to installments of principal in the inverse order of their
      maturities.

     

    (d)  Notwithstanding
      anything to the contrary contained herein, Borrowers may prepay the Term Loan
      in
      accordance with Section
      3.4(b)(ii)
      of
Schedule
      A
      hereto.

     

    Section
      2.5  Capital
      Expenditure Loans.
      

     

    (a)  The
      Lender agrees to make loans (each, a “Capex
      Loan”)
      to the
      Borrowers from and after the effective date hereof through and including the
      Termination Date, in such amounts and at such times as the Borrowing Agent
      may
      from time to time request, up to but not in excess of (A) with respect to each
      individual Capex Loan, an amount equal to the Capex Loan Advance Rate
multiplied
      by
      the
      amount of the Qualified Capital Expenditures to be paid with the proceeds of
      such Capital Expenditure Loan, and (B) with respect to Capital Expenditure
      Loans
      in the aggregate, the Capex Loan Amount. The proceeds of each Capital
      Expenditure Loan shall be used by the Borrowers solely to pay Qualified Capital
      Expenditures. Each request for a Capital Expenditure Loan shall be in a minimum
      amount of $25,000. The Capital Expenditure Loan shall be evidenced by that
      certain Capex Note bearing even date herewith made payable, jointly and
      severally, by the Borrowers to order of the Lender (as the same may be amended,
      restated, renewed, replaced, supplemented or otherwise modified from time to
      time, the “Capex
      Note”).

     

    
      
        
        

      

      
        
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    (b)  Unless
      otherwise required to be sooner paid pursuant to this Agreement, the principal
      of each Capex Loan shall mature and be payable in consecutive equal monthly
      installments in an amount sufficient to fully amortize the principal balance
      of
      such Capex Loan by the last day of the seventy-second (72nd) month following
      the
      first day of the first month following
      the first anniversary date of this Agreement occurring after the date on which
      such Capex Loan was made.
      Such
      payments shall commence on the first day of the first month following the first
      anniversary date of this Agreement occurring after the date on which such Capex
      Loan was made and shall continue on the first day of each calendar month
      thereafter until the Termination Date, at which time a final balloon payment
      equal to the aggregate principal balance of all Capex Loans outstanding on
      such
      date shall be due and payable.

     

    (c)  The
      Borrowers may, upon three Business Days’ notice to the Lender, prepay the
      principal of the Capex Loans in whole or in part without premium. Any partial
      prepayment of principal of the Capex Loans shall be in a minimum amount of
      the
      lesser of (A) the aggregate outstanding principal balance of the Capex Loans,
      or
      (B) $25,000 or an integral multiple thereof, and shall be applied to the unpaid
      installments of the Capex Loans in the inverse order of their maturities. Any
      principal of the Capex Loans which is repaid may not be reborrowed. Any
      regularly scheduled payment due in respect of the Capex Loans may be made with
      the proceeds of a Revolving Loan only if, immediately before and after giving
      effect to such payment, no Default or Event of Default then exists or would
      result therefrom. No portion of the Capex Loans may be prepaid with the proceeds
      of any Revolving Loan.

     

    Section
      2.6  Disbursement
      of Loans.
      Each
      Borrower hereby irrevocably authorizes Lender to disburse the proceeds of Loans
      requested, or deemed to be requested, pursuant to this Article
      II
      as
      follows: (i) each advance requested under Section
      2.2(a)
      or
Section
      2.5(a)
      shall be
      disbursed by the Lender in lawful money of the United States of America in
      immediately available funds, (a) in the case of the initial advances under
      the Revolving Loan, the Capex Loan and the Term Loan in accordance with the
      written instructions from Borrowing Agent to Lender, and (b) in the case of
      each subsequent advance, to a deposit account designated in writing by Borrowing
      Agent to Lender; and (ii) the proceeds of each advance requested under
Section
      2.2(b)
      shall be
      distributed by the Lender by way of direct payment of the relevant
      Obligation.

     

    Section
      2.7  Authorized
      Representatives.
      The
      Borrowing Agent shall act hereunder through the Authorized Representatives
      designated from time to time and all notices and requests to be given and
      received by the Borrowing Agent or any Borrower, including requests for Loans,
      shall be given by and directed to such Authorized Representatives; provided,
      however, that the Lender may rely on the authority (or apparent authority)
      of
      any officer or employee of the Borrowing Agent or any Borrower whom the Lender
      in good faith believes to be an Authorized Representative.

     

    Section
      2.8  Borrowing
      Agency Provisions.
      Each
      Borrower hereby irrevocably designates the Borrowing Agent to be its attorney
      and agent and in such capacity to borrow, sign and endorse notes, and execute
      and deliver all instruments, documents, writings and further assurances now
      or
      hereafter required hereunder, on behalf of such Borrower, and hereby authorizes
      the Lender to pay over or credit all Loan proceeds hereunder in accordance
      with
      the request of the Borrowing Agent. The handling of this credit facility as
      a
      co-borrowing facility in the manner set forth in this Agreement is solely as
      an
      accommodation to the Borrowers and at their request. The Lender shall not incur
      liability to any Borrower or any other Person as a result thereof. To induce
      the
      Lender to do so and in consideration thereof, each Borrower hereby indemnifies
      the Lender and holds the Lender harmless from and against any and all
      liabilities, expenses, losses, damages and claims of damage or injury asserted
      against the Lender by any Person arising from or incurred by reason of the
      handling of the financing arrangements of the Borrowers as provided herein,
      reliance by the Lender on any request or instruction from the Borrowing Agent
      or
      any other action taken by the Lender with respect to this Section
      2.8,
      except
      due to willful misconduct or gross (not mere) negligence of the
      Lender.

     

    
      
        
        

      

      
        
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    Section
      2.9  Obligations
      Joint and Several.
      All
      obligations of the Borrowers under this Agreement and the other Loan Documents
      shall be joint and several. Each Borrower hereby agrees to make payment upon
      the
      maturity of the Obligations, whether by acceleration or otherwise, and such
      obligation and liability on the part of each Borrower shall in no way be
      impaired or otherwise affected by any act or omission of the Lender including,
      without limitation any extension, renewal or forbearance granted by the Lender
      to any Borrower, any failure of the Lender to pursue or preserve its rights
      against any Borrower or the release by the Lender of any collateral now or
      hereafter given as security for all or any part of such
      obligations.

     

    Section
      2.10  Waiver
      of Subrogation.
      Subject
      only to the provisions of Section
      2.11
      below,
      each Borrower expressly waives any and all rights of subrogation, reimbursement,
      indemnity, exoneration, contribution or any other claim which such Borrower
      may
      now or hereafter have against any other Borrower or any other person directly
      or
      contingently liable for the Obligations, or against or with respect to any
      other
      Borrower’s property (including, without limitation, any property which is
      collateral for the Obligations), arising from the existence or performance
      of
      this Agreement, until repayment in full of the Obligations.

     

    Section
      2.11  Contribution
      and Indemnification Among the Borrowers.
      Each
      Borrower is obligated to repay the Obligations as joint and several obligors
      under this Agreement. To the extent that any Borrower shall, under this
      Agreement as a joint and several obligor, repay any of the Obligations
      constituting Loans made to another Borrower (an “Accommodation
      Payment”),
      then
      the Borrower making such Accommodation Payment shall be entitled to contribution
      and indemnification from, and be reimbursed by, each of the other Borrowers
      in
      an amount, for each of such other Borrowers, equal to a fraction of such
      Accommodation Payment, the numerator of which fraction is such other Borrower’s
“Allocable Amount” (as defined below) and the denominator of which is the sum of
      the Allocable Amounts of all of the Borrowers. As of any date of determination,
      the “Allocable Amount” of each Borrower shall be equal to the maximum amount of
      liability for Accommodation Payments which could be asserted against such
      Borrower hereunder without (a) rendering such Borrower “insolvent” within the
      meaning of Section
      101(31)
      of Title
      11 of the United States Code entitled “Bankruptcy” (as amended, the
“Bankruptcy
      Code”),
      Section 2 of the Uniform Fraudulent Transfer Act (as amended, the “UFTA”),
      or
      Section 2 of the Uniform Fraudulent Conveyance Act (as amended, the
“UFCA”),
      (b)
      leaving such Borrower with unreasonably small capital or assets, within the
      meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section
      4 of the UFCA, or (c) leaving such Borrower unable to pay its debts as they
      become due within the meaning of Section 548 of the Bankruptcy Code, Section
      4
      of the UFTA, or Section 5 of the UFCA. All rights and claims of contribution,
      indemnification and reimbursement under this Section
      2.11
      shall be
      subordinate in right of payment to the prior payment in full of the
      Obligations.

     

    ARTICLE
      III —
      GENERAL LOAN PROVISIONS; FEES AND EXPENSES

     

    Section
      3.1  Interest.

     

    (a)  Loans.
      Borrowers shall pay interest on the unpaid principal amount of the Obligations
      at a rate per annum equal to the lesser of (i) the Maximum Rate and
      (ii) the Contract Rate, payable monthly in arrears on the first day of each
      calendar month and on the Termination Date.

     

    (b)  Default
      Rate.
      From
      and after the occurrence of an Event of Default, the unpaid principal amount
      of
      all Obligations shall, at the option of Lender, bear interest until paid in
      full
      (or, if earlier, until such Event of Default is cured or waived in writing
      by
      Lender) at a rate per annum equal to the lesser of (i) the Maximum Rate and
      (ii) the Default Rate, payable on demand.

     

    
      
        
        

      

      
        
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    (c)  Computation
      of Interest.
      The
      interest rates provided for in Sections
      3.1(a)
      and
(b)
      shall be
      computed on the basis of a year of 360 days and the actual number of days
      elapsed;

     

    Section
      3.2  Fees
      and Expenses.

     

    (a)  Origination
      Fee.
      In
      consideration for Lender’s agreement to make the Loans in accordance with the
      terms of this Agreement and in order to compensate Lender in part for the costs
      associated with the Loans, Borrowers jointly and severally agree to pay to
      Lender on the date hereof an origination fee in the amount provided in
Section
      3.2(a)
      of
Schedule
      A
      hereto.
      Such fee is in addition to the expenses that Borrowers have agreed to pay
      elsewhere in this Agreement. Such fee shall in all respects be limited so that
      interest on the Obligations is at all times less than interest calculated at
      the
      Maximum Rate.

     

    (b)  Monthly
      Facility Fee.
      In
      consideration for Lender’s agreement to make the Loans in accordance with the
      terms of this Agreement and in order to compensate Lender in part for the costs
      associated with the Loans, Borrowers jointly and severally agree to pay to
      Lender a monthly facility fee for the period from the date hereof through the
      Termination Date calculated as provided in Section
      3.2(b)
      of
Schedule
      A
      hereto.
      Such facility fee shall be payable monthly in advance on the first day of each
      calendar month until the Termination Date and on the Termination Date. Such
      fee
      is in addition to the expenses that Borrowers have agreed to pay elsewhere
      in
      this Agreement. Such fee shall in all respects be limited so that interest
      on
      the Obligations is at all times less than interest calculated at the Maximum
      Rate.

     

    (c)  Unused
      Line Fee.
      Borrowers jointly and severally agree to pay to Lender an unused line fee for
      the period from the date hereof through the Termination Date calculated as
      provided in Section
      3.2(c)
      of
Schedule
      A
      hereto.
      Such unused line fee shall be payable monthly in arrears on the last day of
      each
      calendar month until the Termination Date and on the Termination Date. The
      parties hereto agree that such unused line fee, together with the other fees
      assessed hereunder, constitutes reasonable consideration for Lender’s taking of
      appropriate actions to be able to make available to Borrowers the amount of
      the
      Revolving Facility Limit for such period.

     

    (d)  Collateral
      Monitoring Fee.
      Lender
      shall be entitled to charge Borrowers, and if so charged each Borrower jointly
      and severally agrees to pay, a monthly collateral monitoring fee in the amount
      provided in Section
      3.2(d)
      of
Schedule
      A
      hereto.
      The collateral monitoring fee for each calendar month shall be due and payable
      on the first day of the next calendar month, and shall be prorated for any
      partial calendar month until the Termination Date. Such fee shall in all
      respects be limited so that interest on the Obligations is at all times less
      than interest calculated at the Maximum Rate.

     

    (e)  Minimum
      Usage Fee.
      Borrowers jointly and severally agree to pay to Lender a minimum usage fee
      for
      the period from the date hereof through the Termination Date calculated as
      provided in Section
      3.2(e)
      of
Schedule
      A
      hereto.
      Such usage fee shall be payable monthly in arrears on the last day of each
      calendar month until the Termination Date and on the Termination Date. The
      parties hereto agree that such usage fee, together with the other fees assessed
      hereunder, constitutes reasonable consideration for Lenders taking appropriate
      actions to be able to make available to Borrowers the Loans for such period.
      

     

    (f)  Early
      Termination Fees; Prepayment Fees.
      See
Section
      3.4(b).

     

    
      
        
        

      

      
        
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    (g)  Expenses.
      See
Section
      11.2.

     

    Section
      3.3  Manner
      of Payment.

     

    (a)  Timing.
      Each
      payment by a Borrower on account of the principal of or interest on the Loans
      or
      of any fee or other amount payable to Lender shall be made not later than 1:00
      p.m. (Minneapolis, Minnesota, time) on the applicable due date (or if such
      day
      is not a Business Day, the next succeeding Business Day, provided
      that
      interest shall continue to accrue until such payment is made). All payments
      shall be made to Lender at Lender’s Office, in Dollars, in immediately available
      funds and shall be made without any setoff, counterclaim or deduction
      whatsoever.

     

    (b)  Charging
      Accounts.
      Each
      Borrower hereby irrevocably authorizes Lender and each Affiliate of Lender
      to
      charge any account of such Borrower maintained with Lender or such Affiliate
      with such amounts as may be necessary from time to time to pay any Obligations
      which are not paid when due.

     

    Section
      3.4  Termination
      of Agreement.

     

    (a)  Required
      Payments.
      On the
      Termination Date and upon any early termination of this Agreement, each Borrower
      jointly and severally agrees to pay to Lender (i) the principal of, and
      accrued and unpaid interest on, all Loans outstanding on such date,
      (ii) all fees accrued and unpaid, (iii) any amounts payable to Lender
      pursuant to the other provisions of this Agreement or any other Loan Document,
      and (iv) any and all other Obligations then outstanding.

     

    (b)  Early
      Termination; Prepayment.
      If
      Borrowers terminate this Agreement or prepay the Term Loan prior to the
      Termination Date, each Borrower acknowledges that such termination or prepayment
      would result in the loss to Lender of the benefits of this Agreement and, as
      a
      result thereof, each Borrower jointly and severally agrees to pay to Lender
      an
      early termination fee or a prepayment fee (as applicable) in the amount provided
      in Section
      3.4(b)
      of
      Schedule A hereto.
      

     

    Section
      3.5  Evidence
      of Indebtedness.

     

    (a)  At
      the
      request of Lender, the Loans shall be evidenced by one or more promissory
      notes.

     

    (b)  Lender
      shall maintain accounts in which it will record (i) the amount of each Loan
      extended hereunder and which Borrower was the recipient of such Loan,
      (ii) the amount of any principal or interest due and payable or to become
      due and payable from Borrowers to Lender hereunder, and (iii) the amount of
      any sum received by Lender hereunder from Borrowers.

     

    (c)  The
      entries in the accounts maintained pursuant to subsection (b) above shall
      be prima
      facie
      evidence
      of the existence, amounts and recipients of the Obligations therein recorded,
      provided,
      however,
      that
      the failure of the Lender to maintain such accounts or any error therein shall
      not in any manner affect the joint and several obligation of each Borrower
      to
      repay the Obligations in accordance with their terms.

