10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended June 30, 2001

Commission File Number 0-26542

REDHOOK ALE BREWERY, INCORPORATED
(Exact name of registrant as specified in its charter)

Washington
(State or other jurisdiction of
incorporation or organization) 91-1141254
(I.R.S. Employer
Identification No.)

3400 Phinney Avenue North
Seattle, Washington
(Address of principal executive offices) 98103-8624
(Zip Code)

Registrant’s telephone number, including area code: (206) 548-8000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X]   No [   ]

Common stock, par value $.005 per share: 7,070,286 shares outstanding as of June 30, 2001.

Page 1 of 16 sequentially numbered pages

TABLE OF CONTENTS

PART I.
	ITEM 1. Financial Statements
		BALANCE SHEETS
		STATEMENTS OF OPERATIONS
		STATEMENTS OF CASH FLOWS
		NOTES TO FINANCIAL STATEMENTS
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
PART II.
	ITEM 4. Submission of Matters to a Vote of Security Holders
	ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 3.2
EXHIBIT 10.44

REDHOOK ALE BREWERY, INCORPORATED

FORM 10-Q

For The Quarterly Period Ended June 30, 2001

TABLE OF CONTENTS

		Page
PART I	Financial Information
ITEM 1.	Financial Statements
	Balance Sheets
	June 30, 2001 and December 31, 2000	3
	Statements of Operations
	Three Months Ended June 30, 2001 and 2000 and Six Months Ended June 30, 2001 and 2000	4
	Statements of Cash Flows
	Six Months Ended June 30, 2001 and 2000	5
	Notes to Financial Statements	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	14
PART II	Other Information
ITEM 4.	Submission of Matters to a Vote of Security Holders	14
ITEM 6.	Exhibits and Reports on Form 8-K	15

2

PART I.

ITEM 1. Financial Statements

REDHOOK ALE BREWERY, INCORPORATED

BALANCE SHEETS

					June 30,			December 31,
					2001			2000
					(Unaudited)
ASSETS
Current Assets:
	Cash and Cash Equivalents				$	5,596,156		$	7,487,190
	Accounts Receivable					2,207,661			1,075,730
	Inventories					2,871,316			2,726,071
	Other					275,682			296,082
		Total Current Assets				10,950,815			11,585,073
Fixed Assets, Net						72,371,565			73,670,248
Other Assets						188,751			365,181
			Total Assets		$	83,511,131		$	85,620,502
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS’ EQUITY
Current Liabilities:
	Accounts Payable				$	2,366,035		$	2,664,165
	Accrued Salaries, Wages and Payroll Taxes					1,424,040			1,528,739
	Refundable Deposits					1,951,686			1,791,267
	Other Accrued Expenses					406,545			333,805
	Current Portion of Long-Term Debt					450,000			450,000
		Total Current Liabilities				6,598,306			6,767,976
Long-Term Debt, Net of Current Portion						6,750,000			6,975,000
Deferred Income Taxes						829,686			1,276,149
Convertible Redeemable Preferred Stock						16,121,655			16,099,455
Common Stockholders’ Equity:
	Common Stock, Par Value $0.005 per Share, Authorized, 50,000,000 Shares; Issued and Outstanding, 7,070,286 Shares in 2001 and 7,312,786 in 2000					35,351			36,564
	Additional Paid-In Capital					56,006,175			56,407,023
	Accumulated Deficit					(2,830,042	)		(1,941,665	)
			Total Common Stockholders’ Equity			53,211,484			54,501,922
				Total Liabilities, Preferred Stock and Common Stockholders’ Equity	$	83,511,131		$	85,620,502

See Accompanying Notes

3

REDHOOK ALE BREWERY, INCORPORATED

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2001			2000		2001			2000
Sales	$	10,756,586		$	10,407,707	$	19,655,215		$	18,564,181
Less Excise Taxes		940,545			984,131		1,696,161			1,748,946
Net Sales		9,816,041			9,423,576		17,959,054			16,815,235
Cost of Sales		7,012,384			6,506,026		13,231,089			11,933,760
Gross Profit		2,803,657			2,917,550		4,727,965			4,881,475
Selling, General and Administrative Expenses		3,276,186			2,706,527		5,952,858			5,348,660
Operating Income (Loss)		(472,529	)		211,023		(1,224,893	)		(467,185	)
Interest Expense		106,358			147,900		236,620			288,444
Other Income — Net		67,470			85,016		158,988			148,297
Income (Loss) before Income Taxes		(511,417	)		148,139		(1,302,525	)		(607,332	)
Income Tax Expense (Benefit)		(171,327	)		58,737		(436,348	)		(194,346	)
Net Income (Loss)	$	(340,090	)	$	89,402	$	(866,177	)	$	(412,986	)
Basic Earnings (Loss) per Share	$	(0.05	)	$	0.01	$	(0.12	)	$	(0.05	)
Diluted Earnings (Loss) per Share	$	(0.05	)	$	0.01	$	(0.12	)	$	(0.05	)

See Accompanying Notes

4

REDHOOK ALE BREWERY, INCORPORATED

STATEMENTS OF CASH FLOWS

(Unaudited)

			Six Months Ended June 30,
			2001			2000
Operating Activities
Net Income (Loss)			$	(866,177	)	$	(412,986	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
		Depreciation and Amortization		1,606,311			1,646,039
		(Gain) Loss on Disposal of Fixed Assets		2,109			—
		Deferred Income Taxes		(446,463	)		(203,554	)
		Net Change in Operating Assets and Liabilities		(1,274,466	)		(333,307	)
Net Cash (Used in) Provided by Operating Activities				(978,686	)		696,192
Investing Activities
Expenditures for Fixed Assets				(285,287	)		(160,321	)
Other, Net				—			(1,000	)
Net Cash Used in Investing Activities				(285,287	)		(161,321	)
Financing Activities
Principal Payments on Debt				(225,000	)		(225,000	)
Repurchase of Common Stock				(402,061	)		(66,000	)
Net Cash Used in Financing Activities				(627,061	)		(291,000	)
Increase (Decrease) in Cash and Cash Equivalents				(1,891,034	)		243,871
Cash and Cash Equivalents:
	Beginning of Period			7,487,190			5,462,779
	End of Period		$	5,596,156		$	5,706,650

See Accompanying Notes

5

REDHOOK ALE BREWERY, INCORPORATED

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

     The accompanying financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000. The accompanying financial statements of Redhook Ale Brewery, Incorporated (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These financial statements are unaudited but, in the opinion of management, reflect all material adjustments necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. All such adjustments were of a normal, recurring nature. The results of operations for such interim periods are not necessarily indicative of the results of operations for the full year.

2. Earnings (Loss) per Share

     The calculation of adjusted weighted-average shares outstanding for purposes of computing diluted earnings per share includes the dilutive effect of all outstanding convertible redeemable preferred stock and outstanding stock options for the periods in which the Company reports net income. The calculation uses the treasury stock method in determining the resulting incremental average equivalent shares outstanding when the outstanding convertible redeemable preferred stock and outstanding stock options have a dilutive effect.

     The following table sets forth the computation of basic and diluted earnings (loss) per common share:

					Three Months Ended					Six Months Ended
					June 30,					June 30,
					2001			2000		2001			2000
Basic earnings (loss) per share computation:
	Numerator:
		Net income (loss)			$	(340,090	)	$	89,402	$	(866,177	)	$	(412,986	)
				Denominator:
				Weighted-average common shares		7,079,888			7,686,335		7,138,376			7,687,061
				Basic earnings (loss) per share	$	(0.05	)	$	0.01	$	(0.12	)	$	(0.05	)
			Diluted earnings (loss) per share computation:
				Numerator:
				Net income (loss)	$	(340,090	)	$	89,402	$	(866,177	)	$	(412,986	)
				Denominator:
				Weighted-average common shares		7,079,888			7,686,335		7,138,376			7,687,061
				Effect of dilutive securities:
				Series B convertible preferred stock		—			1,289,872		—			—
				Stock Options, Net		—			110		—			—
				Denominator for diluted earnings (loss) per share		7,079,888			8,976,317		7,138,376			7,687,061
				Diluted earnings (loss) per share	$	(0.05	)	$	0.01	$	(0.12	)	$	(0.05	)

6

REDHOOK ALE BREWERY, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (Continued)

(Unaudited)

3. Inventories

     Inventories consist of the following:

	June 30,		December 31,
	2001		2000
Finished goods	$	1,150,464	$	935,229
Raw materials		950,255		1,126,772
Promotional merchandise		546,302		444,584
Packaging materials		224,295		219,486
	$	2,871,316	$	2,726,071

     Finished goods include beer held in fermentation prior to the filtration and packaging process.

4. Stock Repurchase Program

     In May 2000, the Board of Directors authorized the repurchase of up to 500,000 shares of the Company’s outstanding shares of common stock. In January 2001, the Board of Directors authorized the repurchase of an additional 250,000 shares of its outstanding shares of common stock. As of June 30, 2001, 617,500 shares of common stock had been purchased in the open market for $987,000. During the six-month period ended June 30, 2001, 242,500 shares of common stock had been purchased in the open market for $402,000.

7

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion and analysis should be read in conjunction with the Company’s Financial Statements and Notes thereto included herein. The Company believes that period-to-period comparisons of its financial results should not be relied upon as an accurate indicator of future performance.

Overview

     Since its formation, the Company has focused its business activities on the brewing, marketing and selling of craft beers. For the six months ended June 30, 2001, the Company had gross sales of $19,655,000, an increase of 5.9% from the six months ended June 30, 2000. The Company’s sales consist predominantly of sales of beer to third-party distributors and Anheuser-Busch, Inc. (“A-B”) through the Company’s long-term distribution alliance with A-B (the “Distribution Alliance”). In addition, the Company derives other revenues primarily from the sale of beer, food, apparel and other retail items in its brewery pubs. The Company is required to pay federal excise taxes on sales of its beer in the amount of $7 per barrel on the first 60,000 barrels it sells annually. The excise tax burden on beer sales increases from $7 to $18 per barrel on annual sales over 60,000 barrels and thus, if sales volume fluctuates, federal excise taxes would change as a percentage of sales.

     The Company’s sales volume (shipments) increased 4.3% to 109,700 barrels for the six months ended June 30, 2001, as compared to the same period in 2000. In addition to the level of consumer demand in existing markets, the Company’s sales are also affected by other factors such as competitive considerations, including the significant number of craft brewers and their promotional pricing and new product introductions as well as increased competition from imported beers. Sales in the craft beer industry generally reflect a degree of seasonality, with the first and fourth quarters historically being the slowest. The Company has historically operated with little or no backlog, and its ability to predict sales for future periods is limited.

     Under normal circumstances, the Company operates its brewing facilities up to five days per week with multiple shifts per day. While the maximum designed production capacity for each of the Woodinville and Portsmouth breweries is approximately 250,000 barrels per year, the current production capacity is approximately 250,000 barrels per year at the Woodinville facility and 100,000 barrels per year at the Portsmouth facility. Production capacity at the Portsmouth facility can be added in phases until the facility reaches its maximum designed production capacity of 250,000 barrels per year. Such an increase would require additional capital expenditures, primarily for fermentation equipment and production personnel. The decision to add capacity is affected by the availability of capital, construction constraints and anticipated sales in new and existing markets.

     The Company’s capacity utilization has a significant impact on gross profit. Generally, when facilities are operating at their maximum designed production capacities, profitability is favorably affected because fixed and semivariable operating costs, such as depreciation and production salaries, are spread over a larger sales base. Because current period production levels have been substantially below the Company’s current production capacity, gross margins have been negatively impacted. This impact is expected to be reduced as actual production increases.

     In addition to capacity utilization, the Company expects other factors to influence profit margins, including: higher costs associated with the enhancement of existing and the development of newer distribution territories, such as increased shipping, marketing and sales personnel costs; fees related to the distribution agreement with A-B; changes in packaging and other material costs; and changes in product sales mix.

     See “ — Certain Considerations: Issues and Uncertainties.”

8

Results of Operations

     The following table sets forth, for the periods indicated, certain items from the Company’s Statements of Operations expressed as a percentage of net sales.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2001			2000			2001			2000
Sales		109.6	%		110.4	%		109.4	%		110.4	%
Less Excise Taxes		9.6			10.4			9.4			10.4
Net Sales		100.0			100.0			100.0			100.0
Cost of Sales		71.4			69.0			73.7			71.0
Gross Profit		28.6			31.0			26.3			29.0
Selling, General and Administrative Expenses		33.4			28.7			33.1			31.8
Operating Income (Loss)		(4.8	)		2.3			(6.8	)		(2.8	)
Interest Expense		1.1			1.7			1.3			1.7
Other Income — Net		0.7			0.9			0.9			0.9
Income (Loss) Before Income Taxes		(5.2	)		1.5			(7.2	)		(3.6	)
Income Tax Expense (Benefit)		(1.7	)		0.6			(2.4	)		(1.1	)
Net Income (Loss)		(3.5	)%		0.9	%		(4.8	)%		(2.5	)%

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

     Sales. Total sales increased 3.4% to $10,757,000 for the three months ended June 30, 2001, compared to $10,408,000 in the comparable 2000 period, resulting from a 2.4% increase in sales volume and slightly higher average pricing net of promotional discounts, and a slight increase in other sales. Total sales volumes for the second quarter of 2001 increased to 60,100 barrels from 58,700 barrels for the same period in 2000. While shipments in Washington State, the Company’s largest market, increased 0.9% as compared to 2000 second quarter shipments, west coast sales decreased 2.7% in the same period. Sales other than wholesale beer sales, primarily retail pub revenues, totaled $1,134,000 in the three months ended June 30, 2001, compared to $1,082,000 in the comparable 2000 period. At June 30, 2001 and 2000, the Company’s products were distributed in 48 states.

     Excise Taxes. Excise taxes decreased to $941,000, or 9.6% of net sales in the 2001 second quarter, compared to $984,000, or 10.4% of net sales in the comparable 2000 period. In September 2000, Washington State regulations were modified to require beer taxes previously paid by Washington State brewers now be paid by Washington State distributors, the effect of which was to decrease sales prices charged distributors and decrease excise taxes. Accordingly, both sales and excise taxes decreased as a percentage of net sales for the second quarter of 2001.

     Cost of Sales. Cost of sales increased 7.8% to $7,012,000 in the three months ended June 30, 2001, compared to $6,506,000 in the comparable 2000 period, due to higher sales volume, increased raw material, utility and freight costs, and a shift in product mix towards an increasing proportion of package sales, including 12-packs. Cost of sales, as a percentage of net sales, was 71.4% for the 2001 period compared to 69.0% for the 2000 period. The utilization rate, based upon the breweries’ combined current production capacity, was 68.7% and 67.1% for quarters ended June 30, 2001 and 2000, respectively. The utilization rate, based upon the breweries’ combined maximum designed capacity, was 48.1% and 47.0% for the quarters ended June 30, 2001 and 2000, respectively.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $3,276,000 in the 2001 second quarter, compared to $2,707,000 in the 2000 second quarter due to the addition of several new sales positions in key markets during the second half of 2000 and an increase in expenditures for the co-op advertising and promotion program with the Company’s wholesalers. As a percentage of net sales, these expenses were 33.4% and 28.7% for the quarters ended June 30, 2001 and 2000, respectively.

9

     Interest Expense. Interest expense decreased to $106,000 for the second quarter of 2001, compared to $148,000 for the comparable 2000 period, reflecting the effect of lower outstanding debt and lower average interest rates.

     Other Income — Net. Other income – net, decreased to $67,000 in the 2001 second quarter, compared to $85,000 in the 2000 second quarter. The decrease is due to the decline in interest income resulting from lower average interest rates offset by an increase in average balance of interest-bearing deposits.

     Income Taxes. The Company’s effective income tax rate was a 33.5% benefit for the second quarter of 2001 compared to 39.6% for the second quarter of 2000. The second quarter 2001 estimated effective tax rate is based upon an estimate of the full-year pretax result, relative to other components of the tax provision calculation, such as the exclusion of a portion of meals and entertainment expenses from tax return deductions.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

     Sales. Total sales increased 5.9% to $19,655,000 for the six months ended June 30, 2001, compared to $18,564,000 in the comparable 2000 period, resulting from a 4.3% increase in sales volume and slightly higher average pricing net of promotional discounts. Total sales volumes for the first six months of 2001 increased to 109,700 barrels from 105,200 barrels for the same period in 2000. While shipments in Washington State, the Company’s largest market, increased 0.7% as compared to the first six months of 2000, west coast sales decreased 0.8% in the same period. Sales other than wholesale beer sales, primarily retail pub revenues, totaled $1,946,000 in the six months ended June 30, 2001, compared to $1,917,000 in the comparable 2000 period. At June 30, 2001 and 2000, the Company’s products were distributed in 48 states.

     Excise Taxes. Excise taxes decreased to $1,696,000, or 9.4% of net sales in the first six months of 2001, compared to $1,749,000, or 10.4% of net sales in the comparable 2000 period. In September 2000, Washington State regulations were modified to require beer taxes previously paid by Washington State brewers now be paid by Washington State distributors, the effect of which was to decrease sales prices charged distributors and decrease excise taxes. Accordingly, both sales and excise taxes decreased as a percentage of net sales for the first six months of 2001.

     Cost of Sales. Cost of sales increased 10.9% to $13,231,000 in the first six months of 2001, compared to $11,934,000 in the comparable 2000 period, due to higher sales volume, increased raw material and utility costs, and a shift in product mix towards an increasing proportion of package sales, including 12-packs. Cost of sales, as a percentage of net sales, was 73.7% for the 2001 period compared to 71.0% for the 2000 period. The utilization rate, based upon the breweries’ combined current production capacity, was 62.7% and 60.1% for the six months ended June 30, 2001 and 2000, respectively. The utilization rate, based upon the breweries’ combined maximum designed capacity, was 43.9% and 42.1% for the six months ended June 30, 2001 and 2000, respectively.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $5,953,000 in the first six months of 2001, compared to $5,349,000 in the 2000 period due to the addition of several new sales positions in key geographic markets during the second half of 2000 and an increase in expenditures for the co-op advertising and promotion program with the Company’s wholesalers. As a percentage of net sales, these expenses were 33.1% and 31.8% for the six months ended June 30, 2001 and 2000, respectively.

     Interest Expense. Interest expense decreased to $237,000 for the six months ended June 30, 2001, compared to $288,000 for the comparable 2000 period, reflecting the effect of lower outstanding debt and lower average interest rates.

     Other Income — Net. Other income – net, increased to $159,000 in the first half of 2001, compared to $148,000 in the 2000 period. The increase is primarily due to an increase in interest income earned on a higher average balance of interest-bearing deposits offset by lower average interest rates.

10

     Income Taxes. The Company’s effective income tax rate was a 33.5% benefit for the six months ended June 30, 2001 compared to 32.0% for the 2000 period. The 2001 estimated effective tax rate is based upon an estimate of the full-year pretax result, relative to other components of the tax provision calculation, such as the exclusion of a portion of meals and entertainment expenses from tax return deductions.

Liquidity and Capital Resources

     The Company had $5,596,000 and $7,487,000 of cash and cash equivalents at June 30, 2001 and December 31, 2000, respectively. At June 30, 2001, the Company had working capital of $4,353,000. The Company’s long-term debt as a percentage of total capitalization (long-term debt, convertible redeemable preferred stock and common stockholders’ equity) was 9.4% at June 30, 2001, compared to 9.5% at December 31, 2000. Cash used in operating activities was $979,000 for the six months ended June 30, 2001, and cash provided by operating activities was $696,000 for the six months ended June 30, 2000. The decrease in operating cash flow in the six months ended June 30, 2001, was due to the timing of the collection of accounts receivable in December 2000 and payment of certain current liabilities in January 2001.

