Document:

LOAN AGREEMENT
<TABLE>

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   Principal        Loan Date      Maturity      Loan No.      Call     Collateral     Account       Officer       Initials
 <S>               <C>            <C>              <C>          <C>        <C>         <C>             <C>
 $1,000,000.00     02-02-2000     06-01-2001       0101         4A0        6100        1049968         610
---------------- -------------- -------------- ------------ --------- -------------- ----------- -------------- --------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
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</TABLE>

Borrower: Portland Brewing Company   Lender: Washington Mutual Bank doing
          2730 NW 31st Avenue                business as Western Bank
          Portland, OR  97210                Beaverton Business Banking Center
                                             12655 SW Center Street, Suite 500
                                             Beaverton, OR  97005

THIS LOAN AGREEMENT between Portland Brewing Company ("Borrower") and Washington
Mutual Bank doing  business as Western Bank  ("Lender")  is made and executed on
the following terms and conditions. Borrower has received prior commercial loans
from  Lender or has applied to Lender for a  commercial  loan or loans and other
financial accommodations,  including those which may be described on any exhibit
or  schedule   attached  to  this  Agreement.   All  such  loans  and  financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and  collectively as the "Loans."  Borrower  understands and agrees that: (a) in
granting,  renewing,  or extending any Loan,  Lender is relying upon  Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and  discretion;  and (c) all such Loans shall
be and shall  remain  subject  to the  following  terms and  conditions  of this
Agreement.

TERM.  This  Agreement  shall be  effective  as of February  2, 2000,  and shall
continue  thereafter  until all  indebtedness  of  Borrower  to Lender  has been
performed in full and the parties terminate this Agreement in writing.

DEFINITIONS.  The following words shall have the following meanings when used in
this  Agreement.  Terms not otherwise  defined in this Agreement  shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar  amounts  shall mean amounts in lawful  money of the United  States of
America.

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

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

     Account  Debtor.  The  words  "Account  Debtor"  mean the  person or entity
     obligated upon an Account.

     Advance.  The word "Advance"  means a disbursement of Loan funds under this
     Agreement.

     Borrower. The word "Borrower" means Portland Brewing Company.

     Borrowing  Base. The words  "Borrowing  Base" mean, as determined by Lender
     from time to time, the lesser of (a)  $1,000,000.00;  or (b) the sum of (i)
     75.000% of the aggregate amount of Eligible Accounts,  plus (ii) 50.000% of
     the aggregate amount of Eligible Inventory.

     Business Day. The words "Business Day" mean a day on which commercial banks
     are open for business in the State of Oregon.

     CERCLA. The word "CERCLA" means the Comprehensive  Environmental  Response,
     Compensation,  and Liability Act of 1980, as amended.

     Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive
     of extraordinary gains and income, plus depreciation and amortization.

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

     Debt.  The  word  "Debt"  means  all of  Borrower's  liabilities  excluding
     Subordinated Debt.

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

          (a) Accounts  with respect to which the Account  Debtor is an officer,
          an employee or agent of Borrower.

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

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

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

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

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

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

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

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

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

          (k) Accounts  which have not been paid in full within 60 days from the
          invoice date.  The entire balance of any Account of any single Account
          debtor will be  ineligible  whenever the portion of the Account  which
          has not been paid within 60 days from the invoice date is in excess of
          10.000% of the total amount outstanding on the Account.

     Eligible Inventory.  The words "Eligible  Inventory" mean, at any time, all
     of Borrower's Inventory as defined below except:

          (a)  Inventory  which is not owned by  Borrower  free and clear of all
          security interests, liens, encumbrances, and claims of third parties.

          (b)  Inventory  which  Lender,  in its  sole  discretion,  deems to be
          obsolete,   unsalable,   damaged,  defective,  or  unfit  for  further
          processing.

     ERISA. The word "ERISA" means the Employee  Retirement  Income Security Act
     of 1974,  as amended.  Event of Default.  The words "Event of Default" mean
     and include without limitation any of the Events of Default set forth below
     in the section titled "EVENTS OF DEFAULT."

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

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

     Guarantor.  The word "Guarantor" means and includes without limitation each
     and  all  of  the  guarantors,   sureties,  and  accommodation  parties  in
     connection with any Indebtedness.

     Indebtedness. The word "Indebtedness" means and includes without limitation
     all Loans,  together with all other  obligations,  debts and liabilities of
     Borrower  to Lender,  or any one or more of them,  as well as all claims by
     Lender  against  Borrower,  or any  one or  more of  them;  whether  now or
     hereafter existing,  voluntary or involuntary,  due or not due, absolute or
     contingent,  liquidated  or  unliquidated;  whether  Borrower may be liable
     individually or jointly with others; whether Borrower may be obligated as a
     guarantor,  surety,  or otherwise;  whether recovery upon such Indebtedness
     may be or hereafter  may become barred by any statute of  limitations;  and
     whether  such  Indebtedness  may  be  or  hereafter  may

<PAGE>

02-02-2000                        LOAN AGREEMENT                          Page 2
Loan No 0101                       (Continued)
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     become  otherwise unenforceable.

     Inventory. The word "Inventory" means all of Borrower's raw materials, work
     in process, finished goods, merchandise,  parts and supplies, of every kind
     and  description,  and  goods  held for sale or  lease or  furnished  under
     contracts of service in which  Borrower  now has or hereafter  acquires any
     right,  whether  held by Borrower or others,  and all  documents  of title,
     warehouse receipts,  bills of lading, and all other documents of every type
     covering all or any part of the  foregoing.  Inventory  includes  inventory
     temporarily  out of  Borrower's  custody or  possession  and all returns on
     Accounts.

     Lender.  The word "Lender" means  Washington  Mutual Bank doing business as
     Western Bank, its successors and assigns.

     Line of  Credit.  The  words  "Line of  Credit"  mean the  credit  facility
     described in the Section titled "LINE OF CREDIT" below.

     Liquid Assets.  The words "Liquid Assets" mean Borrower's cash on hand plus
     Borrower's readily marketable securities.

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

     Note.  The word "Note" means and  includes  without  limitation  Borrower's
     promissory note or notes, if any, evidencing Borrower's Loan obligations in
     favor of Lender, as well as any substitute, replacement or refinancing note
     or notes therefor.

     Permitted Liens.  The words "Permitted  Liens" mean: (a) liens and security
     interests  securing  Indebtedness owed by Borrower to Lender; (b) liens for
     taxes,  assessments,  or  similar  charges  either  not  yet  due or  being
     contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
     or carriers, or other like liens arising in the ordinary course of business
     and securing  obligations which are not yet delinquent;  (d) purchase money
     liens or purchase money security interests upon or in any property acquired
     or  held  by  Borrower  in  the  ordinary  course  of  business  to  secure
     indebtedness  outstanding  on the date of this Agreement or permitted to be
     incurred under the paragraph of this  Agreement  titled  "Indebtedness  and
     Liens";  (e) liens and  security  interests  which,  as of the date of this
     Agreement,  have been  disclosed  to and approved by the Lender in writing;
     and  (f)  those  liens  and  security  interests  which  in  the  aggregate
     constitute an immaterial and insignificant  monetary amount with respect to
     the net value of Borrower's assets. See Exhibit "A".

     Related Documents.  The words "Related  Documents" mean and include without
     limitation  all  promissory  notes,  credit  agreements,  loan  agreements,
     environmental agreements, guaranties, security agreements, mortgages, deeds
     of trust, and all other instruments,  agreements and documents, whether now
     or hereafter existing, executed in connection with the Indebtedness.

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

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

     SARA. The word "SARA" means the Superfund  Amendments  and  Reauthorization
     Act of 1986 as now or hereafter amended.

     Subordinated  Debt. The words  "Subordinated  Debt" mean  indebtedness  and
     liabilities of Borrower which have been  subordinated by written  agreement
     to indebtedness owed by Borrower to Lender in form and substance acceptable
     to Lender.

     Tangible Net Worth.  The words "Tangible Net Worth" mean  Borrower's  total
     assets  excluding  all  intangible  assets  (i.e.,  goodwill,   trademarks,
     patents, copyrights, organizational expenses, and similar intangible items,
     but including leaseholds and leasehold improvements) less total Debt.

     Working  Capital.  The words  "Working  Capital"  mean  Borrower's  current
     assets,  excluding prepaid expenses,  less Borrower's current  liabilities.

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

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

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

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

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

          (d) All  guaranties  required  by Lender for the Line of Credit  shall
          have been executed by each Guarantor,  delivered to Lender,  and be in
          full force and effect.

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

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

          (g) There shall not exist at the time of any Advance a condition which
          would  constitute  an Event  of  Default  under  this  Agreement,  and
          Borrower  shall have  delivered to Lender the  compliance  certificate
          called for in the paragraph below titled "Compliance Certificate."

     Making Loan  Advances.  Advances  under the Line of Credit may be requested
     either  orally or in writing by  authorized  persons.  Lender may, but need
     not,  require that all oral requests be confirmed in writing.  Each Advance
     shall be  conclusively  deemed to have been made at the  request of and for
     the  benefit  of  Borrower  (a) when  credited  to any  deposit  account of
     Borrower maintained with Lender or (b) when advanced in accordance with the
     instructions  of an authorized  person.  Lender,  at its option,  may set a
     cutoff  time,  after which all  requests  for  Advances  will be treated as
     having been requested on the next succeeding Business Day.

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

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

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

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

<PAGE>
02-02-2000                        LOAN AGREEMENT                          Page 3
Loan No 0101                       (Continued)
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     Collateral  Records.  Borrower does now, and at all times hereafter  shall,
     keep correct and accurate  records of the Collateral,  all of which records
     shall be  available  to Lender or Lender's  representative  upon demand for
     inspection  and  copying  at  any  reasonable  time.  With  respect  to the
     Accounts,  Borrower  agrees to keep and maintain such records as Lender may
     require,  including  without  limitation  information  concerning  Eligible
     Accounts and Account  balances and agings.  With respect to the  Inventory,
     Borrower  agrees to keep and  maintain  such records as Lender may require,
     including without limitation  information concerning Eligible Inventory and
     records itemizing and describing the kind, type,  quality,  and quantity of
     Inventory,  Borrower's  Inventory costs and selling  prices,  and the daily
     withdrawals  and additions to  Inventory.  The following is an accurate and
     complete  list of all  locations  at  which  Borrower  keeps  or  maintains
     business records concerning Borrower's Accounts and Inventory: 2730 NW 31st
     Avenue, Portland, OR 97210.