     

    Section
      3.6  Changes
      in Capital Adequacy Regulations.
      If
      Lender determines the amount of capital required or expected to be maintained
      by
      Lender or any corporation controlling Lender is increased as a result of a
      Change, then, within fifteen days of demand by Lender, each Borrower jointly
      and
      severally agrees to pay Lender the amount necessary to compensate for any
      shortfall in the rate of return on the portion of such increased capital which
      Lender determines (in its commercially reasonable discretion) is attributable
      to
      this Agreement and any facility hereunder; provided,
      however,
      that
      the Lender shall not demand a payment under this Section
      3.6
      relating
      to any time period prior to 90 days before the date on which a demand is made
      for payment pursuant to this Section. “Change”
means
      (i) any change after the date of this Agreement in the Risk-Based Capital
      Guidelines (as defined below) or (ii) any adoption of or change in any
      other law, governmental or quasi-governmental rule, regulation, policy,
      guideline, interpretation, or directive (whether or not having the force of
      law)
      after the date of this Agreement which affects the amount of capital required
      or
      expected to be maintained by Lender or any corporation controlling Lender.
      “Risk-Based
      Capital Guidelines”
means
      (i) the risk-based capital guidelines in effect in the U.S. on the date of
      this Agreement, including transition rules, and (ii) the corresponding
      capital regulations promulgated by regulatory authorities outside the U.S.
      implementing the July 1988 report of the Basel Committee on Banking Regulation
      and Supervisory Practices Entitled “International Convergence of Capital
      Measurements and Capital Standards,” including transition rules, and any
      amendments to such regulations adopted prior to the date of this Agreement.
      If
      the Lender requests compensation under this Section
      3.6
      or
      requires any Borrower to pay any additional amount to the Bank pursuant to
      this
      Section, then, upon the written request of such Borrower, the Lender shall
      use
      reasonable efforts to designate a different lending office for funding or
      booking its Loans hereunder or to assign its rights and obligations hereunder
      to
      another of its offices, branches or affiliates, if, in the commercially
      reasonable judgment of the Lender, such designation or assignment (A) would
      eliminate or materially reduce amounts payable pursuant to this Section in
      the
      future and (B) would not subject the Lender to any unreimbursed cost or expense
      and would not otherwise be disadvantageous to the Lender (as determined in
      its
      commercially reasonable discretion). Without limitation of the provisions of
      Section
      11.2,
      the
      Borrower hereby agrees to pay all reasonable out-of-pocket costs and expenses
      incurred by the Lender in connection with any such designation or
      assignment.

     

    
      
        
        

      

      
        
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    Section
      3.7  Lender
      Statements; Survival of Indemnity.
      Lender
      shall deliver a written statement to Borrowing Agent as to the amount due,
      if
      any, under Section
      3.6.
      Such
      written statement shall set forth in reasonable detail the calculations upon
      which Lender determined such amount. Unless otherwise provided herein, the
      amount specified in the written statement of Lender shall be jointly and
      severally payable on demand by the Borrowers after receipt by Borrowing Agent
      of
      such written statement. 

     

    Section
      3.8  Maximum
      Interest.
      If, at
      any time, the rate of interest contracted for, and computed in the manner
      provided, in this Agreement (“Applicable
      Rate”),
      together with all fees and charges as provided for herein or in any other Loan
      Document (collectively, the “Charges”),
      which
      are treated as interest under applicable law, exceeds the maximum lawful rate
      (the “Maximum
      Rate”)
      allowed under applicable law, it is agreed that such contracting for, charging
      or receiving of such excess amount was an accidental and bona fide error and
      the
      provisions of this Section
      3.8
      will
      govern and control. The rate of interest payable hereunder, together with all
      Charges, shall be limited to the Maximum Rate; provided,
      however, that any subsequent reduction in the Base Rate shall not reduce the
      Applicable Rate below the Maximum Rate until the total amount of interest earned
      hereunder, together with all Charges, equals the total amount of interest which
      would have accrued at the Applicable Rate if the Applicable Rate had at all
      times been in effect. If any payment hereunder, for any reason, results in
      the
      Borrowers having paid interest in excess of that permitted by applicable law,
      then all excess amounts theretofore collected by the Lender shall be credited
      on
      the principal balance of the Obligations (or, if all sums owing hereunder have
      been paid in full, refunded to the Borrowers), and the amounts thereafter
      collectible hereunder shall immediately be deemed reduced, without the necessity
      of the execution of any new document, so as to comply with applicable law and
      permit the recovery of the fullest amount otherwise called for hereunder.

     

    
      
        
        

      

      
        
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    ARTICLE
      IV —
      CONDITIONS PRECEDENT

     

    Section
      4.1  Conditions
      Precedent.
      Lender
      shall not be obligated to make any Loan or advance hereunder (including the
      first) until (i) it shall have received the documents and items listed in
Section
      4.1
      of
Schedule
      A
      hereto,
      each duly executed and delivered in form and substance satisfactory to Lender,
      in its commercially reasonable discretion (it is understood and agreed that,
      in
      the case of the legal opinion delivered pursuant to Section
      4.1(h)
      of
Schedule
      A
      hereto,
      such opinion shall be in the form attached hereto as Exhibit
      C),
      and
      (ii) the requirements listed in Section
      4.1
      of
Schedule
      A
      hereto
      have been fulfilled to the satisfaction of Lender, in its commercially
      reasonable discretion.

     

    Section
      4.2  Conditions
      to Subsequent Advances.
      The
      obligation of Lender to make any advance subsequent to the initial advance
      is
      subject to the following conditions precedent:

     

    (a)  Conditions
      to First Advance.
      All of
      the conditions precedent set forth in Section
      4.1
      have
      been satisfied.

     

    (b)  Borrowing
      Base Certificate.
      Lender
      shall have received from Borrowing Agent a Borrowing Base Certificate executed
      by Borrowing Agent, prepared as of a date not more than five (5) Business Days
      prior to the date of the requested advance.

     

    (c)  Representations
      and Warranties.
      The
      representations and warranties contained in each of the Loan Documents shall
      be
      true in all material respects with the same force and effect as though made
      on
      and as of such date.

     

    (d)  Defaults
      and Events of Default.
      No
      Default or Event of Default shall have occurred and be continuing.

     

    (e)  Adverse
      Change.
      No
      Material Adverse Change (or event or condition that could reasonably be expected
      to cause or have a Material Adverse Change) has occurred since the date of
      the
      Financial Statements.

     

    (f)  Legal
      Restriction.
      Such
      advance or financial accommodation shall not be prohibited by any law or
      regulation or any order of any court or governmental agency or authority.

     

    (g)  No
      Repudiation.
      No
      Borrower shall have repudiated or made any anticipatory breach of any of its
      obligations under any Loan Document. 

     

    ARTICLE
      V — REPRESENTATIONS
      AND WARRANTIES OF BORROWERS

     

    Section
      5.1  Representations
      and Warranties.
      Each
      Borrower represents and warrants to Lender as follows:

     

    (a)  Organization;
      Power; Qualification.
      Each
      Borrower is the type of entity identified in Section
      5.1(a)
      of
Schedule
      A,
      duly
      organized, validly existing and in good standing under the laws of the State
      of
      Organization and is authorized to do business in each state in which the nature
      of its properties or its activities requires such authorization. The
      jurisdictions in which each Borrower is qualified to do business as a foreign
      entity are listed on Schedule
      5.1(a).
      Each
      Borrower’s federal employer identification number and its organizational number
      with the Secretary of State of the State of Organization (if issued) are as
      set
      forth in Section
      5.1(a)
      of
Schedule
      A
      hereto.

     

    
      
        
        

      

      
        
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    (b)  Authorization;
      Enforceability.
      Each
      Borrower has the power and authority to, and is duly authorized to, execute
      and
      deliver the Loan Documents to be executed by such Borrower. All of the Loan
      Documents to which a particular Borrower is a party, constitute the legal,
      valid
      and binding obligations of such Borrower, enforceable in accordance with their
      terms, except as limited by bankruptcy, insolvency or similar laws of general
      application relating to the enforcement of creditors’ rights
      generally.

     

    (c)  Subsidiaries;
      Ownership.
      Except
      as shown on Schedule
      5.1(c),
      no
      Borrower has any subsidiaries. The outstanding capital stock or membership
      interests of each Borrower have been duly and validly issued and are fully
      paid
      and nonassessable, and the significant shareholders/members of each Borrower,
      and the of the amount of shares of capital stock or membership interests, as
      applicable, held by such significant shareholders/members, in each case as
      of
      the date of this Agreement, are set forth on Schedule
      5.1(c).

     

    (d)  Conflicts.
      Neither
      the execution and delivery of the Loan Documents, nor consummation of any of
      the
      transactions therein contemplated nor compliance with the terms and provisions
      thereof, will contravene any provision of law or any judgment, decree, license,
      order or permit applicable to any Borrower or will conflict with, or will result
      in any breach of, any agreement to which any Borrower is a party or by which
      any
      Borrower may be bound or subject, or violate any provision of the organizational
      documents of any Borrower.

     

    (e)  Consents,
      Governmental Approvals, Etc.
      No
      governmental approval nor any consent or approval of any third Person (other
      than those which have been obtained prior to the date hereof) is required in
      connection with the execution, delivery and performance by any Borrower of
      the
      Loan Documents. Each Borrower is in compliance with all applicable governmental
      approvals and all applicable laws.

     

    (f)  Business.
      Each
      Borrower is engaged principally in that business described in Section
      5.1(b) of
      Schedule
      A
      hereto.

     

    (g)  Title;
      Liens.
      Except
      for items described in Schedule
      5.1(g)
      and for
      Permitted Liens, all of the properties and assets of each Borrower are free
      and
      clear of all Liens, and such Borrower has good and marketable title to such
      properties and assets. Each Lien granted, or intended to be granted, to Lender
      pursuant to the Loan Documents is a valid, enforceable, perfected, first
      priority Lien and security interest. 

     

    (h)  Indebtedness
      and Guaranties.
      With
      respect to each Borrower, set forth on Schedule
      5.1(h)
      is a
      complete and correct listing of all of such Borrower’s (i) Indebtedness for
      Money Borrowed, and (ii) guaranties and other contingent
      obligations.

     

    (i)  Suits,
      Actions, Etc.
      Except
      as disclosed on Schedule
      5.1(i),
      no
litigation,
      arbitration, governmental investigation, proceeding or inquiry is pending or,
      to
      the knowledge of any Borrower, threatened against any Borrower
      or that
      could affect any of the Collateral.

     

    (j)  Tax
      Returns and Payments.
      All tax
      returns required to be filed by any Borrower in any jurisdiction have been
      filed
      and all taxes (including property taxes) have been paid prior to the time that
      such taxes could give rise to a lien therefor.

     

    (k)  Financial
      Condition.
      Borrowers have delivered to Lender copies of the Financial Statements. The
      Financial Statements fairly present the financial condition of Borrowers as
      of
      their respective dates and have been prepared in accordance with GAAP
      (except,
      with respect to the unaudited statements, for the presentation of footnotes
      and
      for applicable normal year-end audit adjustments).
      There
      is no Indebtedness of any Borrower which is not reflected in the Financial
      Statements, and no event or circumstance has occurred since the date of the
      Financial Statements which has had or could have or result in a Material Adverse
      Change.

     

    
      
        
        

      

      
        
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    (l)  ERISA.
      Neither
      any Borrower nor any Related Company maintains or contributes to any Benefit
      Plan other than those listed on Schedule
      5.1(l).
      Further, (i) no Reportable Event (as defined in ERISA) has occurred and is
      continuing with respect to any Benefit Plan, and (ii) the PBGC has not
      instituted proceedings to terminate any Benefit Plan. Each Borrower and each
      Related Company has satisfied the minimum funding standards under ERISA with
      respect to its Benefit Plans and is in compliance in all material respects
      with
      the presently applicable provisions of ERISA and the Code, and has not incurred
      any liability to the PBGC or a Benefit Plan under Title IV of ERISA other than
      a
      liability to the PBGC for premiums under Section 4007 of ERISA.

     

    (m)  Compliance;
      Defaults.
      Each
      Borrower is in material compliance with all applicable statutes and governmental
      rules and regulations (including, without limitation, all statutes and
      regulations governing or otherwise relating to the production, manufacture,
      storage, sale, distribution and/or other handling of beer or other intoxicating
      beverages that apply to such Borrower by virtue of the nature of its business).
      No Default or Event of Default has occurred and is continuing.

     

    (n)  Borrowing
      Base Reports.
      All
      accounts and inventory included in any Borrowing Base Certificate constitute
      Eligible Accounts or Eligible Inventory, as appropriate, except as disclosed
      in
      such Borrowing Base Certificate.

     

    (o)  Location
      of Tangible Collateral.
      Set
      forth on Schedule
      5.1(o)
      is
      (i) the location and address where all inventory and other tangible
      Collateral is located, and (ii) if the facility is leased or is a third
      party warehouse or processor location, the name of the landlord or such third
      party warehouseman or processor.

     

    (p)  Place
      of Business.
      The
      place of business of each Borrower (or, if a Borrower has more than one place
      of
      business, its chief executive office) is at the address or addresses set forth
      on Schedule
      5.1(p)
      and the
      books and records relating to the accounts are located at the address or
      addresses set forth on Schedule
      5.1(p).

     

    (q)  Corporate
      and Fictitious Names; Trade Names.
      Except
      as disclosed on Schedule
      5.1(q),
      no
      Borrower has, during the preceding five (5) years, (i) been known as or used
      any
      other corporate, fictitious or trade names (excluding trade names used solely
      in
      relation to the Borrowers’ contract and licensed brewing operations), (ii) been
      the surviving corporation of a merger or consolidation, or (iii) acquired all
      or
      substantially all of the assets of any Person.

     

    (r)  Intellectual
      Property.
      Each
      Borrower owns or possesses all Intellectual Property required to conduct its
      business as now and presently planned to be conducted without, to its knowledge,
      conflict with the rights of others, and Schedule
      10.6
      lists
      all Intellectual Property owned by any Borrower.

     

    (s)  Payroll
      Taxes.
      Each
      Borrower has made all payroll tax deposits for all of its employees on or before
      the date when due.

     

    (t)  Other
      Taxes.
      Each
      Borrower has filed all federal, state and local tax returns required to be
      filed
      and has paid or made provision for the payment of all taxes due and payable
      pursuant to such returns and pursuant to any assessments made against it or
      any
      of its property and all other taxes, fees and other charges imposed on it or
      any
      of its property by any governmental authority (other than taxes, fees or charges
      the amount or validity of which is currently being contested in good faith
      by
      appropriate proceedings and with respect to which reserves in accordance with
      GAAP have been provided on the books of the applicable Borrower). No tax Liens
      have been filed and no material claims are being asserted with respect to any
      such taxes, fees or charges. The charges, accruals and reserves on the books
      of
      the Borrowers in respect of taxes and other governmental charges are adequate.
      

     

    
      
        
        

      

      
        
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    (u)  Solvency.
      Each
      Borrower is Solvent. No transfer of property is being made by any Borrower
      and
      no obligation is being incurred by any Borrower in connection with the
      transactions contemplated by this Agreement or the other Loan Documents with
      the
      intent to hinder, delay or defraud either present or future creditors of such
      Borrower.

     

    (v)  Inventory;
      PACA and Agricultural Lien Matters.
      Except
      for Liens arising in favor of warehousemen that are party to a warehouse or
      bailee letter in favor of the Lender, no processing, packaging or other work
      is
      performed by any Person with respect to inventory of any Borrower giving rise
      to
      a Lien in favor of such Person for amounts due for the processing, packaging
      or
      other work performed. No Borrower has received written notice from any unpaid
      seller, supplier, cooperative or agent of such Person’s intent to preserve the
      benefits of the trust created under PACA or any Agricultural Lien Statute, nor
      has any action been commenced by (i) any beneficiary of the trust created under
      PACA or any Agricultural Lien Statute to enforce payment from such trust, or
      (ii) U.S. Department of Agriculture or other governmental body or regulatory
      authority against any Borrower to enforce payment from the trust created under
      PACA or any Agricultural Lien Statute. No Borrower has received (a) any direct
      notice from any secured party claiming a security interest or agricultural
      lien
      in any “farm products” (as defined in the UCC) purchased by such Borrower, or
      (b) any notice from any eligible claimant or other Person entitled to protection
      or otherwise afforded rights under an Agricultural Lien Statute, nor is any
      Borrower aware of any noncompliance with the Food Security Act or any
      Agricultural Lien Statute on the part of any Person from whom such Borrower
      has
      purchased Inventory. Neither Borrower is a “Dealer” as defined in Article 20 of
      the New York Agriculture and Markets Law, and, as such, neither Borrower
      maintains a license as a Dealer under such statute. Neither Borrower is a
“Processor” as defined in Section 55407 of Food and Agricultural Code of
      California.

     

    Section
      5.2  Survival
      of Representations.
      All
      representations and warranties by Borrowers (or any of them) herein shall be
      deemed to have been made on the date hereof and the date of each advance of
      a
      Loan.

     

    ARTICLE
      VI — SECURITY
      INTEREST AND COLLATERAL COVENANTS

     

    Section
      6.1  Security
      Interest.
      To
      secure the payment and performance of the Obligations, each Borrower hereby
      mortgages, pledges and assigns to Lender all of the Collateral and grants to
      Lender a continuing security interest and Lien in and upon all of the
      Collateral.

     

    Section
      6.2  Collection
      of Accounts.

     

    (a)  If
      any
      Borrower receives any monies, checks, notes, drafts, and other payments relating
      to or constituting proceeds of accounts or of any other Collateral, such
      Borrower shall immediately deposit such items in kind in a Blocked Account,
      fully-endorsed. Each Borrower shall advise each Account Debtor that remits
      amounts payable on the accounts, and any other Person that remits amounts to
      such Borrower in respect of any of the Collateral, by wire transfer or ACH
      to
      make such remittances directly to a Blocked Account.