     On June 5, 1997, the Company converted the $9 million outstanding balance of its secured bank facility (the “Secured Facility”) to a five-year term loan with a 20-year amortization schedule. On June 19, 2001, the term loan was amended to allow for a second five-year term, maturing on June 5, 2007. As of June 30, 2001, there was $7.2 million outstanding on the Secured Facility, and the Company’s one-month LIBOR-based borrowing rate was approximately 5.3%. In addition, the Company has a $10 million revolving credit facility (the “Revolving Facility”) with the same bank through July 1, 2002, and as of June 30, 2001, there were no borrowings outstanding on this facility. The Secured Facility and the Revolving Facility are secured by substantially all of the Company’s assets. Through June 5, 2002, interest will accrue at a variable rate based on the London Inter Bank Offered Rate (“LIBOR”), plus 1.25% to 2.00% for the Secured Facility depending on the Company’s debt-to-tangible net worth ratio. Effective June 5, 2002, interest on the Secured Facility will accrue at LIBOR plus 1.75% to 2.25%, depending on the debt-to-tangible net worth ratio. The interest rate for the Revolving Facility is the applicable LIBOR plus 1.00% to 2.00%, depending on the Company’s debt service-to-cash flow ratio. The Company has the option to fix the applicable interest rate for up to twelve months by selecting LIBOR for one- to twelve-month periods as a base.

     The Company has required capital principally for the construction and development of its technologically-advanced production facilities. To date, the Company has financed its capital requirements through cash flow from operations, bank borrowings and the sale of common and preferred stock. The Company expects to meet its future financing needs, including the advertising expenditures associated with the brand investment advertising and promotion program and working capital and capital expenditure requirements, through cash on hand, operating cash flow and, to the extent required and available, bank borrowings and offerings of debt or equity securities. Capital expenditures for the first six months of 2001 totaled $285,000. Capital expenditures for 2001 are expected to total approximately $500,000.

     In May 2000, the Board of Directors authorized the repurchase of up to 500,000 shares of the Company’s outstanding shares of common stock. In January 2001, the Board of Directors authorized the repurchase of an additional 250,000 shares of its outstanding shares of common stock. As of June 30, 2001, 617,500 shares of common stock had been purchased in the open market for $987,000. During the six-month period ended June 30, 2001, 242,500 shares of common stock had been purchased in the open market for $402,000. No additional shares of common stock were purchased in July 2001.

     The Company has certain commitments, contingencies and uncertainties relating to its normal operations. Management believes that any such commitments, contingencies or uncertainties, including any environmental uncertainties, will not have a material adverse effect on the Company’s financial position or results of operations.

11

Certain Considerations: Issues and Uncertainties

     The Company does not provide forecasts of future financial performance or sales volumes, although this Quarterly Report contains certain other types of forward-looking statements that involve risks and uncertainties. The Company may, in discussions of its future plans, objectives and expected performance in periodic reports filed by the Company with the Securities and Exchange Commission (or documents incorporated by reference therein) and in written and oral presentations made by the Company, include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are based on assumptions that the Company believes are reasonable, but are by their nature inherently uncertain. In all cases, there can be no assurance that such assumptions will prove correct or that projected events will occur. Actual results could differ materially from those projected depending on a variety of factors, including, but not limited to, the issues discussed below, the successful execution of market development and other plans and the availability of financing. While Company management is optimistic about the Company’s long-term prospects, the following issues and uncertainties, among others, should be considered in evaluating its business prospects and any forward-looking statements.

     Effect of Competition on Future Sales. The domestic market in which the Company’s craft beers are sold is highly competitive due to the proliferation of small craft brewers, including contract brewers, the increase in the number of products offered by such brewers, increased competition from imported beers and the introduction of fuller-flavored products by major national brewers. The Company’s revenue growth rate began to slow in late 1996, and declines in sales volume ranged from 2.3% to 5.7% during the years 1997 through 1999, due to the highly competitive draft beer market. Sales volumes for the year ended December 31, 2000 increased 7.6% as compared to the corresponding prior year, and sales volumes for all quarters from September 30, 1999 through June 30, 2001 increased from 2.0% to 14.2% as compared to corresponding prior year quarters. However, if the Company were to experience negative sales trends, the Company’s future sales and results of operations would be adversely affected. The Company has historically operated with little or no backlog and, therefore, its ability to predict sales for future periods is limited.

     Sales Prices. Future prices the Company charges for its products may decrease from historical levels, depending on competitive factors in the Company’s various markets. The Company has participated in price promotions with its wholesalers and their retail customers in most of its markets. The number of markets in which the Company participates in price promotions and the frequency of such promotions may increase in the future.

     Variability of Gross Margin and Cost of Sales. The Company anticipates that its future gross margins will fluctuate and may decline as a result of many factors, including disproportionate depreciation and other fixed and semivariable operating costs, depending on the level of production at the Company’s breweries in relation to current and maximum designed production capacity. The Company’s high level of fixed and semivariable operating costs causes gross margin to be very sensitive to relatively small increases or decreases in sales volume. In addition, other factors that could affect cost of sales include changes in freight charges, the availability and prices of raw materials and packaging materials, the mix between draft and bottled product sales, the sales mix of various bottled product packages and Federal or state excise taxes. Also, as sales volumes through the Distribution Alliance increase, the alliance fee, and other staging and administrative costs, would increase.

     Advertising and Promotional Costs. Prior to June 1999 the Company had done very limited advertising. Based upon market and competitive considerations, the Company determined that a significant increase in such spending was appropriate. Accordingly, in June 1999 the Company began a brand investment program that significantly increased advertising and related costs. The increased advertising investment, which includes a co-op program with the Company’s wholesalers, continued through 1999, 2000 and the first six months of 2001 and is expected to continue for the foreseeable future with the objective of establishing or maintaining momentum towards capturing a larger share of the fragmented craft beer market. This increased spending significantly increased the Company’s selling, general and administrative expenses in 1999, 2000 and the first six months of 2001, leading to increased losses and a reduction in stockholders’ equity. In addition, market and

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competitive considerations could require an increase in other promotional costs associated with developing existing and new markets.

     Relationship with Anheuser-Busch, Incorporated. Most of the Company’s future sales are expected to be through the Distribution Alliance with A-B. If the Distribution Alliance were to be terminated, or if the relationship between A-B and the Company were to deteriorate, the Company’s sales and results of operations could be materially adversely affected. In the event that the A-B Distribution Agreement is terminated on or before December 31, 2004, under circumstances described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000. (see Item 1. Business – Relationship with Anheuser-Busch, Incorporated – A-B Distribution Agreement), the terms of the Series B Preferred Stock purchased by A-B pursuant to the A-B Investment Agreement require the mandatory redemption of the Series B Preferred Stock on December 31, 2004, at a redemption price equal to $12.61 per share (approximately $16.3 million in the aggregate), plus an amount equal to accumulated and unpaid dividends thereon, from legally available funds. Such a mandatory redemption could have a material adverse effect on the financial position and cash flows of the Company. While the Company believes that the benefits of the Distribution Alliance, in particular distribution and material cost efficiencies, offset costs associated with the Alliance, there can be no assurance that these costs will not have a negative impact on the Company’s profit margins in the future.

     Dependence on Third-Party Distributors. The Company relies heavily on third-party distributors for the sale of its products to retailers. The Company’s most significant non-Distribution Alliance wholesaler, K&L Distributors, Inc., an A-B affiliated wholesaler in the Seattle area, accounted for approximately 14% of the Company’s sales in the first six months of 2001. Substantially all of the remaining sales were made through the Distribution Alliance to A-B affiliated distributors, most of whom are independent wholesalers. A disruption of the wholesalers’ or A-B’s ability to distribute products efficiently due to any significant operational problems, such as wide-spread labor union strikes, or the loss of K&L Distributors as a customer, or the termination of the Distribution Alliance could have a material adverse impact on the Company’s sales and results of operations.

     Customer Acceptance, Consumer Trends and Public Attitudes. If consumers were unwilling to accept the Company’s products or if general consumer trends caused a decrease in the demand for beer, including craft beer, it could adversely impact the Company’s sales and results of operations. The alcoholic beverage industry has become the subject of considerable societal and political attention in recent years due to increasing public concern over alcohol-related social problems, including drunk driving, underage drinking and health consequences from the misuse of alcohol. If beer consumption in general were to come into disfavor among domestic consumers, or if the domestic beer industry were subjected to significant additional governmental regulation, the Company’s sales and results of operations could be adversely affected.

     Effect of Sales Trends on Brewery Efficiency and Operations. Even though sales volumes for 2000 increased 7.6% as compared to 1999, and sales volumes for all quarters from September 30, 1999 through June 30, 2001 increased from 2.0% to 14.2% as compared to corresponding prior year quarters, the Company’s sales volumes declined modestly in 1997, 1998 and the first half of 1999. Those declines coincided with significantly slower sales growth in the highly competitive craft beer segment. The Company’s breweries have been operating at production levels substantially below their actual and maximum designed capacities. Operating breweries at low capacity utilization rates negatively impacts gross margins and operating cash flows generated by the production facilities. In 1998, the Company permanently curtailed production at its Fremont Brewery and wrote the related assets down to their estimated net realizable value. The Company will continue to evaluate whether it expects to recover the costs of its two remaining production facilities over the course of their useful lives.

     Income Tax Benefits. As of December 31, 2000, the Company had federal income tax net operating loss carryforwards (“NOL’s”) of approximately $23.5 million, substantially all of which expire from 2012 through 2020. NOL’s can generally be utilized to offset regular tax liabilities in future years, and carried back no more than 2 years and forward no more than 20 years. Should the Company incur significant operating losses in the future, thus generating additional NOL’s, the Company may be required to establish a valuation allowance if it is more likely than not that all, or a portion, of an NOL would either expire before the Company is able to

13

realize its benefit, or that future utilization is uncertain. Such a valuation allowance would reduce the income tax benefit recorded in the statement of operations.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” In June 2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS 133 to clarify specific areas presenting difficulties in implementation. The Company has adopted the provisions of FAS 133/138 as of January 1, 2001. Adoption of SFAS 133/138 did not have a material impact on the Company’s results of operations, financial position or cash flows.

     In December 1999, the staff of the Securities and Exchange Commission released Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition,” to provide guidance on the recognition, presentation and disclosure of revenues in financial statements. The Company believes that its revenue recognition practices are in conformity with the guidelines in SAB 101, as revised, and that this pronouncement did not have a material impact on its financial statements.

     In March 2000, the FASB issued Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation: an interpretation of APB Opinion No. 25.” Interpretation No. 44 provides clarification of certain issues, such as the determination of who is an employee, the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award and the accounting for an exchange of stock compensation awards in a business combination. The Company believes that its accounting for stock-based compensation is in conformity with this guidance, and therefore Interpretation No. 44 did not have an impact on the Company’s financial condition or results of operations.

     In June 2001, the FASB issued SFAS No. 141, “Business Combinations”, and No. 142, “Goodwill and Other Intangible Assets”, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. Adoption of FAS 141/142 did not have an impact on the Company’s financial condition or results of operations.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

     The Company has assessed its vulnerability to certain market risks, including interest rate risk associated with financial instruments included in cash and cash equivalents and long-term debt. Due to the nature of these investments and the Company’s investment policies, the Company believes that the risk associated with interest rate fluctuations related to these financial instruments does not pose a material risk.

     The Company did not have any derivative financial instruments as of June 30, 2001.

PART II.

ITEM 4. Submission of Matters to a Vote of Security Holders

     The Company’s Annual Meeting of Shareholders was held on May 22, 2001. The following matters were voted upon by the shareholders with the results as follows:

(1) The following persons were nominated by the Board of Directors and each was elected to serve as a director until the next Annual Meeting of Shareholders or until his or her earlier retirement, resignation or removal: Paul S. Shipman, M. Colleen Beckemeyer, Frank H. Clement, Jerry D. Jones, Anthony J. Short, Walter F. Walker.

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The number of votes cast for or withheld for each director nominee was as follows:

Nominee	For		Withheld
Paul S. Shipman		6,998,158		34,983
M. Colleen Beckemeyer		6,990,088		43,053
Frank H. Clement		6,998,083		35,058
Jerry D. Jones		6,999,343		33,798
Anthony J. Short		6,989,988		43,153
Walter F. Walker		6,996,267		36,874

Ms. Colleen Beckemeyer, an A-B designee to the Company’s Board of Directors, has resigned from the Company’s Board of Directors, and the new A-B designee, Mr. Steve Bagwell, has been appointed to the Company’s Board of Directors to fill the vacancy created by Ms. Beckemeyer’s resignation.

(2) The shareholders voted 7,016,847 shares in the affirmative, 11,024 shares in the negative and 5,270 shares abstained to ratify the appointment of Ernst & Young LLP, as independent auditors for the Company’s fiscal year ending December 31, 2001.

     Audit Committee Membership. Rule 4350(d)(2)(A) of the National Association of Securities Dealers (the “NASD”) generally requires an audit committee to be composed of at least three members of the Board of Directors who are “independent directors” as defined in NASD Rule 4200(a)(14). However, NASD Rule 4350(d)(2)(B), allows an audit committee to have one non-independent director if the Board of Directors determines, in exceptional and limited circumstances, that membership on the audit committee by the director is required by the best interests of the Company and its shareholders.

     Mr. Anthony Short, a member of the Company’s Audit Committee, is an employee of A-B, which beneficially owns more 25% of the Company’s voting securities. Therefore, Mr. Short is not an “independent director.”

     The Board of Directors has determined that for a number of reasons, Mr. Short’s membership on the Company’s Audit Committee is required by the best interests of the Company and its shareholders. First, the Company has agreed with A-B that one of the directors designated by A-B serve as a member on each committee of the Board of Directors, including the Audit Committee. Mr. Short is A-B’s designee to the Audit Committee. In addition, the Board of Directors has determined that Mr. Short is a valuable member of the audit committee.

ITEM 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

     The following exhibits are filed as part of this report.

3.2	Amended and Restated Bylaws of Registrant, dated May 22, 2001
10.44	Fifth Amendment to Amended and Restated Credit Agreement between U.S. Bank National Association and Registrant, dated June 19, 2001

(b)  Reports on Form 8-K

     None were filed during the quarter ended June 30, 2001.

ITEMS 1, 2, 3 and 5 of PART II are not applicable and have been omitted.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

August 13, 2001	REDHOOK ALE BREWERY, INCORPORATED
	BY:	/s/ David J. Mickelson
		David J. Mickelson Executive Vice President, Chief Financial Officer and Chief Operating Officer
	BY:	/s/ Anne M. Mueller
		Anne M. Mueller Controller and Treasurer, Principal Accounting Officer

16 EX-3.2 3 v74895ex3-2.txt EXHIBIT 3.2 1 AMENDED AND RESTATED BYLAWS OF REDHOOK ALE BREWERY, INCORPORATED AMENDED: OCTOBER 11, 1994 (SECTIONS 1.1, 2.2, 2.3, 2.4) MARCH 29, 2000 (SECTION 2.2) FEBRUARY 16, 2001 (SECTION 2.2) MAY 22, 2001 (SECTIONS 1.1, 1.2, 1.3, 2.3 AND 5.2) 2 TABLE OF CONTENTS

PAGE Article I SHAREHOLDERS..............................................................1 1.1 Annual Meeting...............................................................1 1.1.1 Business Conducted at Meeting.........................................1 1.2 Special Meetings.............................................................3 1.3 Notice of Meetings...........................................................3 1.3.1 Notice of Special Meeting.............................................3 1.3.2 Proposed Articles of Amendment, Merger, Exchange, Sale, Lease, or Disposition........................................................4 1.3.3 Proposed Dissolution..................................................4 1.3.4 Declaration of Mailing................................................4 1.3.5 Waiver of Notice......................................................4 1.4 Quorum; Vote Requirement.....................................................4 1.5 Adjourned Meetings...........................................................5 1.6 Fixing Record Date...........................................................5 1.7 Shareholders' List for Meeting...............................................5 1.8 Ratification.................................................................6 1.9 Action by Shareholders Without a Meeting.....................................6 1.10 Telephonic Meetings..........................................................6 Article II BOARD OF DIRECTORS........................................................7 2.1 Responsibility of Board of Directors.........................................7 2.2 Number of Directors; Qualification...........................................7 2.3 Election of Directors; Nominations...........................................7 2.3.1 Election; Term of Office..............................................7 2.3.2 Nominations for Directors.............................................7 2.4 Vacancies....................................................................9 2.5 Removal.....................................................................10 2.6 Resignation.................................................................10 2.7 Annual Meeting..............................................................10 2.8 Regular Meetings............................................................10 2.9 Special Meetings............................................................10 2.10 Notice of Meeting...........................................................10 2.11 Quorum of Directors.........................................................11 2.12 Dissent by Directors........................................................11 2.13 Action by Directors Without a Meeting.......................................12 2.14 Telephonic Meetings.........................................................12 2.15 Compensation................................................................12 2.16 Committees..................................................................12 Article III OFFICERS.................................................................13 3.1 Appointment.................................................................13 3.2 Qualification...............................................................13 3.3 Officers Enumerated.........................................................13

3 TABLE OF CONTENTS (continued)

PAGE 3.3.1 Chairman of the Board................................................13 3.3.2 President............................................................14 3.3.3 Vice Presidents......................................................14 3.3.4 Secretary............................................................14 3.3.5 Treasurer............................................................15 3.4 Delegation..................................................................15 3.5 Resignation.................................................................16 3.6 Removal.....................................................................16 3.7 Vacancies...................................................................16 3.8 Other Officers and Agents...................................................16 3.9 Compensation................................................................16 3.10 General Standards for Officers..............................................16 Article IV CONTRACTS, CHECKS AND DRAFTS.............................................16 4.1 Contracts...................................................................16 4.2 Checks, Drafts, Etc.........................................................17 4.3 Deposits....................................................................17 Article V STOCK....................................................................17 5.1 Issuance of Shares..........................................................17 5.2 Certificates of Stock.......................................................17 5.3 Stock Records...............................................................18 5.4 Restrictions on Transfer....................................................18 5.5 Transfers...................................................................18 Article VI RECORDS OF CORPORATE MEETINGS............................................19 Article VII FINANCIAL MATTERS........................................................19 Article VIII DISTRIBUTIONS............................................................20 Article IX CORPORATE SEAL...........................................................20 Article X MISCELLANY...............................................................20 10.1 Communications by Facsimile.................................................20 10.2 Inspector of Elections......................................................20 10.3 Rules of Order..............................................................21 10.4 Construction................................................................21 10.5 Severability................................................................21 Article XI AMENDMENT OF BYLAWS......................................................22 Article XII AUTHENTICATION...........................................................22