     Collateral Schedules.  Concurrently with the execution and delivery of this
     Agreement,  Borrower  shall  execute  and  deliver to Lender  schedules  of
     Accounts and Inventory  and Eligible  Accounts and Eligible  Inventory,  in
     form and  substance  satisfactory  to the  Lender.  Thereafter  and at such
     frequency as Lender shall  require,  Borrower  shall execute and deliver to
     Lender such  supplemental  schedules  of  Eligible  Accounts  and  Eligible
     Inventory and such other matters and  information  relating to the Accounts
     and Inventory as Lender may request.

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

     Representations and Warranties  Concerning  Inventory.  With respect to the
     Inventory,  Borrower  represents and warrants to Lender:  (a) All Inventory
     represented  by  Borrower  to be Eligible  Inventory  for  purposes of this
     Agreement  conforms  to the  requirements  of the  definition  of  Eligible
     Inventory; (b) All Inventory values listed on schedules delivered to Lender
     will be true and correct,  subject to immaterial variance; (c) The value of
     the  Inventory  will be determined on a consistent  accounting  basis;  (d)
     Except as agreed  to the  contrary  by  Lender  in  writing,  all  Eligible
     Inventory is now and at all times hereafter will be in Borrower's  physical
     possession  and  shall  not be  held  by  others  on  consignment,  sale on
     approval,  or sale or return;  (e)  Except as  reflected  in the  Inventory
     schedules  delivered to Lender,  all  Eligible  Inventory is now and at all
     times  hereafter  will be of  good  and  merchantable  quality,  free  from
     defects;  (f)  Eligible  Inventory  is not now  and  will  not at any  time
     hereafter be stored with a bailee,  warehouseman,  or similar party without
     Lender's  prior  written  consent,   and,  in  such  event,  Borrower  will
     concurrently  at the time of bailment cause any such bailee,  warehouseman,
     or similar  party to issue and  deliver to Lender,  in form  acceptable  to
     Lender,  warehouse  receipts in  Lender's  name  evidencing  the storage of
     Inventory;  and (g) Lender, its assigns,  or agents shall have the right at
     any time and at Borrower's expense to inspect and examine the Inventory and
     to check and test the same as to quality, quantity, value, and condition.

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

     Organization. Borrower is a corporation which is duly organized and validly
     existing under the laws of the State of Oregon and is validly  existing and
     in good  standing  in all  states  in which  Borrower  is  doing  business.
     Borrower  has the full power and  authority  to own its  properties  and to
     transact  the  businesses  in which it is  presently  engaged or  presently
     proposes  to  engage.   Borrower  also  is  duly  qualified  as  a  foreign
     corporation  and is in good  standing in all states in which the failure to
     so qualify  would  have a  material  adverse  effect on its  businesses  or
     financial condition.

     Authorization.  The execution,  delivery, and performance of this Agreement
     and all  Related  Documents  by  Borrower,  to the  extent to be  executed,
     delivered  or  performed  by  Borrower,  have been duly  authorized  by all
     necessary action by Borrower; do not require the consent or approval of any
     other  person,  regulatory  authority  or  governmental  body;  and  do not
     conflict with,  result in a violation of, or constitute a default under (a)
     any provision of its articles of incorporation or organization,  or bylaws,
     or any agreement or other instrument  binding upon Borrower or (b) any law,
     governmental regulation, court decree, or order applicable to Borrower.

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

     Legal Effect. This Agreement  constitutes,  and any instrument or agreement
     required  hereunder to be given by Borrower when delivered will constitute,
     legal,  valid and  binding  obligations  of  Borrower.

     Properties. Except for Permitted Liens, Borrower owns and has good title to
     all of Borrower's properties free and clear of all Security Interests,  and
     has not executed any security documents or financing statements relating to
     such  properties.  All of  Borrower's  properties  are titled in Borrower's
     legal name,  and  Borrower  has not used,  or filed a  financing  statement
     under,  any other  name for at least the last five (5) years.  See Exhibit
     "A".

     Hazardous Substances.  The terms "hazardous waste," "hazardous  substance,"
     "disposal," "release," and "threatened release," as used in this Agreement,
     shall have the same  meanings  as set forth in the  "CERCLA,"  "SARA,"  the
     Hazardous Materials  Transportation  Act, 49 U.S.C.  Section 1801, et seq.,
     the Resource  Conservation  and Recovery  Act, 42 U.S.C.  Section  6901, et
     seq., or other  applicable  state or Federal laws,  rules,  or  regulations
     adopted  pursuant to any of the  foregoing  or  intended  to protect  human
     health or the environment  ("Environmental  Laws").  Except as disclosed to
     and  acknowledged  by Lender in writing,  Borrower  represents and warrants
     that:  (a) During the period of  Borrower's  ownership  of the  properties,
     there  has  been  no  use,  generation,  manufacture,  storage,  treatment,
     disposal, release or threatened release of any hazardous waste or substance
     by any person on, under, about or from any of the properties.  (b) Borrower
     has no knowledge  of, or reason to believe that there has been (i) any use,
     generation,   manufacture,   storage,  treatment,   disposal,  release,  or
     threatened  release of any hazardous waste or substance on, under, about or
     from  the  properties  by  any  prior  owners  or  occupants  of any of the
     properties,  or (ii) any actual or  threatened  litigation or claims of any
     kind by any person relating to such matters.  (c) Neither  Borrower nor any
     tenant, contractor, agent or other authorized user of any of the properties
     shall use, generate,  manufacture, store, treat, dispose of, or release any
     hazardous  waste  or  substance  on,  under,  about  or  from  any  of  the
     properties; and any such activity shall be conducted in compliance with all
     applicable  federal,  state, and local laws,  regulations,  and ordinances,
     including without limitation Environmental Laws. Borrower authorizes Lender
     and its agents to enter upon the  properties to make such  inspections  and
     tests as  Lender  may  deem  appropriate  to  determine  compliance  of the
     properties  with this section of the  Agreement.  Any  inspections or tests
     made by Lender shall be at  Borrower's  expense and for  Lender's  purposes
     only and shall not be construed to create any  responsibility  or liability
     on  the  part  of  Lender  to  Borrower  or  to  any  other   person.   The
     representations and warranties contained herein are based on Borrower's due
     diligence in investigating the properties for hazardous waste and hazardous
     substances.  Borrower  hereby (a)  releases  and  waives any future  claims
     against Lender for indemnity or contribution in the event Borrower  becomes
     liable for cleanup or other  costs  under any such laws,  and (b) agrees to
     indemnify  and hold  harmless  Lender  against any and all claims,  losses,
     liabilities,  damages, penalties, and expenses which Lender may directly or
     indirectly sustain or suffer resulting from a breach of this section of the
     Agreement or as a consequence of any use, generation, manufacture, storage,
     disposal,  release or threatened  release of a hazardous waste or substance
     on the properties, or as a result of a violation of any Environmental Laws.
     The provisions of this section of the  Agreement,  including the obligation
     to  indemnify,  shall  survive  the  payment  of the  Indebtedness  and the
     termination  or expiration  of this  Agreement and shall not be affected by
     Lender's  acquisition of any interest in any of the properties,  whether by
     foreclosure or otherwise.

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

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

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

     Binding Effect. This Agreement,  the Note, all Security Agreements directly
     or indirectly securing repayment of Borrower's Loan and Note and all of the
     Related  Documents  are binding  upon  Borrower as well as upon  Borrower's
     successors, representatives and assigns.

     Commercial  Purposes.  Borrower intends to use the Loan proceeds solely for
     business or commercial related purposes.

     Employee Benefit Plans. Each employee benefit plan as to which Borrower may
     have any liability  complies in all material  respects with all  applicable
     requirements  of law and  regulations,  and  (i) no  Reportable  Event  nor
     Prohibited  Transaction  (as defined in ERISA) has occurred with respect to
     any such  plan,  (ii)  Borrower  has not  withdrawn  from any such  plan or
     initiated  steps to do so, (iii) no steps have been taken to terminate  any
     such plan,  and (iv)  there are no  unfunded  liabilities  other than those
     previously disclosed to Lender in writing.

     Location of Borrower's  Offices and Records.  Borrower's place of business,
     or Borrower's Chief executive  office,  if Borrower has more than one place
     of business,  is located at 2730 NW 31st Avenue,  Portland,  Oregon  97210.
     Unless  Borrower has designated  otherwise in writing this location is also
     the office or offices  where  Borrower  keeps its  records  concerning  the
     Collateral.

     Information.  All  information  heretofore  or  contemporaneously  herewith
     furnished by Borrower to Lender for the purposes of or in  connection  with

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02-02-2000                        LOAN AGREEMENT                          Page 4
Loan No 0101                       (Continued)
--------------------------------------------------------------------------------

     this  Agreement  or  any  transaction   contemplated  hereby  is,  and  all
     information  hereafter furnished by or on behalf of Borrower to Lender will
     be,  true and  accurate in every  material  respect on the date as of which
     such information is dated or certified;  and none of such information is or
     will be incomplete by omitting to state any material fact necessary to make
     such information not misleading.

     Survival of Representations and Warranties. Borrower understands and agrees
     that Lender, without independent  investigation,  is relying upon the above
     representations  and  warranties  in extending  Loan  Advances to Borrower.
     Borrower further agrees that the foregoing  representations  and warranties
     shall be  continuing  in nature  and shall  remain in full force and effect
     until such time as Borrower's  Indebtedness shall be paid in full, or until
     this Agreement shall be terminated in the manner provided above,  whichever
     is the last to occur.

AFFIRMATIVE  COVENANTS.  Borrower  covenants and agrees with Lender that,  while
this Agreement is in effect, Borrower will:

     Litigation.  Promptly inform Lender in writing of (a) all material  adverse
     changes in  Borrower's  financial  condition,  and (b) all existing and all
     threatened litigation, claims,  investigations,  administrative proceedings
     or  similar  actions  affecting  Borrower  or  any  Guarantor  which  could
     materially  affect the  financial  condition  of Borrower or the  financial
     condition of any Guarantor.

     Financial  Records.  Maintain  its books and  records  in  accordance  with
     generally accepted  accounting  principles,  applied on a consistent basis,
     and permit Lender to examine and audit  Borrower's books and records at all
     reasonable times.

     Additional Information. Furnish such additional information and statements,
     lists of assets  and  liabilities,  agings  of  receivables  and  payables,
     inventory  schedules,  budgets,  forecasts,  tax returns, and other reports
     with respect to Borrower's  financial  condition and business operations as
     Lender may request from time to time.

     Financial  Covenants and Ratios.  Comply with the  following  covenants and
     ratios:

          Other Ratio. Maintain a ratio of Debt Service Coverage, defined as net
          cash after operations  divided by financing costs plus current portion
          of long term debt plus capital expenditures In excess of 1.00 to 1.00.