     

    
      
        
        

      

      
        
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    (b)  Each
      Borrower shall enter into a Lockbox agreement and shall cause all moneys,
      checks, notes, drafts and other payments relating to or constituting proceeds
      of
      accounts, or of any other Collateral, to be forwarded to a Lockbox for deposit
      in a Blocked Account in accordance with the procedures set out in the
      corresponding Blocked Account Agreement. In particular, each Borrower will
      (i) advise each Account Debtor to address to a Lockbox specified by Lender
      all remittances with respect to amounts payable on all accounts, and
      (ii) stamp all invoices relating to any such amounts with a legend
      satisfactory to Lender indicating that payment is to be made to such Borrower
      via such specified Lockbox.

     

    (c)  Borrowers
      and Lender shall cause all collected balances in each Blocked Account to be
      transmitted daily to the Lender by wire transfer or depository transfer check
      or
      Automated Clearing House transfer in accordance with the procedures set forth
      in
      the corresponding Blocked Account Agreement.

     

    (d)  Amounts
      transmitted to the Lender pursuant to subsection (c) above shall be credited
      to
      the payment of the Obligations three (3) Business Days after the date of actual
      receipt of such amounts by the Lender. The delay in applying funds received
      by
      the Lender to the Obligations shall in all respects be limited so that interest
      on the Obligations is at all times less than interest calculated at the Maximum
      Rate.

     

    (e)  Any
      payments which are received by any Borrower (including any payment evidenced
      by
      a promissory note or other instrument) shall be held in trust for Lender and
      shall be (i) deposited in the Blocked Account, or (ii) delivered to Lender,
      as
      promptly as possible in the exact form received, together with any necessary
      endorsements.

     

    Section
      6.3  Verification
      and Notification.
      Lender
      shall have the right at any time at Borrowers’ expense and in its own name, any
      Borrower’s name, or an assumed name (a) to verify the validity, amount or
      any other matter relating to any accounts, and (b) to notify Account
      Debtors to make payment of all amounts directly to Lender and enforce collection
      of any such accounts and to adjust, settle or compromise the amount or payment
      thereof, in the same manner as the applicable Borrower.

     

    Section
      6.4  Disputes,
      Returns and Adjustments.

     

    (a)  Each
      Borrower shall provide Lender with prompt written notice of amounts in excess
      of
      $25,000 that are in dispute between any Account Debtor and such
      Borrower.

     

    (b)  Each
      Borrower shall notify Lender promptly of all returns and credits in respect
      of
      any account, which notice shall specify the accounts affected and be included
      in
      the Borrowing Base Certificate delivered to Lender in accordance with
Section
      8.3(d).
      Each
      Borrower shall notify Lender promptly of any pending return or credit in excess
      of $15,000 and shall specify the account affected, the related Account Debtor
      and the goods to be returned.

     

    (c)  Each
      Borrower may, in the ordinary course of business and prior to a Default or
      an
      Event of Default, grant any extension of time for payment of any account or
      compromise, compound or settle the same for less than the full amount thereof
      or
      release wholly or partly any Person liable for the payment thereof or allow
      any
      credit or discount whatsoever thereon, provided
      that (i)
      such Borrower shall not have taken any such action that results in the reduction
      of more than ten percent (10%) of the amount payable with respect to any account
      or of more than ten percent (10%) of the amount payable with respect to all
      accounts of such Borrower in any fiscal year, and (ii) such Borrower shall
      promptly notify Lender (but not less often than ten (10) days after the end
      of
      each month) of the amount of such adjustments and the account(s) affected
      thereby.

     

    
      
        
        

      

      
        
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    Section
      6.5  Invoices.
      Upon
      request, each Borrower shall deliver to Lender copies of customers’ invoices or
      the equivalent, original shipping and delivery receipts or other proof of
      delivery, customers’ statements, the original copy of all documents, including,
      without limitation, repayment histories and present status reports, relating
      to
      accounts and such other documents and information relating to the accounts
      as
      Lender shall specify.

     

    Section
      6.6  Ownership;
      Defense of Title.

     

    (a)  Each
      Borrower shall defend its title in and to the Collateral and shall defend the
      security interest of Lender in the Collateral against the claims and demands
      of
      all Persons.

     

    (b)  Each
      Borrower shall (i) protect and preserve all properties material to its business,
      including Intellectual Property, and maintain all tangible property in good
      and
      workable condition in all material respects, with reasonable allowance for
      wear
      and tear, and (ii) from time to time make or cause to be made all needed and
      appropriate repairs, renewals, replacements, and additions to such properties
      necessary for the conduct of its business.

     

    Section
      6.7  Location
      of Offices and Collateral; Organizational Information.
      No
      Borrower shall change the location of its place of business (or, if it has
      more
      than one place of business, its chief executive office) or the place where
      it
      keeps its books and records relating to the Collateral or change its name,
      identity, corporate structure or jurisdiction of organization without giving
      Lender at least thirty (30) days’ prior written notice thereof (provided,
      however, that such Borrower may change its corporate structure or jurisdiction
      of organization with less than thirty (30) days prior written notice to Lender
      if Lender consents in writing, which consent shall not be unreasonably
      withheld). All inventory, other than inventory in transit to any such location,
      shall at all times be kept by the applicable Borrower at one or more of the
      locations set forth in Schedule
      5.1(o).

     

    Section
      6.8  Records
      Relating to Collateral.

     

    (a)  Each
      Borrower shall at all times keep and maintain (i) complete and accurate records
      of inventory on a basis consistent with past practices of such Borrower,
      itemizing and describing the kind, type and quantity of inventory and such
      Borrower’s cost therefor and a current price list for such inventory, (ii)
      complete and accurate records of all other Collateral, (iii) a list of all
      customers of such Borrower with names, addresses and phone numbers, (iv) a
      list
      of all distributors for each product line included in such Borrower’s inventory,
      (v) a current customer open order report against current inventory, and (vi)
      a
      current list of all salesmen and employees of such Borrower. Data bases
      containing the foregoing shall at all times be accessible and available to
      Lender.

     

    (b)  Each
      Borrower will conduct a physical count of all inventory, wherever located,
      at
      least annually and make adjustments to its books and records to reflect the
      findings of such count and such adjustments shall be immediately reported to
      Lender.

     

    Section
      6.9  Inspection.
      Lender
      (by any of its officers, employees, or agents) shall have the right at any
      time
      or times to (a) visit the properties of each Borrower, inspect the Collateral
      and the other assets of each Borrower and inspect and make extracts from the
      books and records of each Borrower, all during customary business hours, (b)
      discuss each Borrower’s business, financial condition, results of operations and
      business prospects with such Borrower’s (i) principal officers, (ii) independent
      accountants and other professionals providing services to such Borrower, and
      (iii) any other Person (except that any such discussion with any third parties
      shall be conducted only in accordance with Lender’s standard operating
      procedures relating to the maintenance of confidentiality of confidential
      information of such Borrower), (c) verify the amount, quantity, value, and
      condition of, or any other matter relating to, any of the Collateral and in
      this
      connection review, audit and make extracts from all records and files related
      to
      any of the Collateral, and (d) access and copy the records, lists, reports
      and
      data bases referred to in Section
      6.8;
      provided,
      however,
      that so
      long as no Default or Event of Default has occurred and is continuing, Lender
      agrees to provide at least three (3) business days prior notice to Borrowers
      before exercising any of its inspection or visitation rights under this Section.
      Each Borrower will deliver to the Lender upon request any instrument necessary
      to authorize an independent accountant or other professional to have discussions
      of the type outlined above with the Lender or for the Lender to obtain records
      from any service bureau maintaining records on behalf of such
      Borrower.

     

    
      
        
        

      

      
        
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    Section
      6.10  Maintenance.
      Each
      Borrower shall maintain all equipment of such Borrower in good and working
      order
      and condition, reasonable wear and tear accepted.

     

    Section
      6.11  Power
      of Attorney.
      Each
      Borrower hereby appoints Lender as its attorney, with power (a) to endorse
      the
      name of such Borrower on any checks, notes, acceptances, money orders, drafts
      or
      other forms of payment or security that may come into Lender’s possession, and
      (b) to sign the name of such Borrower on any invoice or bill of lading relating
      to any accounts, inventory or other Collateral. Each Borrower also authorizes
      Lender to file financing statements, without such Borrower’s signature, covering
      part or all of the Collateral in such jurisdictions as Lender shall determine
      to
      be advisable.

     

    ARTICLE
      VII —
      AFFIRMATIVE COVENANTS

     

    So
      long
      as this Agreement shall be in effect or any of the Obligations shall be
      outstanding, each Borrower covenants and agrees as follows:

     

    Section
      7.1  Preservation
      of Corporate Existence and Similar Matters.
      Each
      Borrower shall preserve and maintain its existence as a corporation or limited
      liability company, as the case may be, and qualify and remain qualified as
      a
      foreign entity authorized to do business in each jurisdiction in which the
      character of its properties or the nature of its business requires such
      qualification or authorization.

     

    Section
      7.2  Compliance
      with Applicable Law.
      Each
      Borrower shall comply with all applicable laws (including, without limitation,
      PACA, the Food Security Act, any applicable Agricultural Lien Statute, and
      any
      applicable statute, regulation or ordinance governing or otherwise relating
      to
      (a) ecology, human health or the environment, or (b) the production,
      manufacture, storage, sale, distribution and/or other handling of beer or other
      intoxicating beverages).

     

    Section
      7.3  Conduct
      of Business.
      Each
      Borrower shall engage only in substantially the same businesses conducted by
      such Borrower on the date hereof.

     

    Section
      7.4  Payment
      of Taxes and Claims.
      Each
      Borrower shall pay or discharge when due (a) all taxes, assessments and
      governmental charges imposed upon it or its properties and (b) all lawful
      claims which, if unpaid, might become a Lien on any properties of such Borrower,
      except that this Section
      7.4 shall
      not
      require the payment or discharge of any such tax, assessment, charge, levy
      or
      claim which is being contested in good faith by appropriate proceedings and
      for
      which adequate reserves have been established on the appropriate books of such
      Borrower.

     

    Section
      7.5  Accounting
      Methods and Financial Records.
      Each
      Borrower shall maintain a system of accounting, and keep such books, records
      and
      accounts (which shall be true and complete), as may be required or as may be
      necessary to permit the preparation of financial statements in accordance with
      GAAP consistently applied.

     

    Section
      7.6  Use
      of
      Proceeds.
      Each
      Borrower shall (a) use the proceeds of the Loans for the repayment of its
      outstanding bank debt and for working capital and general business purposes,
      and
      (b) not use any part of such proceeds to purchase or carry, or to reduce or
      retire or refinance any credit incurred to purchase or carry, any margin stock
      (within the meaning of Regulation U of the Board of Governors of the Federal
      Reserve System) or for any other purpose which would violate Regulation U or
      Regulation T or X of such Board of Governors or for any other purpose prohibited
      by law or by the terms and conditions of this Agreement.

     

    
      
        
        

      

      
        
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    Section
      7.7  Hazardous
      Waste and Substances; Environmental Requirements.
      Each
      Borrower shall comply with all occupational health and safety laws and
      Environmental Laws.

     

    Section
      7.8  Accuracy
      of Information.
      All
      written information, reports, statements and other papers and data furnished
      to
      Lender shall be, at the time the same is so furnished, complete and correct
      in
      all material respects.

     

    Section
      7.9  Revisions
      or Updates to Schedules.
      Should
      any of the information or disclosures provided on any of the Schedules attached
      hereto become outdated or incorrect in any material respect, Borrowers shall
      provide promptly to Lender such revisions or updates to such Schedule(s) as
      may
      be necessary or appropriate to update or correct and update such Schedule(s).
      Notwithstanding the foregoing, the delivery to Lender of a revised or updated
      schedule shall not constitute a waiver of, or consent to, any Default or Event
      of Default arising as a result of any erroneous or incorrect information
      provided in any Schedule previously delivered to Lender.

     

    Section
      7.10  ERISA.
      Each
      Borrower shall provide to Lender, as soon as possible and in any event within
      30
      days after the date that (a) any Termination Event with respect to a Benefit
      Plan of such Borrower has occurred or will occur, (b) the aggregate present
      value of the Unfunded Vested Liabilities under all Benefit Plans of such
      Borrower has increased to an amount in excess of $0, or (c) such Borrower is
      in
“default” (as defined in Section 4219(c)(5) of ERISA) with respect to payments
      to a Multiemployer Plan required by reason of its complete or partial withdrawal
      (as described in Section 4203 or 4205 of ERISA) from such Multiemployer Plan,
      a
      certificate of the president or the chief financial officer of such Borrower
      setting forth the details of such of the events described in clauses
      (a)
      through
(c)
      as
      applicable and the action which is proposed to be taken with respect thereto
      and, simultaneously with the filing thereof, copies of any notice or filing
      which may be required by the PBGC or other agency of the United States
      government with respect to such of the events described in clauses
      (a)
      through
(c)
      as
      applicable.

     

    Section
      7.11  Insurance.
      Each
      Borrower shall keep or cause to be kept adequately insured by financially sound
      and reputable insurers all of its property usually insured by Persons engaged
      in
      the same or similar businesses. Without limiting the foregoing, each Borrower
      shall insure the Collateral of such Borrower against loss or damage by fire,
      theft, burglary, pilferage, loss in transit, business interruption, and such
      other hazards as usual and customary in such Borrower’s industry or as Lender
      may specify in amounts and under policies by insurers acceptable to Lender,
      and
      all premiums thereon shall be paid by such Borrower and copies of the policies
      delivered to Lender. If any Borrower fails to do so, Lender may procure such
      insurance and charge the cost to such Borrower’s account. Each policy of
      insurance covering the Collateral shall provide that at least ten (10) days
      prior written notice of cancellation or notice of lapse must be given to Lender
      by the insurer. All insurance policies required under this Section
      7.11
      shall
      name Lender as an additional named insured and as a loss payee. Any proceeds
      of
      insurance referred to in this Section
      7.11
      which
      are paid to Lender shall be, at the option of Lender in its commercially
      reasonable discretion, either (i) applied to rebuild, restore or replace the
      damaged or destroyed property, or (ii) applied to the payment of the Obligations
      (or, if any Default or Event of Default has occurred and is continuing, to
      the
      prepayment of the Obligations).

     

    Section
      7.12  Payroll
      Taxes.
      Each
      Borrower shall at all times make all payroll tax deposits for all of its
      employees on or before the date when due.

     

    
      
        
        

      

      
        
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    Section
      7.13  Notice
      of Certain Matters.
      Each
      Borrower shall provide to Lender prompt notice of (a) the commencement, to
      the
      extent such Borrower is aware of the same, of all actions and proceedings in
      any
      court against any Borrower or any of the Collateral, (b) any amendment of any
      of
      the organizational documents of any Borrower, including but not limited to
      articles of incorporation or bylaws, (c) any change in the business, financial
      condition, results of operations or business prospects of any Borrower and
      any
      change in the executive officers of any Borrower (including, without limitation,
      if either (x) Yashpal Singh shall for any reason cease to hold the office of
      President and Chief Executive Officer of Mendocino Brewing, or (y) N. Mahadevan
      shall for any reason cease to hold the office of Chief Financial Officer of
      Mendocino Brewing), and (d) any (i) Default or Event of Default, or (ii) event
      that would constitute a default or event of default by any Borrower under any
      Material Agreement (other than this Agreement) to which such Borrower is a
      party. In addition, each Borrower will promptly notify Bank in writing upon
      receiving from any unpaid seller, supplier or agent any written notice of intent
      to preserve the benefits of the trust created under PACA or any Agricultural
      Lien Statute, the commencement of any action by any beneficiary of the trust
      created under PACA or any Agricultural Lien Statute to enforce payment from
      such
      trust, or any action commenced by the U.S. Department of Agriculture or any
      governmental body or regulatory authority against Borrower to enforce payment
      from the trust created under PACA or any Agricultural Lien Statute. In addition,
      each Borrower will promptly notify Lender in writing (a) upon receiving any
      direct notice from any secured party claiming a security interest or
      agricultural lien in any “farm products” (as defined in the UCC) purchased by
      such Borrower, (b) upon receiving any notice from any eligible claimant or
      other
      Person entitled to protection under an Agricultural Lien Statute, (c) upon
      learning that any Person from whom such Borrower has purchased Inventory has
      failed to comply with the Food Security Act or any Agricultural Lien Statute,
      and (d) upon receiving any written notice or other written communication from
      any licensing authority under any Agricultural Lien Statute. In addition, so
      long as any of UBH, UBA or Inversiones remain significant shareholders, directly
      or indirectly, of Mendocino Brewing, Mendocino Brewing agrees that it will
      promptly notify Lender in writing upon learning of the occurrence of any of
      the
      following events or circumstances:

     

    (A) UBH,
      UBA
      or Inversiones shall (i) apply for or consent to the appointment of a receiver,
      trustee, custodian, intervenor or liquidator of such Person or of all or a
      substantial part of such Person’s assets, (ii) file a voluntary petition in
      bankruptcy, (iii) admit in writing that such Person is unable to pay its debts
      as they become due, (iv) make a general assignment for the benefit of creditors,
      (v) file a petition or answer seeking reorganization or an arrangement with
      creditors or to take advantage of any bankruptcy or insolvency proceeding,
      or
      (vii) take corporate, company or partnership action for the purpose of effecting
      any of the foregoing; or

     

    (B) An
      involuntary petition or complaint shall be filed against UBH, UBA or Inversiones
      seeking bankruptcy or reorganization of such Person or the appointment of a
      receiver, custodian, trustee, intervenor or liquidator of such Person, or of
      all
      or substantially all of such Person’s assets; or an order, order for relief,
      judgment or decree shall be entered by any court of competent jurisdiction
      or
      other competent authority approving a petition or complaint seeking
      reorganization of such Person or appointing an intervenor or liquidator of
      such
      Person, or of all or substantially all of such Person’s assets.