ii 4 AMENDED AND RESTATED BYLAWS OF REDHOOK ALE BREWERY, INCORPORATED These Bylaws are promulgated pursuant to the Washington Business Corporation Act, as set forth in Title 23B of the Revised Code of Washington (the "Act"). ARTICLE I SHAREHOLDERS 1.1 Annual Meeting. The annual meeting of the shareholders of the corporation for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held each year at a place, day and time to be set by the Board of Directors. 1.1.1 Business Conducted at Meeting. (a) At an annual meeting of shareholders, an item of business may be conducted, and a proposal may be considered and acted upon, only if such item or proposal is brought before the annual meeting (i) by, or at the direction of, the Board of Directors, or (ii) by any shareholder of the corporation who is entitled to vote at the meeting and who complies with the procedures set forth in the remainder of this Section 1.1.1. This Section 1.1.1 shall not apply to matters of procedure that, pursuant to Section 10.3(a) of these Bylaws, are subject to the authority of the chairman of the meeting. (b) For an item of business or proposal to be brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder's notice must be delivered to, or mailed and received at, the principal office of the corporation (a) not less than one hundred twenty (120) days prior to the first anniversary of the date that the corporation's proxy statement was first released to shareholders in connection with the previous year's annual meeting; (b) a reasonable time before the corporation begins to print and mail its proxy materials if the date of the current year's annual meeting has been changed by more than thirty (30) days from the date of the previous year's meeting; or (c) not more than seven (7) days following the mailing to shareholders of the notice of annual meeting with respect to the current year's annual meeting, if the corporation did not release a proxy statement to shareholders in connection with the previous year's annual meeting, or if no annual meeting was held during such year. (c) A shareholder's notice to the Secretary under Section 1.1.2(b) shall set forth, as to each item of business or proposal the shareholder intends to bring before the meeting (i) a brief description of the item of business or proposal and the reasons for bringing it before the meeting, (ii) the 1 5 name and address, as they appear on the corporation's books, of the shareholder and of any other shareholders that the shareholder knows or anticipates will support the item of business or proposal, (iii) the number and class of shares of stock of the corporation that are beneficially owned on the date of such notice by the shareholder and by any such other shareholders, and (iv) any financial interest of the shareholder or any such other shareholders in such item of business or proposal. (d) The Board of Directors, or a designated committee thereof, may reject a shareholder's notice that is not timely given in accordance with the terms of Section 1.1.2(b). If the Board of Directors, or a designated committee thereof, determines that the information provided in a timely shareholder's notice does not satisfy the requirements of Section 1.1.2(c) in any material respect, the Secretary of the corporation shall notify the shareholder of the deficiency in the notice. The shareholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed five (5) days from the date such deficiency notice is given to the shareholder, as the Board of Directors or such committee shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors or such committee determines that the additional information provided by the shareholder, together with information previously provided, does not satisfy the requirements of Section 1.1.2(c) in any material respect, then the Board of Directors or such committee may reject the shareholder's notice. (e) Notwithstanding the procedures set forth in Section 1.1.1(d), if a shareholder desires to bring an item of business or proposal before an annual meeting, and neither the Board of Directors nor any committee thereof has made a prior determination of whether the shareholder has complied with the procedures set forth in this Section 1.1.1 in connection with such item of business or proposal, then the chairman of the annual meeting shall determine and declare at the annual meeting whether the shareholder has so complied. If the chairman determines that the shareholder has so complied, then the chairman shall so state and ballots shall be provided for use at the meeting with respect to such item of business or proposal. If the chairman determines that the shareholder has not so complied, then, unless the chairman, in his sole and absolute discretion, determines to waive such compliance, the chairman shall state that the shareholder has not so complied and the item of business or proposal shall not be brought before the annual meeting. (f) This Section 1.1.1 shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees of the Board of Directors, but, in connection with such reports, no item of business may be conducted, and no proposal may be considered and acted upon, unless there has been compliance with the procedures set forth in this Section 1.1.1 in connection therewith. 2 6 1.2 Special Meetings. Special meetings of the shareholders for any purpose or purposes may be called at any time by the Board of Directors or by the Chairman of the Board (if one be appointed) or by the President or by one or more shareholders holding not less than one-tenth (1/10) of all the shares entitled to be cast on any issue proposed to be considered at that meeting, to be held at such time and place as the Board or the Chairman (if one be appointed) or the President may prescribe; provided, that, at any time when the corporation is subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), special meetings of the shareholders for any purpose or purposes may be called at any time only by the Board of Directors or the Chairman of the Board (if one be appointed) or the President or one or more shareholders holding not less than twenty-five percent (25%) of all the shares entitled to be cast on any issue proposed to be considered at that meeting.. If a special meeting is called by any person or persons other than the Board of Directors or the Chairman of the Board (if one be appointed) or the President, then a written demand, describing with reasonable clarity the purpose or purposes for which the meeting is called and specifying the general nature of the business proposed to be transacted, shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Secretary of the corporation. Upon receipt of such a demand, the Secretary shall cause notice of such meeting to be given, within thirty (30) days after the date the demand was delivered to the Secretary, to the shareholders entitled to vote, in accordance with the provisions of Section 1.3 of these Bylaws. Except as provided below, if the notice is not given by the Secretary within thirty (30) days after the date the demand was delivered to the Secretary, then the person or persons demanding the meeting may specify the time and place of the meeting and give notice thereof. 1.3 Notice of Meetings. Except as otherwise provided below, the Secretary, Assistant Secretary, or any transfer agent of the corporation shall give, in any manner permitted by law, not less than ten (10) nor more than sixty (60) days before the date of any meeting of shareholders, written notice stating the place, day, and time of the meeting to each shareholder of record entitled to vote at such meeting. If mailed, notice to a shareholder shall be effective when mailed, with first-class postage thereon prepaid, correctly addressed to the shareholder at the shareholder's address as it appears on the current record of shareholders of the corporation. Otherwise, written notice shall be effective at the earliest of the following: (a) when received, (b) five (5) days after its deposit in the United States mail, as evidenced by the postmark, if mailed with first class postage, prepaid, and correctly addressed, or (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee. 1.3.1 Notice of Special Meeting. In the case of a special meeting, the written notice shall also state with reasonable clarity the purpose or purposes for which the meeting is called and the general nature of the business proposed to be transacted at the meeting. No business other than that within the purpose or purposes specified in the notice may be transacted at a special meeting. 3 7 1.3.2 Proposed Articles of Amendment, Merger, Exchange, Sale, Lease, or Disposition. If the business to be conducted at any meeting includes any proposed amendment to the Articles of Incorporation or any proposed merger or exchange of shares, or any proposed sale, lease, exchange, or other disposition of all or substantially all of the property and assets (with or without the goodwill) of the corporation not in the usual or regular course of its business, then the written notice shall state that the purpose or one of the purposes is to consider the proposed amendment or plan of merger, exchange of shares, sale, lease, exchange, or other disposition, as the case may be, shall describe the proposed action with reasonable clarity, and shall be accompanied by a copy of the proposed amendment or plan. Written notice of such meeting shall be given to each shareholder of record, whether or not entitled to vote at such meeting, not less than twenty (20) days before such meeting, in the manner provided in Section 1.3 above. 1.3.3 Proposed Dissolution. If the business to be conducted at any meeting includes the proposed voluntary dissolution of the corporation, then the written notice shall state that the purpose or one of the purposes is to consider the advisability thereof. Written notice of such meeting shall be given to each shareholder of record, whether or not entitled to vote at such meeting, not less than twenty (20) days before such meeting, in the manner provided in Section 1.3 above. 1.3.4 Declaration of Mailing. A declaration of the mailing or other means of giving any notice of any shareholders' meeting, executed by the Secretary, Assistant Secretary, or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 1.3.5 Waiver of Notice. A shareholder may waive notice of any meeting at any time, either before or after such meeting. Except as provided below, the waiver must be in writing, be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records. A shareholder's attendance at a meeting in person or by proxy waives objection to lack of notice or defective notice of the meeting unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting on the ground that the meeting is not lawfully called or convened. In the case of a special meeting, or an annual meeting at which fundamental corporate changes are considered, a shareholder waives objection to consideration of a particular matter that is not within the purpose or purposes described in the meeting notice unless the shareholder objects to considering the matter when it is presented. 1.4 Quorum; Vote Requirement. A quorum shall exist at any meeting of shareholders if a majority of the votes entitled to be cast is represented in person or by proxy. Once a share is represented for any purpose at a meeting other than solely to object to holding the meeting or transacting business at the meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. Subject to the foregoing, the determination of the voting groups entitled to vote (as required by law), and the quorum and voting requirements applicable thereto, must be 4 8 made separately for each matter being considered at a meeting. In the case of any meeting of shareholders that is adjourned more than once because of the failure of a quorum to attend, those who attend the third convening of such meeting, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing directors, provided that the percentage of shares represented at the third convening of such meeting shall not be less than one-third of the shares entitled to vote. If a quorum exists, action on a matter (other than the election of directors) is approved by a voting group if the votes cast within the voting group favoring the action exceed the votes cast within the voting group opposing the action unless a greater number of affirmative votes is required by law or by the Articles of Incorporation. 1.5 Adjourned Meetings. An adjournment or adjournments of any shareholders' meeting, whether by reason of the failure of a quorum to attend or otherwise, may be taken to such date, time, and place as the chairman of the meeting may determine without new notice being given if the date, time, and place are announced at the meeting at which the adjournment is taken. However, if the adjournment is for more than one hundred twenty (120) days from the date set for the original meeting, a new record date for the adjourned meeting shall be fixed and a new notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting, in accordance with the provisions of Section 1.3 of these Bylaws. At any adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. Any meeting at which directors are to be elected shall be adjourned only from day to day until such directors are elected. 1.6 Fixing Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders (or, subject to Section 1.5 above, any adjournment thereof), the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than seventy (70) days prior to the meeting. If no such record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, then the day before the first notice is delivered to shareholders shall be the record date for such determination of shareholders. If no notice is given because all shareholders entitled to notice have waived notice, then the record date for the determination of shareholders entitled to notice of or to vote at a meeting shall be the date on which the last such waiver of notice was obtained. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except as provided in Section 1.5 of these Bylaws. If no notice is given because all shareholders entitled to notice have signed a consent as described in Section 1.9 below, the record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent. 1.7 Shareholders' List for Meeting. The corporation shall cause to be prepared an alphabetical list of the names of all of its shareholders on the record date who are entitled to notice of a shareholders' meeting or any adjournment thereof. The list must be arranged by voting group (and within each voting group by class or series of shares) 5 9 and show the address of and the number of shares held by each shareholder. The shareholders' list must be available for inspection by any shareholder, beginning ten (10) days prior to the meeting and continuing through the meeting, at the principal office of the corporation or at a place identified in the meeting notice in the city where the meeting will be held. Such list shall be produced and kept open at the time and place of the meeting. During such ten-day period, and during the whole time of the meeting, the shareholders' list shall be subject to the inspection of any shareholder, or the shareholder's agent or attorney. In cases where the record date is fewer than ten (10) days prior to the meeting because notice has been waived by all shareholders, the Secretary shall keep such record available for a period from the date the first waiver of notice was delivered to the date of the meeting. Failure to comply with the requirements of this section shall not affect the validity of any action taken at the meeting. 1.8 Ratification. Subject to the requirements of RCW 23B.08.730, 23B.17.020, and 23B.19.040, any contract, transaction, or act of the corporation or of any director or officer of the corporation that shall be authorized, approved, or ratified by the affirmative vote of a majority of shares represented at a meeting at which a quorum is present shall, insofar as permitted by law, be as valid and as binding as though ratified by every shareholder of the corporation. 1.9 Action by Shareholders Without a Meeting. Any action which may be or which is required by law to be taken at any meeting of shareholders may be taken, without a meeting or notice of a meeting, if one or more consents in writing, setting forth the action so taken, are signed by all of the shareholders entitled to vote or, in the place of any one or more of such shareholders, by a person holding a valid proxy to vote with respect to the subject matter thereof, and are delivered to the corporation for inclusion in the minutes or filing with the corporate records. If notice of the proposed action to be taken by unanimous consent of the voting shareholders is required by law to be given to nonvoting shareholders, the corporation must give its nonvoting shareholders written notice of the proposed action at least ten (10) days before the action is taken. The notice must contain or be accompanied by the same material that, by law, would have been required to be sent to nonvoting shareholders in a notice of meeting at which the proposed action would have been submitted to such shareholders for action. Action taken by unanimous written consent is effective when all consents are in possession of the corporation, unless the consent specifies a later effective date. Such consent shall have the same force and effect as a meeting vote of shareholders and may be described as such in any articles or other document filed with the Secretary of State of the State of Washington. 1.10 Telephonic Meetings. Shareholders may participate in a meeting by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting. 6 10 ARTICLE II BOARD OF DIRECTORS 2.1 Responsibility of Board of Directors. The business and affairs and property of the corporation shall be managed under the direction of a Board of Directors. A director shall discharge the duties of a director, including duties as a member of a committee, in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner the director reasonably believes to be in the best interests of the corporation. In discharging the duties of a director, a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by: (a) one or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented; (b) legal counsel, public accountants, or other persons as to matters the director reasonably believes are within the person's professional or expert competence; or (c) a committee of the Board of Directors of which the director is not a member, if the director reasonably believes the committee merits confidence. A director is not acting in good faith if the director has knowledge concerning the matter in question that makes reliance otherwise permitted above unwarranted. The creation of, delegation of authority to, or action by a committee does not alone constitute compliance by a director with the standards of conduct imposed by law upon directors. A director is not liable for any action taken as a director, or any failure to take any action, if the director performed the duties of the director's office in compliance with this section. 2.2 Number of Directors; Qualification. The Board of Directors shall consist of 6 directors, except as provided in Sections 5(b) and 5(c) of the Certificate of Designation for the Series A Convertible Preferred Stock and the Series B Preferred Stock. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. No director need be a shareholder of the corporation or a resident of Washington. Each director must be at least eighteen (18) years of age. 2.3 Election of Directors; Nominations. 2.3.1 Election; Term of Office. At the first annual meeting of shareholders and each annual meeting thereafter, the shareholders shall elect directors. Each director shall hold office until the next succeeding annual meeting or, in the case of staggered terms as permitted by RCW 23B.08.060, for the term for which he is elected, and in each case until his successor shall have been elected and qualified. 2.3.2 Nominations for Directors. (a) Nominations of candidates for election as directors at an annual meeting of shareholders may only be made (i) by, or at the direction of, the Board of Directors, or (ii) by any shareholder of the corporation who is 7 11 entitled to vote at the meeting and who complies with the procedures set forth in the remainder of this Section 2.3.2. (b) If a shareholder proposes to nominate one or more candidates for election as directors at an annual meeting, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder's notice must be delivered to, or mailed and received at, the principal office of the corporation (i) not less than one hundred twenty (120) days prior to the first anniversary of the date that the corporation's proxy statement was released to shareholders in connection with the previous year's annual meeting; (ii) a reasonable time before the corporation begins to print and mail its proxy materials if the date of this year's annual meeting has been changed by more than thirty (30) days from the date of the previous year's meeting; or (iii) not more than seven (7) days following the mailing to shareholders of the notice of annual meeting with respect to the current year's annual meeting, if the corporation did not release a proxy statement to shareholders in connection with the previous year's annual meeting, or if no annual meeting was held during such year. (c) A shareholder's notice to the Secretary under Section 2.3.2(b) shall set forth, as to each person whom the shareholder proposes to nominate for election as a director (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the number and class of shares of stock of the corporation that are beneficially owned on the date of such notice by such person, and (iv) if the corporation at such time has or at the time of the meeting will have any security registered pursuant to Section 12 of the Exchange Act, any other information relating to such person required to be disclosed in solicitations of proxies with respect to nominees for election as directors pursuant to Regulation 14A under the Exchange Act, including but not limited to information required to be disclosed by Schedule 14A of Regulation 14A, and any other information that the shareholder would be required to file with the Securities and Exchange Commission in connection with the shareholder's nomination of such person as a candidate for director or the shareholder's opposition to any candidate for director nominated by, or at the direction of, the Board of Directors. In addition to the above information, a shareholder's notice to the Secretary under Section 2.3.2(b) shall (A) set forth (i) the name and address, as they appear on the corporation's books, of the shareholder and of any other shareholders that the shareholder knows or anticipates will support any candidate or candidates nominated by the shareholder and (ii) the number and class of shares of stock of the corporation that are beneficially owned on the date of such notice by the shareholder and by any such other shareholders and (B) be accompanied by a written statement, signed and acknowledged by each candidate nominated by the shareholder, that the candidate agrees to be so nominated and to serve as a director of the corporation if elected at the annual meeting. 8 12 (d) The Board of Directors, or a designated committee thereof, may reject any shareholder's nomination of one or more candidates for election as directors if the nomination is not made pursuant to a shareholder's notice timely given in accordance with the terms of Section 2.3.2(b). If the Board of Directors, or a designated committee thereof, determines that the information provided in a shareholder's notice does not satisfy the requirements of Section 2.3.2(c) in any material respect, the Secretary of the corporation shall notify the shareholder of the deficiency in the notice. The shareholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed five (5) days from the date such deficiency notice is given to the shareholder, as the Board of Directors or such committee shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors or such committee determines that the additional information provided by the shareholder, together with information previously provided, does not satisfy the requirements of Section 2.3.2(c) in any material respect, then the Board of Directors or such committee may reject the shareholder's notice. (e) Notwithstanding the procedures set forth in Section 2.3.2(d), if a shareholder proposes to nominate one or more candidates for election as directors at an annual meeting, and neither the Board of Directors nor any committee thereof has made a prior determination of whether the shareholder has complied with the procedures set forth in this Section 2.3.2 in connection with such nomination, then the chairman of the annual meeting shall determine and declare at the annual meeting whether the shareholder has so complied. If the chairman determines that the shareholder has so complied, then the chairman shall so state and ballots shall be provided for use at the meeting with respect to such nomination. If the chairman determines that the shareholder has not so complied, then, unless the chairman, in his sole and absolute discretion, determines to waive such compliance, the chairman shall state that the shareholder has not so complied and the defective nomination shall be disregarded. 2.4 Vacancies. Except as otherwise provided by law, any vacancy occurring in the Board of Directors (whether caused by resignation, death or otherwise) may be filled by the affirmative vote of a majority of the directors present at a meeting of the Board at which a quorum is present, or, if the directors in office constitute less than a quorum, by the affirmative vote of a majority of all of the directors in office. Notice shall be given to all of the remaining directors that such vacancy will be filled at the meeting. However, if the vacant director's position was held by a director elected by one or more voting groups composed of less than all of the voting shareholders, such vacancy may only be filled by (i) the remaining directors, if any, elected by the same voting group or groups; or (ii) the shareholders in the voting group or groups that elected the director who formerly held the vacant office. A director elected to fill any vacancy shall hold office until the next meeting of shareholders at which directors are elected, and until his successor shall have been elected and qualified. 9 13 2.5 Removal. One or more members of the Board of Directors (including the entire Board) may be removed, with or without cause, at a special meeting of shareholders called expressly for that purpose. A director (or the entire Board) may be removed if the number of votes cast in favor of removing such director (or the entire Board) exceeds the number of votes cast against removal; provided that, if a director (or the entire Board) has been elected by one or more voting groups, only those voting groups may participate in the vote as to removal. However, a director may not be removed if a number of votes sufficient to elect such director under cumulative voting (computed on the basis of the number of votes actually cast at the meeting on the question of removal) is cast against such director's removal. 2.6 Resignation. A director may resign at any time by delivering written notice to the Board of Directors, its Chairman, the President, or the Secretary. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. 2.7 Annual Meeting. The first meeting of each newly elected Board of Directors shall be known as the annual meeting thereof and shall be held without notice immediately after the annual shareholders' meeting or any special shareholders' meeting at which a Board is elected. Such meeting shall be held at the same place as such shareholders' meeting unless some other place shall be specified by resolution of the shareholders. 2.8 Regular Meetings. Regular meetings of the Board of Directors may be held at such place, day, and time as shall from time to time be fixed by resolution of the Board without notice other than the delivery of such resolution as provided in Section 2.10 below. 2.9 Special Meetings. Special meetings of the Board of Directors may be called by the President or the Chairman of the Board (if one be appointed) or any two or more directors, to be held at such place, day, and time as specified by the person or persons calling the meeting. 2.10 Notice of Meeting. Notice of the place, day, and time of any meeting of the Board of Directors for which notice is required shall be given, at least three (3) days preceding the day on which the meeting is to be held, by the Secretary or an Assistant Secretary, or by the person calling the meeting, in any manner permitted by law, including orally. Any oral notice given by personal communication over the telephone or otherwise may be communicated either to the director or to a person at the office of the director who, the person giving the notice has reason to believe, will promptly communicate it to the director. Notice shall be deemed to have been given on the earliest of (a) the day of actual receipt, (b) five (5) days after the day on which written notice is deposited in the United States mail, as evidenced by the postmark, with first-class postage prepaid, and correctly addressed, or (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee. 10 14 No notice of any regular meeting need be given if the place, day, and time thereof have been fixed by resolution of the Board of Directors and a copy of such resolution has been given to every director at least three (3) days preceding the day of the first meeting held in pursuance thereof. Notice of a meeting of the Board of Directors need not be given to any director if it is waived by the director in writing, whether before or after such meeting is held. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting unless required by law, the Articles of Incorporation, or these Bylaws. A director's attendance at or participation in a meeting shall constitute a waiver of notice of such meeting except when a director attends or participates in a meeting for the express purpose of objecting on legal grounds prior to or at the beginning of the meeting (or promptly upon the director's arrival) to the holding of the meeting or the transaction of any business and does not thereafter vote for or assent to action taken at the meeting. Any meeting of the Board of Directors shall be a legal meeting without any notice thereof having been given if all of the directors have received valid notice thereof, are present without objecting, or waive notice thereof, or any combination thereof. 2.11 Quorum of Directors. Except in particular situations where a lesser number is expressly permitted by law, and unless a greater number is required by the Articles of Incorporation, a majority of the number of directors specified in or fixed in accordance with these Bylaws shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. If the number of directors in office at any time is less than the number specified in or fixed in accordance with these Bylaws, then a quorum shall consist of a majority of the number of directors in office; provided that in no event shall a quorum consist of fewer than one-third of the number specified in or fixed in accordance with these Bylaws. Directors at a meeting of the Board of Directors at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided such withdrawal does not reduce the number of directors attending the meeting below the level of a quorum. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting of the Board of Directors to another time and place. If the meeting is adjourned for more than forty-eight (48) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 2.10 of these Bylaws, to the directors who were not present at the time of the adjournment. 2.12 Dissent by Directors. Any director who is present at any meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless the director objects at the beginning of the meeting (or promptly upon the director's arrival) to the holding of, or the transaction of 11 15 business at, the meeting; or unless the director's dissent or abstention shall be entered in the minutes of the meeting; or unless the director delivers written notice of the director's dissent or abstention to the presiding officer of the meeting before the adjournment thereof or to the corporation within a reasonable time after the adjournment of the meeting. Such right to dissent or abstention shall not be available to any director who votes in favor of such action. 2.13 Action by Directors Without a Meeting. Any action required by law to be taken or which may be taken at a meeting of the Board of Directors may be taken without a meeting if one or more consents in writing, setting forth the action so taken, shall be signed either before or after the action so taken by all of the directors and delivered to the corporation for inclusion in the minutes or filing with the corporate records. Such consent shall have the same effect as a meeting vote. Action taken under this section is effective when the last director signs the consent, unless the consent specifies a later effective date. 2.14 Telephonic Meetings. Except as may be otherwise restricted by the Articles of Incorporation, members of the Board of Directors may participate in a meeting of the Board by any means of communication by which all directors participating in the meeting may simultaneously hear each other during the meeting. Participation by such means shall constitute presence in person at a meeting. 2.15 Compensation. By resolution of the Board of Directors, the directors may be paid their expenses, if any, and may be paid a fixed sum or a stated salary as a director, for attendance at each meeting of the Board. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 2.16 Committees. The Board of Directors, by resolution adopted by the greater of (a) a majority of all of the directors in office, or (b) the number of directors required by the Articles of Incorporation or these Bylaws to take action may from time to time create, and appoint individuals to, one or more committees, each of which must have at least two (2) members. If a committee is formed for the purpose of exercising functions of the Board, the committee must consist solely of directors. If the only function of a committee is to study and make recommendations for action by the full Board, the committee need not consist of directors. Members of a committee composed solely of directors, in fulfilling their standard of conduct, may rely upon Section 2.1 above. Committees of directors may exercise the authority of the Board of Directors to the extent specified by such resolution or in the Articles of Incorporation or these Bylaws. However, no committee shall: (a) authorize or approve a distribution (as defined in RCW 23B.01.400) except according to a general formula or method prescribed by the Board of Directors; (b) approve or propose to shareholders action that by law is required to be approved by shareholders; 12 16 (c) fill vacancies on the Board of Directors or on any of its committees; (d) amend the Articles of Incorporation; (e) adopt, amend, or repeal Bylaws; (f) approve a plan of merger not requiring shareholder approval; or (g) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the Board of Directors may authorize a committee of directors (or a senior executive officer of the corporation) to do so within limits specifically prescribed by the Board of Directors. Committees shall be governed by the same provisions as govern the meetings, actions without meetings, notice and waiver of notice, quorum and voting requirements, and standards of conduct of the Board of Directors. The Executive Committee (if one be established) shall meet periodically between meetings of the full Board. All committees shall keep regular minutes of their meetings and shall cause them to be recorded in books kept for that purpose at the office of the corporation. ARTICLE III OFFICERS 3.1 Appointment. The officers of the corporation shall be appointed annually by the Board of Directors at its annual meeting held after the annual meeting of the shareholders. If the appointment of officers is not held at such meeting, such appointment shall be held as soon thereafter as a Board meeting conveniently may be held. Except in the case of death, resignation, or removal, each officer shall hold office until the next annual meeting of the Board and until his successor is appointed and qualified. 3.2 Qualification. None of the officers of the corporation need be a director, except as specified below. Any two or more of the corporate offices may be held by the same person. 3.3 Officers Enumerated. Except as otherwise provided by resolution of the Board of Directors, the officers of the corporation and their respective powers and duties shall be as follows: 3.3.1 Chairman of the Board. The Chairman of the Board (if such an officer be appointed) shall be a director and shall perform such duties as shall be assigned to him by the Board of Directors and in any employment agreement. The Chairman shall preside at all meetings of the shareholders and at all meetings of the 13 17 Board at which he is present. The Chairman may sign deeds, mortgages, bonds, contracts, and other instruments, except when the signing thereof has been expressly delegated by the Board or by these Bylaws to some other officer or agent of the corporation or is otherwise required by law to be signed by some other officer or in some other manner. If the President dies or becomes unable to act, the Chairman shall perform the duties of the President, except as may be limited by resolution of the Board of Directors, with all the powers of and subject to all the restrictions upon the President. 3.3.2 President. Subject to such supervisory powers as may be given by the Board of Directors to the Chairman of the Board (if such an officer be appointed), the President shall be the chief executive officer of the corporation unless some other officer is so designated by the Board and, subject to the control of the Board and the Executive Committee (if one be established), shall supervise and control all of the assets, business, and affairs of the corporation. If no Chairman of the Board has been appointed, the President shall be a director. The President may sign certificates for shares of the corporation, deeds, mortgages, bonds, contracts, and other instruments, except when the signing thereof has been expressly delegated by the Board or by these Bylaws to some other officer or agent of the corporation or is otherwise required by law to be signed by some other officer or in some other manner. The President shall vote the shares owned by the corporation in other corporations, domestic or foreign, unless otherwise prescribed by law or resolution of the Board. In general, the President shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board from time to time. In the absence of the Chairman of the Board, the President, if a director, shall preside over all meetings of the shareholders and over all meetings of the Board of Directors. The President shall have the authority to appoint one or more Assistant Secretaries and Assistant Treasurers, as he deems necessary. 3.3.3 Vice Presidents. If no Chairman of the Board has been appointed, in the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President; provided that no such Vice President shall assume the authority to preside as Chairman of meetings of the Board unless such Vice President is a member of the Board. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be respectively prescribed for them by the Board, these Bylaws, the President, or the Chairman of the Board (if one be appointed). 3.3.4 Secretary. The Secretary shall: (a) have responsibility for preparing minutes of meetings of the shareholders and the Board of Directors and for authenticating records of the corporation; (b) see that all notices are duly given in accordance with the provisions of Sections 1.3, 1.5, 2.8, and 2.10 of these Bylaws and as required by law; 14 18 (c) be custodian of the corporate records and seal of the corporation, if one be adopted; (d) keep a register of the post office address of each shareholder and director; (e) attest certificates for shares of the corporation; (f) have general charge of the stock transfer books of the corporation; (g) when required by law or authorized by resolution of the Board of Directors, sign with the President, or other officer authorized by the President or the Board, deeds, mortgages, bonds, contracts, and other instruments; and (h) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned by the President or the Board of Directors. In the absence of the Secretary, an Assistant Secretary may perform the duties of the Secretary. 3.3.5 Treasurer. If required by the Board of -Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board shall determine. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever and deposit all such moneys in the name of the corporation in banks, trust companies, or other depositories selected in accordance with the provisions of these Bylaws; and (c) in general, perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned by the President or the Board of Directors. In the absence of the Treasurer, an Assistant Treasurer may perform the duties of the Treasurer. 3.4 Delegation. In case of the absence or inability to act of any officer of the corporation and of each person herein authorized to act in his place, the Board of Directors may from time to time delegate the powers and duties of such officer to any other officer or other person whom it may select. 15 19 3.5 Resignation. Any officer may resign at any time by delivering notice to the corporation. Any such resignation shall take effect at the time the notice is delivered unless the notice specifies a later effective date. Unless otherwise specified therein, acceptance of such resignation by the corporation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 3.6 Removal. Any officer or agent may be removed by the Board with or without cause. An officer empowered to appoint another officer or assistant officer also has the power to remove any officer he would have the power to appoint whenever in his judgment the best interests of the corporation would be served thereby. The removal of an officer or agent shall be without prejudice to the contract rights, if any, of the corporation or the person so removed. Appointment of an officer or agent shall not of itself create contract rights. 3.7 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, creation of a new office, or any other cause may be filled by the Board of Directors for the unexpired portion of the term or for a new term established by the Board. 3.8 Other Officers and Agents. One or more Vice Presidents and such other officers and assistant officers as may be deemed necessary or advisable may be appointed by the Board of Directors or, to the extent provided in Section 3.3.2 above, by the President. Such other officers and assistant officers shall hold office for such periods, have such authorities, and perform such duties as are provided in these Bylaws or as may be provided by resolution of the Board. Any officer may be assigned by the Board any additional title that the Board deems appropriate. The Board may delegate to any officer or agent the power to appoint any such assistant officers or agents and to prescribe their respective terms of office, authorities, and duties. 3.9 Compensation. Compensation, if any, for officers and other agents and employees of the corporation shall be determined by the Board of Directors, or by the President to the extent such authority may be delegated to him by the Board. No officer shall be prevented from receiving compensation in such capacity by reason of the fact that he is also a director of the corporation. 3.10 General Standards for Officers. Officers with discretionary authority shall discharge their duties under that authority in accordance with the same standards of conduct applicable to directors as specified in Section 2.1 above (except for subsection (c) thereof). ARTICLE IV CONTRACTS, CHECKS AND DRAFTS 4.1 Contracts. The Board of Directors may authorize any officer or officers or agent or agents to enter into any contract or execute and deliver any instrument in the 16 20 name of and on behalf of the corporation. Such authority may be general or confined to specific instances. 4.2 Checks, Drafts, Etc. All checks, drafts, and other orders for the payment of money, notes, and other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers or agent or agents of the corporation and in such manner as may be determined from time to time by resolution of the Board of Directors. 4.3 Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the Treasurer, subject to the direction of the Board of Directors, may select. ARTICLE V STOCK 5.1 Issuance of Shares. No shares of the corporation shall be issued unless authorized by the Board of Directors, which authorization shall include the maximum number of shares to be issued, the consideration to be received for each share, and, if the consideration is in a form other than cash, the determination of the value of the consideration. 5.2 Certificates of Stock. All shares of the corporation shall be represented by certificates in such form, not inconsistent with the Articles of Incorporation, as the Board of Directors may from time to time prescribe. Certificates of stock shall be issued in numerical order, and each shareholder shall be entitled to a certificate signed by the President or a Vice President, attested to by the Secretary or an Assistant Secretary, and sealed with the corporate seal, if any. If any certificate is manually signed by a transfer agent or a transfer clerk and by a registrar, the signatures of the President, Vice President, Secretary or Assistant Secretary upon that certificate may be facsimiles that are engraved or printed. If any person who has signed or whose facsimile signature has been placed on a certificate no longer is an officer when the certificate is issued, the certificate may nevertheless be issued with the same effect as if the person were still an officer at the time of its issue. Every certificate of stock shall state: (a) The state of incorporation; (b) The name of the registered holder of the shares represented thereby; (c) The number and class of shares, and the designation of the series, if any, which such certificate represents; (d) If the corporation is authorized to issue different classes of shares or different series within a class, either a summary of (on the face or back of the certificate), or a statement that the corporation will furnish to any 17 21 shareholder upon written request and without charge a summary of, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences and limitations determined for each series, and the authority of the Board of Directors to determine variations for future series; and (e) If the shares are subject to transfer or other restrictions under applicable securities laws or contracts with the corporation, either a complete description of or a reference to the existence and general nature of such restrictions on the face or back of the certificate. 5.3 Stock Records. The corporation or its agent shall maintain at the registered office or principal office of the corporation, or at the office of the transfer agent or registrar of the corporation, if one be designated by the Board of Directors, a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders in alphabetical order by class of shares showing the number and class of shares held by each. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. 5.4 Restrictions on Transfer. The Board of Directors shall have the authority to issue shares of the capital stock of this corporation and the certificates therefor subject to such transfer restrictions and other limitations as it may deem necessary to promote compliance with applicable federal and state securities laws, and to regulate the transfer thereof in such manner as may be calculated to promote such compliance or to further any other reasonable purpose. Except to the extent that the corporation has obtained an opinion of counsel acceptable to the corporation that transfer restrictions are not required under applicable securities laws, all certificates representing shares of the corporation shall bear the following legend (or a legend of substantially the same import) on the face of the certificate or on the reverse of the certificate if a reference to the legend is contained on the face: NOTICE: RESTRICTIONS ON TRANSFER The securities represented by this certificate have not been registered under the Securities Act of 1933, or any state securities laws, and may not be offered, sold, transferred, encumbered, or otherwise disposed of except upon satisfaction of certain conditions. Information concerning these restrictions may be obtained from the corporation or its legal counsel. Any offer or disposition of these securities without satisfaction of said conditions will be wrongful and will not entitle the transferee to register ownership of the securities with the corporation. 5.5 Transfers. Shares of stock may be transferred by delivery of the certificates therefor, accompanied by: 18 22 (a) an assignment in writing on the back of the certificate, or an assignment separate from certificate, or a written power of attorney to sell, assign, and transfer the same, signed by the record holder of the certificate; and (b) such additional documents, instruments, and other items of evidence as may be reasonably necessary to satisfy the requirements of any transfer restrictions applicable to such shares, whether arising under applicable securities or other laws, or by contract, or otherwise. Except as otherwise specifically provided in these Bylaws, no shares of stock shall be transferred on the books of the corporation until the outstanding certificate therefor has been surrendered to the corporation. All certificates surrendered to the corporation for transfer shall be cancelled, and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that, in case of a lost, destroyed, or mutilated certificate, a new one may be issued therefor upon such terms (including indemnity to the corporation) as the Board of Directors may prescribe. ARTICLE VI RECORDS OF CORPORATE MEETINGS The corporation shall keep, as permanent records, minutes of all meetings of its shareholders and Board of Directors, a record of all actions taken by the shareholders or Board of Directors without a meeting, and a record of all actions taken by a committee of the Board of Directors exercising the authority of the Board of Directors on behalf of the corporation. The corporation shall keep at its principal office a copy of the minutes of all shareholders' meetings that have occurred, and records of all action taken by shareholders without a meeting, within the past three (3) years. Any person dealing with the corporation may rely upon a copy of any of the records of the proceedings, resolutions, or votes of the Board or shareholders when certified by the President or Secretary. ARTICLE VII FINANCIAL MATTERS The corporation shall maintain appropriate accounting records at its principal office and shall prepare the annual financial statements required by RCW 23B.16.200. Except to the extent otherwise expressly determined by the Board of Directors or otherwise required by law, the accounting records of the corporation shall be kept and prepared in accordance with generally accepted accounting principles applied on a consistent basis from period to period. The fiscal year of the corporation shall be the calendar year unless otherwise expressly determined by the Board of Directors. 19 23 ARTICLE VIII DISTRIBUTIONS The Board of Directors may from time to time authorize, and the corporation may make, distributions (as defined in RCW 23B.01.400) to its shareholders to the extent permitted by RCW 23B.06.400, subject to any limitation in the Articles of Incorporation. A director who votes for or assents to a distribution made in violation of RCW 23B.06.400 is personally liable to the corporation for the amount of the distribution that exceeds that which could have been distributed without violating RCW 23B.06.400 if it is established that the director did not perform the director's duties in compliance with Section 2.1 above. ARTICLE IX CORPORATE SEAL The Board of Directors may, but shall not be required to, adopt a corporate seal for the corporation in such form and with such inscription as the Board may determine. If such a corporate seal shall at any time be so adopted, the application of or the failure to apply such seal to any document or instrument shall have no effect upon the validity or invalidity of such document or instrument under otherwise applicable principles of law. ARTICLE X MISCELLANY 10.1 Communications by Facsimile. Whenever these Bylaws require notice, consent, or other communication to be delivered for any purpose, transmission by phone, wire, or wireless equipment which transmits a facsimile of such communication shall constitute sufficient delivery for such purpose. Such communication shall be deemed to have been received by or in the possession of the addressee upon completion of the transmission. 10.2 Inspector of Elections. Before any annual meeting of shareholders, the Board of Directors may appoint an inspector of elections to act at the meeting and any adjournment thereof. If no inspector of elections is so appointed by the Board, then the chairman of the meeting may appoint an inspector of elections to act at the meeting. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. Such inspector of elections shall: (a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and, with the advice of legal counsel to the corporation, the authenticity, validity, and effect of proxies pursuant to RCW 23B.07.220 and 20 24 23B.07.240 and any procedure adopted by the Board of Directors pursuant to RCW 23B.07.230; (b) receive votes, ballots, or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine the result; and (f) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. 10.3 Rules of Order. The rules contained in the most recent edition of Robert's Rules of Order, Revised, shall govern all meetings of shareholders and directors where those rules are not inconsistent with the Articles of Incorporation or Bylaws, subject to the following: (a) The chairman of the meeting shall have absolute authority over matters of procedure, and there shall be no appeal from the ruling of the chairman. If the chairman in his absolute discretion deems it advisable to dispense with the rules of parliamentary procedure for any meeting or any part thereof, the chairman shall so state and shall clearly state the rules under which the meeting or appropriate part thereof shall be conducted. (b) If disorder should arise which prevents continuation of the legitimate business of the meeting, the chairman may quit the chair and announce the adjournment of the meeting; upon so doing, the meeting shall be deemed immediately adjourned, subject to being reconvened in accordance with Section 1.5 or 2.11 of these Bylaws, as the case may be. (c) The chairman may ask or require that anyone not a bona fide shareholder or proxy leave the meeting of shareholders. (d) A resolution or motion at a meeting of shareholders shall be considered for vote only if proposed by a shareholder or duly authorized proxy and seconded by an individual who is a shareholder or duly authorized proxy other than the individual who proposed the resolution or motion. 10.4 Construction. Within these Bylaws, words of any gender shall be construed to include any other gender, and words in the singular or plural number shall be construed to include the plural or singular, respectively, unless the context otherwise requires. 10.5 Severability. If any provision of these Bylaws or any application thereof shall be invalid, unenforceable, or contrary to applicable law, the remainder of these 21 25 Bylaws, and the application of such provisions to individuals or circumstances other than those as to which it is held invalid, unenforceable, or contrary to applicable law, shall not be affected thereby. ARTICLE XI AMENDMENT OF BYLAWS Subject to the requirements of RCW 23B.10.210 relating to supermajority quorum provisions for the Board of Directors, the Bylaws of the corporation may be amended or repealed, or new Bylaws may be adopted, by: (a) the shareholders, even though the Bylaws may also be amended or repealed, or new Bylaws may also be adopted, by the Board of Directors; or (b) subject to the power of the shareholders of the corporation to change or repeal the Bylaws, the Board of Directors unless such power is reserved, by the Articles of Incorporation or by law, exclusively to the shareholders in whole or in part or unless the shareholders, in amending or repealing a particular bylaw, provide expressly that the Board of Directors may not amend or repeal that bylaw. ARTICLE XII AUTHENTICATION The foregoing Bylaws were read, approved, and duly adopted by the Board of Directors of Redhook Ale Brewery, Incorporated on the 22nd day of May, 2001, and the President and Secretary of the corporation were empowered to authenticate such Bylaws by their signatures below. /s/ Paul S. Shipman ------------------------------- Paul S. Shipman, President ATTEST: /s/ Douglass A. Raff - ---------------------------------- Douglass A. Raff, Secretary 22 EX-10.44 4 v74895ex10-44.txt EXHIBIT 10.44 1 FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT This fifth amendment to amended and restated credit agreement ("Amendment"), dated as of June 19, 2001, is made and entered into by and between REDHOOK ALE BREWERY, INCORPORATED, a Washington corporation ("Borrower"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, successor by merger to U. S. Bank of Washington, National Association ("U.S. Bank"). Words and phrases with initial capital letters have the meanings given to them in Article I of this Amendment. R E C I T A L S : A. On or about June 5, 1995, U.S. Bank and Borrower entered into that certain amended and restated credit agreement (together with all amendments, supplements, exhibits, and modifications thereto, the "Credit Agreement"), whereby U.S. Bank agreed to make loans and advances of credit to Borrower on the terms and conditions set forth therein. B. Borrower and U.S. Bank have entered into four amendments to the Credit Agreement, dated as of July 25, 1996, September 15, 1997, February 22, 1999, and August 10, 2000, respectively, whereby U.S. Bank extended the Commitment Period of the Revolving Loan and otherwise modified the terms of the Term Loan, Revolving Loan, and Acquisition Loan. C. Borrower and U.S. Bank have agreed to extend the deadline by which the entire principal and any accrued interest on the Term Loan shall be paid in full. The purpose of this Amendment is to set forth the terms and conditions of U.S. Bank's and Borrower's agreements. NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth herein, the parties agree as follows: ARTICLE I. DEFINITIONS AND AMENDMENT 1.1 Defined Terms. As used in this Amendment, words and phrases with initial capital letters shall have the meanings given to them in the Credit Agreement, except as otherwise defined herein, or as the context otherwise requires. 1.2 Modified and Additional Defined Terms. Section 1.1 of the Credit Agreement is modified to amend in their entirety (if presently defined in Section 1.1 of the Credit Agreement) or add (if not presently defined in Section 1.1 of the Credit Agreement) the following defined terms: "Cash Flow" means, for any period, Net Income (before taxes) for such period, (1) plus depreciation, amortization, and other noncash charges for such period, plus Interest Expense for such period (2) less unfunded Capital Expenditures, less dividends and distributions paid to Borrower's shareholders during such period, less cash taxes and (3) divided by the sum of Interest Expense -1- 2 plus mandatory debt retirement payable during such period. "Fifth Amendment" means that certain fifth amendment to amended and restated credit agreement, dated as of 19, 2001, by and between Borrower and U.S. Bank, and includes all amendments, supplements, exhibits, and modifications to the Fourth Amendment. 1.3 Incorporation of Recitals and Exhibits. The foregoing recitals are incorporated into this Amendment by reference. All references to "Exhibits" contained herein are references to exhibits attached to this Amendment, the terms and conditions of which are made a part of this Amendment for all purposes. 1.4 Amendment. The Credit Agreement and the other Loan Documents are hereby amended as set forth herein. Except as specifically provided herein, all of the terms and conditions of the Credit Agreement and each of the other Loan Documents and all amendments thereto shall remain in full force and effect throughout the terms of the Loans and any extensions or renewals thereof. ARTICLE II. TERM LOAN 2.1 Term Loan. Article III of the Credit Agreement is hereby amended in its entirety to read as follows: 3.1 Term Loan. Prior to the date of the Fifth Amendment and on the terms and conditions of this Agreement, U.S. Bank made a term loan to Borrower in the initial principal amount of $10,000,000 and with an outstanding principal balance, as of the date of the Fifth Amendment, of $7,200,000, the repayment of which, as well as other terms and conditions, are subject to this Agreement, as amended ("Term Loan"). 3.2 Term Note. The Term Loan is evidenced by and repayable with interest in accordance with the terms of a promissory note in the form attached to the Fifth Amendment as Exhibit A (the "Term Note"). 3.3 Interest Rates. Subject to Section 4.9 herein, Borrower shall pay interest on the principal amount of the Term Loan remaining unpaid from time to time at a per annum rate of interest equal to the applicable LIBOR Borrowing Rate for any LIBOR Rate Borrowing, pursuant to the other terms and conditions of this Agreement and subject to adjustment as set forth in Section 4.1 of this Agreement. 3.4 Repayment. (a) Borrower shall pay in arrears to U.S. Bank an amount equal to all accrued interest on the Term Loan; such monthly payments of interest commenced on July 1, 1996, and shall continue on the first day of each month thereafter. -2- 3 (b) In addition to the interest payments required in Section 3.4(a), Borrower shall make monthly payments of principal to Lender in 60 equal, consecutive installments of $37,500, such monthly installments commenced on July 1, 1997, and shall continue on the first day of each month thereafter until June 5, 2007, at which time the entire principal and any accrued and unpaid interest on the Term Loan shall be paid in full. 2.2 Term Loan Fee. Concurrently with the execution and delivery of this Fifth Amendment to U.S. Bank, Borrower shall pay a nonrefundable fee in the amount of $18,000 for the Term Loan Amendment. ARTICLE III. GENERAL PROVISIONS APPLICABLE TO THE LOANS 3.1 Interest Rates. Section 4.1(a) and Section 4.1(b) of the Credit Agreement are hereby amended in their entirety to read as follows: 4.1 Interest Rates. (a) Subject to the terms of this Section 4.1 and Section 4.9, and during the period commencing with the date of the Fifth Amendment and ending on June 4, 2002, the LIBOR Borrowing Rate applicable to the Term Loan for any LIBOR Rate Borrowing shall be the LIBOR Rate plus 1.25 percent (125 basis points). Subject to the terms of this Section 4.1 and Section 4.9, for the period commencing on June 5, 2002, and continuing thereafter, the LIBOR Borrowing Rate applicable to the Term Loan for any LIBOR Rate Borrowing shall be the LIBOR Rate plus 1.75 percent (175 basis points). (b) Subject to the terms of this Section 4.1 and Section 4.9, for the period commencing on June 6, 1999, and continuing thereafter, the interest rates for the Revolving Loan and the Acquisition Loans shall be adjusted based on the Funded Debt Ratio, as established for any preceding fiscal quarter of Borrower by the financial statements delivered to U.S. Bank pursuant to Section 6.1(a) of this Agreement, whether as initially submitted or as revised, as set forth in the following matrix: -3- 4 - ---------------------------------------------------------------------------------- JUNE 6, 1999, AND THEREAFTER - ---------------------------------------------------------------------------------- REVOLVING LOANS ACQUISITION LOANS -------------------------- ----------------------------------- PRIME BORROWING LIBOR PRIME LIBOR BORROWING FUNDED DEBT RATIO RATE BORROWING RATE BORROWING RATE RATE - ------------------- ---------- --------------- ----------------- ----------------- Less than or Prime LIBOR Rate Prime Rate LIBOR Rate equal to Rate plus 1 percent plus 0.25 plus 1.25 2.25:1.0 (100 basis percent percent points) (25 basis (125 basis points) points) - ------------------- ---------- --------------- ----------------- ----------------- Less than or Prime LIBOR Rate Prime Rate LIBOR Rate equal to Rate plus 1.25 plus 0.25 plus 1.5 percent 3.0:1.0 and percent percent (150 basis greater (125 basis (25 basis points points) than 2.25:1.0 points) - ------------------- ---------- --------------- ----------------- ----------------- Less than or Prime LIBOR Rate Prime Rate LIBOR Rate equal to Rate plus 1.5 plus 0.25 plus 1.75 3.75:1.0 and percent percent percent greater (150 basis (25 basis points (175 basis than 3.0 :1.0 points) points) - ------------------- ---------- --------------- ----------------- ----------------- Greater than Prime LIBOR Rate Prime Rate LIBOR Rate 3.75:1.0 Rate plus 2.0 plus 0.25 plus 2.25 percent percent percent (200 basis (25 basis points (225 basis points) points) - ------------------- ---------- --------------- ----------------- ----------------- 3.2 Manner of Borrowing. Section 4.2(a) of the Credit Agreement is hereby amended in its entirety to read as follows: 4.2 Manner of Borrowing. (a) Whenever Borrower desires to use the LIBOR Borrowing Rate, Borrower shall give U.S. Bank irrevocable notice (either in writing or orally and promptly confirmed in writing) between 8:00 a.m. and 1:00 p.m. (Seattle, Washington time) two Business Days prior to the desired effective date of the LIBOR Borrowing Rate ("Borrowing Notice"). Any oral Borrowing Notice shall be given by, and any written Borrowing Notice or confirmation of an oral Borrowing Notice shall be signed by Paul Shipman, David Mickelson, or Anne Mueller, each of whom is authorized to request Loans, until written notice by Borrower of the revocation of such authority is received by U.S. Bank. Each Borrowing Notice shall specify the requested effective date of the LIBOR Borrowing Rate, the Interest Period, the amount of the LIBOR Rate Borrowing, and whether Borrower is requesting a new advance at the LIBOR Borrowing Rate, conversion of all or any portion of the Prime Rate Borrowing to a LIBOR Rate Borrowing, or a new Interest Period for an outstanding LIBOR Rate Borrowing. Notwithstanding any other term of this Agreement, Borrower may elect the LIBOR Borrowing Rate to apply to Loans or portions thereof only in the minimum principal amount of $500,000. In the event Borrower has not given U.S. Bank a Borrowing Notice two Business Days in advance of the expiration of any Interest Period of Borrower's intent to convert a LIBOR Rate Borrowing to a new LIBOR Rate Borrowing at the expiration of such Interest Period, then such LIBOR Rate Borrowing will, at U.S. Bank's option, at the expiration of such Interest Period, be deemed to be a Prime Rate Borrowing. Until such reversion to a Prime Borrowing Rate, interest will accrue on such LIBOR Rate Borrowing at -4- 5 the same LIBOR Borrowing Rate as the expired LIBOR Rate Borrowings. ARTICLE IV. MISCELLANEOUS 4.1 Section 10.13 of Article X of the Credit Agreement entitled "Arbitration" is hereby deleted in its entirety and replaced as follows: 10.13 JURY WAIVER. U.S. BANK AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER U.S. BANK OR BORROWER AGAINST THE OTHER. BORROWER'S INITIALS /S/ DM U.S. BANK'S INITIALS /S/ KP ARTICLE V. CONDITIONS PRECEDENT U.S. Bank shall have no obligation to modify the terms of the Loans as provided in this Amendment unless the following conditions have been fulfilled to the satisfaction of U.S. Bank: (a) U.S. Bank shall have received this Amendment and the Term Note, duly executed and delivered by Borrower. (b) U.S. Bank shall have received the Term Loan fee as set forth in Section 2.2 herein (c) U.S. Bank shall have received the Renewal Revolving Note, the Acquisition Note, the Unconditional Guaranty, and the Security Agreement, in the forms attached hereto as Exhibit B, Exhibit C, Exhibit D, and Exhibit E, duly executed and delivered by Borrower and Guarantor. (d) All corporate proceedings of Borrower and its Subsidiaries shall be satisfactory in form and substance to U.S. Bank, and U.S. Bank shall have received all information and copies of all documents, including records of all corporate proceedings, that U.S. Bank has requested in connection therewith, such documents where appropriate to be certified by proper corporate authorities or Governmental Bodies. (e) There shall not then exist any Default or Event of Default hereunder as of the date hereof. (f) All representations and warranties of Borrower contained herein or made in writing in connection herewith shall be true and correct as of the date hereof. ARTICLE VI. GENERAL PROVISIONS 6.1 Representations and Warranties. Borrower hereby represents and warrants to U.S. Bank that, to the best knowledge and belief of Borrower, as of the date of this Amendment, there exists no Default or Event of Default. All representations and warranties of -5- 6 Borrower contained in the Credit Agreement and the other Loan Documents, or otherwise made in writing in connection therewith, are true and correct as of the date of this Amendment. Borrower acknowledges and agrees that all of Borrower's Indebtedness to U.S. Bank is payable without offset, defense, or counterclaim. 