     The following provisions shall apply for purposes of determining compliance
     with the foregoing  financial covenants and ratios: the above covenants and
     ratios  will  be  measured   annually.   Except  as  provided  above,   all
     computations made to determine  compliance with the requirements  contained
     in this  paragraph  shall be made in  accordance  with  generally  accepted
     accounting  principles,  applied on a consistent  basis,  and  certified by
     Borrower as being true and correct.

     Insurance.  Maintain  fire  and  other  risk  insurance,  public  liability
     insurance,  and such other  insurance as Lender may require with respect to
     Borrower's properties and operations, in form, amounts,  coverages and with
     insurance companies reasonably acceptable to Lender. Borrower, upon request
     of  Lender,  will  deliver  to  Lender  from time to time the  policies  or
     certificates  of  insurance  in  form  satisfactory  to  Lender,  including
     stipulations that coverages will not be cancelled or diminished  without at
     least ten (10) days' prior written notice to Lender.  Each insurance policy
     also shall  include an  endorsement  providing  that  coverage  in favor of
     Lender will not be  impaired in any way by any act,  omission or default of
     Borrower or any other  person.  In  connection  with all policies  covering
     assets in which  Lender  holds or is  offered a security  interest  for the
     Loans,  Borrower  will  provide  Lender  with  such loss  payable  or other
     endorsements as Lender may require.

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

     Guaranties.  Prior to disbursement of any Loan proceeds,  furnish  executed
     guaranties  of the Loans in favor of  Lender,  executed  by the  guarantors
     named below, on Lender's forms, and in the amounts and under the conditions
     spelled out in those guaranties.

         Guarantors                                           Amounts
         ----------                                           -------
         Robert M. MacTarnahan                                $1,000,000.00
         Charles A. Adams                                     $1,000,000.00
         Charles A. Adams Family Trust                        $1,000,000.00
         MacTarnahan Limited Partnership                      $1,000,000.00
         Harmer Mill & Logging Supply Co. dba Harmer Co.      $1,000,000.00

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

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

     Taxes,   Charges  and  Liens.  Pay  and  discharge  when  due  all  of  its
     indebtedness and obligations, including without limitation all assessments,
     taxes,  governmental  charges,  levies and liens, of every kind and nature,
     imposed upon Borrower or its properties,  income, or profits,  prior to the
     date on which  penalties  would  attach,  and all lawful  claims  that,  if
     unpaid,  might become a lien or charge upon any of  Borrower's  properties,
     income, or profits.  Provided however, Borrower will not be required to pay
     and discharge any such assessment, tax, charge, levy, lien or claim so long
     as (a) the  legality  of the  same  shall  be  contested  in good  faith by
     appropriate  proceedings,  and (b) Borrower  shall have  established on its
     books  adequate  reserves with respect to such contested  assessment,  tax,
     charge,  levy,  lien,  or  claim  in  accordance  with  generally  accepted
     accounting  practices.  Borrower,  upon demand of Lender,  will  furnish to
     Lender  evidence of payment of the  assessments,  taxes,  charges,  levies,
     liens and claims and will authorize the appropriate  governmental  official
     to deliver to Lender at any time a written  statement  of any  assessments,
     taxes,  charges,  levies,  liens and claims against Borrower's  properties,
     income, or profits.

     Performance.  Perform and comply with all terms, conditions, and provisions
     set  forth  in this  Agreement  and in the  Related  Documents  in a timely
     manner,  and promptly notify Lender if Borrower learns of the occurrence of
     any event which  constitutes  an Event of Default  under this  Agreement or
     under any of the Related Documents.

     Operations.  Maintain executive and management personnel with substantially
     the  same  qualifications  and  experience  as the  present  executive  and
     management  personnel;  provide  written  notice to Lender of any change in
     executive  and  management  personnel;  conduct its  business  affairs in a
     reasonable  and  prudent  manner  and in  compliance  with  all  applicable
     federal,  state and  municipal  laws,  ordinances,  rules  and  regulations
     respecting its properties,  charters, businesses and operations,  including
     without limitation, compliance with the Americans With Disabilities Act and
     with all minimum  funding  standards  and other  requirements  of ERISA and
     other laws applicable to Borrower's employee benefit plans.

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

     Compliance Certificate.  Unless waived in writing by Lender, provide Lender
     at least  annually and at the time of each  disbursement  of Loan  proceeds
     with a certificate executed by Borrower's chief financial officer, or other
     officer or person acceptable to Lender, certifying that the representations
     and  warranties  set forth in this Agreement are true and correct as of the
     date of the certificate and further  certifying that, as of the date of the
     certificate, no Event of Default exists under this Agreement.

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

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

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

     Indebtedness  and Liens.  (a) Except for trade debt  incurred in the normal
     course  of  business  and  indebtedness  to  Lender  contemplated  by  this
     Agreement,  create,  incur  or  assume  indebtedness  for  borrowed  money,
     including capital leases,  (b) except as allowed as a Permitted Lien, sell,
     transfer, mortgage, assign, pledge, lease, grant a security interest in, or
     encumber  any of  Borrower's  assets,  or (c)  sell  with  recourse  any of

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02-02-2000                        LOAN AGREEMENT                          Page 5
Loan No 0101                       (Continued)
--------------------------------------------------------------------------------

     Borrower's accounts, except to Lender.  See Exhibit "A".

     Continuity   of   Operations.   (a)  Engage  in  any  business   activities
     substantially  different than those in which Borrower is presently engaged,
     (b) cease operations,  liquidate,  transfer,  merge or consolidate with any
     other entity (unless Borrower is the surviving  entity),  change ownership,
     change  its  name,  dissolve  or  transfer  or sell  Collateral  out of the
     ordinary  course of business,  (c) pay any  dividends on  Borrower's  stock
     (other than dividends  payable in its stock), or (d) purchase or retire any
     of  Borrower's  outstanding  shares  or alter or amend  Borrower's  capital
     structure.

     Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or
     assets or (b) incur any obligation as surety or guarantor other than in the
     ordinary course of business.

CESSATION OF  ADVANCES.  If Lender has made any  commitment  to make any Loan to
Borrower,  whether  under this  Agreement or under any other  agreement,  Lender
shall have no  obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related  Documents  or any other  agreement  that  Borrower  has with
Lender;  (b)  Borrower  becomes  insolvent,  files a petition in  bankruptcy  or
similar proceedings, or is adjudged a bankrupt.

YEAR 2000.  Unless  Lender has provided  Borrower  with a written  waiver of the
following "Year 2000" provisions, the following provisions shall apply:

Borrower represents,  warrants and covenants that it has, or will have by a date
that is acceptable to Lender: (i) undertaken a detailed  inventory,  review, and
assessment  of all areas  within  its  business  and  operations  that  could be
adversely  affected by the failure of  Borrower to be Year 2000  compliant  on a
timely basis, (ii) developed a detailed plan and timeline and committed adequate
resources  for  becoming  Year  2000  compliant  on a timely  basis,  and  (iii)
implemented  that  plan  in  accordance  with  that  timetable  in all  material
respects.  Borrower  covenants and agrees that Borrower  shall from time to time
upon Lender's request furnish  periodic  updates to Lender regarding  Borrower's
progress on its Year 2000  compliance  efforts,  and provide copies to Lender of
any internal and  third-party  assessments  of Borrower's  Year 2000  compliance
efforts.  Borrower  covenants to be and reasonably  anticipates  that it will be
Year 2000 compliant on a timely basis.

Borrower has made (or will make, by a date acceptable to Lender) written inquiry
(or,  if  acceptable  to Lender,  oral  inquiry)  of each of its key  suppliers,
vendors, and customers as to whether such persons will be Year 2000 compliant in
all material respects on a timely basis. Based on that inquiry,  and to the best
of Borrower's  knowledge only,  Borrower  believes that all such persons will be
Year 2000 compliant in all material  respects on a timely basis. For purposes of
this  provision,  "key  suppliers,  vendors,  and  customers"  refers  to  those
suppliers, vendors, and customers of Borrower whose business failure would, with
reasonable  probability,  result in a material  adverse  change in the business,
properties,  condition  (financial or otherwise),  or prospects of Borrower,  or
Borrower's ability to repay the indebtedness evidenced by this Agreement.

"Year 2000  compliant"  means,  with  regard to any entity,  that all  software,
embedded microchips, and other processing capabilities utilized by, and material
to the business  operations  or financial  condition of, such entity are able to
interpret and manipulate  data on and involving all calendar dates correctly and
without causing any abnormal ending scenario,  including in relation to dates in
and after the Year 2000.

It shall  be an  event  of  default  under  this  Note if (x) any of  Borrower's
representations  and  warranties  regarding  Year  2000  shall  cease to be true
(whether or not true when made) and,  as a result,  Lender  reasonably  believes
that  Borrower's  financial  condition  or its  ability to pay its debts as they
become due will thereby be  materially  impaired,  (y) Borrower  fails to comply
with any of its Year  2000  covenants,  or (z)  Borrower  fails to be Year  2000
compliant in any material respect on a timely basis.

GUARANTOR'S SUBMISSION OF FINANCIAL STATEMENTS AND TAX RETURNS.  Borrower agrees
that,  while this  Agreement is in effect,  Guarantor will furnish to Lender the
following:  (1) As soon as available,  but in no event later than 120 days after
the end of each year, Guarantor's individual financial statement for such yearly
period,  prepared and  certified as correct to the best  knowledge and belief by
Guarantor. (2) Promptly after the filing thereof and in any event within 30 days
after the filing  thereof,  a copy of  Guarantor's  filed  federal and state tax
returns together with all supplemental schedules to include K-1's.

SUBMISSION OF FINANCIAL  STATEMENTS  AND TAX RETURNS FOR CHARLES A. ADAMS FAMILY
TRUST,  MACTARNAHAN  LIMITED  PARTNERSHIP,  HARMER MILL & LOGGING SUPPLY CO. DBA
HARMER CO.  Borrower agrees that,  while this Agreement is in effect,  Guarantor
will furnish to Lender the following:  (1) As soon as available, but in no event
later than 120 days after the end of each year,  Guarantor's  balance  sheet and
profit and loss statement for such yearly period, compiled by a certified public
accountant  acceptable to Lender.  (2) Promptly  after the filing thereof and in
any event within 30 days after the filing thereof,  a copy of Guarantor's  filed
federal  and state tax  returns  together  with all  supplemental  schedules  to
include K-1's.