    

    Section
      7.14  Additional
      Affirmative Covenants.
      The
      covenants set forth in Section
      7.14
      of
Schedule
      A
      hereto
      are incorporated herein by reference.

     

    ARTICLE
      VIII —
      FINANCIAL AND COLLATERAL REPORTING

     

    So
      long
      as this Agreement shall be in effect or any of the Obligations shall be
      outstanding, each Borrower covenants and agrees as follows:

     

    
      
        
        

      

      
        
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    Section
      8.1  Financial
      Statements.
      

     

    (a)  Audited
      Year-End Statements.
      As soon
      as available, but in any event within one hundred twenty (120) days
      after the end of each fiscal year of Borrowers, Borrowers shall furnish to
      Lender copies of the audited consolidated and consolidating balance sheet of
      Mendocino Brewing and its subsidiaries as of the end of such fiscal year and
      the
      related audited consolidated and consolidating statements of income,
      shareholders’ equity and cash flow for such fiscal year, in each case setting
      forth in comparative form the figures for the previous year of Mendocino Brewing
      and its subsidiaries, together with an unqualified audit report certified by
      independent certified public accountants selected by Borrowers and acceptable
      to
      Lender in its commercially reasonable discretion; provided that consolidating
      statements need not be certified by such accountants. In addition, on or before
      such date, Borrowers shall provide Lender with copies of all management reports
      received from their certified public accountants.

     

    (b)  Monthly
      Financial Statements.
      As soon
      as available, but in any event within twenty (20) days after the end of each
      month, Borrowers shall furnish to Lender copies of the unaudited consolidated
      and consolidating balance sheet of Mendocino Brewing and its U.S. subsidiaries
      as of the end of such month and the related unaudited consolidated and
      consolidating income statement and statement of cash flow of Mendocino Brewing
      and its U.S. subsidiaries for such month and for the portion of the fiscal
      year
      of Borrowers through such month, certified by the chief financial officer of
      Mendocino Brewing as presenting fairly the financial condition and results
      of
      operations of Mendocino Brewing and its subsidiaries as of the date thereof
      and
      for the periods ended on such date, subject to normal year-end
      adjustments.

     

    (c)  Projected
      Financial Statements.
      At
      least thirty (30) but not more than sixty (60) days prior to the end of each
      fiscal year of Borrowers, Borrowers shall furnish to Lender forecasted financial
      statements, prepared by Borrowers’ management, consisting of consolidated and
      consolidating balance sheets, cash flow statements and income statements of
      Mendocino Brewing and its U.S. subsidiaries, reflecting projected borrowing
      hereunder and setting forth the assumptions on which such forecasted financial
      statements were prepared, covering the one-year period until the next fiscal
      year end.

     

    All
      such
      financial statements shall be complete and correct in all material respects
      and
      all such financial statements referred to in clauses
      (a)
      and
(b)
      shall be
      prepared in accordance with GAAP (except, with respect to interim financial
      statements, for the omission of footnotes) applied consistently throughout
      the
      periods reflected therein. Further, all such financial statements shall be
      in a
      form acceptable to Lender. It is expressly understood and agreed that, if the
      financial statements referred to in clauses
      (a)
      and
(b)
      above
      combine and consolidate the financial condition and results of operation of
      the
      Borrowers with those of any other Person, or if such financial statements do
      not
      combine and consolidate the financial condition and results of operation of
      the
      Borrowers, then the Borrowers, in addition to such financial statements referred
      to above, shall deliver to the Lender with such financial statements a separate
      set of financial statements for the same periods (and, in the case of the
      financial statements referred to in clause
      (a),
      prepared by the same independent certified public accountants) which combine
      and
      consolidate solely the financial condition and results of operation of the
      Borrowers.

     

    Section
      8.2  Compliance
      Certificate.
      Together with each delivery of financial statements required by Sections
      8.1(a)
      and
(b),
      Borrowers shall furnish to Lender a certificate of each Borrower’s president or
      chief financial officer in the form of Exhibit
      B.

     

    Section
      8.3  Collateral
      Information and Reports.

     

    
      
        
        

      

      
        
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    (a)  Schedules
      of Accounts.
      Within
      twenty (20) days after the end of each month, Borrowers shall furnish to Lender
      a Schedule of Accounts listing all accounts of each Borrower as of the last
      Business Day of such month setting forth (i) the name of each Account
      Debtor together with account balances detailed by invoice number, amount (and
      any applicable rebate or discount), invoice date and terms, (ii) aging of
      all accounts setting forth accounts thirty (30) days past the invoice date
      or
      less, accounts over thirty (30) days past the invoice date but less than
      sixty-one (61) days past the invoice date, accounts over sixty (60) days past
      the invoice date but less than ninety-one (91) days past the invoice date,
      accounts over ninety (90) days past the invoice date and less than one hundred
      twenty-one (121) days past the invoice date and accounts over one hundred twenty
      (120) days past the invoice date, and (iii) a reconciliation of the
      Schedule of Accounts to the Borrowing Base Certificate as of the most recent
      month end and to each Borrower’s general ledger as of such month
      end.

     

    (b)  Schedules
      of Accounts Payable.
      Within
      twenty (20) days after the end of each month, Borrowers shall furnish to Lender
      a schedule of accounts payable of each Borrower as of the last Business Day
      of
      such month setting forth (i) a detailed aged trial balance of all of each
      Borrower’s then existing accounts payable, specifying the name of and the
      balance due to each creditor and (ii) a reconciliation to the schedule of
      accounts payable to each Borrower’s general ledger as of such month end.
      Together with the above-described accounts payable agings, each Borrower shall
      deliver to the Lender (i) a listing of all Grower Payables (if any) of such
      Borrower, certified as true and complete by a duly authorized officer of such
      Borrower, which listing may be relied upon by the Lender in determining the
      Grower Payables Reserve, and (b) a listing of all PACA Payables (if any) of
      such
      Borrower, certified as true and complete by a duly authorized officer of such
      Borrower, which listing may be relied upon by Bank in determining the PACA
      Reserve.

     

    (c)  Schedule
      of Inventory.
      Within
      twenty (20) days after the end of each month, Borrowers shall furnish to Lender
      (i) (A) a Schedule of Inventory, based upon each Borrower’s perpetual
      inventory, as of the last Business Day of such month, itemizing and describing
      the kind, type, quantity and location of all inventory of each Borrower and
      the
      cost thereof with a summary of inventory by category, and (B) a detailed
      statement of all inventory that is not located on the premises described on
      Schedule
      5.1(o),
      in each
      case in form and substance acceptable to Lender, and (ii) a reconciliation
      of the Schedule of Inventory to the Borrowing Base Certificate as of the most
      recent month end and to each Borrower’s general ledger as of such month
      end.

     

    (d)  Borrowing
      Base Certificate.
      Not
      less often than weekly, Borrowers shall furnish to Lender a Borrowing Base
      Certificate prepared as of the close of business on the last Business Day of
      such week, along with supporting documentation, in form and substance
      satisfactory to Lender (including but not limited to information on sales,
      credits, collections and adjustments).

     

    (e)  Certification.
      Each of
      the schedules and certificates delivered to Lender by Borrowers pursuant to
      this
Section
      8.3
      shall be
      in a form acceptable to Lender in its commercially reasonable discretion and
      shall be signed and certified by the president, chief financial officer or
      treasurer of each Borrower to be true, correct and complete as of the date
      indicated thereon. In the event any of such schedules or certificates are
      delivered electronically or without signature, such schedules and/or
      certificates shall, by virtue of their delivery, be deemed to have been signed
      and certified by the president of each Borrower to be true, correct and complete
      as of the date indicated thereon.

     

    (f)  Other
      Information.
      Lender
      may, in its commercially reasonable discretion, from time to time require
      Borrowers to deliver the schedules and certificates described in Section
      8.3
      more or
      less often and on different schedules than specified in such Section. Borrowers
      shall also furnish to Lender such other additional information as Lender may
      from time to time request in its commercially reasonable
      discretion.

     

    
      
        
        

      

      
        
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    ARTICLE
      IX —
      NEGATIVE COVENANTS

     

    So
      long
      as this Agreement shall be in effect or any of the Obligations shall be
      outstanding, each Borrower covenants and agrees as follows:

     

    Section
      9.1  Financial
      Covenants.
      Refer
      to Section
      9.1
      of
Schedule
      A
      hereto.

     

    Section
      9.2  Prohibited
      Distributions and Payments, Etc.
      No
      Borrower shall, directly or indirectly, declare or make any Prohibited
      Distribution or Prohibited Payment without the prior written consent of Lender,
      which consent shall not be unreasonably withheld, provided,
      that so
      long as (i) a Borrower is a limited liability company and has elected to be
      taxed as a partnership for Federal income tax purposes or has a valid election
      to be taxed as an “S corporation” for Federal income tax purposes and (ii) no
      Default or Event of Default has occurred or would result therefrom, such
      Borrower may pay dividends or make distributions to its shareholders or members
      (as applicable) in an aggregate amount not greater than the amount necessary
      for
      such shareholders or members to pay their actual state and United States federal
      income tax liabilities in respect of taxable income earned by such
      Borrower.

     

    Section
      9.3  Indebtedness.
      Except
      as disclosed on Schedule
      5.1(h),
      no
      Borrower shall, directly or indirectly, create, assume, or otherwise become
      or
      remain obligated in respect of, or permit or suffer to exist or to be created,
      assumed or incurred or to be outstanding, any Indebtedness, except for Permitted
      Indebtedness. Without limiting the generality of the foregoing, Borrowers
      specifically covenant and agree that they will not, directly or indirectly,
      create, assume or otherwise become or remain obligated in respect of, or permit
      or suffer to exist or to be created, assumed or incurred or to be outstanding,
      any Indebtedness owed to any subsidiary or other Affiliate of any Borrower,
      other than Indebtedness that is expressly contemplated by and subject to a
      Subordination Agreement (in form and substance acceptable to the Lender in
      its
      commercially reasonable discretion) executed by the holder(s) of such
      Indebtedness in favor of the Lender.

     

    Section
      9.4  Liens.
      No
      Borrower shall, directly or indirectly, create, assume or permit or suffer
      to
      exist or to be created or assumed any Lien on any of the property or assets
      of
      such Borrower, real, personal or mixed, tangible or intangible, except for
      Permitted Liens or the liens identified on Schedule
      5.1(g).
      

     

    Section
      9.5  Loans.
      No
      Borrower shall make any loans or advances to or for the benefit of any officer,
      director, manager, shareholder, member, or partner of any Borrower except
      advances for routine expense allowances in the ordinary course of business.
      No
      Borrower shall make or suffer to exist any loans or advances to or for the
      benefit of any subsidiary of other Affiliate of any Borrower. No Borrower shall
      make any payment on any obligation owing to any officer, director, manager,
      shareholder, member, partner or Affiliate of any Borrower, except payments
      of
      salary and payments to the holder of any Subordinated Indebtedness, if any,
      in
      accordance with the terms of the subordination agreement among such subordinated
      creditor, such Borrower, and Lender.

     

    Section
      9.6  Merger,
      Consolidation, Sale of Assets, Acquisitions.
      No
      Borrower shall, directly or indirectly, merge or consolidate with any other
      Person or sell, lease or transfer or otherwise dispose of any assets to any
      Person (other than sales of inventory in the ordinary course of business) or
      acquire all or substantially all of the assets of any Person or the assets
      constituting the business or a division or operating unit of any
      Person.

     

    
      
        
        

      

      
        
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    Section
      9.7  Transactions
      with Affiliates.
      No
      Borrower shall, directly or indirectly, effect any transaction with any
      Affiliate on a basis less favorable to such Borrower than would be the case
      if
      such transaction had been effected with a Person not an Affiliate, provided
      that no
      Borrower shall enter into any lease with any Affiliate.

     

    Section
      9.8  Licensure.
      No
      Borrower is required to maintain a license, and no Borrower maintains a license,
      under either PACA or any Agricultural Lien Statute.

     

    Section
      9.9  Warehouse
      Receipts.
      Each
      Borrower represents that it does not issue, and covenants that it will not
      issue, any negotiable warehouse receipts, nonnegotiable warehouse receipts,
      scale weight tickets or load slips, or any other evidence of ownership or
      document of title, covering any hops, malt or other grain products or
      derivatives, whether located at a facility owned or leased by a Borrower or
      otherwise, that are or were included within such Borrower’s inventory.

     

    Section
      9.10  Guaranties.
      No
      Borrower shall, directly or indirectly, either (a) endorse, guarantee,
      contingently agree to purchase or to provide funds for the payment of, or
      otherwise become contingently liable upon, any obligation of any other Person,
      except by the endorsement of negotiable instruments for deposit or collection
      (or similar transactions) in the ordinary course of business, or (b) agree
      to
      maintain the net worth or working capital of, or provide funds to satisfy any
      other financial test applicable to, any other Person.

     

    Section
      9.11  Operating
      Leases.
      No
      Borrower shall, directly or indirectly, suffer to exist or enter into any lease
      other than a Capitalized Lease which would cause the annual payment obligations
      of such Borrower under all leases (other than Capitalized Leases and the real
      property leases described on Schedule
      9.11
      attached
      hereto) to exceed $50,000 in
      the
      aggregate.

     

    Section
      9.12  Benefit
      Plans.
      No
      Borrower shall, directly or indirectly, permit, or take any action which would
      cause, the Unfunded Vested Liabilities under all Benefit Plans of such Borrower
      to exceed $0.

     

    Section
      9.13  Sales
      and Leasebacks.
      No
      Borrower shall, directly or indirectly, enter into any arrangement with any
      Person providing for the leasing from such Person of real or personal property
      which has been or is to be sold or transferred, directly or indirectly, by
      such
      Borrower to such Person.

     

    Section
      9.14  Investments.
      No
      Borrower shall, directly or indirectly, make or acquire any Investment without
      the prior written consent of the Lender, which consent shall not be unreasonably
      withheld; provided,
      however,
      each
      Borrower may make Permitted Investments.

     

    Section
      9.15  Amendments.
      No
      Borrower shall amend or modify, or permit any amendment or modification to,
      whether orally, in writing, or otherwise, any agreement evidencing or relating
      to Subordinated Indebtedness that would affect the validity or enforceability
      of
      the subordination agreement referred to in Section
      4.11(q)
      of
Schedule
      A
      hereto,
      without the prior written consent of the Lender.

     

    Section
      9.16  USA
      Patriot Act.
      No
      Borrower shall (a) be or become subject at any time to any law, regulation,
      or list of any government agency (including, without limitation, the U.S. Office
      of Foreign Asset Control list) that prohibits or limits Lender from making
      any
      advance or extension of credit to such Borrower or from otherwise conducting
      business with such Borrower or (b) fail to provide documentary and other
      evidence of such Borrower’s or its officers’ or managers’ identities as may be
      requested by Lender at any time to enable Lender to verify such Borrower’s
      identity or to comply with any applicable law or regulation, including, without
      limitation, Section 326 of the USA Patriot Act of 2001, 31 U.S.C.
§5318.

     

    
      
        
        

      

      
        
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    Section
      9.17  Additional
      Negative Covenants.
      The
      covenants set forth in Section
      9.16
      of
Schedule
      A
      hereto
      are incorporated herein by reference.