6.2 Guaranties. The parties hereby acknowledge and agree that all guaranties now existing or hereafter obtained by U.S. Bank shall remain in full force and effect, are valid and enforceable in accordance with their terms, and are not subject to offset, defense, or counterclaim. 6.3 Counterparts. This Amendment may be executed in one or more counterparts, each of which shall constitute an original agreement, but all of which together shall constitute one and the same agreement. 6.4 Statutory Notice. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. IN WITNESS WHEREOF, U.S. Bank and Borrower have caused this Amendment to be duly executed by their respective duly authorized officers or agents as of the date first above written. REDHOOK ALE BREWERY, INCORPORATED By: /s/ David J. Mickelson ----------------------- David Mickelson, Executive Vice President U.S. BANK NATIONAL ASSOCIATION By: /s/ Kenneth D. Plank --------------------- Kenneth D. Plank, Vice President -6- 7 By execution of this Amendment, the undersigned Guarantor approves of the changes to the Credit Agreement set forth herein, agrees to be bound by Section 4.2 herein, reaffirms its Guaranty, and acknowledges and agrees that its obligations under its Guaranty are not subject to any defense, offset, or counterclaim. REDHOOK OF NEW HAMPSHIRE, INC. By: /s/ David J. Mickelson ------------------------------- David Mickelson, Executive Vice President -7- 8 TERM NOTE $10,000,000 June 5, 2001 For value received, the undersigned, REDHOOK ALE BREWERY, INC., a Washington corporation ("Borrower"), promises to pay to the order of U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION ("U.S. Bank"), at its principal place of business, 1420 Fifth Avenue, Seattle, Washington 98111-0720, or such other place or places as the holder hereof may designate in writing, the principal sum of Ten Million Dollars ($10,000,000) or so much thereof as advanced by U.S. Bank in lawful, immediately available money of the United States of America, in accordance with the terms and conditions of that certain amended and restated credit agreement of even date herewith by and between Borrower and U.S. Bank (together with all supplements, exhibits, amendments and modifications thereto, the "Credit Agreement"). Borrower also promises to pay interest on the unpaid principal balance hereof, commencing as of the first date of an advance hereunder, in like money in accordance with the terms and conditions, and at the rate or rates provided for in the Credit Agreement. All principal, interest, and other charges are due and payable in full on June 5, 2007. Borrower and all endorsers, sureties, and guarantors hereof jointly and severally waive presentment for payment, demand, notice of nonpayment, notice of protest, and protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default, dishonor, or enforcement of the payment of this Note except such notices as are specifically required by this Note or by the Credit Agreement, and they agree that the liability of each of them shall be unconditional without regard to the liability of any other party and shall not be in any manner affected by any indulgence, extension of time, renewal, waiver, or modification granted or consented to by U.S. Bank. Borrower and all endorsers, sureties, and guarantors hereof (1) consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by U.S. Bank with respect to the payment or other provisions of this Note and the Credit Agreement; (2) consent to the release of any property now or hereafter securing this Note with or without substitution; and (3) agree that additional makers, endorsers, guarantors, or sureties may become parties hereto without notice to them and without affecting their liability hereunder. This Note is made in substitution for, but not in payment of, that certain revolving term note dated as of June 5, 1995, is the Term Note referred to in the Credit Agreement, and, as such, is entitled to all of the benefits and obligations specified in the Credit Agreement, including but not limited to any Collateral and any conditions to making advances hereunder. This Note is secured by a deed of trust covering real and personal property located in King County, Washington, dated August 9, 1993, and recorded with the Division of Records and Elections of King County, Washington on August 10, 1993, under recording number 9308101757, to which reference is hereby made for a description of the nature and extent of the security provided thereby and the rights and limitations of rights of U.S. Bank and of Borrower in respect of such security. Borrower grants to U.S. Bank a contractual security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to U.S. Bank all Borrower's right, title and -1- 9 interest in and to, Borrower's accounts with U.S. Bank (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes U.S. Bank, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the repayment of this Note and the acceleration of the maturity hereof. If there is a lawsuit, Borrower agrees upon U.S. Bank's request to submit to the jurisdiction of the courts of King County, the state of Washington. U.S. BANK AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER U.S. BANK OR BORROWER AGAINST THE OTHER. BORROWER'S INITIALS /S/ DM U.S. BANK'S INITIALS /S/ KP REDHOOK ALE BREWERY, INC. By: /s/ David J. Mickelson ------------------------ David Mickelson Executive Vice President -2- 10 RENEWAL REVOLVING NOTE $10,000,000 June 5, 2001 For value received, the undersigned, REDHOOK ALE BREWERY, INCORPORATED, a Washington corporation ("Borrower"), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION, successor by merger to U. S. Bank of Washington, National Association ("U.S. Bank"), at its principal place of business, at Post Office Box 5308, Portland, Oregon 97228-5308, or such other place or places as the holder hereof may designate in writing, the principal sum of Ten Million Dollars ($10,000,000) or so much thereof as advanced by U.S. Bank in lawful immediately available money of the United States of America, in accordance with the terms and conditions of that certain amended and restated credit agreement dated as of June 5, 1995, by and between Borrower and U.S. Bank (together with all supplements, exhibits, modifications, and amendments thereto, including the fifth amendment to amended and restated credit agreement ("Fifth Amendment") of dated as of June 19, 2001, the "Credit Agreement"). Borrower also promises to pay interest on the unpaid principal balance hereof, commencing as of the date hereof, in like money in accordance with the terms and conditions and at the rate or rates provided for in the Credit Agreement. All principal, interest, and other charges are due and payable in full on July 1, 2002. Borrower and all endorsers, sureties, and guarantors hereof jointly and severally waive presentment for payment, demand, notice of nonpayment, notice of protest, and protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default, dishonor, or enforcement of the payment of this Note except such notices as are specifically required by this Note or by the Credit Agreement, and they agree that the liability of each of them shall be unconditional without regard to the liability of any other party and shall not be in any manner affected by any indulgence, extension of time, renewal, waiver, or modification granted or consented to by U.S. Bank. Borrower and all endorsers, sureties, and guarantors hereof (1) consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by U.S. Bank with respect to the payment or other provisions of this Note and the Credit Agreement; (2) consent to the release of any property now or hereafter securing this Note with or without substitution; and (3) agree that additional makers, endorsers, guarantors, or sureties may become parties hereto without notice to them and without affecting their liability hereunder. This Note is made in substitution for, but not in payment of, that certain renewal revolving note dated as of August 10, 2000, is the Renewal Revolving Note referred to in the Fourth Amendment, and is a "Revolving Note" for purposes of the Credit Agreement and as such is entitled to all of the benefits and obligations specified in the Credit Agreement, including but not limited to any Collateral and any conditions to making advances hereunder. This Note is secured by the lien of the Deed of Trust encumbering real and personal property in King County, Washington, dated August 9, 1993, and recorded with the Division of Records and Elections of King County, Washington, on August 10, 1993, under recording No. 9308101757, to which reference is hereby made for a description of the nature and extent of the security provided thereby and the rights and limitations of rights of U.S. Bank and of Borrower in respect of such security. -1- 11 Borrower grants to U.S. Bank a contractual security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to U.S. Bank all Borrower's right, title and interest in and to, Borrower's accounts with U.S. Bank (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes U.S. Bank, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the repayment of this Note and the acceleration of the maturity hereof. If there is a lawsuit, Borrower agrees upon U.S. Bank's request to submit to the jurisdiction of the courts of King County, the state of Washington. U.S. BANK AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER U.S. BANK OR BORROWER AGAINST THE OTHER. BORROWER'S INITIALS /S/ DM U.S. BANK'S INITIALS /S/ KP REDHOOK ALE BREWERY, INCORPORATED By: /s/ David J. Mickelson ----------------------- David Mickelson, Executive Vice President -2- 12 ACQUISITION NOTE $ --------------- -------------, ---- For value received, the undersigned, REDHOOK ALE BREWERY, INCORPORATED, a Washington corporation ("Borrower"), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION ("U.S. Bank"), at Post Office Box 5308, Portland, Oregon 97228-5308, or such other place or places as the holder hereof may designate in writing, the principal sum of _______________ Dollars ($___________) in lawful immediately available money of the United States of America, in accordance with the terms and conditions of that certain amended and restated credit agreement dated as of June 5, 1995, by and between Borrower and U.S. Bank (together with all supplements, exhibits, modifications, and amendments thereto, including the fifth amendment to amended and restated credit agreement ("Fifth Amendment"), dated as of June ___, 2001, the "Credit Agreement"). Borrower also promises to pay interest on the unpaid principal balance hereof, commencing as of the date hereof, in like money in accordance with the terms and conditions and at the rate or rates provided for in the Fifth Amendment and the Credit Agreement. All principal, interest, and other charges are due and payable in full on _____________, ____. Borrower and all endorsers, sureties, and guarantors hereof jointly and severally waive presentment for payment, demand, notice of nonpayment, notice of protest, and protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default, dishonor, or enforcement of the payment of this Note except such notices as are specifically required by this Note or by the Credit Agreement, and they agree that the liability of each of them shall be unconditional without regard to the liability of any other party and shall not be in any manner affected by any indulgence, extension of time, renewal, waiver, or modification granted or consented to by U.S. Bank. Borrower and all endorsers, sureties, and guarantors hereof (1) consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by U.S. Bank with respect to the payment or other provisions of this Note and the Credit Agreement; (2) consent to the release of any property now or hereafter securing this Note with or without substitution; and (3) agree that additional makers, endorsers, guarantors, or sureties may become parties hereto without notice to them and without affecting their liability hereunder. This Note is one of the Acquisition Notes referred to in the Credit Agreement, is a "Note" for all purposes of the Credit Agreement and as such is entitled to all of the benefits and obligations specified in the Credit Agreement, including but not limited to any Collateral and any conditions to making advances hereunder. This Note is secured by the lien of the Deed of Trust encumbering real and personal property in King County, Washington, dated August 9, 1993, and recorded with the Division of Records and Elections of King County, Washington, on August 10, 1993, under recording No. 9308101757, to which reference is hereby made for a description of the nature and extent of the security provided thereby and the rights and limitations of rights of U.S. Bank and of Borrower in respect of such security. Borrower grants to U.S. Bank a contractual security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to U.S. Bank all Borrower's right, title and -1- 13 interest in and to, Borrower's accounts with U.S. Bank (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes U.S. Bank, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the repayment of this Note and the acceleration of the maturity hereof. If there is a lawsuit, Borrower agrees upon U.S. Bank's request to submit to the jurisdiction of the courts of King County, the state of Washington. U.S. BANK AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER U.S. BANK OR BORROWER AGAINST THE OTHER. BORROWER'S INITIALS _____ U.S. BANK'S INITIALS _____ REDHOOK ALE BREWERY, INCORPORATED By: --------------------------------- Title: ------------------------------ -2- 14 UNCONDITIONAL GUARANTY This guaranty is made as of the 19 day of June, 2001, by REDHOOK OF NEW HAMPSHIRE, INC., a New Hampshire corporation ("Guarantor"), to and for the benefit of U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION, and its successors, participants, and assigns ("U.S. Bank"). R E C I T A L S: A. Contemporaneously with the execution hereof, Redhook Ale Brewery, Incorporated, a Washington corporation ("Borrower"), has entered into a certain credit agreement with U.S. Bank (together with all supplements, exhibits, and amendments thereto, the "Credit Agreement"), pursuant to which Borrower has received, or will receive, advances of credit from U.S. Bank (the "Loans"). Guarantor acknowledges that Guarantor has had an opportunity to review the Credit Agreement and all documents and instruments in connection therewith (collectively, "Loan Documents") and is fully familiar with the terms of the Loans. Terms defined in the Credit Agreement are used herein with the same meanings, unless otherwise defined. B. Guarantor is financially interested in Borrower and will receive certain benefits as a result of Guarantor's execution of this Guaranty. Guarantor acknowledges that this Guaranty is a condition to U.S. Bank's making the Loans. Guarantor agrees that this Guaranty is made for the benefit of Guarantor. NOW, THEREFORE, in order to induce U.S. Bank to extend credit to Borrower pursuant to the Credit Agreement, Guarantor agrees as follows: ARTICLE I. UNCONDITIONAL GUARANTY Guarantor jointly, severally, unconditionally, absolutely, and irrevocably guarantees all past, present, and future Indebtedness of Borrower to U.S. Bank, including but not limited to the due and punctual payment of the principal and interest of the Notes and all money due or that may become due under the Credit Agreement or under the other Loan Document, whether (a) according to the present terms of any of those documents or at any earlier or accelerated date or dates as provided therein, (b) pursuant to any extension of time, or (c) pursuant to any amendment, modification, or replacement of those documents hereafter made or granted (collectively, "Obligations"). Guarantor acknowledges and agrees that Guarantor's liability hereunder is cumulative with the liability of Guarantor under all other unterminated guaranties of Guarantor. ARTICLE II. WAIVERS BY GUARANTOR AND RIGHTS OF U.S. BANK Guarantor intends that it shall remain unconditionally liable for payment of all the Obligations regardless of any act or omission which might otherwise operate as a legal or equitable defense to discharge Borrower, Guarantor, or any other guarantor in whole or part other than payment in full of the Obligations. Therefore, Guarantor hereby waives any defense -1- 15 Guarantor may have to the enforceability of its obligations hereunder by virtue of any of the following and U.S. Bank may do any of the following things as many times as U.S. Bank wishes, without Guarantor's permission and without notifying Guarantor, and this will not affect Guarantor's promise to pay U.S. Bank the amount of the Obligations: (a) U.S. Bank does not have to notify Guarantor of U.S. Bank's acceptance of this Guaranty; (b) U.S. Bank does not have to notify Guarantor when U.S. Bank makes advances under the Credit Agreement, extends credit to Borrower, or pays the obligations of Borrower; (c) U.S. Bank does not have to notify Guarantor of (i) Borrower's failure to pay Borrower's obligations when due or (ii) Borrower's failure to perform any other obligation under the Loan Document; (d) U.S. Bank may extend, renew, accelerate, or otherwise change the time for payment of any of Borrower's obligations to U.S. Bank; (e) U.S. Bank may make any other changes in the Loan Document pursuant to the terms of the Loan Document; (f) U.S. Bank may release Borrower, any other guarantor, or anyone else against whom U.S. Bank may have the right to collect amounts that may become due under the Loan Document; (g) U.S. Bank may apply Collateral and direct the order or manner of sale thereof as U.S. Bank in its discretion may determine; (h) U.S. Bank may apply any money or Collateral received from or on behalf of the Borrower to the repayment of any Indebtedness due to U.S. Bank secured by such Collateral in any order U.S. Bank determines; (i) U.S. Bank may release, surrender, substitute, take additional, or exchange, any Collateral U.S. Bank now holds or may later acquire as security for Borrower's Indebtedness to U.S. Bank or Guarantor's obligations hereunder; (j) U.S. Bank may forbear from pursuing Borrower or from foreclosing or otherwise realizing upon any security interest, letter of credit, or other guaranty; (k) U.S. Bank may impair any Collateral Or Guarantor's obligations hereunder by its acts or omissions, including but not limited to failing to perfect a security interest in any Collateral; (l) Guarantor hereby waives any defense arising out of the absence, impairment, or loss of (i) any or all rights of recourse, reimbursement, contribution, or subrogation or (ii) any other right or remedy of Guarantor against Borrower or any other party or Collateral to collect amounts that Guarantor is obligated to pay under this Guaranty; -2- 16 (m) Guarantor hereby waives any defense arising (i) by reason of any invalidity, ineffectiveness, or unenforceability of all or any portion of the Loan Document or (ii) on the basis of any other defense available to Borrower (other than full payment in cash); (n) Guarantor waives diligence, demand for performance, notice of nonperformance, presentment, protest, notice of dishonor, and indulgences and notices of every other kind; (o) Guarantor agrees that U.S. Bank may in its sole discretion proceed against all or any portion of the Collateral by way of either judicial or nonjudicial foreclosure; (p) Guarantor understands that a nonjudicial foreclosure of any deed of trust securing the indebtedness of Borrower to U.S. Bank could impair or eliminate any subrogation, reimbursement, or contribution rights Guarantor may have against the grantor of the deed of trust; nevertheless, Guarantor waives and relinquishes any defense based upon the loss of such rights or any other defense that may otherwise arise out of RCW 61.24.100 or any other applicable antideficiency statute of another state. Guarantor understands and agrees that U.S. Bank may in its discretion nonjudicially foreclose one or more deeds of trust granted to it by Borrower, then collect from Guarantor a sum equal to the difference between the total amount of the Obligations and the amount of the successful bid at each trustee sale. ARTICLE III. U.S. BANK'S RIGHT NOT TO PROCEED AGAINST BORROWER, OTHER GUARANTORS OR COLLATERAL If an Event of Default occurs under the Credit Agreement, U.S. Bank may enforce this guaranty against Guarantor (a) without attempting to collect or without exhausting U.S. Bank's efforts to collect from Borrower, any other guarantor, or anyone else who is liable for the Obligations or (b) without attempting to enforce U.S. Bank's rights in any Collateral. Without limiting the foregoing, U.S. Bank may sue on any Note or Notes or may take any other action authorized under the Loan Document or by law. In each case, U.S. Bank shall have the right to exercise its remedies in whatever order it elects and may join Guarantor in any suit on the Loan Document or can proceed against Guarantor in a separate proceeding. In case of suit, sale, or foreclosure, only the net proceeds therefrom, after deducting all reasonable charges and expenses of any kind and nature whatsoever, shall be applied to the reduction of the amount due on the Loan Document, and U.S. Bank shall not be required to institute or prosecute proceedings to recover any deficiency as a condition of payment under or enforcement of this Guaranty. At any sale of the Collateral, U.S. Bank may at its discretion purchase all or any part of the Collateral and may apply against the amount bid therefor all or any portion of the balance due it pursuant to the terms of any Notes and any deed of trust. Guarantor hereby waives the right to object to the amount that may be bid by U.S. Bank at such foreclosure sale. ARTICLE IV. BANKRUPTCY AND ASSIGNMENT OF RIGHTS Guarantor agrees that its obligation to make payment under the terms of this Guaranty shall not be impaired, modified, changed, released, or limited in any manner by any impairment, modification, change, release, defense, or limitation of the liability of Borrower or of a receiver, trustee, debtor-in-possession, or estate under any bankruptcy or receivership -3- 17 proceeding. If any payment made by Borrower is reclaimed in a bankruptcy or receivership proceeding, Guarantor shall pay to U.S. Bank the dollar amount of the amount reclaimed. Guarantor further assigns to U.S. Bank all rights Guarantor may have in any proceeding relating to Borrower under the U.S. Bankruptcy Code or any receivership or insolvency proceeding until all Indebtedness of Borrower to U.S. Bank has been paid in full. This assignment includes all rights of Guarantor to be paid by Borrower even if those rights have nothing to do with this Guaranty. This assignment does not prevent U.S. Bank from enforcing Guarantor's obligations under this Guaranty in any way. ARTICLE V. GUARANTOR'S DUTY TO KEEP INFORMED OF BORROWER'S AND THE OTHER GUARANTOR'S FINANCIAL CONDITION Guarantor is now adequately informed of Borrower's financial condition, and Guarantor agrees to keep so informed. U.S. Bank need not provide Guarantor with any present or future information concerning the financial condition of Borrower or any other guarantor, and changes in Borrower's or Guarantor's financial condition shall not affect Guarantor's obligations under this Guaranty. Guarantor has not relied on financial information furnished by U.S. Bank, nor will Guarantor do so in the future. ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF GUARANTOR Guarantor represents and warrants to U.S. Bank as follows: (a) The execution, delivery, and performance by Guarantor of this Guaranty do not and will not (i) conflict with or contravene any law, rule, regulation, judgment, order, or decree of any government, governmental instrumentality, or court having jurisdiction over Guarantor or Guarantor's activities or properties, (ii) conflict with, or result in any default under, any agreement or instrument of any kind to which Guarantor is a party or by which Guarantor or any of Guarantor's properties may be bound or affected, or (iii) require the consent, approval, order, or authorization of, or registration with, or the giving of notice to any United States or other governmental authority or any person or entity not a party to the Loan Document; (b) This Guaranty constitutes a legal, valid, and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms; (c) There is no action, litigation, or other proceeding pending or to Guarantor's knowledge threatened against Guarantor before any court, arbitrator, or administrative agency that may have a material adverse effect on the assets or the business or financial condition of Guarantor or that would prevent, hinder, or jeopardize the performance by Guarantor of Guarantor's obligations under this Guaranty; (d) Guarantor is fully familiar with all the covenants, terms, and conditions of the Loan Document; and (e) Guarantor is not party to any contract, agreement, indenture, or instrument or subject to any restriction individually or in the aggregate would have a material adverse affect on Guarantor's financial condition or business or that would in any way jeopardize the ability of Guarantor to perform under this Guaranty. -4- 18 ARTICLE VII. INDEMNITY REGARDING HAZARDOUS SUBSTANCES Borrower has made various representations in the Loan Document with respect to hazardous substances. Borrower has further agreed to defend and indemnify U.S. Bank against, and hold U.S. Bank harmless from, various matters identified in the Loan Document concerning hazardous substances. Those indemnities will survive payment of the Notes and satisfaction of the Notes through foreclosure or otherwise. Guarantor hereby guarantees payment and performance of that indemnity and agrees that Guarantor's guaranty of that indemnity will survive payment of the Notes and satisfaction of the Notes through foreclosure or otherwise and will survive payment of Guarantor's other obligations under this Guaranty. ARTICLE VIII. SUBORDINATION OF INDEBTEDNESS OF BORROWER TO GUARANTOR Any Indebtedness of Borrower now or hereafter held by Guarantor is hereby subordinated to the Indebtedness of Borrower to U.S. Bank, and such Indebtedness of Borrower to Guarantor, if U.S. Bank so requests after the occurrence of a Default or an Event of Default, shall be collected, enforced, and received by Guarantor as trustee for U.S. Bank and be paid over to U.S. Bank on account of the Indebtedness of Borrower to U.S. Bank, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. ARTICLE IX. WAIVER OF RIGHT OF SUBROGATION Guarantor agrees that Guarantor shall not have, and hereby expressly waives, any claim, right, or remedy that Guarantor may now have or hereafter acquire against Borrower including, without limitation, any claim, remedy, or right of subrogation, reimbursement, exoneration, indemnification, or participation in any claim, right, or remedy that U.S. Bank has or may hereafter have against Borrower or any Collateral that U.S. Bank now has or hereafter acquires, whether or not such claim, right, or remedy arises in equity, under contract, by statute, under common law, or otherwise. Guarantor hereby acknowledges and agrees that this waiver is intended to benefit Borrower and U.S. Bank and shall not limit or otherwise affect Guarantor's liability under this Guaranty. ARTICLE X. PAYMENT OF OBLIGATIONS; EFFECT OF BANKRUPTCY This Guaranty shall terminate upon payment in full of the Obligations and termination of U.S. Bank's commitment to make advances of credit and to lend funds to Borrower; but this Guaranty shall be automatically reinstated if any payment is reclaimed in a bankruptcy, receivership, or similar proceeding, until Guarantor pays U.S. Bank the amount reclaimed or the amount is otherwise paid to U.S. Bank and is not subject to further reclamation. ARTICLE XI. EVENTS OF DEFAULT; REMEDIES 11.1 Events of Default. "Event of Default," whenever used herein, means any one of the following events (whatever the reason for the Event of Default, whether it shall relate to one or more of the parties hereto, and whether it shall be voluntary or involuntary or be pursuant to or effected by operation of Applicable Law): -5- 19 (a) If there shall occur an Event of Default under the Credit Agreement; or (b) If Guarantor fails to observe or perform any term, covenant, or agreement to be performed or observed pursuant to this Guaranty. 11.2 Remedies. (a) Upon the occurrence of any Event of Default hereunder, the Obligations shall then or at any time thereafter, at the option of U.S. Bank become immediately due and payable without notice or demand, and U.S. Bank shall have an immediate right to pursue the remedies provided herein. (b) If an Event of Default occurs hereunder, U.S. Bank shall have all remedies provided by law. Guarantor hereby waives any notice of the occurrence of any Event of Default hereunder. (c) In addition to all liens upon and rights of setoff against the moneys, securities, or other property of Guarantor given to U.S. Bank by law, U.S. Bank shall have, with respect to Guarantor's obligations to U.S. Bank under this Guaranty and to the extent permitted by law, a contractual security interest in and a right of setoff against, and Guarantor hereby assigns, conveys, pledges, and transfers to U.S. Bank all of Guarantor's right, title, and interest in and to all deposits, moneys, securities, and other property of Guarantor now or hereafter in the possession of or on deposit with U.S. Bank, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding however all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to Guarantor. No security interest or right of setoff shall be deemed to have been waived by any act or conduct on the part of U.S. Bank or by any neglect to exercise such right of setoff or to enforce such security interest or by any delay in so doing. Every right of setoff and security interest shall continue in full force and effect until such right of setoff or security interest is specifically waived or released by an instrument in writing executed by U.S. Bank. ARTICLE XII. GENERAL PROVISIONS 12.1 Benefits of Agreement. Guarantor agrees that (a) this Guaranty shall inure to the benefit of and may be enforced by U.S. Bank and any subsequent holder of any of the Notes and related Loan Document and (b) this Guaranty shall be binding upon and enforceable against Guarantor and its successors and assigns. 12.2 No Assignment. Guarantor agrees that no assignment of Guarantor's obligations under this Guaranty may be made to any Person without the prior written consent of U.S. Bank. 12.3 Rules of Construction. Unless some other meaning and intent is apparent from the context, the plural shall include the singular and vice versa, and masculine, feminine, and neuter words shall be used interchangeably. -6- 20 12.4 Governing Law. This Guaranty shall be construed according to the laws of the state of Washington, without giving effect to its principles of conflicts of law. 12.5 Entire Agreement: Merger: This Agreement constitutes the entire understanding between U.S. Bank and Guarantor with respect to the subject matter hereof; no course of prior dealing between the parties, no usage of trade, and no parole or extrinsic evidence of any nature shall be used to supplement or modify any terms; and there are no conditions to the M effectiveness of this Guaranty. All prior, and contemporaneous negotiations, understandings, and agreements between Guarantor and U.S. Bank with respect to the subject matter hereof are merged in this Guaranty. 12.6 Invalid Provisions. If any provision of this Guaranty is invalid, illegal, or unenforceable, such provision shall be considered severed from the rest of this Guaranty and the remaining provisions shall continue in full force and effect as if the invalid provision had not been included. This Guaranty may be changed, modified, or supplemented only through a writing signed by Guarantor and U.S. Bank. 12.7 Attorney Fees and Collection Expenses. If there shall occur any Default or Event of Default, U.S. Bank shall be entitled to recover from Guarantor, upon demand, any reasonable costs and expenses incurred in connection with the preservation of rights under, and enforcement of, this Guaranty and the other Loan Document whether or not any lawsuit or arbitration proceeding is commenced, in all such cases including, without limitation, reasonable attorney fees and costs (including the allocated fees of internal counsel). Costs and expenses as referred to above shall include, without limitation, a reasonable hourly rate for collection personnel, whether employed in-house or otherwise, overhead costs as reasonably allocated to the collection effort, and all other expenses actually incurred. Reasonable attorney fees and costs shall include, without limitation, attorney fees and costs incurred in connection with any bankruptcy case or other insolvency proceeding commenced by or against Borrower or any Person granting a security interest in any item of Collateral, including all fees incurred in connection with (a) moving for relief from the automatic stay, to convert or dismiss the case or proceeding, or to appoint a trustee or examiner or (b) proposing or opposing confirmation of a plan of reorganization or liquidation, in any case without regard to the identity of the prevailing party. 12.8 Consent to Jurisdiction and Venue. Guarantor hereby (a) irrevocably submits to the jurisdiction of any state or federal court sitting in Seattle, King County, Washington, in any action or proceeding brought to enforce, or otherwise arising out of or relating to, this Guaranty; (b) irrevocably waives to the fullest extent permitted by law any objection that Guarantor may now or hereafter have to the laying of venue in any such action or proceeding in any such forum; and (c) further irrevocably waives any claim that any such forum is an inconvenient forum. Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. Nothing herein shall impair the right of U.S. Bank to bring any action or proceeding against Guarantor in any court of any other jurisdiction. -7- 21 12.9 JURY WAIVER. U.S. BANK AND GUARANTOR HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER U.S. BANK OR GUARANTOR AGAINST THE OTHER. GUARANTOR'S INITIALS /S/ DM U.S. BANK'S INITIALS /S/ KP 12.10 Counterparts. This Guaranty can be executed in counterpart originals. This Guaranty shall be binding on each person who signs a counterpart of this Guaranty even if everyone listed in the Guaranty does not agree to the Guaranty. THE UNDERSIGNED CLEARLY UNDERSTANDS THAT U.S. BANK DOES NOT HAVE TO PURSUE BORROWER OR PURSUE ANY OTHER REMEDIES BEFORE DEMANDING PAYMENT FROM GUARANTOR. GUARANTOR FURTHER UNDERSTANDS THAT IT WILL HAVE TO PAY AMOUNTS THEN DUE EVEN IF BORROWER OR ANY OF THE OTHER GUARANTORS DO NOT MAKE THE PAYMENTS OR ARE OTHERWISE RELIEVED OF THE OBLIGATION TO MAKE PAYMENTS. REDHOOK OF NEW HAMPSHIRE, INC. By: /s/ David J. Mickelson ----------------------- Its: EVP --- -8- 22 SECURITY AGREEMENT This security agreement ("Agreement") is made and entered into as of June 19, 2001, by REDHOOK ALE BREWERY, INCORPORATED, a Washington corporation ("Borrower"), for the benefit of U.S. BANK NATIONAL ASSOCIATION, a national banking association ("U.S. Bank"). Words and phrases with initial capital letters have the meanings given to them in Article I of this Agreement. R E C I T A L S : A. On or about June 5, 1995, Borrower and U.S. Bank entered into that certain amended and restated credit agreement (together with all supplements, exhibits, and amendments thereto, referred to as the "Credit Agreement"), whereby U.S. Bank agreed to make loans and advances of credit to Borrower on the terms and conditions set forth therein. Concurrently with the execution of this Agreement, Borrower and U.S. Bank entered into the fifth amendment to amended and restated credit agreement ("Fifth Amendment") whereby U.S. Bank and Borrower agreed to modify the terms of the Loans. B. Borrower's grant to U.S. Bank of a security interest in all of its assets as security for the Secured Obligations is among the agreed upon modifications to the Loans. NOW, THEREFORE, in order for U.S. Bank to modify the Loans in accordance with the terms of the Fifth Amendment, Borrower agrees as follows: ARTICLE I. DEFINITIONS Unless otherwise defined herein, terms defined in the Credit Agreement shall have the same meanings when used herein. For the purposes of this Agreement, the following terms shall have the following meanings: "Account" means any right to payment for goods sold or leased or for services rendered that is not evidenced by an Instrument or Chattel Paper, whether or not it has been earned by performance. "Account Debtor" means the party who is obligated on or under any Account, Chattel Paper, or General Intangible. "Assignee Deposit Account" shall have the meaning set forth in Section 5.7 hereof. "Chattel Paper" means all interest of Borrower in writings that evidence both a monetary obligation and a security interest in or a lease of specific goods, including any group of writings consisting of both a security agreement or a lease and an Instrument or series of Instruments. "Collateral" means all property, real, personal, and mixed, tangible and intangible, wherever located, now owned or hereafter acquired by Borrower, or in which -1- 23 Borrower has or later obtains an interest, including but not limited to Accounts, Chattel Paper, Deposit Accounts, Documents, Equipment, Financial Assets, General Intangibles, Goods, Instruments, Inventory, Investment Property, Trademarks, and Vehicles, and all products, profits, rents, and proceeds of such property. As used in this Agreement, "Collateral" shall not include any property owned by any Subsidiary of Borrower. "Deposit Account" means a demand, time, savings, passbook, or like account maintained with a bank, savings and loan association, credit union, or like organization, other than an account evidenced by a certificate of deposit. "Document" means all of Borrower's right, title, and interest in or to any document of title as defined in RCW 62A.1-201 and any receipt of the kind described in RCW 62A.7-201(2). "Equipment" means all of Borrower's right, title, and interest in and to Goods that are used or bought for use primarily in business and that are not included within the definition of Inventory, including but not limited to all machinery, equipment, furnishings, fixtures, vehicles, tools, supplies, and other equipment of any kind and nature and all additions, substitutions, and replacements of any of the foregoing, together with all attachments, components, parts, accessories, improvements, upgrades, and accessories installed thereon or affixed thereto. "Event of Default" means an occurrence of an Event of Default as defined in the Credit Agreement. "Financial Assets" means all of Borrower's right, title, and interest in and to any financial asset as defined in RCW 62A.8-102. "General Intangibles" means all personal property (including things in action) other than Goods, Accounts, Chattel Paper, Documents, Financial Assets, Instruments, Investment Property, and money, including but not limited to all Trademarks, insurance proceeds, patents, copyrights, trade names, trade secrets, goodwill, registration, license rights, licenses, permits, corporate and other business records, rights to refunds or indemnification, and all other intangible personal property of Borrower of every kind and nature. "Goods" means all things that are movable or that are fixtures, not including money, Documents, Financial Assets, Instruments, Accounts, Chattel Paper, Investment Property, or General Intangibles. "Instrument" means any negotiable instrument or other writing that evidences a right to the payment of money and is not itself a security agreement or lease and is of a type that is in the ordinary course of business transferred by delivery with any necessary endorsement or assignment. "Inventory" means all Goods held by Borrower for sale or lease, furnished or to be furnished by Borrower under any contract of service, or held by Borrower as raw materials, work in progress, or materials used or consumed in Borrower's business. -2- 24 "Investment Property" means all of Borrower's right, title, and interest in and to any investment property as defined in RCW 62A.9-115. "Secured Obligations" means any past, present, or future Indebtedness of Borrower to U.S. Bank, and includes but is not limited to (a) any indebtedness, obligation, or liability of any kind arising in any way of Borrower to U.S. Bank, now existing or hereafter created, under the Credit Agreement, the Notes, or the other Loan Documents, including any refinancing, renewal, replacement, extension, amendment, or substitution of such indebtedness, (b) any liability or obligation of Borrower hereunder, (c) the obligations of Borrower under any guaranty executed by Borrower and delivered to U.S. Bank, whereby Borrower guarantees the Indebtedness of any Person other than Borrower to U.S. Bank, and (d) any cost, expense, or liability, including but not limited to reasonable attorney fees, that may be incurred and advances that may be made by U.S. Bank in any way in connection with any of the foregoing or any security therefor. "Trademark" means (a) any trademark, trade name, corporate name, company name, business name, fictitious business name, trade style, service mark, logo or other source or business identifier, and the goodwill associated therewith, now existing or hereafter adopted or acquired, (b) any registration or recording of any Trademark, and any application in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States or of any state of the United States, or any other country or any political subdivision of another country or otherwise, and (c) all renewals of any Trademark. "Vehicle" means any car, truck, trailer, construction or earth-moving equipment, or other vehicle covered by a certificate of title of any state, including but not limited to any tires or other appurtenances to any Vehicle. ARTICLE II. GRANT OF SECURITY INTEREST As security for the payment and satisfaction of the Secured Obligations, Borrower hereby grants to U.S. Bank a continuing security interest in and assigns to U.S. Bank all of Borrower's right, title, and interest in the Collateral and all products, profits, rents, and proceeds thereof. ARTICLE III. COVENANTS OF BORROWER Borrower shall fully perform each of the following covenants: 3.1 Obligations to Pay. (a) Borrower shall pay to U.S. Bank, in timely fashion and in full, all amounts payable by Borrower to U.S. Bank, pursuant to the Credit Agreement, the Notes, and the other Loan Documents; and (b) Borrower shall pay and reimburse U.S. Bank for all expenditures including reasonable attorney fees and legal expenses in connection with the exercise by U.S. Bank of any of its rights or remedies under the Credit Agreement or the other Loan Documents. -3- 25 3.2 Performance. Borrower shall fully perform in a timely fashion every covenant, agreement, and obligation set forth in the Credit Agreement and the other Loan Documents. 3.3 Further Documentation. At its own expense, Borrower shall execute and deliver any financing statement, any renewal, substitution, or correction thereof, or any other document; shall procure any document; and shall take such further action as U.S. Bank reasonably may require in obtaining the full benefits of this Agreement. 3.4 Filing Fees. Borrower shall pay all costs of filing any financing, continuation, or termination statement with respect to the security interests granted herein. 3.5 Pledges. Borrower shall deliver and pledge to U.S. Bank, endorsed or accompanied by instruments of assignment or transfer satisfactory to U.S. Bank, any Instruments, Investment Property, Documents, General Intangibles, or Chattel Paper that U.S. Bank may specify from time to time. 3.6 Maintenance of Records. Borrower shall keep and maintain at its own cost and expense satisfactory and complete records of the Collateral including but not limited to a record of all payments received and all credits granted with respect to the Collateral and all other dealings with the Collateral. Borrower shall deliver and turn over to U.S. Bank all books and records pertaining to the Collateral at any time after the occurrence and during the continuation of an Event of Default, if so demanded by U.S. Bank. 3.7 Disposition of Collateral. Except for the sale of Equipment that was used in Borrower's location at Phinney Avenue North, Seattle, Washington, or in the ordinary course of Borrower's business or as otherwise allowed in the Credit Agreement, Borrower shall not sell or transfer any of the Collateral or release, compromise, or settle any obligation or material receivable due to Borrower. 3.8 Indemnification. Borrower agrees to pay, and to indemnify U.S. Bank and hold U.S. Bank harmless from, all liabilities, costs, and expenses including but not limited to reasonable legal fees and expenses with respect to or resulting from (a) any delay in paying any excise, sales, or other taxes that may be payable or determined to be payable with respect to any of the Collateral, (b) any delay by Borrower in complying with any requirement of law applicable to any of the Collateral, or (c) any of the transactions contemplated by this Agreement. In any reasonable suit, proceeding, or action brought by U.S. Bank to enforce payment of any sum owing on any Account or to enforce any provisions of any Account, Borrower will indemnify U.S. Bank and hold U.S. Bank harmless from all expense, loss, or damage suffered by reason of any defense, setoff, counterclaim, recoupment, or reduction allowed with respect to the Account to the extent arising out of a breach by Borrower of any obligation under the Account or arising out of any other agreement, indebtedness, or liability at any time owing to or in favor of such Account Debtor or its successors from Borrower. 3.9 Limitations on Amendments, Modifications, Terminations, Waivers, and Extensions of Contracts and Agreements Giving Rise to Accounts. Except, in each case, in the ordinary course of Borrower's business or consistent with industry practice, Borrower will not -4- 26 (a) amend, modify, terminate, waive, or extend any provision of any agreement giving rise to an Account in any manner that could reasonably be expected to have a material adverse effect on the aggregate value of the Accounts as Collateral or (b) fail to exercise promptly and diligently every material right that it may have under each agreement giving rise to an Account, other than any right of termination. 3.10 Limitations on Discounts, Compromises, and Extensions of Accounts. Borrower will not grant any extension of the time of payment of any of the Accounts; compromise, compound, or settle the same for less than the full amount thereof; release, wholly or partially, any Person liable for the payment thereof; or allow any credit or discount whatsoever thereon, except, in each case, in the ordinary course of Borrower's business or consistent with industry practice. 3.11 Further Identification of Collateral. Borrower will furnish to U.S. Bank, upon its reasonable request, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as U.S. Bank may reasonably request. 3.12 Notices. Borrower will advise U.S. Bank promptly in reasonable detail at its address set forth in Section 7.9 of the occurrence of any event that could reasonably be expected to have a material adverse effect on the Collateral or on the liens created hereunder, including any lien (other than liens created hereby or permitted under the Credit Agreement) on or claim asserted against any of the Collateral. 3.13 Changes in Locations, Name, Etc. Borrower will not (a) change the location of its chief executive office/chief place of business or remove its books and records from the locations specified on Schedule II to this Agreement, (b) except in the ordinary course of Borrower's business and consistent with prior practice, permit any of the Inventory or Equipment (excluding Vehicles) to be kept at locations other than those listed on Schedule II, or (c) change its name, identity, or structure to such an extent that any financing statement filed by U.S. Bank in connection with this Agreement would become seriously misleading, unless it shall have given U.S. Bank at least ten days' prior written notice thereof. 3.14 Trademarks. (a) Borrower (either itself or through licensees) will, in a manner consistent with prior practice, (i) continue to use its Trademarks in order to maintain such Trademarks in full force, free from any claim of abandonment for nonuse that would materially decrease the aggregate value of the Trademarks, (ii) maintain the quality of products and services offered under such Trademarks, (iii) employ such Trademarks with the appropriate notice of registration, (iv) not adopt or use any mark that is confusingly similar to or a colorable imitation of such Trademarks unless U.S. Bank shall have obtained a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any currently-used Trademark may become invalidated. -5- 27 (b) Borrower will notify U.S. Bank immediately if it knows, or has reason to know, of (i) any application or registration relating to any Trademark material to its business that may become abandoned or dedicated, or (ii) any adverse determination or development (including but not limited to the institution of, or any adverse determination or development in, any proceeding in the United States Patent and Trademark Office or any court or tribunal in any country) regarding Borrower's ownership of any material Trademark or its right to register, keep, or maintain the same. (c) Whenever Borrower, either by itself or through any agent, employee, licensee, or designee, shall file an application for the registration of any material Trademark with the United States Patent and Trademark Office, Borrower shall report such filing to U.S. Bank within 30 days after the last day of the calendar month in which such filing occurs. Borrower shall execute and deliver to U.S. Bank all agreements, instruments, powers of attorney, documents, and papers that U.S. Bank may request to evidence U.S. Bank's security interest in any Trademark and in the goodwill and general intangibles of Borrower relating to or represented by the Trademark. Borrower hereby constitutes U.S. Bank its attorney-in-fact to execute and file all such writings for the foregoing purposes, with all acts of such attorney being hereby ratified and confirmed; and such power, being coupled with an interest, is irrevocable until all Secured Obligations are paid in full. (d) Borrower will take all reasonable and necessary steps, including but not limited to all reasonable and necessary steps in any proceeding before the United States Patent and Trademark Office or any similar office or agency in any other country or any political subdivision thereof to which Borrower has applied for any Trademark, to maintain and pursue each application, to obtain the relevant registration, and to maintain each registration of material Trademarks, including but not limited to filing applications for renewal, affidavits of use, and affidavits of incontestability. (e) If any Trademark that is included in the Collateral is infringed, misappropriated, or diluted by a third party, Borrower shall promptly notify U.S. Bank after it learns thereof and shall take such action as Borrower reasonably deems appropriate under the circumstances to protect such Trademark. 3.15 Vehicles. Upon request by U.S. Bank, the application for certificate of title to any vehicle indicating U.S. Bank's first priority lien on such Vehicle, and any other necessary documentation, shall be filed in each office in each jurisdiction that U.S. Bank deems advisable to perfect its lien on any Vehicle constituting Collateral. 3.16 Insurance. Borrower agrees to insure the Collateral against all hazards in form and amount consistent with the prior practices of Borrower and reasonably acceptable to U.S. Bank. If Borrower fails to obtain such insurance, U.S. Bank shall have the right, but not the obligation, to obtain either insurance covering both Borrower's and U.S. Bank's interest in the Collateral, or insurance covering only U.S. Bank's interest in the Collateral. Borrower agrees to pay such premium that would be charged for insurance that Borrower is required to maintain by this Section 3.16. This amount may be added to the outstanding balance of the Loans, and interest thereon shall be charged at the rate specified in any applicable Loan Document, or U.S. Bank may demand immediate payment. Any unpaid insurance premium advanced by -6- 28 U.S. Bank shall be secured under the terms of this Agreement. U.S. Bank will have no liability whatsoever for any loss which may occur by reason of the omission or lack of coverage of any such insurance. Any insurer shall make payable jointly to the Borrower and U.S. Bank as secured party (or otherwise as its interest may appear) any loss payments from casualty/property loss insurance covering any of the Collateral in excess of $100,000. 3.17 Copy of Financing Statement. Borrower agrees that a carbon, photographic, or other reproduction of a financing statement or this Agreement is sufficient as a financing statement. ARTICLE IV. REPRESENTATIONS AND WARRANTIES Borrower hereby makes the following representations and warranties: 4.1 Title to Collateral. Borrower has good and marketable title to all the Collateral, free and clear of all liens excepting only the security interests created pursuant to this Agreement or permitted pursuant to the Credit Agreement. 4.2 No Impairment of Collateral. None of the Collateral shall be impaired or jeopardized because of the security interest herein granted. 4.3 Other Agreements. The execution and delivery of this Agreement, the consummation of the transactions provided for herein, and the fulfillment of the terms hereof will not result in the breach of any of the terms, conditions, or provisions of, or constitute a default under, or conflict with, or cause any acceleration of any obligation under any (a) agreement or other instrument to which Borrower is a party or by which Borrower is bound or (b) Applicable Law. 4.4 No Approvals. No Governmental Approvals of any nature are required in connection with the security interests herein granted. 4.5 Authority. Borrower has full power and authority to assign to U.S. Bank and to grant to U.S. Bank a security interest in the Collateral. 4.6 Location of Records. The address of the office where the books and records of Borrower are kept concerning the Collateral is set forth on Schedule II. 4.7 Location of Collateral. The locations of all Inventory and Equipment of Borrower are described on Schedule II. 4.8 Name. Borrower, but not necessarily any of its Subsidiaries, conducts its business only under the name "Redhook Ale Brewery, Incorporated." 4.9 Accounts. The amount represented by Borrower to U.S. Bank from time to time as owing by each Account Debtor or by all Account Debtors in respect of the Accounts will at such time be the materially correct amount actually owing by such Account Debtor or Debtors thereunder. No material amount payable to Borrower under or in connection with any -7- 29 Account is evidenced by anyInstrument or Chattel Paper that has not been delivered to U.S. Bank. 4.10 Chief Executive Office. Borrower's chief executive office and chief place of business is located at the address set forth on Schedule II. 4.11 Trademarks. Schedule I hereto includes all Trademarks owned by Borrower in its own name as of the date hereof. To the best of Borrower's knowledge, the Trademarks are valid, subsisting, unexpired, and enforceable and have not been abandoned. Except as set forth in Schedule I, none of the Trademarks is the subject of any licensing or franchise agreement. No holding, decision, or judgment that would limit, cancel, or question the validity of the Trademarks has been rendered by any Governmental Body. No action or proceeding is pending that seeks to limit, cancel, or question the validity of such Trademarks and that would, if adversely determined, have a material adverse effect on the aggregate value of the Trademarks. 4.12 Governmental Obligors. No Account Debtor is a Governmental Body. ARTICLE V. U.S. BANK'S RIGHTS WITH RESPECT TO THE COLLATERAL 5.1 No Duty on U.S. Bank's Part. U.S. Bank shall not be required (except at its option upon the occurrence and during the continuation of any Event of Default) to realize upon any Accounts, Financial Assets, Instruments, Investment Property, Chattel Paper, or General Intangibles; collect the principal, interest, or payment due thereon, exercise any rights or options of Borrower pertaining thereto; make presentment, demand, or protest; give notice of protest, nonacceptance, or nonpayment; or do any other thing for the protection, enforcement, or collection of such Collateral. The powers conferred on U.S. Bank hereunder are solely to protect U.S. Bank's interests in the Collateral and shall not impose any duty upon U.S. Bank to exercise any such powers. U.S. Bank shall be accountable only for amounts that U.S. Bank actually receives as a result of the exercise of such powers; and neither U.S. Bank nor any of its officers, directors, employees, or agents shall be responsible to Borrower for any act or failure to act hereunder. 5.2 Negotiations with Account Debtors. During the existence of any Event of Default, U.S. Bank may, in its sole discretion, extend or consent to the extension of the time of payment or maturity of any Instruments, Accounts, Chattel Paper, or General Intangibles. 5.3 Right to Assign. Except as otherwise provided in the Credit Agreement, U.S. Bank may assign or transfer the whole or any part of the Secured Obligations and may transfer therewith U.S. Bank's security interests in the whole or any part of the Collateral; and all obligations, rights, powers, and privileges herein provided shall inure to the benefit of the assignee and shall bind the successors and assigns of the parties hereto. 5.4 Duties Regarding Collateral. Beyond the safe custody thereof, U.S. Bank shall not have any duty as to any Collateral in its possession or control, or as to any preservation of any rights of or against other parties. -8- 30 5.5 Collection From Account Debtors. During the existence of any Event of Default, Borrower shall, upon demand by U.S. Bank (and without any grace or cure period), notify all Account Debtors to make payment to U.S. Bank of any amounts due or to become due. Borrower authorizes U.S. Bank to contact the Account Debtors for the purpose of having all or any of them pay their obligations directly to U.S. Bank. Upon demand by U.S. Bank, Borrower shall enforce collection of any indebtedness owed to it by Account Debtors. 5.6 Inspection. U.S. Bank and its designees, from time to time at reasonable times and intervals, may inspect the Equipment and Inventory and inspect, audit, and make copies of and extracts from all records and all other papers in the possession of Borrower. 5.7 Assignee Deposit Account. Upon demand by U.S. Bank, during the existence of an Event of Default, Borrower will transmit and deliver to U.S. Bank, in the form received, immediately after receipt, all cash, checks, drafts, Chattel Paper, Instruments, or other writings for the payment of money including Investment Property (properly endorsed, where required, so that the items may be collected by U.S. Bank) that may be received by Borrower at any time. All items or amounts that are delivered by Borrower to U.S. Bank, or collected by U.S. Bank from the Account Debtors, shall be deposited to the credit of a Deposit Account ("Assignee Deposit Account") of Borrower with U.S. Bank, as security for the payment of the Secured Obligations. Borrower shall have no right to withdraw any funds deposited in the Assignee Deposit Account. U.S. Bank may, from time to time in its discretion, and shall, upon the request of Borrower made not more than twice in any week, apply all or any of the balance, representing collected funds, in the Assignee Deposit Account, to payment of the Secured Obligations, whether or not then due, in such order of application, not inconsistent with the terms of the Credit Agreement and this Agreement, as U.S. Bank may determine; and U.S. Bank may, from time to time in its discretion, release all or any of such balance to Borrower. 5.8 Right of Setoff. Borrower grants to U.S. Bank a contractual security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to U.S. Bank all Borrower's right, title and interest in and to, Borrower's accounts with U.S. Bank (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes U.S. Bank, to the extent permitted by applicable law, to charge or setoff all sums owing under the Loan Documents against any and all such accounts. ARTICLE VI. U.S. BANK'S RIGHTS AND REMEDIES 6.1 General. During the existence of any Event of Default, U.S. Bank may exercise its rights and remedies in the Credit Agreement and in any other Loan Documents and any other rights and remedies at law and in equity, simultaneously or consecutively, all of which rights and remedies shall be cumulative. The choice of one or more rights or remedies shall not be construed as a waiver or election barring other rights and remedies. Borrower hereby acknowledges and agrees that U.S. Bank is not required to exercise all rights and remedies available to it equally with respect to all the Collateral and that U.S. Bank may select less than all the Collateral with respect to which the rights and remedies as determined by U.S. Bank may be exercised. -9- 31 6.2 Notice of Sale; Duty to Assemble Collateral. In addition to or in conjunction with the rights and remedies referred to in Section 6.1 hereof: (a) Written notice mailed to Borrower at the address designated herein ten days or more prior to the date of public or private sale of any of the Collateral shall constitute reasonable notice. (b) If U.S. Bank requests, Borrower will assemble the Collateral and make it available to U.S. Bank at places that U.S. Bank shall reasonably select, whether on Borrower's premises or elsewhere. ARTICLE VII. GENERAL PROVISIONS 7.1 Entire Agreement. This Agreement, together with the Credit Agreement and the other Loan Documents, sets forth all the promises, covenants, agreements, conditions, and understandings between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements, or conditions, express or implied, oral or written, with respect thereto, except as contained or referred to herein. This Agreement may not be amended, waived, discharged, or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of such amendment, waiver, discharge, or termination is sought. 7.2 Invalidity. If any provision of this Agreement shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereunder, but this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. 7.3 Nonwaiver and Nonexclusive Rights and Remedies. (a) No right or remedy herein conferred upon or reserved to U.S. Bank is intended to be to the exclusion of any other right or remedy, but each and every such right or remedy shall be cumulative and shall be in addition to every other right or remedy given hereunder and now or hereafter existing at law or in equity. (b) No delay or omission by U.S. Bank in exercising any right or remedy accruing upon an Event of Default shall impair any such right or remedy, or shall be construed to be a waiver of any such Event of Default, or an acquiescence therein, nor shall it affect any subsequent Event of Default of the same or of a different nature. 7.4 Termination of Security Interest. When all the Secured Obligations have been paid in full, the security interest provided herein shall terminate and U.S. Bank shall return to Borrower all Collateral then held by U.S. Bank, if any, and upon written request of Borrower, shall execute, in form for filing, termination statements of the security interests herein granted. Thereafter, no party hereto shall have any further rights or obligations hereunder. 7.5 Successors and Assigns. All rights of U.S. Bank hereunder shall inure to the benefit of its successors and assigns, and all obligations of Borrower shall be binding upon its successors and assigns. -10- 32 7.6 U.S. Bank's Appointment as Attorney-in-Fact. (a) Borrower hereby irrevocably constitutes and appoints U.S. Bank and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Borrower and in the name of Borrower or in its own name, from time to time during the existence of an Event of Default, in U.S. Bank's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action, and to execute any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this Agreement; and without limiting the generality of the foregoing, Borrower hereby gives U.S. Bank the power and right, on behalf of Borrower, without consent by or notice to Borrower, to do the following during the existence of an Event of Default: (i) to transfer to U.S. Bank or to any other Person all or any of the Collateral, to endorse any Instruments pledged to U.S. Bank, and to fill in blanks in any transfers of Collateral, powers of attorney, or other documents delivered to U.S. Bank; (ii) to pay or discharge taxes and liens levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Agreement, and to pay all or any part of the premiums therefor and the costs thereof; (iii) to take possession of, endorse, and collect any checks, drafts, notes, acceptances, or other instruments for the payment of moneys due under any Account, Instrument, or General Intangible or with respect to any other Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by U.S. Bank for the purpose of collecting all such moneys due under any Account, Financial Assets, Instrument, Investment Property, or General Intangible or with respect to any other Collateral whenever payable; and (iv) to direct any party liable for any payment under any of the Collateral to make payment of all moneys due or to become due thereunder directly to U.S. Bank or as U.S. Bank shall direct; to ask for, demand, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices, and other documents in connection with any of the Collateral; to commence and prosecute any suits, actions, or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral and to enforce any other right in respect of any Collateral; to defend, settle, compromise, or adjust any suit, action, or proceeding brought against Borrower with respect to any Collateral and, in connection therewith, to give such discharge or releases as U.S. Bank may deem appropriate; to assign any Trademark (along with the goodwill of the business to which any such Trademark pertains) throughout the world for such terms, on such -11- 33 conditions, and in such manner as U.S. Bank shall in its sole discretion determine; and generally, to sell, transfer, pledge, and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though U.S. Bank were the absolute owner thereof for all purposes; and to do, at U.S. Bank's option and Borrower's expense, at any time or from time to time, all acts and things that U.S. Bank deems necessary to protect, preserve or realize upon the Collateral and U.S. Bank's liens thereon and to effect the intent of this Agreement, all as fully and effectively as Borrower might do. (b) Borrower hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue of this appointment. This power of attorney is a power coupled with an interest and shall be irrevocable until all Secured Obligations are paid in full. (c) Borrower also authorizes U.S. Bank, at any time and from time to time, to execute, in connection with the sale provided for in Article VI hereof, any endorsements, assignments, or other instruments of conveyance or transfer with respect to the Collateral. (d) The powers conferred on U.S. Bank hereunder are solely to protect U.S. Bank's interests in the Collateral and shall not impose any duty upon U.S. Bank to exercise any such powers. U.S. Bank shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees, or agents shall be responsible to Borrower for any act or failure to act hereunder. 7.7 Performance by U.S. Bank of Borrower's Obligations. If Borrower fails to perform or comply with any of its agreements contained herein and U.S. Bank, as provided for by the terms of this Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expense of U.S. Bank incurred in connection with such performance or compliance, together with interest thereon at the rate provided for in the Credit Agreement upon the occurrence of an Event of Default, shall be payable by Borrower to U.S. Bank on demand and shall constitute Secured Obligations. 7.8 Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be construed and enforced in accordance with and shall be governed by the laws of the state of Washington, without regard to the state's rules and principles relating to conflicts of law. 7.9 WAIVER OF RIGHT TO JURY TRIAL. U.S. BANK AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER U.S. BANK OR BORROWER AGAINST THE OTHER. BORROWER'S INITIALS /S/ DM U.S. BANK'S INITIALS /S/ KP 7.10 Notices. All notices, requests, consents, demands, approvals, and other communications hereunder shall be deemed to have been duly given, made, or served if given, made or served in accordance with the notice provisions of Section 10.1 of the Credit Agreement. -12- 34 7.11 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original Agreement, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, Borrower and U.S. Bank have caused this Agreement to be duly executed by their respective duly authorized officers or agents, to be effective as of June 19, 2001. REDHOOK ALE BREWERY, INCORPORATED By: /s/ David J. Mickelson ----------------------- David Mickelson, Executive Vice President ACCEPTED BY: U.S. BANK NATIONAL ASSOCIATION, a national banking association By: /s/ Kenneth D. Plank --------------------- Kenneth D. Plank, Vice President -13- 35 SCHEDULE I TRADEMARK REGISTRATIONS