AGING AND LISTING OF ACOUNTS  RECEIVABLE  AND PAYABLE.  Borrower  covenants  and
agrees with Lender  that,  while this  Agreement  is in effect,  Borrower  shall
deliver  to Lender  within  thirty  (30) days  after  the end of each  month,  a
detailed  aging of  Borrower's  accounts and contracts  receivable  and accounts
payable as of the last day of the month,  together  with an  explanation  of any
adjustments made at the end of that month, all in a form acceptable to Lender.

COLLATERAL  SCHEDULE.  Unless  waived in writing by Lender,  Borrower  agrees to
provide Lender with a Collateral  Schedule within Ten (10) days after the end of
each month.  Each  "Collateral  Schedule" shall be in form acceptable to Lender,
duly  executed by Borrower and  detailing the status of the Line of Credit as of
the date thereon.

SUBMISSION OF BORROWER'S  FINANICAL  STATEMENTS.  Borrower  covenants and agrees
with Lender  that,  while this  Agreement  is in effect,  Borrower  will furnish
Lender with, as soon as available, but in no event later than one hundred twenty
(120) days  after the end of each  fiscal  year,  Borrower's  balance  sheet and
income statement for the year ended,  audited by a certified  public  accountant
satisfactory to Lender, and  company-prepared  statements within 60 days of year
end.  Borrower will also furnish  Lender with,  as soon as available,  but in no
event  later  than  thirty  (30)  days  after  the end of each  fiscal  quarter,
Borrower's  balance  sheet and profit and loss  statement  for the period ended,
prepared and certified as correct to the best knowledge and belief by Borrower's
chief  financial  officer of other officer or person  acceptable to Lender.  All
financial reports required to be provided under this Agreement shall be prepared
in  accordance  with  generally  accepted  accounting  principles,  applied on a
consistent basis, and certified by Borrower as being true and correct.

RIGHT OF SETOFF.  See Exhibit "A".

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

     Default on  Indebtedness.  Failure of Borrower to make any payment when due
     on the Loans.

     Other  Defaults.  Failure of  Borrower  or any Grantor to comply with or to
     perform  when  due  any  other  term,  obligation,  covenant  or  condition
     contained in this Agreement or in any of the Related Documents,  or failure
     of  Borrower  to comply  with or to  perform  any other  term,  obligation,
     covenant or condition  contained in any other agreement  between Lender and
     Borrower.

     Default in Favor of Third Parties.  Should  Borrower or any Grantor default
     under any loan, extension of credit, security agreement,  purchase or sales
     agreement, or any other agreement, in favor of any other creditor or person
     that may materially affect any of Borrower's  property or Borrower's or any
     Grantor's   ability  to  repay  the  Loans  or  perform  their   respective
     obligations under this Agreement or any of the Related Documents.

     False  Statements.  Any  warranty,  representation  or  statement  made  or
     furnished  to Lender by or on behalf of Borrower or any Grantor  under this
     Agreement or the Related  Documents is false or  misleading in any material
     respect at the time made or  furnished,  or becomes  false or misleading at
     any time thereafter.

     Defective Collateralization. This Agreement or any of the Related Documents
     ceases to be in full force and effect  (including  failure of any  Security
     Agreement to create a valid and  perfected  Security  Interest) at any time
     and for any reason.

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

     Creditor  or  Forfeiture   Proceedings.   Commencement  of  foreclosure  or
     forfeiture   proceedings,   whether  by  judicial  proceeding,   self-help,
     repossession or any other method, by any creditor of Borrower, any creditor
     of any Grantor against any collateral securing the Indebtedness,  or by any
     governmental agency. This includes a garnishment, attachment, or levy on or
     of any of Borrower's deposit accounts with Lender.  However,  this Event of
     Default  shall not apply if there is a good faith  dispute by  Borrower  or
     Grantor,  as the case may be, as to the validity or  reasonableness

<PAGE>
02-02-2000                        LOAN AGREEMENT                          Page 6
Loan No 0101                       (Continued)
--------------------------------------------------------------------------------

     of the claim which is the basis of the creditor or  forfeiture  proceeding,
     and if Borrower or Grantor gives Lender  written  notice of the creditor or
     forfeiture  proceeding  and  furnishes  reserves  or a surety  bond for the
     creditor or forfeiture proceeding satisfactory to Lender.

     See Exhibit "A".

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

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

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

     Applicable Law. This Agreement has been delivered to Lender and accepted by
     Lender in the State of Oregon. If there is a lawsuit,  Borrower agrees upon
     Lender's  request to submit to the jurisdiction of the courts of Washington
     County,  the State of  Oregon.  This  Agreement  shall be  governed  by and
     construed in accordance with the laws of the State of Oregon.

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

     Multiple Parties;  Corporate  Authority.  All obligations of Borrower under
     this Agreement  shall be joint and several,  and all references to Borrower
     shall mean each and every  Borrower.  This  means that each of the  persons
     signing below is responsible for all obligations in this Agreement.

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

     Costs and  Expenses.  Borrower  agrees to pay upon  demand all of  Lender's
     expenses,   including  without  limitation  attorneys'  fees,  incurred  in
     connection with the preparation,  execution, enforcement,  modification and
     collection of this Agreement or in connection  with the Loans made pursuant
     to this  Agreement.  Lender may pay someone  else to help collect the Loans
     and to enforce  this  Agreement,  and Borrower  will pay that amount.  This
     includes,  subject to any limits under applicable law, Lender's  attorneys'
     fees and  Lender's  legal  expenses,  whether  or not  there is a  lawsuit,
     including attorneys' fees for bankruptcy  proceedings (including efforts to
     modify  or vacate  any  automatic  stay or  injunction),  appeals,  and any
     anticipated  post-judgment collection services.  Borrower also will pay any
     court costs, in addition to all other sums provided by law.

     Notices.  All notices  required to be given under this  Agreement  shall be
     given in writing,  may be sent by telefacsimile  (unless otherwise required
     by law), and shall be effective  when actually  delivered or when deposited
     with a nationally  recognized  overnight courier or deposited in the United
     States mail, first class,  postage prepaid,  addressed to the party to whom
     the notice is to be given at the address shown above.  Any party may change
     its address for  notices  under this  Agreement  by giving  formal  written
     notice to the other parties,  specifying  that the purpose of the notice is
     to change the party's  address.  To the extent permitted by applicable law,
     if there is more than one Borrower,  notice to any Borrower will constitute
     notice to all  Borrowers.  For notice  purposes,  Borrower will keep Lender
     informed at all times of Borrower's current address(es).

     Severability.  If a court of competent  jurisdiction finds any provision of
     this  Agreement  to be  invalid  or  unenforceable  as  to  any  person  or
     circumstance,  such  finding  shall not render  that  provision  invalid or
     unenforceable as to any other persons or  circumstances.  If feasible,  any
     such  offending  provision  shall be deemed to be modified to be within the
     limits of enforceability or validity;  however,  if the offending provision
     cannot be so  modified,  it shall be stricken and all other  provisions  of
     this Agreement in all other respects shall remain valid and enforceable.

     Subsidiaries and Affiliates of Borrower.  Under no circumstances shall this
     Agreement  be  construed  to  require  Lender  to make  any  Loan or  other
     financial accommodation to any subsidiary or affiliate of Borrower.

     Successors  and Assigns.  All covenants and  agreements  contained by or on
     behalf of Borrower shall bind its successors and assigns and shall inure to
     the benefit of Lender,  its  successors  and assigns.  Borrower  shall not,
     however,  have the right to assign its rights  under this  Agreement or any
     interest therein, without the prior written consent of Lender.

     Survival. All warranties,  representations,  and covenants made by Borrower
     in this Agreement or in any  certificate or other  instrument  delivered by
     Borrower to Lender under this  Agreement  shall be  considered to have been
     relied upon by Lender and will  survive the making of the Loan and delivery
     to Lender of the Related Documents, regardless of any investigation made by
     Lender or on Lender's behalf.

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

UNDER OREGON LAW, MOST AGREEMENTS,  PROMISES AND COMMITMENTS MADE BY US (LENDER)
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL  FAMILY OR HOUSEHOLD  PURPOSES OR SECURED  SOLELY BY THE BORROWER'S
RESIDENT  MUST BE IN WRITING,  EXPRESS  CONSIDERATION  AND BE SIGNED BY US TO BE
ENFORCEABLE.

<PAGE>
02-02-2000                        LOAN AGREEMENT                          Page 7
Loan No 0101                       (Continued)
--------------------------------------------------------------------------------

BORROWER  ACKNOWLEDGES  HAVING READ ALL THE  PROVISIONS  OF THIS  BUSINESS  LOAN
AGREEMENT,  AND  BORROWER  AGREES TO ITS  TERMS.  THIS  AGREMENT  IS DATED AS OF
FEBRUARY 2, 2000.

BORROWER:

Portland Brewing Company

By: /s/ C.A. Adams
    -------------------------------
    Charles A. Adams, President/CEO

LENDER:

Washington Mutual Bank doing business as Western Bank

By: /s/ Jerry Boehm
    -------------------------------
    Authorized Officer

<PAGE>

                                   EXHIBIT "A"

         This  Exhibit is  attached to and by this  reference  is made a part of
each Loan Agreement  dated  February 2, 2000, and executed in connection  with a
loan or other  financial  accommodations  between  Washington  Mutual Bank doing
business as Western Bank and Portland Brewing Company.

RIGHT OF SETOFF.  Lender shall not have a security Interest in, nor shall Lender
set off  against  amounts  due  hereunder,  the sums in any  account of Borrower
maintained with Lender.

DEFAULT.  Notwithstanding  the  foregoing,  Borrower  will not be in  default as
provided  above unless and until (a) Lender gives to Borrower  written notice of
the alleged default specifying that the default be cured within the time allowed
by this  Promissory  Note,  and (b) Borrower  fails to cure the alleged  default
within such time period.  With respect to a failure to make a payment hereunder,
the amount of time allowed to cure the default shall be ten days  following such
written  notice from Lender.  With respect to any other  default,  the amount of
time  allowed  for cure shall be 30 days  following  written  notice of default;
however,  in the event a default reasonably requires more than 30 days for cure,
Borrower  shall not be deemed in  default  so long as  Borrower  commences  cure
within such 30-day period and thereafter diligently pursues cure to completion.

ADDITIONAL SECURED PARTY: As previously disclosed to Lender, MacTarnahan Limited
Partnership holds a security interest in certain assets of Borrower,  including,
but not  limited to, a junior  security  interest  in  accounts  receivable  and
inventory.  The security interest of MacTarnahan  Limited  Partnership,  and any
assignment of that security  interest,  is a "Permitted Lien" and shall not be a
default under this Loan Agreement.NOTE AND WARRANT PURCHASE AGREEMENT

     NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") dated as of
____________________, by and between BION ENVIRONMENTAL TECHNOLOGIES, INC., a
Colorado corporation (the "Company"), D2 CO., LLC, a Delaware limited liability
company ("D2") and the other parties executing signature pages hereto
(collectively with D2, the "Purchasers").