     

    ARTICLE
      X —
      DEFAULT

     

    Section
      10.1  Events
      of Default.
      Each of
      the following events shall constitute an Event of Default:

     

    (a)  The
      failure or refusal of any Borrower to make any payment of the Obligations when
      due;

     

    (b)  The
      failure of any Borrower to perform properly any covenant in this Agreement
      or in
      any of the other Loan Documents; 

     

    (c)  The
      occurrence of any default or event of default under any of the other Loan
      Documents;

     

    (d)  Any
      representation or warranty contained herein or in any of the other Loan
      Documents is false or misleading in any material respect when made or deemed
      made;

     

    (e)  Any
      Borrower shall (i) apply for or consent to the appointment of a receiver,
      trustee, custodian, intervenor or liquidator of such Borrower or of all or
      a
      substantial part of such Borrower’s assets, (ii) file a voluntary petition in
      bankruptcy, (iii) admit in writing that such Borrower is unable to pay its
      debts
      as they become due, (iv) make a general assignment for the benefit of creditors,
      (v) file a petition or answer seeking reorganization or an arrangement with
      creditors or to take advantage of any bankruptcy or insolvency proceeding,
      or
      (vii) take corporate, company or partnership action for the purpose of effecting
      any of the foregoing;

     

    (f)  With
      respect to any Borrower, either (i) an involuntary petition or complaint
      shall be filed against such Borrower seeking bankruptcy or reorganization of
      such Borrower or the appointment of a receiver, custodian, trustee, intervenor
      or liquidator of such Borrower, or of all or substantially all of such
      Borrower’s assets or (ii) an order, order for relief, judgment or decree
      shall be entered by any court of competent jurisdiction or other competent
      authority approving a petition or complaint seeking reorganization of such
      Borrower or appointing an intervenor or liquidator of such Borrower, or of
      all
      or substantially all of such Borrower’s assets; or (iii) such Borrower shall
      become subject to a proceeding ancillary commenced in connection with any
      insolvency proceeding involving UBI, UBSN or any other foreign Affiliate of
      such
      Borrower;

     

    (g)  Any
      money
      judgment is rendered against any Borrower that is not paid within thirty (30)
      days after the entry thereof (or, if later, by the date on which such payment
      is
      due pursuant to a written settlement agreement duly executed by or on behalf
      of
      the applicable judgment creditor), or the failure, within a period of ten (10)
      days after the commencement thereof, to have discharged any attachment,
      sequestration, or similar proceedings against any Borrower’s assets;

     

    (h)  Lender
      shall cease to have a valid, perfected and first priority Lien on any of the
      Collateral, except as otherwise expressly permitted herein or consented to
      in
      writing by Lender;

     

    (i)  Any
      failure by UBI, UBSN or any other foreign Affiliate owned, directly or
      indirectly, by any Borrower to consistently observe all necessary and proper
      corporate formalities consistent with its status as an independent legal entity;
      or

     

    
      
        
        

      

      
        
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    (j)  Any
      other
      event described in Section
      10.1
      of
Schedule
      A
      hereto
      shall occur.

     

    Section
      10.2  Remedies.

     

    (a)  Automatic
      Acceleration and Termination of Facilities.
      Upon
      the occurrence of an Event of Default specified in Section
      10.1(e)
      or
(f)(ii),
      (i) the principal of and the accrued interest on the Loans at the time
      outstanding, and all other amounts owed to Lender under this Agreement or any
      of
      the Loan Documents and all other Obligations, shall thereupon become due and
      payable without presentment, demand, protest, notice of protest and non-payment,
      notice of default, notice of acceleration or intention to accelerate, or other
      notice of any kind, all of which are expressly waived, anything in this
      Agreement or any of the Loan Documents to the contrary notwithstanding, and
      (ii) the commitment of Lender to make Loans hereunder shall immediately
      terminate.

     

    (b)  Other
      Remedies.
      Without
      limiting the terms of Section
      10.2(a)
      above,
      if any Event of Default shall have occurred and be continuing, Lender, in its
      sole and absolute discretion, may (i) declare the principal of and accrued
      interest on the Loans at the time outstanding, and all other amounts owed to
      Lender under this Agreement or any of the Loan Documents and all other
      Obligations, to be forthwith due and payable, whereupon the same shall
      immediately become due and payable without presentment, demand, protest, notice
      of protest and non-payment, notice of default, notice of acceleration or
      intention to accelerate, or other notice of any kind, all of which are expressly
      waived, anything in this Agreement or the Loan Documents to the contrary
      notwithstanding; (ii) terminate any commitment of Lender to make Loans
      hereunder; (iii) enter upon any premises where Collateral is located; (iv)
      require that Mendocino Brewing execute and deliver to Lender a Pledge Agreement
      (in form and substance acceptable to Lender in its commercially reasonable
      discretion) covering all of its capital stock in Releta Brewing (which Mendocino
      Brewing specifically agrees it will execute and deliver to Lender without
      delay); and (v) exercise any or all rights and remedies available under the
      Loan Documents, at law and/or in equity including, without limitation, the
      rights and remedies of a secured party under the UCC (whether or not the UCC
      is
      applicable). Each Borrower agrees that, to the extent notice of sale shall
      be
      required by law, 10 days’ notice to such Borrower of the time and place of any
      public sale or the time after which any private sale is to be made shall
      constitute reasonable notice, but notice given in any other reasonable manner
      or
      at any other reasonable time shall also constitute reasonable
      notification.

     

    Section
      10.3  Application
      of Proceeds.
      All
      proceeds from each sale of, or other realization upon, all or any part of the
      Collateral following an Event of Default shall be applied to the payment of
      the
      Obligations (with each Borrower remaining jointly and severally liable for
      any
      deficiency) in any order which Lender may elect with the balance (if any) paid
      to Borrowers or to whomsoever is entitled thereto.

     

    Section
      10.4  Power
      of Attorney.
      Each
      Borrower hereby irrevocably designates, makes, constitutes and appoints Lender
      (and all Persons designated by Lender from time to time) as such Borrower’s true
      and lawful attorney and agent in fact, and Lender or any agent of Lender may,
      without notice to any Borrower, and at such time or times as Lender or any
      such
      agent in its sole and absolute discretion may determine, in the name of such
      Borrower or Lender:

     

    (a)  demand
      payment of the accounts, enforce payment thereof by legal proceedings or
      otherwise, settle, adjust, compromise, extend or renew any or all of the
      accounts or any legal proceedings brought to collect the accounts, discharge
      and
      release the accounts or any of them and exercise all of such Borrower’s rights
      and remedies with respect to the collection of accounts;

     

    
      
        
        

      

      
        
          LOANAND
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            AGREEMENT
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    (b)  prepare,
      file and sign the name of such Borrower on any proof of claim in bankruptcy
      or
      any similar document against any Account Debtor or any notice of Lien,
      assignment or satisfaction of Lien or similar document in connection with any
      of
      the Collateral;

     

    (c)  use
      the
      stationery of such Borrower, open such Borrower’s mail, notify the post office
      authorities to change the address for delivery of such Borrower’s mail to an
      address designated by Lender and sign the name of such Borrower to verifications
      of the accounts and on any notice to the Account Debtors; and

     

    (d)  use
      the
      information recorded on or contained in any data processing equipment and
      computer hardware and software relating to the accounts, inventory or other
      Collateral.

     

    Section
      10.5  Miscellaneous
      Provisions Concerning Remedies.

     

    (a)  Rights
      Cumulative.
      The
      rights and remedies of Lender under the Loan Documents shall be cumulative
      and
      not exclusive of any rights or remedies which it would otherwise have. In
      exercising such rights and remedies, Lender may be selective and no failure
      or
      delay by Lender in exercising any right shall operate as a waiver of such right
      nor shall any single or partial exercise of any power or right preclude its
      other or further exercise or the exercise of any other power or
      right.

     

    (b)  Waiver
      of Marshaling.
      Each
      Borrower hereby waives any right to require any marshaling of assets and any
      similar right.

     

    Section
      10.6  Trademark
      License.
      All
      trademarks, patents, copyrights, service marks and licenses owned by any
      Borrower, and all trademarks, patents, copyrights, service marks and software
      licensed by any Borrower, are listed on Schedule
      10.6.
      Each
      Borrower hereby grants to Lender the nonexclusive right and license to use
      all
      of the trademarks, patents, copyrights, service marks and licenses described
      on
Schedule
      10.6
      and any
      other trademarks, patents, copyrights, service marks and licenses now or
      hereafter used by such Borrower, for the purposes set forth in Section
      10.2
      and for
      the purpose of enabling Lender to realize on the Collateral and to permit any
      purchaser of any portion of the Collateral through a foreclosure sale or any
      other exercise of Lender’s rights and remedies under the Loan Documents to use,
      sell or otherwise dispose of the Collateral bearing any such trademarks,
      patents, copyrights, service marks and licenses. Such right and license is
      granted free of charge, without the requirement that any monetary payment
      whatsoever be made to any Borrower or any other Person by Lender.

     

    ARTICLE
      XI —
      MISCELLANEOUS

     

    Section
      11.1  Notices.

     

    (a)  Method
      of Communication.
      All
      notices and the communications hereunder and thereunder shall be in writing
      or
      by telephone subsequently confirmed in writing. Notices in writing shall be
      delivered personally or sent by overnight courier service, by certified or
      registered mail, postage pre-paid, or by facsimile transmission and shall be
      deemed received, in the case of personal delivery, when delivered, in the case
      of overnight courier service, on the next Business Day after delivery to such
      service, in the case of mailing, on the third day after mailing (or, if such
      day
      is a day on which deliveries of mail are not made, on the next succeeding day
      on
      which deliveries of mail are made) and, in the case of facsimile transmission,
      upon transmittal, provided
      that in
      the case of notices to Lender, Lender shall be charged with knowledge of the
      contents thereof only when such notice is actually received by Lender. A
      telephonic notice to Lender as understood by Lender will be deemed to be the
      controlling and proper notice in the event of a discrepancy with or failure
      to
      receive a confirming written notice.

     

    
      
        
        

      

      
        
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    (b)  Addresses
      for Notices.
      Notices
      to any party shall be sent to it at the following addresses, or any other
      address of which all the other parties are notified in writing.

    

      
        	
                If
                  to a Borrower:

              	
                See
                  Section
                  11.1
                  of
                  Schedule
                  A
                  hereto for each Borrower’s address and contact
                  information.

              
	 	 
	
                If
                  to Lender:

              	
                1660
                  S. Highway 100
                  
                  Suite
                    146
                    
                    Minneapolis,
                      MN 55416-1524
                      
                      Attention:
                        Credit Department
                        
                        Facsimile
                          (952)
                          542-8907

                      

                    

                  

                

              

      

    

     

    Section
      11.2  Expenses.
      Within
      ten (10) days after presentation of an invoice for such costs and expenses,
      outlining such items in reasonable detail, each Borrower jointly and severally
      agrees to pay or reimburse all costs and expenses incurred by Lender arising
      out
      of or in connection with this Agreement and the Loans including, without
      limitation, (a) the reasonable fees and expenses of counsel in connection with
      the negotiation, preparation, execution, delivery, amendment, enforcement and
      termination of this Agreement and each of the other Loan Documents, (b) the
      out-of-pocket costs and expenses incurred in connection with the administration
      and interpretation of this Agreement and the other Loan Documents, (c) the
      costs
      and expenses of appraisals of the Collateral, (d) the costs and expenses of
      lien
      searches, (e) all stamp, registration, recordation and similar taxes, fees
      or
      charges related to the Collateral and charges of filing financing statements
      and
      continuations and the costs and expenses of taking other actions to perfect,
      protect, and continue the security interest of Lender, (f) costs and expenses
      related to the preparation, execution and delivery of any waiver, amendment,
      supplement or consent by Lender relating to this Agreement or any of the Loan
      Documents, (g) sums paid or obligations incurred in connection with the payment
      of any amount or taking any action required of any Borrower under the Loan
      Documents that such Borrower fails to pay or take, (h) costs of inspections
      and
      verifications of the Collateral, including, without limitation, $800 per diem
      per examiner plus out of pocket expenses
      for travel, lodging, and meals arising in connection with inspections and
      verifications of the Collateral and each Borrower’s operations and books and
      records by Lender’s employees and agents, (i) costs and expenses of forwarding
      loan proceeds, collecting checks and other items of payment, and establishing
      and maintaining each account of each Borrower maintained with Lender or owned
      by
      Lender for the benefit of any Borrower and each Blocked Account and Lockbox,
      (j)
      costs and expenses of preserving and protecting the Collateral, (k) costs and
      expenses related to consulting with and obtaining opinions and appraisals from
      one or more Persons, including personal property appraisers, accountants and
      lawyers, concerning the value of any Collateral for the Obligations or related
      to the nature, scope or value of any right or remedy of Lender hereunder or
      under any of the Loan Documents, including any review of factual matters in
      connection therewith, which expenses shall include the fees and disbursements
      of
      such Persons, and (1) costs and expenses paid or incurred to obtain payment
      of
      the Obligations, enforce the security interest of Lender, sell or otherwise
      realize upon the Collateral, and otherwise enforce the provisions of the Loan
      Documents, or to prosecute or defend any claim in any way arising out of,
      related to or connected with, this Agreement or any of the Loan Documents,
      which
      expenses shall include the reasonable fees and disbursements of counsel and
      of
      experts and other consultants retained by Lender. Each Borrower hereby
      authorizes Lender to debit such Borrower’s loan account by increasing the
      principal amount of the Loan, or deduct from such Borrower’s accounts maintained
      with any Affiliate of Lender, the amount of any costs, fees and expenses owed
      by
      any Borrower when due.

     

    
      
        
        

      

      
        
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            AGREEMENT
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    Section
      11.3  Setoff.
      In
      addition to any rights now or hereafter granted under applicable law, and not
      by
      way of limitation of any such rights, upon and after the occurrence of any
      Event
      of Default, Lender and any participant with Lender in the Loans are hereby
      authorized by each Borrower at any time or from time to time, without notice
      to
      any Borrower or to any other Person, any such notice being hereby expressly
      waived, to set off and to appropriate and to apply any and all deposits (general
      or special, time or demand, including, but not limited to, indebtedness
      evidenced by certificates of deposit, whether matured or unmatured) and any
      other indebtedness at any time held or owing by Lender or any participant to
      or
      for the credit or the account of any Borrower against and on account of the
      Obligations irrespective or whether or not (a) Lender shall have made any demand
      under this Agreement or any of the Loan Documents, or (b) Lender shall have
      declared any or all of the Obligations to be due and payable as permitted by
      Section
      10.2
      and
      although such Obligations shall be contingent or unmatured.

     

    Section
      11.4  Venue;
      Service of Process.
      EACH
      BORROWER HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION
      OF
      THE STATE AND FEDERAL COURTS LOCATED IN HENNEPIN COUNTY, MINNESOTA, AND AGREES
      AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING
      RELATING TO THIS AGREEMENT, ANY BORROWING HEREUNDER OR ANY OTHER RELATIONSHIP
      BETWEEN OR AMONG LENDER AND BORROWERS (OR ANY OF THEM) BY ANY MEANS ALLOWED
      UNDER STATE OR FEDERAL LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY
      RELATED TO THIS AGREEMENT, ANY BORROWING HEREUNDER OR ANY OTHER RELATIONSHIP
      BETWEEN OR AMONG LENDER AND BORROWERS (OR ANY OF THEM) MAY BE BROUGHT AND
      LITIGATED IN ANY ONE OF THE STATE OR FEDERAL COURTS LOCATED IN HENNEPIN COUNTY,
      MINNESOTA, HAVING JURISDICTION. BORROWERS AND LENDER WAIVE AND AGREE NOT TO
      ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH PROCEEDING
      IS
      BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER. ANY
      JUDICIAL PROCEEDING BY BORROWERS (OR ANY OF THEM) AGAINST THE LENDER INVOLVING,
      DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
      CONNECTION WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN
      MINNEAPOLIS, MINNESOTA. 

     

    Section
      11.5  Assignment;
      Participation.
      All the
      provisions of this Agreement shall be binding upon and inure to the benefit
      of
      the parties hereto and their respective successors and assigns, except that
      no
      Borrower may assign or transfer any of its rights or obligations under this
      Agreement. Lender may assign to one or more Persons, or sell participations
      to
      one or more Persons in, all or a portion of its rights and obligations hereunder
      and under this Agreement and any promissory notes issued pursuant hereto and,
      in
      connection with any such assignment or sale of a participation, may assign
      its
      rights and obligations under the Loan Documents. Each Borrower agrees that
      Lender may provide any information that Lender may have about such Borrower
      or
      about any matter relating to this Agreement to any of its Affiliates or their
      successors, or to any one or more purchasers or potential purchasers of any
      of
      its rights under this Agreement or any one or more participants or potential
      participants.