Mark Country Reg. No. Issued - --------------------------------------- --------------- ----------------- ----------------------- BALLARD BITTER Canada 426,849 May 6, 1994 BALLARD BITTER Mexico 484957 November 30, 1994 BALLARD BITTER U.S. 1,755,631 MARCH 2, 1993 BALLARD BITTER State: New Vol. 90 Pg 26 February 15, 1995 Hampshire BLACK HOOK U.S. 1,299,809 OCTOBER 9, 1984 BLACK HOOK Mexico 484959 November 30, 1994 BLACK HOOK State: New Vol. 90 Pg 24 February 15, 1995 Hampshire BLACKHOOK PORTER & DESIGN U.S. 1,296,703 SEPTEMBER 18, 1984 BLUELINE U.S. 1,892,301 MAY 2, 1995 DESIGN (BALLARD BITTER) U.S. 1,409,762 SEPTEMBER 16, 1986 DESIGN (WINTERHOOK) U.S. 1,493,423 JUNE 21, 1988 FORECASTERS U.S. 1,929,789 OCTOBER 24, 1995 RED HOOK Canada 418,500 October 22, 1993 RED HOOK Hong Kong 2375/93 June 18, 1993 RED HOOK Japan 2601613 November 30, 1993 RED HOOK South Korea 247,104 August 17, 1992 RED HOOK Mexico 484960 November 30, 1994 RED HOOK Singapore 7563/91 August 13, 1991 RED HOOK Taiwan 556831 April 16, 1992 RED HOOK U.S. 1,253,138 OCTOBER 4, 1983