     WHEREAS, in a series of transactions and upon and subject to the terms and
conditions hereinafter set forth, the Company desires to issue and sell to the
Purchasers, and the Purchasers desire to purchase from the Company, (i) an
minimum of $1,000,000 and a maximum of $5,000,000 aggregate face amount of
convertible Bridge Notes (the "Bridge Notes") in the form attached hereto as
Exhibit A and (ii) a minimum of an aggregate of 300,000 and a maximum of an
aggregate of 1,500,000 Bridge Warrants (the "Bridge Warrants") in the form
attached as Exhibit B, each of which shall entitle the holder thereof to
purchase one share of the Common Stock of the Company.

     NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, he Purchasers and the Company hereby agree as follows:

     1. Purchase of Company Securities.

          1.1. Purchase and Sale of the Bridge Notes and the Bridge Warrants.
Subject to the terms and conditions set forth herein, the Company hereby agrees
to issue and sell to the Purchasers, and each Purchaser, hereby agrees to
purchase from the Company, such number of Units (as defined below) at the
Closing (as such term is defined in Section 2.1 hereof) as is listed on its
signature page. Each "Unit" shall consist of $25,000 face amount of Bridge Notes
and 7,500 Bridge Warrants. The aggregate purchase price for the Units sold
pursuant to this Agreement shall be equal to the sum of $1.00 for each $1.00
principal amount of Bridge Notes and $.05 for each Bridge Warrant.

     2. Closing.

          2.1. Closing. The initial closing and each additional closing of the
purchase and sale of the Units will take place at the offices of Bion. Such
closings (each, a "Closing" and collectively, the "Closings") will take place at
10:00 A.M., local time, on such dates as may be mutually agreed upon by the
Company and the Purchasers. The date of each Closing is referred to herein as a
"Closing Date." The date of the first Closing shall hereafter be referred to as
the "Initial Closing Date" and the date of the final Closing shall hereafter be
referred to as the "Final Closing Date." At each Closing, the Company will
deliver to the Purchasers the Bridge Notes and the Bridge Warrants purchased as
set forth in Section 1 hereof, against payment of the Purchase Price, by wire
transfer payable to the Company. The Bridge Notes and the Bridge Warrants shall
be registered in each Purchaser's name or the name of its nominee(s) in such
denominations as the Purchaser shall request pursuant to instructions delivered
to the Company not less than two days prior to such Closing Date.

          3. Conditions to the Obligations of Purchasers at the Closing. The
obligation of each Purchaser to purchase and pay for the Units to be purchased
by it at a Closing is subject to the satisfaction on or prior to the Closing
Date of the following conditions, which may only be waived by written consent of
Purchasers:

          3.1. Opinion of Counsel to the Company. Purchaser shall have received
from counsel for the Company, its opinion dated the Closing Date in the form of
Exhibit A hereto.

          3.2. Representations and Warranties. All of the representations and
warranties of the Company contained in this Agreement shall be true and correct
at and as of such Closing Date, except for changes caused by the transactions
contemplated hereby.

          3.3. Performance of Covenants. All of the covenants and agreements of
the Company contained in this Agreement and required to be performed on or prior
to the Closing Date shall have been performed in a manner satisfactory in all
respects to Purchasers.

          3.4. Legal Action. No injunction, order, investigation, claim, action
or proceeding before any court or governmental body shall be pending or
threatened wherein an unfavorable judgment, decree or order would restrain,
impair or prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement or cause any such transaction to be rescinded.

          3.5. Consents. The Company shall have obtained in writing or made all
consents, waivers, approvals, orders, permits, licenses and authorizations of,
and registrations, declarations, notices to and filings and applications with,
any governmental authority or any other person or entity (including, without
limitation, securityholders and creditors of the Company) required to be
obtained or made in order to enable the Company to observe and comply with all
its obligations under this Agreement and to consummate the transactions
contemplated hereby.

     3.6. Closing Documents. The Company shall have delivered to the Purchasers
the following:

          (a) a certificate executed by the President or Chief Executive
Officer of the Company, dated the Closing Date, stating that the conditions set
forth in Sections 3.2 through 3.5 have been satisfied;

          (b) an incumbency certificate, dated the Closing Date, for the
officers of the Company executing this Agreement, the Bridge Notes and the
Bridge Warrants and any other documents or instruments delivered in connection
with this Agreement at the Closing;

          (c) a certificate of the Secretary or Assistant Secretary of the
Company, dated the Closing Date, as to the continued and valid existence of the
Company, certifying the attached copy of the By-laws of the Company, the
authorization of the execution, delivery and performance of this Agreement, and
the resolutions adopted by the Board of Directors of the Company authorizing the
actions to be taken by the Company under this Agreement;

          (d) a certificate of the Secretary of State of the State of Colorado,
dated a recent date, to the effect that the Company is in good standing in the
State of Colorado and that all annual reports, if any, have been filed as
required and that all taxes and fees have been paid in connection therewith;

          (e) a certified copy of the Articles of Incorporation of the Company
as filed with the Secretary of State of the State of Colorado and any amendments
thereto;

          (f) such certificates, other documents and instruments as Purchasers
and their counsel may reasonably request in connection with, and to effect, the
transactions contemplated by this Agreement.

     4. Conditions to the Obligations of the Company at the Closing. The
obligation of the Company to issue and sell the Bridge Notes and the Bridge
Warrants to the Purchasers at a Closing is subject to the satisfaction on or
prior to the Closing Date of the following conditions, any of which may be
waived by the Company:

          4.1. Representations and Warranties. The representations and
warranties of the Purchasers contained in this Agreement shall be true and
correct at and as of the Closing Date.

          4.2. Legal Action. No injunction, order, investigation, claim, action
or proceeding before any court or governmental body shall be pending or
threatened wherein an unfavorable judgment, decree or order would restrain,
impair or prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement or cause any such transaction to be rescinded.

     5. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers that except as set forth on the
schedule (the "Disclosure Schedule") attached hereto:

          5.1.Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado. The
Company has all requisite corporate power and authority, and holds all licenses,
permits and other required authorizations from governmental authorities,
necessary to conduct its business as it is now being conducted or proposed to be
conducted and to own or lease the properties and assets it now owns or holds
under lease. Except where such failure to qualify could not reasonably be deemed
to have a material adverse effect on the Company, the Company is duly qualified
or licensed and in good standing as a foreign corporation in each jurisdiction
wherein the character of its properties or the nature of the activities
conducted by it makes such qualification or licensing necessary.

          5.2. Capitalization. The Company's authorized capitalization is set
forth in the SEC Documents (as defined below). All outstanding securities of the
Company are validly issued, fully paid and nonassessable. Except as set forth on
the Disclosure Schedule, no shareholder of the Company is entitled to any
preemptive rights with respect to the purchase of or sale of any securities by
the Company. Except as has been set forth in the Disclosure Schedule, there are
no outstanding options, warrants or other rights, commitments or arrangements,
written or oral, to purchase or otherwise acquire any authorized but unissued
shares of capital stock of the Company or any security directly or indirectly
convertible into or exchangeable for any capital stock of the Company or under
which any such option, warrant or convertible security may be issued in the
future, and there are no voting trusts or agreements, shareholders' agreements,
pledge agreements, buy-sell, rights of first offer, negotiation or refusal or
proxies or similar arrangements relating to any securities of the Company to
which the Company is a party, and to the best knowledge of the Company after due
investigation there are no such trusts, agreement, rights, proxies or similar
arrangements as to which the Company is not a party. Except as set forth on the
Disclosure Schedule and as contemplated herein, none of the shares of capital
stock of the Company is reserved for any purpose, and the Company is neither
subject to any obligation (contingent or otherwise), nor has any option to
repurchase or otherwise acquire or retire any shares of its capital stock. The
SEC Documents sets forth (i) the number of shares of Common Stock authorized for
issuance under the Company's Fiscal Year 1994 Incentive Plan and the Company's
1996 Non-employee Director Stock Plan; (ii) the number of shares of Common Stock
as to which options under such plan have been (a) reserved for issuance and (b)
exercised; and (iii) the exercise prices for all outstanding options under such
plan. Except as set forth on the Disclosure Schedule, no antidilution
adjustments with respect to the outstanding securities of the Company will be
triggered by the issuance of the securities contemplated hereby.

          5.3. Due Authorization, Valid Issuance, Etc.. The Bridge Notes have
been duly authorized and, when issued in accordance with this Agreement upon the
Closing Date, will be free and clear of all liens imposed by or through the
Company. The Bridge Warrants have been duly authorized and, when issued in
accordance with this Agreement upon the Closing Date, will be validly issued and
free and clear of all liens imposed by or through the Company. The shares of
capital stock, issuable upon conversion of the Bridge Notes, have been duly
authorized and shares of Common Stock have been reserved, and upon the
conversion of the Bridge Notes will be validly issued, fully paid and
nonassessable and will be free and clear of all liens imposed by or through the
Company. The shares of Common Stock issuable upon the exercise of the Bridge
Warrants have been duly authorized and reserved, and upon the exercise of the
Bridge Warrants in accordance with the terms and conditions thereof and this
Agreement, will be validly issued, fully paid and nonassessable shares of Common
Stock and will be free and clear of all liens imposed by or through the Company.
Except as set forth on the Disclosure Schedule, the issuance, sale and clear
delivery of the Bridge Notes, the Bridge Warrants and the Common Stock or other
capital stock of the Company issuable upon the exercise of the Bridge Warrants
and conversion of the Bridge Notes will not be subject to any preemptive right
of shareholders of the Company or to any right of first refusal or other right
in favor of any person.