     

    Section
      11.6  Amendments.
      Any
      term, covenant, agreement or condition of this Agreement or any of the other
      Loan Documents may be amended or waived and any departure therefrom may be
      consented to if, but only if, such amendment, waiver or consent is in writing
      signed by Lender and, in the case of an amendment, by Borrowers. Unless
      otherwise specified in such waiver or consent, a waiver or consent given
      hereunder shall be effective only in the specific instance and for the specific
      purpose for which given.

     

    Section
      11.7  Performance
      of Borrowers’ Duties.
      If any
      Borrower shall fail to do any act or thing which it has covenanted to do under
      this Agreement or any of the Loan Documents, Lender may (but shall not be
      obligated to) do the same or cause it to be done either in the name of Lender
      or
      in the name and on behalf of such Borrower, and each Borrower hereby irrevocably
      authorizes Lender so to act.

     

    
      
        
        

      

      
        
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            SECURITY
            AGREEMENT
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    Section
      11.8  Indemnification.
      Each
      Borrower jointly and severally agrees to reimburse Lender and its Affiliates
      and
      their officers, employees, directors, shareholders and agents (collectively,
      the
“Indemnified
      Parties”
and
      individually, an “Indemnified
      Party”)
      for
      all reasonable costs and expenses, including legal fees and expenses, incurred
      and shall indemnify and hold the Indemnified Parties harmless from and against
      all losses suffered by any Indemnified Party, other than losses resulting from
      an Indemnified Party’s gross negligence or willful misconduct, in connection
      with (a) the exercise by Lender or any of its Affiliates of any right or
      remedy granted to it under this Agreement or any of the Loan Documents or at
      law, (b) any claim, and the prosecution or defense thereof, arising out of
      or in any way connected with this Agreement or any of the Loan Documents, except
      in the case of a dispute between Borrowers (or any of them) and Lender in which
      such Borrower(s) prevail(s) in a final unappealed or unappealable judgment,
      and
      (c) the collection or enforcement of the Obligations or any of them.

     

    Section
      11.9  All
      Powers Coupled with Interest.
      All
      powers of attorney and other authorizations granted to Lender and any Persons
      designated by Lender pursuant to any provisions of this Agreement or any of
      the
      Loan Documents shall be deemed coupled with an interest and shall be irrevocable
      so long as any of the Obligations remain unpaid or unsatisfied or Lender has
      any
      obligations to make advances hereunder.

     

    Section
      11.10  Entire
      Agreement; Severability of Provisions.
      This
      Agreement and the other Loan Documents embody the entire agreement and
      understanding between the Borrowers and the Lender with respect to the subject
      matter hereof and thereof. This Agreement supersedes all prior agreements and
      understandings relating to the subject matter hereof. Any provision of this
      Agreement or any other Loan Document which is prohibited or unenforceable in
      any
      jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
      of such prohibition or unenforceability without invalidating the remainder
      of
      such provision or the remaining provisions hereof or thereof or affecting the
      validity or enforceability of such provision in any other
      jurisdiction.

     

    Section
      11.11  Governing
      Law.
      This
      Agreement and the promissory notes issued pursuant hereto shall be construed
      in
      accordance with and governed by the law of the State of Minnesota other than
      its
      conflict of laws principles.

     

    Section
      11.12  Jury
      Waiver.
      EACH
      BORROWER AND LENDER HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND
      UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
      DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG
      BORROWERS (OR ANY OF THEM) AND LENDER AND LENDER’S AFFILIATES ARISING OUT OF OR
      IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY
      RELATIONSHIP BETWEEN OR AMONG LENDER AND BORROWERS (OR ANY OF THEM), OR BETWEEN
      OR AMONG BORROWERS (OR ANY OF THEM) AND ANY AFFILIATE OF LENDER. THIS PROVISION
      IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN
      OR
      IN THE OTHER LOAN DOCUMENTS.

     

    Section
      11.13  Counterparts.
      This
      Agreement may be executed in any number of counterparts and by different parties
      hereto in separate counterparts, each of which when so executed shall be deemed
      to be an original and shall be binding upon all parties, their successors and
      assigns, and all of which taken together shall constitute one and the same
      agreement. A facsimile or digital copy of any signed Loan Document, including
      this Agreement, shall be deemed to be an original thereof.

     

    
      
        
        

      

      
        
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            AGREEMENT
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    Section
      11.14  Patriot
      Act Notice.
      IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the
      government fight the funding of terrorism and money laundering activities,
      Federal law requires all financial institutions to obtain, verify, and record
      information that identifies each person or entity that opens an account,
      including any deposit account, treasury management account, loan, other
      extension of credit, or other financial services product. What this means for
      each Borrower: When such Borrower opens an account, if such Borrower is an
      individual, Lender will ask for such Borrower’s name, residential address, date
      of birth, and other information that will allow Lender to identify such
      Borrower, and if such Borrower is not an individual, Lender will ask for such
      Borrower’s name, employer identification number, business address, and other
      information that will allow Lender to identify such Borrower. Lender may also
      ask, if such Borrower is an individual, to see such Borrower’s driver’s license
      or other identifying documents, and if such Borrower is not an individual,
      to
      see such Borrower’s legal organizational documents or other identifying
      documents.

     

    Section
      11.15  Wire
      Transfer Fees and Returned Check Charges.
      Each
      Borrower jointly and severally agrees to pay a wire transfer charge of $20.00
      for every wire transfer processed by the Lender and $20.00 for any returned
      checks charged against its account for funds deposited on such Borrower’s
      behalf.

     

    Section
      11.16  Participations
      and Information.
      Lender
      may sell participation interests in any or all of the Loans to any Person.
      Lender may furnish any information concerning the Borrowers (or any of them)
      in
      the possession of the Lender from time to time to affiliates of the Lender
      in
      connection with lending business of the Lender or such affiliates, and to
      participants and prospective participants, and may furnish information in
      response to credit inquiries consistent with general commercial lending
      practice.

    

    [Remainder
      of page intentionally left blank;

    signature
      page follows]

     

    
      
        
        

      

      
        
          LOANAND
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            AGREEMENT
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    THIS
      WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
      MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
      ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
      THE PARTIES.

     

    
      	 	 	 
	 	
              MENDOCINO
                BREWING COMPANY, INC.

            
	 
 	 
 	 
 
	 	By:  	 
	 	Name:	 
	 	Title:	 
	 	
            
	 	
            

    

    
       

      
        	 	 	 
	 	
                
                  RELETA
                    BREWING COMPANY LLC

                

              
	 
 	 
 	 
 
	 	By:  	 
	 	Name:	 
	 	Title:	 
	 	
              
	 	
              

      

      
         

        
          	 	 	 
	 	
                  
                    
                      MARQUETTE
                        BUSINESS CREDIT, INC.

                    

                  

                
	 
 	 
 	 
 
	 	By:  	 
	 	Name:	 
	 	Title:	 
	 	
                
	 	
                

        

      

    

     

    EXHIBITS
      AND SCHEDULES

    

      
        	
                EXHIBIT
                  A

              	
                 

              	
                FORM
                  OF BORROWING BASE CERTIFICATE

              
	
                EXHIBIT
                  B

              	
                 

              	
                FORM
                  OF COMPLIANCE CERTIFICATE

              
	
                EXHIBIT
                  C

              	
                 

              	
                FORM
                  OF LEGAL OPINION

              
	
                 

              	
                 

              	
                 

              
	
                SCHEDULE
                  A

              	
                 

              	
                Additional
                  Terms and Covenants

              
	 	 	 
	
                SCHEDULE
                  1.1

              	
                 

              	
                Commercial
                  Tort Claims

              
	
                SCHEDULE
                  5.1 (a)

              	
                 

              	
                Jurisdictions
                  in Which Each Borrower is Qualified as a Foreign
                  Corporation

              
	
                SCHEDULE
                  5.1 (c)

              	
                 

              	
                Capital
                  Stock/Membership Interests and Subsidiaries

              
	
                SCHEDULE
                  5.1 (g)

              	
                 

              	
                Liens

              
	
                SCHEDULE
                  5.1 (h)

              	
                 

              	
                Indebtedness
                  for Money Borrowed and Guaranties

              
	
                SCHEDULE
                  5.1 (i)

              	
                 

              	
                Litigation

              
	
                SCHEDULE
                  5.1 (1)

              	
                 

              	
                ERISA
                  Benefit Plans

              
	
                SCHEDULE
                  5.1 (o)

              	
                 

              	
                Locations
                  of inventory

              
	
                SCHEDULE
                  5.1 (p)

              	
                 

              	
                Location
                  of Chief Executive Office

              
	
                SCHEDULE
                  5.1 (q)

              	
                 

              	
                Corporate
                  and Fictitious Names

              
	
                SCHEDULE
                  9.1

              	
                 

              	
                Real
                  Property Leases

              
	
                SCHEDULE
                  10.6

              	
                 

              	
                List
                  of trademarks, patents, etc.

              

      

       

    

    
      
        
        

      

      
        
          LOANAND
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    ACKNOWLEDGMENT

     

    State
      of
      California

    County
      of
      _________________

     

    On
      November ____, 2006 before me, _________________________, the
      _____________________ of MENDOCINO BREWING COMPANY, INC., a California
      corporation personally appeared _____________________________ personally known
      to me (or proved to me on the basis of satisfactory evidence) to be the
      person(s) whose name(s) is/are subscribed to the within instrument and
      acknowledged to me that he/she/they executed the same in his/her/their
      authorized capacity(ies), and that by his/her/their signature(s) on the
      instrument the person(s), or the entity upon behalf of which the person(s)
      acted, executed the instrument.

     

     

    WITNESS
      my hand and official seal.

     

    Signature
      _______________________________

     

    (Seal)

     

    ACKNOWLEDGMENT

     

    State
      of
      California

    County
      of
      _________________

     

    On
      November ____, 2006 before me, ________________________, the
      _____________________ of RELETA BREWING COMPANY LLC, a New York limited
      liability company, personally appeared ______________________________ personally
      known to me (or proved to me on the basis of satisfactory evidence) to be the
      person(s) whose name(s) is/are subscribed to the within instrument and
      acknowledged to me that he/she/they executed the same in his/her/their
      authorized capacity(ies), and that by his/her/their signature(s) on the
      instrument the person(s), or the entity upon behalf of which the person(s)
      acted, executed the instrument.

     

     

    WITNESS
      my hand and official seal.

     

    Signature
      _______________________________

     

    (Seal)

     

    
      
        
        

      

      
        
          LOANAND
            SECURITY
            AGREEMENT
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            42

        

        
          

        

      

      
        
        

      

    

    Exhibit
      A

     

    Borrowing
      Base Certificate

     

    

    

    See
      attached.

     

    
      
        
        

      

      
        
          LOANAND
            SECURITY
            AGREEMENT
            - PAGE
            43

        

        
          

        

      

      
        
        

      

    

    Exhibit
      B

     

    Compliance
      Certificate

    

    TO: Marquette
      Business Credit, Inc.

     

    THE
      UNDERSIGNED HEREBY CERTIFIES THAT:

     

    (a) I
      am a
      duly elected officer (or deputy thereof) Mendocino Brewing Company, Inc., a
      California corporation and Releta Brewing Company LLC, a Delaware limited
      liability company (collectively, the “Borrowers”).

     

    (b) I
      have
      reviewed the terms of the Loan and Security Agreement dated as of November
      16,
      2006 (as previously amended, and as the same may be further amended or otherwise
      modified from time to time, the "Loan
      Agreement")
      among
      MARQUETTE BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"),
      and
      the Borrowers, and I have made, or have caused to be made under my supervision,
      a detailed review of the transactions and conditions of the Borrowers during
      the
      accounting period covered by the attachment hereto, and the financial
      information contained in the attachment hereto is accurate as of the date of
      said attachment for the period specified.

     

    (c) The
      examinations described in paragraph (b) did not disclose, and I have no
      knowledge of, whether arising out of such examinations or otherwise, the
      existence of any condition or event which constitutes a Default or an Event
      of
      Default (as such terms are defined in the Loan Agreement) during or at the
      end
      of the accounting period covered by the attachment hereto or as of the date
      of
      this Certificate, except as described below (or in a separate attachment to
      this
      Certificate). The exceptions listing, in detail, the nature of the condition
      or
      event, the period during which it has existed and the action which the
      applicable Borrower has taken, is taking, or proposes to take with respect
      to
      each such condition or event, are as follows: (see attached).

     

    (d) No
      policy
      of insurance required to be maintained pursuant to the Loan Agreement or any
      other Loan Document (as such term is defined in the Loan Agreement) has lapsed
      during the reporting period described on Attachment No. 1 hereto and no such
      policy will lapse within the next 60 days.

     

    (e) The
      undersigned is not aware of any change in any law, statute, regulation, rule
      or
      ordinance of any governmental authority or regulatory body, or in the prevailing
      interpretation of any such law, statute, regulation, rule or ordinance, which
      could reasonably be expected to impair or otherwise adversely affect the
      Lender's rights or ability to enforce its security interest against, or to
      otherwise realize the expected value from, the Collateral (or any significant
      portion thereof), including, without limitation, any change by which any
      governmental authority, regulatory body or other Person has, or has the right
      to
      obtain, a Lien on any material part of the Collateral.

     

    The
      foregoing certifications, together with the computations set forth in Attachment
      No. 1 hereto and the financial statements delivered with this Certificate
      in support hereof, are made and delivered this ___ day of ________________
      200__, pursuant to Section
      8.2
      of the
      Loan Agreement.

    
      	 	 	 
	 	
              [_______________________________]

            
	 
 	 
 	 
 
	 	
              By  

            	 
	 	
              Its

            	 
	 	
            
	 	
            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ATTACHMENT
      NO. 1

    TO
      COMPLIANCE CERTIFICATE

    AS
      OF _______________, 200___, WHICH PERTAINS

    TO
      THE PERIOD FROM _______________, 200___

    TO
      _______________, 200___

     

    Terms
      defined in the Loan Agreement are used herein as defined therein and Section
      references herein refer to the Sections in Schedule
      A
      to the
      Loan Agreement.

     

    
      	
              1. Tangible
                Net Worth (Section 9.1(a))

              (At
                least $7,000,000)

            	
              Actual
                $ _____________

            	
              In
                Compliance?

              Yes______
                No______

            
	 	 	 
	
              2. Fixed
                Charge Coverage Ratio (Section 9.1(b))

              (At
                least 1.05 to 1.00 as of each calendar quarter-end)

            	
              Actual
                _____ to 1.00

            	
              In
                Compliance?

              Yes______
                No______

            
	 	 	 
	
              3. Capital
                Expenditures (Section 9.1(c))

              (No
                more than $300,000 in any fiscal year)

            	
              Actual
                $__________

            	
              In
                Compliance?

              Yes______
                No______

            
	 	 	 
	
              4. Minimum
                EBITDA (Section 9.1(d))

              (Not
                less than $925,000 for any fiscal year)

            	
              Actual
                $__________

            	
              In
                Compliance?

              Yes
                ______ No______

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Exhibit
      C

     

    Form
      of Legal Opinion

    

     

    See
      attached.

    
 

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    SCHEDULE
      A

     

    Additional
      Terms and Covenants

     

    Section
      1.1 Definitions

     

    "Applicable
      Margin"
      means
      (a) with respect to the Revolving Loans, a percentage equal to four and
      one-quarter percent (4.25%) per annum, and (b) with respect to the Capex Loans,
      the Term Loan and all of the other Obligations, a percentage equal to five
      and
      one-quarter percent (5.25%) per annum; provided,
      however,
      that
      each such percentage shall be subject to adjustment on the first two (2)
      anniversary dates of the date of this Agreement (each such anniversary date
      being a “Determination
      Date”)
      as set
      forth in the remainder of this definition based on the Borrowers’ Fixed Charge
      Coverage Ratio. The Fixed Charge Coverage Ratio will be determined as of each
      Determination Date for the immediately preceding period of twelve consecutive
      months ending on, or most recently ended prior to, such Determination Date.
      On
      the Lender's receipt of the Borrowers’ financial statements required to be
      delivered to the Lender pursuant to Section
      8.1(b),
      the
      Applicable Margin will be reduced by 0.125% per annum if the then Fixed Charge
      Coverage Ratio equals or exceeds 1.25 to 1.00, so long as no Default or Event
      of
      Default has occurred and is continuing as of applicable Determination Date
      or as
      of the effective date of such adjustment. The foregoing adjustment, if
      applicable, to the Applicable Margin will become effective for the unpaid
      principal balance of Loans outstanding on and after the first day of the first
      calendar month following delivery to the Lender of the Borrowers’ financial
      statements required to be delivered to Lender pursuant to Section
      8.1(b)
      until
      the next succeeding effective date of adjustment pursuant to this definition
      (if
      any). Each of the financial statements required to be delivered to the Lender
      must be delivered to the Lender in compliance with Section
      8.1.
      If
      Borrower, however,
      has not
      timely delivered its financial statements in accordance with Section
      8.1,
      then,
      without limiting any of the rights and remedies available to the Lender by
      reason of such noncompliance at the Lender's option, commencing on the date
      upon
      which such financial statements should have been delivered in accordance with
      Section
      8.1
      and
      continuing until such financial statements are actually delivered in accordance
      with Section
      8.1,
      it
      shall be assumed for purposes of determining the Applicable Margin that the
      Fixed Charge Coverage Ratio was less than 1.25 to 1.0 and the pricing associated
      with a Fixed Charge Coverage Ratio of less than 1.25 to 1.0 will be applicable
      on the then applicable Determination Date. Notwithstanding the foregoing it
      is
      expressly understood and agreed that:

     

    (i) in
      no
      event shall the Applicable Margin be less than (a) with respect to the Revolving
      Loans, a percentage equal to four percent (4.00%) per annum, and (b) with
      respect to the Capex Loans, the Term Loan and all of the other Obligations,
      a
      percentage equal to five percent (5.00%) per annum;

     

    (ii) if,
      as of
      any date of determination occurring after the Applicable Margin has been
      adjusted pursuant to the preceding provisions of this definition, the Fixed
      Charge Coverage is less than 1.25 to 1.00, then the Applicable Margin shall
      be
      immediately restored to (a) with respect to the Revolving Loans, a percentage
      equal to four and one-quarter percent (4.25%) per annum, and (b) with respect
      to
      the Capex Loans, the Term Loan and all of the other Obligations, a percentage
      equal to five and one-quarter percent (5.25%) per annum; and

     

    (iii) nothing
      contained in this definition shall limit or otherwise affect any of the rights
      and remedies available to the Lender if the Fixed Charge Coverage Ratio is
      less
      than the level required pursuant to Section
      9.1(b)
      of this
Schedule
      A.

     

    “Borrowing
      Base”
means,
      as of any date, an amount equal to the sum of (a) eighty-five percent (85%)
      (or such lesser percentage as Lender may in its sole and absolute discretion
      determine from time to time) of Eligible Accounts on such date, plus
      (b) the lesser of (i) sixty percent (60%) (or such lesser percentage
      as Lender may in its sole and absolute discretion determine from time to time)
      multiplied by the amount of Eligible Inventory on such date and
      (ii) $750,000, minus
      (c) the Reserve.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Concentration
      Limit”
means
      fifteen percent (15%).

     

    “Contract
      Rate”
means
      (a) with respect to the Revolving Loans, the sum of the Base Rate in effect
      from
      time to time plus
      the
      Applicable Margin, and (b) with respect to the Capex Loans, the Term Loan and
      all of the other Obligations, the sum of the Base Rate in effect from time
      to
      time plus
      the
      Applicable Margin. Any change in the Contract Rate resulting from a change
      in
      the Base Rate shall become effective on the day such change in the Base Rate
      is
      quoted and determined by Lender. 

     

    “Cross
      Aging Percentage”
shall
      mean twenty five percent (25%) of the aggregate balance of all accounts owing
      by
      a particular Account Debtor.

     

    “Financial
      Statements”
means
      (i) the consolidated and consolidating balance sheet of Mendocino Brewing and
      its subsidiaries for its fiscal year ending, December 31, 2005, and the related
      consolidated and consolidating statements of profit and loss and cash flows
      for
      the year ended on such date, audited by
      independent public accountants, and (ii) the unaudited consolidated and
      consolidating balance sheet of Mendocino Brewing and its U.S. subsidiaries
      as of
      August 31, 2006, and the related statements of profit and loss and cash flows
      for the monthly period then ended; provided,
      however, that if the financial statements referred to in items (i) and (ii)
      above combine and consolidate the financial condition and results of operation
      of the Borrowers with those of any other Person, or if such financial statements
      do not combine and consolidate the financial condition and results of operation
      of the Borrowers, then the Borrowers, in addition to such financial statements
      referred to above, shall deliver to the Lender with such financial statements
      a
      separate set of financial statements for the same periods (and, in the case
      of
      item (i), prepared by the same independent certified public accountants) which
      combine and consolidate solely the financial condition and results of operation
      of the Borrowers. 

     

    “Fixed
      Charge Coverage Ratio”
means
      the ratio, determined as of the end of each calendar quarter for the twelve
      consecutive months then ending of (a) the combined EBITDA of the Borrowers
      (excluding the results of operation of all Persons other than the Borrowers)
      for
      such period minus
      cash
      taxes paid by the Borrowers during such period, minus
      unfinanced Capital Expenditures made by the Borrowers during such period, to
      (b)
      without duplication, cash interest expense of the Borrowers, plus
      scheduled principal payments on Indebtedness made by the Borrowers during such
      period, plus
      payments
      on Capitalized Leases of the Borrowers, plus
      all
      dividends and distributions made by the Borrowers in respect of their respective
      capital stock or other equity interests during such period, all calculated
      for
      the Borrowers on a combined basis (excluding the results of operation of all
      Persons other than the Borrowers).

     

    “Lockbox”
means
      the U.S. Post Office Box(es) specified in, or established pursuant to,
      (i) a Blocked Account Agreement, or (ii) a Lockbox agreement, in form
      and substance acceptable to Lender, executed between on or more of the Borrowers
      and a financial institution acceptable to Lender.

     

    “Permitted
      Indebtedness”
means
      (i) purchase money Indebtedness incurred by any Borrower to finance, or
      provide the funds for, the acquisition of assets, which outstanding principal
      Indebtedness shall not exceed $150,000 in
      the
      aggregate for all Borrowers at any time outstanding, (ii) the Indebtedness
      described on Schedule
      5.1(h)
      attached
      hereto and made a part hereof, and (iii) the Obligations. 

     

    “Revolving
      Facility Limit”
means
      Two Million Seven Hundred Fifty Thousand and no/100 Dollars
      ($2,750,000.00).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “State
      of Organization”
means
      (a) with respect to Mendocino Brewing, California, and (b) with respect to
      Releta Brewing, Delaware.

     

    “Termination
      Date”
means
      June 27, 2011.

     

    “Total
      Credit Facility”
means
      an amount equal to the sum of the Revolving Facility Limit, the Capex Loan
      Amount and the original principal amount of the Term Loan.

     

    Section
      3.2 Fees
      and Expenses.

     

    (a) The
      origination fee shall be $50,000.

     

    (b) The
      monthly facility fee shall be one-half of one percent (0.50%) per
      annum
      of the
      Total Credit Facility.

     

    (c) The
      unused line fee shall equal one quarter of one percent (0.25%) per
      annum
      of the
      sum of the average daily unborrowed amount of the Revolving Facility Limit
      in
      effect during the period for which payment is made.

     

    (d) The
      collateral monitoring fee shall be $0 for each calendar month.

     

    (e) The
      minimum usage fee shall equal, for a particular month, the positive difference
      (if any) between (i) the interest that would have accrued under this Agreement
      assuming the aggregate outstanding principal balance of the Revolving Loans
      averaged the Required Minimum Usage (defined below) during such month, and
      (ii)
      the actual interest that accrued on the Loans during such month. For purposes
      of
      this Section
      3.2(e)
      the term
“Required
      Minimum Usage”
shall
      mean (x) for all dates of determination before the second anniversary of the
      date of this Agreement, an amount equal to $2,000,000, (y) for all dates of
      determination on or after the second anniversary of the date of this Agreement
      but before the fourth anniversary of the date of this Agreement, an amount
      equal
      to $1,750,000, and (z) for all dates of determination on or after the fourth
      anniversary of the date of this Agreement, an amount equal to
      $1,500,000.

     

    Section
      3.4 Early
      Termination Fee; Prepayment Fee.

     

    (b) (i) Revolving
      Loan Facility.
      Upon
      termination of this Agreement prior to the Termination Date, the early
      termination fee shall be an amount equal to (A) four percent (4.0%) of the
      Revolving Facility Limit if the termination occurs on or prior to the first
      anniversary of the date hereof; (B) three percent (3%) of the Revolving
      Facility Limit if the termination occurs after the first anniversary of the
      date
      hereof but on or prior to the second anniversary of the date hereof.; (C) two
      percent (2.0%) of the Revolving Facility Limit if the termination occurs after
      the second anniversary of the date hereof but on or prior to the third
      anniversary of the date hereof; (D) one-half of one percent (0.50%) of the
      Revolving Facility Limit if the termination occurs after the third anniversary
      of the date hereof but on or prior to the fourth anniversary of the date hereof;
      and (E) one-quarter of one percent (0.25%) of the Revolving Facility Limit
      if
      the termination occurs after the fourth anniversary of the date
      hereof.

     

    (ii) Term
      Loan. Upon
      prepayment of the Term Loan prior to the Termination Date, the prepayment fee
      shall be an amount equal to (A) four percent (4.0%) of the amount prepaid
      if such prepayment occurs on or prior to the first anniversary of the date
      hereof; (B) three percent (3%) of the amount prepaid if such prepayment
      occurs after the first anniversary of the date hereof but on or prior to the
      second anniversary of the date hereof.; (C) two percent (2.0%) of the amount
      prepaid if such prepayment occurs after the second anniversary of the date
      hereof but on or prior to the third anniversary of the date hereof; (D) one-half
      of one percent (0.50%) of the amount prepaid if such prepayment occurs after
      the
      third anniversary of the date hereof but on or prior to the fourth anniversary
      of the date hereof; and (E) one-quarter of one percent (0.25%) of the amount
      prepaid if such prepayment occurs after the fourth anniversary of the date
      hereof; provided,
      however,
      that no
      prepayment fee shall be due under this clause (ii) if the amount of such
      prepayment is less than or equal to $500,000 in each fiscal year and if the
      source of the funds used to effectuate such prepayment (which source has been
      verified to the reasonable satisfaction of the Lender) is an Affiliate of the
      Borrowers. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      4.1 Closing
      Documents and Requirements

     

    (a) this
      Agreement and promissory notes evidencing the Loans;

     

    (b) with
      respect to each Borrower, a certificate executed by the President and the
      Secretary of such Borrower certifying (i) the names and signatures of the
      officers of such Person authorized to execute Loan Documents to which such
      Borrower is a party, (ii) the resolutions duly adopted by the Board of
      Directors of such Person authorizing the execution of this Agreement and the
      other Loan Documents, as appropriate, and (iii) correctness and
      completeness of the copy of the bylaws of such Person attached
      thereto;

     

    (c) with
      respect to each Borrower, a certificate regarding the due formation, valid
      existence, and good standing of such Borrower in the state of its organization
      issued by the appropriate governmental authorities in such jurisdiction and
      copies of its organizational documents certified by such
      authorities;

     

    (d) an
      authorization to file financing statements; 

     

    (e) a
      payoff
      letter executed by BFI Business Finance;

     

    (f) a
      landlord’s or mortgagee’s waiver with respect to each premises where collateral
      is located;

     

    (g) endorsements
      naming Lender as an additional insured and loss payee on all liability insurance
      and all property insurance policies of each Borrower; 

     

    (h) a
      favorable opinion of counsel for Borrowers in the form attached hereto as
Exhibit
      C;
      

     

    (i) establishment
      of one or more Lockboxes for receipts of proceeds of Collateral; 

     

    (j) with
      respect to each Lockbox, a Lockbox Agreement executed by the financial
      institution with which such Lockbox has been established and the applicable
      Borrower(s);

     

    (k) with
      respect to each Blocked Account, a deposit account control agreement executed
      by
      the financial institution with which such Blocked Account is maintained, Lender,
      and the applicable Borrower(s);

     

    (l) pre-funding
      verifications of Accounts;

     

    (m) after
      giving effect to the first advance of a Revolving Loan, the first advance of
      a
      Capex Loan, the advance of the Term Loan and the Reserve established by Lender,
      Borrowers shall have Availability of at least $350,000, plus an amount
      sufficient so that no trade payables are overdue plus an amount sufficient
      to
      pay all book overdrafts;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (n) no
      Default or Event of Default shall have occurred;

     

    (o) all
      documents evidencing or relating to any and all Subordinated
      Indebtedness;

     

    (p) a
      validity and support agreement executed by each of Yashpal Singh and N.
      Mahadevan;

     

    (q) a
      subordination agreement from UBA;

     

    (r) Uniform
      Commercial Code, state and federal tax lien, judgment and bankruptcy searches
      covering the Borrowers and such other parties as the Lender may require in
      such
      filing offices and locations as the Lender may require, and evidence of the
      termination and satisfaction of all liens and encumbrances (other than Permitted
      Liens) against any portion of the Collateral; and

     

    (s) such
      other documents, certificates, opinions, and information that Lender may
      require.

     

    Section
      5.1 Representations
      and Warranties of Borrowers

     

    (a) Mendocino
      Brewing is a California corporation. Mendocino Brewing’s federal employer
      identification number is 68-0318293, and its organizational number with the
      Secretary of State of the State of Organization is C1876489. Releta Brewing
      is a
      Delaware limited liability company. Releta Brewing’s federal employer
      identification number is 68-0398450, and its organizational number with the
      Secretary of State of the State of Organization is 2799258.

     

    (b) Each
      Borrower is engaged principally in the business of producing and distributing
      beer and malt beverages for the specialty "craft" segment of the beer
      market.

     

    Section
      7.14 Additional
      Affirmative Covenants

     

    [None]

     

    Section
      9.1 Financial
      Covenants

     

    (a) Minimum
      Tangible Net Worth.
      Borrowers shall not, directly or indirectly, permit the Tangible Net Worth
      at
      any time to be less than $7,000,000.

     

    (b) Fixed
      Charge Coverage Ratio.
      The
      Fixed Charge Coverage Ratio as of each calendar quarter-end shall be at least
      1.05 to 1.0, commencing with the quarter ending December 31, 2006.

     

    (c) Capital
      Expenditures.
      Borrowers shall not, directly or indirectly, make or incur Capital Expenditures
      which exceed, in the aggregate for all Borrowers, $300,000 in any fiscal year
      without the prior written consent of the Lender. 

     

    (d) Minimum
      EBITDA.
      Borrowers shall not permit the combined EBITDA of the Borrowers (excluding
      the
      results of operation of all Persons other than the Borrowers) for any fiscal
      year to be less than $925,000. 

     

    Section
      9.16 Additional
      Negative Covenants

     

    (a) No
      Borrower shall make any principal or interest payment on any Indebtedness owing
      to UBA if a Default or Event of Default is then outstanding or would be caused
      by such payment or would violate the terms of the Subordination Agreement
      executed by UBA in favor of the Lender. In addition, no Borrower shall make
      any
      principal or interest payment on any Indebtedness owing to UBI or UBSN;
provided,
      however,
      that so
      long as no Default or Event of Default has occurred or is continuing at the
      time
      of a “Permitted Payment” (defined below), or would result from such Permitted
      Payment, the Permitted Payments are excepted from the terms of the foregoing
      provisions of this Section
      9.16(a).
      For
      purposes of this Section
      9.16(a),
      the
      term “Permitted
      Payments”
means
      (i) ordinary course, non-cash offsets of Indebtedness owed by one or more of
      the
      Borrowers to UBI and/or UBSN against
      amounts
      owed by UBI and/or UBSN to one or more of the Borrowers in connection with
      (A)
      overhead expense allocations, and/or (B) amortization of the investment of
      Mendocino Brewing in the UBI and UBSN, provided that such offsets are made
      in
      amounts, at a frequency and in a manner substantially consistent with the past
      course of dealing among UBI, UBSN and the Borrowers; and (ii) cash payments
      of
      principal or interest in respect of any Indebtedness owing to UBI or UBSN,
      provided that (x) the full amount of each such payment was included within
      the
      Reserve at the time of the associated invoicing, and (y) the Lender has
      consented to such payment in writing (which consent shall not be unreasonably
      withheld).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) The
      aggregate annual cash and non-cash compensation paid by the Borrowers (or any
      of
      them) to the person holding the office of Chairman of Mendocino Brewing in
      any
      fiscal year may not exceed the amount paid to the person holding such office
      in
      fiscal year 2005 without the prior written consent of Lender, which consent
      shall not be unreasonably withheld.

     

    Section
      10.1 Additional
      Events of Default

     

    (a) Mendocino
      Brewing shall cease to own, beneficially and of record, 100% of all classes
      of
      the membership interests of Releta Brewing.

     

    (b) The
      occurrence of a default or event of default under any other Indebtedness of
      Borrowers (or any of them), excluding unsecured trade payables and the
      Subordinated Indebtedness held by UBA, which Indebtedness exceeds $50,000.
      