          5.4. Authorization; No Breach. The Company has the full corporate
power and authority to execute, deliver and enter into this Agreement and to
perform its obligations hereunder, and the execution, delivery and performance
of this Agreement, the Bridge Notes, the Bridge Warrants, and any related
financing statement and all other transactions contemplated hereby have been
duly authorized by the Company, and this Agreement constitutes a legal, valid
and binding obligation of the Company, enforceable in accordance with its terms
except as the enforceability hereof may be limited by (a) bankruptcy,
insolvency, moratorium and similar laws affecting creditors' rights generally
and (b) the availability of remedies under general equitable principles and (c)
to the extent the indemnification provisions contained in Section 8.5 hereof may
be limited by applicable federal or state securities laws. To the Company's
knowledge, the execution and delivery by the Company of this Agreement, the
offering, sale and issuance of the Bridge Notes and the Bridge Warrants pursuant
to this Agreement, and the performance and fulfillment of the Company of its
obligations under this Agreement, the Bridge Notes and the Bridge Warrants, do
not and will not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under, or event which,
with notice or lapse of time or both, would constitute a breach of or default
under, (iii) result in the creation of any lien, security interest, adverse
claim, charge or encumbrance upon the capital stock or assets of the Company
pursuant to, (iv) give any third party the right to accelerate any obligation
under or terminate, (v) result in a violation of, (vi) result in the loss of any
license, certificate, legal privilege or legal right enjoyed or possessed by the
Company under, or (vii) except for filings required to be made with the
Securities and Exchange Commission, require any authorization, consent,
approval, exemption or other action by or notice to any court or administrative
or governmental body pursuant to or require the consent of any other person
under, the Articles of Incorporation or By-Laws of the Company or any law,
statute, rule or regulation to which the Company is subject or by which any of
its properties are bound, or any agreement, instrument, order, judgment or
decree to which the Company is subject or by which its properties are bound.

          5.5. Financial Statements and SEC Documents. (a) Incorporated by
reference herein are (i) the audited financial statements of the Company for the
fiscal year ended June 30, 1999, including the balance sheet as at the end of
such fiscal year and the related statements of operations, shareholders' equity
(deficit) and cash flows for such fiscal year, certified by Ehrhardt Keefe
Steiner & Hoffman PC and (ii) the September 30 Financial Statements (the
financial statements referred to in clauses (i) and (ii) are referred to herein
collectively as the "Financial Statements"). For purposes of this Agreement,
September 30, 1999, shall be hereinafter referred to as the "Balance Sheet
Date." The Financial Statements have been prepared in accordance with the books
and records of the Company and generally accepted accounting principles, applied
consistently with the past practices of the Company (except as otherwise noted
in such Financial Statements), reflect all liabilities and obligations of the
Company, as of their respective dates, and present fairly the financial position
of the Company and the results of its operations as of the time and for the
periods indicated therein.

               (b) Incorporated by referenced herein are each report, schedule,
registration statement and definitive proxy statement filed by the Company with
the Securities and Exchange Commission since May 15, 1996 (as such documents
have since the time of their filing been amended, the "SEC Documents") which are
all the documents (other than preliminary material) that the Company was
required to file with the Securities and Exchange Commission since such date. As
of their respective dates, the SEC Documents complied in all respects with the
requirements of the Securities Act (as defined in Section 9.7) and/or the
Securities Exchange Act (as defined in Section 9.8) as the case may be, and the
rules and regulations of the Securities and Exchange Commission thereunder
applicable to such SEC Documents and none of the SEC Documents contained any
untrue statement of a material fact or omitted to statement of material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the Securities and Exchange Commission
with respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10_QSB of the Securities and Exchange
Commission) and fairly present (subject, in the case of the unaudited
statements, to normal, recurring audit adjustments) the financial position of
the Company as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.

          5.6. No Material Adverse Changes. Except as set forth on the
Disclosure Schedule, since the Balance Sheet Date there has not at any time been
(a) any material adverse change in the financial condition, operating results,
business prospects, employee relations or customer relations of the Company, or
(b) other adverse changes, which in the aggregate have been materially adverse
to the Company.

          5.7. Litigation. Except as set forth on the Disclosure Schedule,
there are no actions, suits, proceedings, orders, claim, or, to the Company's
knowledge, investigations pending or, to the Company's knowledge, threatened
against or affecting the Company, at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality; there are no arbitration proceedings pending
under collective bargaining agreements or otherwise; and, to the knowledge of
the Company, there is no basis for any of the foregoing.

          5.8. Compliance with Law. To the Company's knowledge, the Company has
complied in all material respects with all applicable statutes and regulations
of the United States and of all states, municipalities and applicable agencies
and foreign jurisdictions or bodies in respect of the conduct of its business
and operations, and the failure, if any, by the Company to have fully complied
with any such statute or regulation does not and will not materially adversely
affect the business or operations of the Company.

          5.9. Undisclosed Liabilities. To the Company's knowledge, the Company
has no obligation or liability (whether accrued, absolute, contingent,
unliquidated, or otherwise, whether due or to become due) arising out of
transactions entered into at or prior to the Closing of this Agreement, or any
action or inaction at or prior to the Closing of this Agreement, or any state of
facts existing at or prior to the Closing of this Agreement, except (a)
liabilities reflected on the Company Balance Sheet; (b) liabilities incurred in
the ordinary course of business since the Balance Sheet Date (none of which is a
liability for breach of contract, breach of warranty, torts, infringements,
claims or lawsuits); and (c) liabilities or obligations disclosed in the SEC
Documents on the schedules hereto.

          5.10.Disclosure. Neither this Agreement nor any of the schedules,
exhibits, written statements, documents or certificates prepared or supplied by
the Company with respect to the transactions contemplated hereby contain any
untrue statement of a material fact or omit a material fact necessary to make
the statements contained herein or therein not misleading in light of the
circumstances under which made. Except as disclosed in the SEC Documents and
except for matters effecting the industry of the Company as a whole, there
exists no fact or circumstance which, to the knowledge of the Company upon due
inquiry, materially adversely affects, or which could reasonably be anticipated
to have a material adverse effect on, the existing or expected financial
condition, operating results, assets, customer relations, employee relations or
business prospects of the Company. The Purchasers acknowledge that the industry
of the Company is subject to extensive regulation by national, state and local
authorities and that a change in any such regulations or the institution of any
litigation effecting the industry of the Company in general could have a
material adverse effect on the Company.

          5.11.Compliance with the Securities Laws. Neither the Company nor
anyone acting on its behalf has directly or indirectly offered the Bridge Notes
and the Bridge Warrants or any part thereof or any similar security of the
Company (or any other securities convertible or exchangeable for the Bridge
Notes and the Bridge Warrants or any similar security), for sale to, or
solicited any offer to buy the same from, anyone other than Purchasers. Assuming
the accuracy and truth of each of the Purchasers' representations set forth in
Section 6 of this Agreement, all securities of the Company heretofore sold and
issued by it were sold and issued, and the Bridge Notes and the Bridge Warrants
were offered and will be sold and issued, in compliance with all applicable
federal and state securities laws.

     6. Representations and Warranties of Purchasers. Each of the Purchasers
hereby severally represents and warrants to the Company as follows:

          6.1. Investment Intent. Each of the Purchasers is an "accredited
investor" within the meaning of Regulation D under the Securities Act. Each of
the Purchasers has experience in making investments in development stage
technology companies and is acquiring the Bridge Notes and the Bridge Warrants
for its own account and not with a present view to, or for sale in connection
with, any distribution thereof in violation of the registration requirements of
the Securities Act. Each of the Purchasers consents to the placing of a legend
on the certificates representing the Bridge Notes and the Bridge Warrants to the
effect that the shares of Common Stock or other Stock issuable upon exercise or
conversion, as the case may be, of the Bridge Warrants and the Bridge Notes have
not been registered under the Securities Act and may not be transferred except
in accordance with applicable securities laws or an exception therefrom.

          6.2. Authorization. Each of the Purchasers has the power and authority
to execute and deliver this Agreement and to perform its obligations hereunder,
having obtained all required consents, if any, and this Agreement, when executed
and delivered, will constitute a legal valid and binding obligation of such
Purchaser.

          6.3. Suitability. Each Purchaser acknowledges that he is a person who
is able to bear the economic risk of this investment and has adequate means of
providing for his current needs and possible personal contingencies with no need
for liquidity of this investment. In making this statement, consideration has
been given as to whether the Purchaser could afford to hold his investment in
the Company for an indefinite period of time and, whether, at this time, he
could afford a complete loss of his investment, without such loss affecting his
ability to maintain his lifestyle.

          6.4. Risks. Each Purchaser acknowledges that this investment is
speculative in nature and involves a high degree of risk in that the Purchaser
may not be able to liquidate this investment and that transferability is
extremely limited.

          6.5. Due Inquiry. Each purchaser acknowledges receipt of all
information regarding the Company which he has requested or desired to know:
that all documents which could be reasonably provided have been made available
for his inspection and review; and that the Purchaser has been afforded the
opportunity to ask questions of and receive answers from duly authorized
officers or other representatives of the Company concerning the Company and an
investment therein, and any additional information which he has requested.

     7. Covenants of the Company. Until such time as the Registration Statement
(as defined below) is declared effective under the Securities Act, the Company
covenants and agrees with Purchasers as follows:

          7.1. Books and Accounts. The Company will make and keep books, records
and accounts, which, in reasonable detail, accurately and fairly reflect its
transactions, including without limitation, dispositions of its assets.

          7.2. Reports. The Company will make such filings as may be required
under the Securities Act.

          7.3. Use of Proceeds; Restriction on Payments. The Company shall use
the net proceeds from the sale of the Bridge Notes and Bridge Warrants to bridge
its working capital needs through such time as it can consummate an offering of
its securities. The Company covenants and agrees that it will not directly or
indirectly use any of the proceeds to redeem, repurchase or otherwise acquire
any equity security of the Company.

          7.4. Corporate Existence, Licenses and Permits; Maintenance of
Properties; New Businesses. The Company will at all times conduct its business
in the ordinary course and cause to be done all things necessary to maintain,
preserve and renew its existence and will preserve and keep in force and effect,
all licenses, permits and authorizations necessary to the conduct of its
business. The Company will also maintain and keep its properties in good repair,
working order and condition, and from time to time, to make all needful and
proper repairs, renewals and replacements, so that the business carried on in
connection therewith may be properly conducted at all times.

          7.5.Other Material Obligations. The Company will comply with (a) all
material obligations which it is subject to, or becomes subject to, pursuant to
any contract or agreement, whether oral or written, as such obligations are
required to be observed or performed, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings and the Company has
set aside on its books adequate reserves with respect thereto, and (b) all
applicable laws, rules, and regulations of all governmental authorities, the
violation of which could have a material adverse effect upon the business of the
Company.

          7.6.Amendment to the Articles of Incorporation and the By-Laws. The
Company will perform and be in compliance with and observe all of the provisions
set forth in its Articles of Incorporation and By-Laws to the extent that the
performance of such obligations is legally permissible; provided that the fact
that performance is not legally permissible will not prevent such nonperformance
from constituting an event of default under this Agreement. The Company will not
amend its Articles of Incorporation or By-Laws so as to adversely affect the
rights of the Purchasers under this Agreement, the Articles of Incorporation,
the By-Laws, the Bridge Warrants or the Bridge Notes.