     

    (c) Any
      material violation of any of the terms or provisions of that certain
      Subordination Agreement dated as of November 16, 2006, executed by UBA in favor
      of the Lender, as the same may be amended, restated, supplemented or otherwise
      modified from time to time, unless the Lender has otherwise consented in writing
      (which consent shall not be unreasonably withheld). Without limiting the
      generality of the foregoing each Borrower specifically agrees that the
      occurrence of any of the following events or circumstances shall constitute
      an
      Event of Default hereunder:

     

    (i) if
      either
      Borrower shall make any payment or other distribution whatsoever in respect
      of
      any Subordinated Indebtedness held by UBA, whether before or after the final
      maturity of such Subordinated Indebtedness, at any time prior to the date on
      which all Obligations have been paid in full in cash and this Agreement has
      been
      terminated;

     

    (ii) if
      any
      property or assets of either Borrower be applied to the purchase or other
      acquisition or retirement of any Subordinated Indebtedness held by UBA;
      or

     

    (iii) if
      UBA
      takes any action to (A) transfer or assign, or attempt to enforce or collect,
      or
      subordinate to any Liabilities other than the Obligations, any Subordinated
      Indebtedness held by UBA or any rights in respect thereof, (B) take any
      collateral security for any Subordinated Indebtedness held by UBA, or (C)
      commence, or join with any other creditor in commencing, any bankruptcy,
      reorganization or insolvency proceedings with respect to either Borrower, in
      each case without the prior written consent of the Lender (which consent shall
      not be unreasonably withheld).

     

    (d) If
      any
      material portion of the unsecured trade payables of Borrowers (or any of them)
      owed to a Major Vendor (defined below) is more than sixty (60) days past due.
      For purposes of this subsection (d), the term “Major Vendor” shall mean any
      trade creditor of Borrowers (or any of them) that is owed more than $250,000
      in
      the aggregate by such Borrower(s) at any one time.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      11.1 Borrowers’
      Address for Notice Purposes

    
      	
              Mendocino
                Brewing:

            	 	
              Releta
                Brewing:

            
	
              1601
                Airport Road

            	 	
              131
                Excelsior Avenue

            
	
              Ukiah,
                California 95482

            	 	
              Saratoga
                Springs, NY 12866

            
	
              Attention:
                Yashpal Singh

            	 	
              Attention:
                Robert Craven

            
	
              Facsimile
                No.: (707) 463-2465

            	 	
              Facsimile
                No.: (518) 581-1804

            
	 	 	 
	
              With
                a copy to:

            	 	 
	
              Coblentz,
                Patch, Duffy & Bass LLP

            	 	 
	
              One
                Ferry Building

            	 	 
	
              Suite
                200

            	 	 
	
              San
                Francisco, California 94111

            	 	 
	
              Attention:
                Sara Finigan, Esq.

            	 	 
	
              Facsimile
                No.: (415) 989-1663

            	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    SCHEDULE
      1.1

     

    Commercial
      Tort Claims

     

    

     

    None.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      5.1(a)

     

    Jurisdictions
      in Which Each Borrower is Qualified as a Foreign Corporation

     

    Mendocino
      Brewing - None

     

    Releta
      Brewing - New York

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      5.1(c)

     

    Capital
      Stock/Membership Interests and Subsidiaries

    

    

      
        	
                Borrower

              	 	
                Subsidiaries

              	 	
                Owners

              
	
                Mendocino
                  Brewing

              	 	
                Releta
                  Brewing

                UBI

              	 	
                UBA
                  - 26.55%

                Inversiones
                  - 47.30%

                Others
                  - 26.15%

              
	
                Releta
                  Brewing

              	 	
                None

              	 	
                Mendocino
                  Brewing - 100%

              

      

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      5.1(g)

     

    Liens

    

      
        	
                Debtor

              	 	
                Secured
                  Party

              	 	
                State/County

              	 	
                Filing
                  No.

              	 	
                Filing
                  Date

              
	
                Mendocino
                  Brewing Co. Inc.

              	 	
                Colonial
                  Pacific Leasing

              	 	
                CA

              	 	
                9919360413

              	 	
                07/01/99

              
	
                Mendocino
                  Brewing Company, Inc.

              	 	
                GE
                  Capital Colonial Pacific Leasing

              	 	
                CA

              	 	
                0200760468

              	 	
                01/04/02

              
	
                Mendocino
                  Brewing Company, Inc.

              	 	
                Citicorp
                  Leasing, Inc.

              	 	
                CA

              	 	
                067073421373

              	 	
                06/12/06

              
	
                Mendocino
                  Brewing Company

              	 	
                Scott
                  Laboratories, Inc.

              	 	
                CA

              	 	
                067074242688

              	 	
                06/15/06

              

      

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      5.1(h)

     

    Indebtedness
      for Money Borrowed and Guaranties

     

    1.  Continuing
      Corporate Guaranty, dated December 20, 2000 by Mendocino Brewing, as guarantor,
      on behalf of Releta Brewing, as payor, in favor of Gamer Packing, Inc., a
      Minnesota corporation, as payee (“Gamer”), relating to amounts due to Gamer in
      connection with products sold and services provided by Gamer to Releta
      Brewing.

     

    2.  Promissory
      Note in the principal amount of $3,000,000 dated June 28, 2006 issued by
      Mendocino Brewing, as borrower, to Grand Pacific Financing Corporation, as
      lender.

     

    3.  Promissory
      Note in the principal amount of $350,000, dated June 6, 2006, issued by
      Mendocino Brewing, as borrower, to Savings Bank of Mendocino County, as
      lender.

     

    4.  Continuing
      Guaranty, dated June 28, 2006, by Releta Brewing, as guarantor, on behalf of
      Mendocino Brewing, as borrower, to Grand Pacific Financing Corporation (“Grand
      Pacific”), as lender, relating to Mendocino Brewing’s obligations under the
      certain loan agreement dated June 28, 2006 between Mendocino Brewing and Grand
      Pacific.

     

    5.  [Additional
      Capital Leases to Come]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      5.1(i)

     

    Litigation

    

     

    None.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      5.1(l)

     

    ERISA
      Benefit Plans

    

     

    None.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

     

    SCHEDULE
      5.1(o)

     

    Location
      of Inventory 

     

    Mendocino
      Brewing:

     

    1601
      Airport Road

    Ukiah,
      CA
      95482

     

    Releta
      Brewing:

     

    131
      Excelsior Avenue

    Saratoga
      Springs, NY 12866

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      5.1(p)

     

    Location
      of Chief Executive Office

     

    Mendocino
      Brewing:

     

    1601
      Airport Road

    Ukiah,
      CA
      95482

     

    Releta
      Brewing:

     

    131
      Excelsior
      Avenue

    Saratoga
      Springs,
      NY 12866

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      5.1(q)

     

    Corporate
      and Fictitious Names

     

    Mendocino
      Brewing:

     

    None

     

    Releta
      Brewing:

     

    Ten
      Springs
      Brewing Company

    Olde
      Saratoga
      Brewing Company

     

    Acquisitions

     

    Mendocino
      Brewing acquired all of the assets of UBI in 2001.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      9.1

     

    Real
      Property Leases

     

    1.  That
      certain Commercial Lease dated October, 1997 between Stewart’s Ice Cream
      Company, Inc., as landlord, and Releta Brewing, as tenant, covering the leased
      premises commonly known as 131 Excelsior Avenue, Saratoga Springs, NY 12866.
      The
      term of such lease has been extended to October 15, 2019.

     

    2.  That
      certain Lease Agreement dated January 1, 2004 between John Fetzer, as landlord,
      and Mendocino Brewing, as tenant, covering the leased premises located at 13351
      S. Highway 101, Hopland, CA 95449.

     

    3.  That
      certain Commercial Lease dated April 1, 2003 between McDowell Business Center,
      as landlord, and Mendocino Brewing, as tenant, covering the leased premises
      located at 921 Transport Way, Suite #29, Petaluma, CA 94954. The term of such
      lease has been extended to March 31, 2007.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      10.6

     

    List
      of trademarks, patents, etc.

    

     

    Mendocino
      Brewing:

     

    
      	
              MARK

            	 	
              SERIAL
                NO.

            	 	
              REGISTRATION
                NO.

            	 	
              ASSIGNED
                TO

            
	
              MENDOCINO
                BREWING COMPANY

              word
                mark

            	 	
              76/049,154

            	 	
              2,441,141

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              RED
                TAIL ALE word mark

            	 	
              75/098,240

            	
               

            	
              2,032,382

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              RED
                TAIL design mark

            	 	
              74/734,783

            	
               

            	
              2,011,817

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              BLUE
                HERON PALE ALE design mark

            	 	
              74/734,782

            	
               

            	
              2,011,816

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              EYE
                OF THE HAWK SELECT ALE word mark

            	 	
              74/093,799

            	 	
              1,673,594

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              EYE
                OF THE HAWK SPECIAL EDITION 

              ANNIVERSARY
                ALE design mark

            	 	
              74/734,781

            	 	
              2,011,815

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              YULETIDE
                PORTER word mark

            	 	
              74/093,789

            	 	
              1,666,891

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              BREWSLETTER
                word mark

            	 	
              74/312,700

            	 	
              1,768,639

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              PEREGRINE
                GOLDEN ALE word mark

            	 	
              76/029,927

            	 	
              2,475,522

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              HOPLAND
                BREWERY word mark

            	 	
              76/128,830

            	 	
              2,509,464

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              BLACK
                EYE ALE word mark

            	 	
              76/202,158

            	 	
              2,667,078

            	 	
              BFI
                Business Finance

            
	 	 	 	 	
               

            	 	 
	
              SUN
                LAGER PREMIUM HANDCRAFTED 

              BREW
                word and design mark

            	 	
              76/079,875

            	 	
              2,583,446

            	
               

            	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              WHITE
                HAWK ORIGINAL IPA word and design mark

            	 	
              78/304,844

            	 	
              2,956,999

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              BLUE
                HERON word mark 

            	 	
              78/117,249

            	 	
              Concurrent
                Use Proceeding Pending; subject to concurrent use by Bridgepoint
                Brewing
                Company

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              BLACK
                HAWK STOUT word mark

            	 	
              78/835,504

            	 	
              Not
                Available

              Use,
                by agreement with Hiram Walker & Sons, Inc., subject to the
                restriction that it be used solely to identify and distinguish malt
                beverage products namely, beer, ale and stout, and only in conjunction
                with the words “Mendocino Brewing Company.”

            	 	
              N/A

            
	 	 	 	 	 	 	 

    

     

    
      	
              MARK

            	 	
              SERIAL
                NO.

            	 	
              REGISTRATION
                NO.

            	 	
              ASSIGNED
                TO

            

    

    
      	
              RAPTOR
                RED LAGER word and design mark

            	 	
              78/304,831

            	 	
              3,113,619

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              TALON
                BARLEY WINE ALE word mark

            	 	
               

            	 	
              Borrower
                intends to register with USPTO

            	 	
              N/A

            
	 	 	 	 	 	 	 
	
              TALON
                BARLEY WINE ALE word and design mark

            	 	
               

            	 	
              Borrower
                intends to register with USPTO

            	 	
              N/A

            

    

     

    Releta
      Brewing:

    

    
      	
              MARK

            	 	
              SERIAL
                NO.

            	 	
              REGISTRATION
                NO.

            	 	
              ASSIGNED
                TO

            
	
              FAT
                BEAR word mark 

            	 	
              75/375,457

            	 	
              2,267,709

              [registration
                cancelled - Section 8; new application to be filed for
                same]

            	 	
               

              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              WHITEFACE
                word mark

            	 	
              75/375,229

            	 	
              2,322,226

              [registration
                will be cancelled - Section 8; new application to be filed for
                same]

            	 	
              BFI
                Business Finance

            
	 	 	 	 	 	 	 
	
              SARATOGA
                CLASSIC PILSNER word

              mark

            	 	
              75/647,278

            	 	
              2,396,601

            	 	
              BFI
                Business FinanceREVOLVING
      NOTE

     

    
      	
              $2,750,000.00

            	
              November
                16, 2006

            
	 	
              Minneapolis,
                Minnesota

            

    

     

    FOR
      VALUE
      RECEIVED, the undersigned, MENDOCINO
      BREWING COMPANY, INC.,
      a
      California corporation and RELETA
      BREWING COMPANY
      LLC, a
      Delaware limited liability company (the "Borrowers"),
      JOINTLY AND SEVERALLY promise to pay to the order of MARQUETTE BUSINESS CREDIT,
      INC., a Minnesota corporation (the "Lender),
      on the
      Termination Date, or other due date or dates determined under the Loan Agreement
      hereinafter referred to, the principal sum of TWO MILLION SEVEN HUNDRED FIFTY
      THOUSAND AND NO/100 DOLLARS ($2,750,000.00), or if less, the then aggregate
      unpaid principal amount of the Revolving Loans (as such term is defined in
      the
      Loan Agreement) as may be borrowed by the Borrowers under the Loan Agreement.
      All Revolving Loans and all payments of principal thereon shall be recorded
      by
      the holder in its records which records shall be conclusive evidence of the
      subject matter thereof, absent manifest error.

     

    The
      Borrowers further promise to pay to the order of the Lender interest on the
      aggregate unpaid principal amount hereof from time to time outstanding from
      the
      date hereof until paid in full at the rates per annum which shall be determined
      in accordance with the provisions of the Loan Agreement. Accrued interest shall
      be payable on the dates specified in the Loan Agreement.

     

    All
      payments of principal and interest under this Note shall be made in lawful
      money
      of the United States of America in immediately available funds at the Lender's
      office at 1660 S. Hwy 100, Suite 146, Minneapolis, Minnesota 55416-1524, or
      at such other place as may be designated by the Lender to the Borrowers in
      writing.

     

    This
      Note
      is a promissory note of the type referred to in Section
      3.5
      of, and
      evidences indebtedness incurred under, that certain Loan and Security Agreement
      dated as of November 16, 2006 (together with all schedules and exhibits attached
      thereto, herein, as it may be amended, modified or supplemented from time to
      time, called the "Loan
      Agreement")
      among
      the Borrowers and the Lender, to which Loan Agreement reference is made for
      a
      statement of the terms and provisions thereof, including those under which
      the
      Borrowers are permitted and required to make prepayments and repayments of
      principal of such indebtedness and under which such indebtedness may be declared
      to be immediately due and payable. Capitalized terms used but not otherwise
      defined herein shall have the meanings given in the Loan Agreement.

     

    All
      parties hereto, whether as makers, endorsers or otherwise, severally waive
      presentment, demand, protest and notice of dishonor in connection with this
      Note.

     

    This
      Note
      is made under and governed by the internal laws of the State of
      Minnesota.

     

    
      	 	 	 
	 	
              MENDOCINO
                BREWING COMPANY, 

              a
                California corporation

            
	 
 	 
 	 
 
	
            	By:  	 
	 	Its:	 
	 	
            
	 	
            

    

    
      

       

      
        	 	 	 
	 	
                
                  RELETA
                    BREWING COMPANY LLC, 

                  a
                    Delaware limited liability company

                

              
	 
 	 
 	 
 
	
              	By:  	 
	 	Its:	 
	 	
              
	 	
              

      

      

      

    

    

      
        
           

        

        
           

          
            

          

        

        
           

        

      

    ACKNOWLEDGMENT

     

    State
      of
      California

    County
      of
      _________________

     

    On
      November ____, 2006 before me, _________________________, the
      _____________________ of MENDOCINO BREWING COMPANY, INC., a California
      corporation personally appeared _____________________________ personally known
      to me (or proved to me on the basis of satisfactory evidence) to be the
      person(s) whose name(s) is/are subscribed to the within instrument and
      acknowledged to me that he/she/they executed the same in his/her/their
      authorized capacity(ies), and that by his/her/their signature(s) on the
      instrument the person(s), or the entity upon behalf of which the person(s)
      acted, executed the instrument.

     

    WITNESS
      my hand and official seal.

     

    

     

    Signature
      _______________________________

     

    (Seal)

     

    ACKNOWLEDGMENT

     

    State
      of
      California

    County
      of
      _________________

     

    On
      November ____, 2006 before me, ________________________, the
      _____________________ of RELETA BREWING COMPANY LLC, a New York limited
      liability company, personally appeared ______________________________ personally
      known to me (or proved to me on the basis of satisfactory evidence) to be the
      person(s) whose name(s) is/are subscribed to the within instrument and
      acknowledged to me that he/she/they executed the same in his/her/their
      authorized capacity(ies), and that by his/her/their signature(s) on the
      instrument the person(s), or the entity upon behalf of which the person(s)
      acted, executed the instrument.

     

    WITNESS
      my hand and official seal.

    

     

    Signature
      _______________________________

     

    (Seal)

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