          7.7. Dividends; Distributions; Repurchases of Common Stock; Treasury
Stock. The Company shall not declare or pay any dividends on, or make any other
distribution with respect to, its capital stock, whether now or hereafter
outstanding, or purchase, acquire, redeem or retire any shares of its capital
stock, without the prior written consent of the Purchasers, provided, however,
the foregoing shall not prohibit the Company issuing shares of its capital stock
in exchange for extinguishing debt owed to any present or former officer,
Director or employee of the Company, or from repurchasing any shares of its
Common Stock from any present or former officer, Director or employee of the
Company, or from repurchasing any outstanding warrants.

          7.8. Taxes and Liens. The Company will duly pay and discharge when
payable, all taxes, assessments and governmental charges imposed upon or against
the Company or its properties, or any part thereof or upon the income or profits
therefrom, in each case before the same become delinquent and before penalties
accrue thereon, as well as all claims for labor, materials or supplies which if
unpaid might by law become a lien upon any of its property, unless and to the
extent that the same are being contested in good faith and by appropriate
proceedings and the Company has set aside on its books adequate reserves with
respect thereto.

          7.9. Restrictive Agreement. The Company covenants and agrees that
subsequent to the Closing, it will not be a party to any agreement or instrument
which by its terms would restrict the Company's performance of its obligations
pursuant to this Agreement, the Articles of Incorporation, By-laws, the Bridge
Warrants or the Bridge Notes.

     8. Registration of Common Stock.

          8.1. Registration. Not later than one year following the Final
Closing Date, the Company will file a registration statement (the "Registration
Statement") with respect to the resale of the Registrable Securities with the
Securities and Exchange Commission. The Company will use commercially reasonable
efforts to effect, no later than 12 months following the Final Closing Date, the
registrations, qualifications or compliances (including, without limitation, the
execution of any required undertaking to file post-effective amendments,
appropriate qualifications under applicable blue sky or other state securities
laws and appropriate compliance with applicable securities laws, requirements or
regulations) as may be reasonably requested and as would permit or facilitate
that sale and distribution of all Registrable Securities until the distribution
thereof is complete. In the event the Registration Statement has not been
declared effective under the Securities Act within 12 months of the Final
Closing Date, then, for each 90 days thereafter that the Registration Statement
has not been declared effective, the Company shall pay a penalty to each of the
Purchasers equal to 5% of the principal amount of the Bridge Notes held by it.
This penalty, which shall be payable at the Company's option in either cash or
shares of registered Common Stock, Shall be paid by the Company to the
Purchasers within 10 days following the effective date of the Registration
Statement, or, in the event the Registration Statement has still not been
declared effective or has been withdrawn by the Company, no later then the
second anniversary of the Final Closing Date.

          8.2. Registration Procedures. In connection with the registration of
any Registrable Securities under the Securities Act as provided in this Section
8, the Company will use its best efforts, as expeditiously as possible:

               (a) Prepare and file with the Securities and Exchange Commission
the Registration Statement with respect to such Registrable Securities and use
its best efforts to cause such Registration Statement to become effective;

               (b) Prepare and file with the Securities and Exchange Commission
such amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective until the earlier to occur of December 31, 2004
or such time as the Bridge Warrants have been redeemed pursuant to the terms
therein, and to comply with the provisions of the Securities Act (to the extent
applicable to the Company) with respect thereto;

               (c) Furnish to each seller of such Registrable Securities such
number of copies of such Registration Statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus included in such Registration Statement (including each
preliminary prospectus), in conformity with the requirements of the Securities
Act, and such other documents, as such seller may reasonably request, in order
to facilitate the disposition of the Registrable Securities owned by such
seller;

               (d) Use its best efforts to register or qualify such Registrable
Securities covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions as any seller reasonably requests, and do
any and all other acts and things which may be reasonably necessary or advisable
to enable such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller, except that the Company will not
for any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not, but for the
requirements of this Section 8.2(d) be obligated to be qualified, to subject
itself to taxation in any such jurisdiction, or to consent to general service of
process in any such jurisdiction;

               (e) Provide a transfer agent and registrar for all such
Registrable Securities covered by such Registration Statement not later than the
effective date of such Registration Statement;

               (f) Notify each seller of such Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such Registration Statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;

               (g) Cause all such Registrable Securities to be listed on each
securities exchange or automated over-the-counter trading system on which
similar securities issued by the Company are then listed;

               (h) Enter into such customary agreements and take all such other
actions as reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities; and

               (i) Make available for inspection by any seller of Registrable
Securities, all financial and other records, pertinent corporation documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller in
connection with the Registration Statement pursuant to Section 8.1.

          8.3. Registration and Selling Expenses. (a) All expenses incurred by
the Company in connection with the Company's performance of or compliance with
this Section 8, including, without limitation (i) all registration and filing
fees (including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), (ii) blue sky fees and expenses, (iii) all necessary
printing and duplicating expenses and (iv) all fees and disbursements of counsel
and accountants for the Company (including the expenses of any audit of
financial statements), retained by the Company (all such expenses being herein
called "Registration Expenses"), will be paid by the Company except as otherwise
expressly provided in this Section 8.3. The term "Registration Expenses" shall
not include any underwriting discounts or commissions incurred by a Purchaser,
which shall be the responsibility of such Purchaser.

               (b) The Company will, in any event, in connection with any
registration statement, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal, accounting or other duties in connection therewith and expenses of audits
of year-end financial statements), the expense of liability insurance and the
expenses and fees for listing the securities to be registered on one or more
securities exchanges or automated over-the-counter trading systems on which
similar securities issued by the Company are then listed.

          8.4. NASD. In the event any Purchaser is deemed to be a member or an
affiliate of a member of the National Association of Securities Dealers, Inc.
("NASD") and as a result the Registrable Securities held by such Purchaser
cannot be included in the Registration Statement, then such Purchaser shall no
longer be entitled to the registration rights granted under the Section 8. The
Company may, however, in its sole discretion, include the Purchaser's
Registrable Securities in a future registration statement, to the extent
permitted by the NASD or the Securities and Exchange Commission.

          8.5. Indemnification. (a) The Company hereby agrees to indemnify, to
the extent permitted by law, each holder of Registrable Securities, its officers
and directors, if any, and each person, if any, who controls such holder within
the meaning of the Securities Act, against all losses, claims, damages,
liabilities and expenses (under the Securities Act or common law or otherwise)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus (and as amended or
supplemented if the Company has furnished any amendments or supplements thereto)
or any preliminary prospectus, which registration statement, prospectus or
preliminary prospectus shall be prepared in connection with the registration
contemplated by this Section 8, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by any untrue statement or alleged
untrue statement contained in or by any omission or alleged omission from
information furnished in writing by such holder to the Company in connection
with the registration contemplated by this Section 8, provided the Company will
not be liable pursuant to this Section 8.5 if such losses, claims, damages,
liabilities or expenses have been caused by any selling security holder's
failure to deliver a copy of the registration statement or prospectus, or any
amendments or supplements thereto, after the Company has furnished such holder
with the number of copies required by Section 8.2(c).

               (b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder shall
furnish to the Company in writing such information as is reasonably requested by
the Company for use in any such registration statement or prospectus and shall
severally, but not jointly, indemnify, to the extent permitted by law, the
Company, its directors and officers and each person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages, liabilities and expenses resulting from any untrue statement or alleged
untrue statement of a material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto or necessary to make the
statements therein not misleading, but only to the extent such losses, claims,
damages, liabilities or expenses are caused by an untrue statement or alleged
untrue statement contained in or by an omission or alleged omission from
information so furnished in writing by such holder in connection with the
registration contemplated by this Section 8. If the offering pursuant to any
such registration is made through underwriters, each such holder agrees to enter
into an underwriting agreement in customary form with such underwriters and to
indemnify such underwriters, their officers and directors, if any, and each
person who controls such underwriters within the meaning of the Securities Act
to the same extent as hereinabove provided with respect to indemnification by
such holder of the Company. Notwithstanding the foregoing or any other provision
of this Agreement, in no event shall a holder of Registrable Securities be
liable for any such losses, claims, damages, liabilities or expenses in excess
of the net proceeds received by such holder in the offering.

               (c) Promptly after receipt by an indemnified party under Section
8.5 (a) or (b) of notice of the commencement of any action or proceeding, such
indemnified party will, if a claim in respect thereof is made against the
indemnifying party under such Section, notify the indemnifying party in writing
of the commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under such Section. In case any such action or
proceeding is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and, to the extent that it wishes, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
with counsel approved by such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under such Section for any legal or any other expenses subsequently
incurred by such indemnified party in connection with the defense thereof (other
than reasonable costs of investigation) unless incurred at the written request
of the indemnifying party. Notwithstanding the above, the indemnified party will
have the right to employ counsel of its own choice in any such action or
proceeding if the indemnified party has reasonably concluded that there may be
defenses available to it which are different from or additional to those of the
indemnifying party, or counsel to the indemnified party is of the opinion that
it would not be desirable for the same counsel to represent both the
indemnifying party and the indemnified party because such representation might
result in a conflict of interest (in either of which cases the indemnifying
party will not have the right to assume the defense of any such action or
proceeding on behalf of the indemnified party or parties and such legal and
other expenses will be borne by the indemnifying party). An indemnifying party
will not be liable to any indemnified party for any settlement of any such
action or proceeding effected without the consent of such indemnifying party.

               (d) If the indemnification provided for in Section 8.5(a) or (b)
is unavailable under applicable law to an indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and of
the holders of Registrable Securities on the other in connection with the
statements or omissions which resulted in such losses, claims, damages, or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the holders of Registrable
Securities on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the Company
or by the holders of Registrable Securities and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed to
include, subject to the limitations set forth in Section 8.5(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.

               (e) Promptly after receipt by the Company or any holder of
Securities of notice of the commencement of any action or proceeding, such party
will, if a claim for contribution in respect thereof is to be made against
another party (the "contributing party"), notify the contributing party of the
commencement thereof; but the omission so to notify the contributing party will
not relieve it from any liability which it may have to any other party other
than for contribution hereunder. In case any such action, suit, or proceeding is
brought against any party, and such party notifies a contributing party of the
commencement thereof, the contributing party will be entitled to participate
therein with the notifying party and any other contributing party similarly
notified.

     9. Certain Definitions. For the purposes of this Agreement the following
terms have the respective meanings set forth below:

          9.1. "Affiliate" means any person, corporation, firm or entity which
directly or indirectly controls, is controlled by, or is under common control
with the indicated person, corporation, firm or entity.

          9.2. "Common Stock" means the Company's no par value Common Stock.

          9.3. "Generally Accepted Accounting Principles" means generally
accepted accounting principles consistently applied.

          9.4. "Officers' Certificate" means a certificate executed on behalf
of the Company by its President, Chairman of the Board, Chief Executive Officer,
Chief Financial Officer, Secretary and/or one of its other Vice-Presidents.

          9.5. "Registrable Securities" means (i) the Common Stock or other
Stock issuable upon conversion of the Bridge Notes and exercise of the Bridge
Warrants purchased pursuant to Section 1.1 or (ii) any other shares of Common
Stock now owned or hereafter acquired by Purchasers (whether Common Stock owned
directly or underlying convertible securities of the Company).

          9.6. "Securities" means the Bridge Notes, the Bridge Warrants and any
other capital stock or Common Stock underlying the foregoing whether issued at
the Closing or thereafter.

          9.7 "Securities Act" means, as of any given time, the Securities Act
of 1933, as amended, or any similar federal law then in force.

          9.8. "Securities Exchange Act" means, as of any given time, the
Securities Exchange Act of 1934, as amended, or any similar federal law then in
force.

          9.9. "Securities and Exchange Commission" includes any governmental
body or agency succeeding to the functions thereof.

          9.10."Stock" means any series of stock other than Common Stock issued
upon conversion of the Bridge Notes.

          9.11."Subsidiary" means any person, corporation, firm or entity at
least the majority of the equity securities (or equivalent interest) of which
are, at the time as of which any determination is being made, owned of record or
beneficially by the Company, directly or indirectly, through any Subsidiary or
otherwise.

     10. Company Indemnities. The Company agrees to indemnify, defend and
hold the Purchasers and their officers, directors, partners, employees,
consultants and agents (the "Purchasers' Indemnitees") harmless from and against
any liability, obligation, claim, cost, loss, judgment, damage or expense
(including reasonable legal fees and expenses) (collectively, "Liabilities")
incurred or suffered by any of the Purchasers' Indemnitees as a result of or
arising out of or in connection with the Company's breach of any representation,
warranty, covenant or agreement of the Company contained herein.

     11. Miscellaneous.

          11.1.Termination; Survival of Representations, Warranties and
Covenants. Except as otherwise provided for in this Agreement all
representations, warranties, covenants and agreements contained in this
Agreement, or in any document, exhibit, schedule or certificate by any party
delivered in connection herewith shall survive the execution and delivery of
this Agreement and the Closing Date and the consummation of the transactions
contemplated hereby, regardless of any investigation made by the Purchasers or
on their behalf.

          11.2.Expenses. The Company shall pay all its own expenses in
connection with this Agreement and the transactions contemplated herein. The
Company agrees to pay promptly and save the Purchasers harmless against
liability for the payment all expenses incurred by the Company and the
Purchasers in connection with the preparation and consummation of the Agreement
and the transactions contemplated herein, including but not limited to: all
costs and expenses under Section 8, including without limitation, the costs of
preparing, printing and filing with the Securities and Exchange Commission the
Registration Statement and amendments, post-effective amendments, and
supplements thereto; preparing, printing and delivering exhibits thereto and
copies of the preliminary, final and supplemental prospectuses; preparing,
printing and delivering all selling documents, including but not limited to the
stock and warrant certificates; legal fees and disbursements of RubinBaum, LLP,
D2's counsel (which amount shall not exceed $13,000 and which shall be paid on
the Initial Closing Date) in connection with the preparation and consummation of
this Agreement and the transactions contemplated herein, including the legal
fees and costs of negotiating and drafting any transaction documents, due
diligence and any necessary regulatory filings (including, without limitation,
the Registration Statement, Forms 3, 4 and 5 and Schedule 13-D filings) (the
"Bridge Loan Costs"). The "Bridge Loan Costs" shall not include any underwriting
discounts or commissions incurred by a Purchaser or costs and expenses under
Section 8, including, without limitation, the Registration Costs Exchange
Commission the Registration Statement and amendments, post-effective amendments,
and supplements thereto and preparing, printing and delivering exhibits thereto
and copies of the preliminary, final and supplemental prospectuses which such
costs shall in all cases be paid by the Company. The provisions of this Section
shall survive any termination of this Agreement in all instances, including
without limitation, (i) if the transactions contemplated by this Agreement have
not been consummated or (ii) if the transactions have been terminated by the
Purchasers for any reason.

          11.3.Amendments and Waivers. This Agreement and all exhibits and
schedules hereto set forth the entire agreement and understanding among the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of any and every nature among them.
This Agreement may be amended only by mutual written agreement of the Company
and the holders of a majority of principal amount of the Bridge Notes, and the
Company may take any action herein prohibited or omit to take any action herein
required to be performed by it, and any breach of any covenant, agreement,
warranty or representation may be waived, only if the Company has obtained the
written consent or waiver of the holders of a majority of principal value of the
Bridge Notes. No course of dealing between or among any persons having any
interest in this Agreement will be deemed effective to modify, amend or
discharge any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.

          11.4. Successors and Assigns. This Agreement may not be assigned by
the Company except with the prior written consent of the holders of a majority
of principal value of the Bridge Notes. This Agreement shall be binding upon
and inure to the benefit of the Company and its permitted successors and assigns
and Purchasers and their successors and assigns. The provisions hereof which are
for Purchasers' benefit as purchasers or holders of the Bridge Notes and the
Bridge Warrants are also for the benefit of, and enforceable by, any subsequent
holder of such Bridge Notes and Bridge Warrants.

          11.5.Notices. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given personally or when mailed
by certified or registered mail, return receipt requested and postage prepaid,
and addressed to the addresses of the respective parties set forth below or to
such changed addresses as such parties may have fixed by notice; provided,
however, that any notice of change of address shall be effective only upon
receipt:

                If to the Company:

                Bion Environmental Technologies
                555 17th Street, Suite 3310
                Denver, CO  80202
                Attn: Jon Northrop

                With a Copy to:

                Krys Boyle Freedman & Sawyer, P.C.
                600 17th Street
                Suite 2700 South Tower
                Denver, CO 80202
                Attn: Stanley F. ("Ted") Freedman, Esq.

                If to the Purchasers:

                At the address specified on their signature page hereto.

                If to D2:

                D2 Co., LLC
                5 East 59th Street, 3rd Floor
                New York, NY  10022
                Attn:  David Mitchell

                With a Copies to:

                Summerwind Restructuring, Inc.
                64 Village Hill Drive
                Dix Hills, New York  11746

                and to

                RubinBaum, LLP
                30 Rockefeller Plaza
                New York, NY  10112
                Attn:  Michael J. Emont, Esq.

          11.6.Governing Law. The validity, performance, construction and
effect of this Agreement shall be governed by the internal laws of the State of
New York without giving effect to such State's principles of conflict of laws.

          11.7.Counterparts. This Agreement may be executed in any number of
counterparts and, notwithstanding that any of the parties did not execute the
same counterpart, each of such counterparts shall, for all purposes, be deemed
an original, and all such counterparts shall constitute one and the same
instrument binding on all of the parties thereto. Any signature received by
facsimile transmission shall, for all purposes, be deemed an original signature.

          11.8.Headings. The headings of the Sections hereof are inserted as a
matter of convenience and for reference only and in no way define, limit or
describe the scope of this Agreement or the meaning of any provision hereof.

          11.9.Severability. In the event that any provision of this Agreement
or the application of any provision hereof is declared to be illegal, invalid or
otherwise unenforceable by a court of competent jurisdiction, the remainder of
this Agreement shall not be affected except to the extent necessary to delete
such illegal, invalid or unenforceable provision unless the provision held
invalid shall substantially impair the benefit of the remaining portion of this
Agreement.

          11.10. Rights of Holders Inter Se. Each Holder of securities shall
have the absolute right to exercise or refrain from exercising any right or
rights which such Holder may have by reason of this Agreement or any security
including, without limitation, the right to consent to the waiver of any
obligation of the Company under this Agreement and to enter into an agreement
with the Company for the purpose of modifying this Agreement or any agreement
effecting such modification, and such Holder shall not incur any liability to
any other Holder or Holders of securities with respect to exercising or
refraining from exercising any such right or rights.

          11.11. Exculpation Among Purchasers and Holders. Each Purchaser
acknowledges and agrees that it is not relying upon any other Purchaser, or any
officer, director, employee partner or affiliate of any such other Purchaser, in
making its investment or decision to invest in the Company or in monitoring such
investment. Each Purchaser agrees that no Purchaser nor any controlling person,
officer, director, shareholder, partner, agent or employee of any Purchaser
shall be liable for any action heretofore or hereafter taken or omitted to be
taken by any of them relating to or in connection with the Company or the
securities, or both.

          11.12. Actions by Purchasers. Any actions permitted to be taken by
holders or Purchasers of Bridge Notes and/or Bridge Warrants and any consents
required to be obtained from the same under this Agreement, may be taken or
given only by, in the case of consents or actions requiring approval of the
Purchasers, by the Purchasers, and in all other cases, only by holders of a
majority of (i) in the case of the Bridge Notes, the face amount of the
principal and (ii) in the case of the Bridge Warrants, the number of underlying
shares of Common Stock, and if such holders constituting a majority the
("Majority Holders") as set forth in (i) or (ii) above or the Purchasers take
any action or grant any consent, such action or consent shall be deemed given or
taken by all holders or Purchasers' who shall be bound by the decision or action
taken by the Majority Holders or the Purchasers without any liability on the
part of the Majority Holders or the Purchasers to any other holder of securities
hereto.

          11.13. Consent to Jurisdiction. The parties hereto irrevocably
consent to the jurisdiction of the courts of the State of New York and of any
federal court located in such State in connection with any action or proceeding
arising out of or relating to this Agreement, any document or instrument
delivered pursuant to, in connection with or simultaneously with this Agreement,
or a breach of this Agreement or any such document or instrument. In any such
action or proceeding, each party hereto waives personal service of any summons,
complaint or other process and agrees that service thereof may be made in
accordance with Section 11.5. Within 30 days after such service, or such other
time as may be mutually agreed upon in writing by the attorneys for the parties
to such action or proceeding, the party so served shall appear or answer such
summons, complaint or other process.

<PAGE>

      IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as of
the day and year first above written.

                                BION ENVIRONMENTAL TECHNOLOGIES, INC.

                                       By:
                                      Name:
                                     Title:

<PAGE>

                            PURCHASER SIGNATURE PAGE

Units Subscribed For:
                                PURCHASER NAME

                                    Address:

Aggregate Purchase Price:

                                       By:
                                      Name:
                                     Title:

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