-14- 36

Mark Country Reg. No. Issued - --------------------------------------- --------------- ----------------- ----------------------- RED HOOK ALE & DESIGN U.S. 1,332,480 APRIL 23, 1985 RED HOOK BLUELINE AND DESIGN U.S. 1,802,237 NOVEMBER 2, 1993 RED HOOK DOUBLE BLACK Japan 4143687 May 8, 1998 RED HOOK ESB State: New Vol 90 Pg 25 February 15, 1995 Hampshire RED HOOK ESB AND DESIGN U.S. 1,940,873 DECEMBER 12, 1995 REDHOOK DOUBLBLACK STOUT U.S. 2,093,507 SEPTEMBER 2, 1997 TROLLEYMAN U.S. 1,929,788 OCTOBER 24, 1995 WHEAT HOOK Canada 413,666 June 18, 1993 WHEAT HOOK Mexico 484958 November 30, 1994 WHEAT HOOK U.S. 1,682,181 APRIL 7, 1992 WHEAT HOOK State: New Vol 90 Pg 7 February 15, 1995 Hampshire WHEATHOOK and Design State: 18,915 May 10, 1989 Washington WINTERHOOK U.S. 1,490,430 MAY 31, 1988 WINTERHOOK State: New March 20, 1996 Hampshire TRADEMARK APPLICATIONS BALLARD BITTER, IPA and Design U.S. 75/479,479 May 5, 1998 ESB Japan 1997-103375 April 3, 1997 RED HOOK Japan 1997-103376 April 3, 1997 RED HOOK Logo Community 440966 December 11, 1996

-15- 37 SCHEDULE II Address of Chief executive office: 3400 Phinney Avenue North Seattle, WA 98103 Address of Office where Books and records are kept: Same as Chief Executive Office Addresses of locations of Collateral: Washington -16- 38 SCHEDULE II -----END PRIVACY-ENHANCED MESSAGE-----

EX-3.2

   1
                              AMENDED AND RESTATED

                                     BYLAWS

                                       OF

                        REDHOOK ALE BREWERY, INCORPORATED

AMENDED:        OCTOBER 11, 1994      (SECTIONS 1.1, 2.2, 2.3, 2.4)
                MARCH 29, 2000        (SECTION 2.2)
                FEBRUARY 16, 2001     (SECTION 2.2)
                MAY 22, 2001          (SECTIONS 1.1, 1.2, 1.3, 2.3 AND 5.2)

   2
                                TABLE OF CONTENTS



                                                                                          PAGE


             
Article I          SHAREHOLDERS..............................................................1

        1.1     Annual Meeting...............................................................1
                1.1.1  Business Conducted at Meeting.........................................1
        1.2     Special Meetings.............................................................3
        1.3     Notice of Meetings...........................................................3
                1.3.1  Notice of Special Meeting.............................................3
                1.3.2  Proposed Articles of Amendment, Merger, Exchange, Sale, Lease,
                       or Disposition........................................................4
                1.3.3  Proposed Dissolution..................................................4
                1.3.4  Declaration of Mailing................................................4
                1.3.5  Waiver of Notice......................................................4
        1.4     Quorum; Vote Requirement.....................................................4
        1.5     Adjourned Meetings...........................................................5
        1.6     Fixing Record Date...........................................................5
        1.7     Shareholders' List for Meeting...............................................5
        1.8     Ratification.................................................................6
        1.9     Action by Shareholders Without a Meeting.....................................6
        1.10    Telephonic Meetings..........................................................6

Article II         BOARD OF DIRECTORS........................................................7

        2.1     Responsibility of Board of Directors.........................................7
        2.2     Number of Directors; Qualification...........................................7
        2.3     Election of Directors; Nominations...........................................7
                2.3.1  Election; Term of Office..............................................7
                2.3.2  Nominations for Directors.............................................7
        2.4     Vacancies....................................................................9
        2.5     Removal.....................................................................10
        2.6     Resignation.................................................................10
        2.7     Annual Meeting..............................................................10
        2.8     Regular Meetings............................................................10
        2.9     Special Meetings............................................................10
        2.10    Notice of Meeting...........................................................10
        2.11    Quorum of Directors.........................................................11
        2.12    Dissent by Directors........................................................11
        2.13    Action by Directors Without a Meeting.......................................12
        2.14    Telephonic Meetings.........................................................12
        2.15    Compensation................................................................12
        2.16    Committees..................................................................12

Article III        OFFICERS.................................................................13

        3.1     Appointment.................................................................13
        3.2     Qualification...............................................................13
        3.3     Officers Enumerated.........................................................13

   3
                          TABLE OF CONTENTS (continued)



                                                                                          PAGE

             
                3.3.1  Chairman of the Board................................................13
                3.3.2  President............................................................14
                3.3.3  Vice Presidents......................................................14
                3.3.4  Secretary............................................................14
                3.3.5  Treasurer............................................................15
        3.4     Delegation..................................................................15
        3.5     Resignation.................................................................16
        3.6     Removal.....................................................................16
        3.7     Vacancies...................................................................16
        3.8     Other Officers and Agents...................................................16
        3.9     Compensation................................................................16
        3.10    General Standards for Officers..............................................16

Article IV         CONTRACTS, CHECKS AND DRAFTS.............................................16

        4.1     Contracts...................................................................16
        4.2     Checks, Drafts, Etc.........................................................17
        4.3     Deposits....................................................................17

Article V          STOCK....................................................................17

        5.1     Issuance of Shares..........................................................17
        5.2     Certificates of Stock.......................................................17
        5.3     Stock Records...............................................................18
        5.4     Restrictions on Transfer....................................................18
        5.5     Transfers...................................................................18

Article VI         RECORDS OF CORPORATE MEETINGS............................................19

Article VII        FINANCIAL MATTERS........................................................19

Article VIII       DISTRIBUTIONS............................................................20

Article IX         CORPORATE SEAL...........................................................20

Article X          MISCELLANY...............................................................20
        10.1    Communications by Facsimile.................................................20
        10.2    Inspector of Elections......................................................20
        10.3    Rules of Order..............................................................21
        10.4    Construction................................................................21
        10.5    Severability................................................................21

Article XI         AMENDMENT OF BYLAWS......................................................22

Article XII        AUTHENTICATION...........................................................22


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                              AMENDED AND RESTATED
                                    BYLAWS OF
                        REDHOOK ALE BREWERY, INCORPORATED

        These Bylaws are promulgated pursuant to the Washington Business
Corporation Act, as set forth in Title 23B of the Revised Code of Washington
(the "Act").

                                   ARTICLE I

                                  SHAREHOLDERS

        1.1     Annual Meeting. The annual meeting of the shareholders of the
corporation for the election of Directors and for the transaction of such other
business as may properly come before the meeting shall be held each year at a
place, day and time to be set by the Board of Directors.

                1.1.1   Business Conducted at Meeting.

                        (a)     At an annual meeting of shareholders, an item of
         business may be conducted, and a proposal may be considered and acted
        upon, only if such item or proposal is brought before the annual meeting
        (i) by, or at the direction of, the Board of Directors, or (ii) by any
        shareholder of the corporation who is entitled to vote at the meeting
        and who complies with the procedures set forth in the remainder of this
        Section 1.1.1. This Section 1.1.1 shall not apply to matters of
        procedure that, pursuant to Section 10.3(a) of these Bylaws, are subject
        to the authority of the chairman of the meeting.

                        (b)     For an item of business or proposal to be
        brought before an annual meeting by a shareholder, the shareholder must
        have given timely notice thereof in writing to the Secretary of the
        corporation. To be timely, a shareholder's notice must be delivered to,
        or mailed and received at, the principal office of the corporation (a)
        not less than one hundred twenty (120) days prior to the first
        anniversary of the date that the corporation's proxy statement was first
        released to shareholders in connection with the previous year's annual
        meeting; (b) a reasonable time before the corporation begins to print
        and mail its proxy materials if the date of the current year's annual
        meeting has been changed by more than thirty (30) days from the date of
        the previous year's meeting; or (c) not more than seven (7) days
        following the mailing to shareholders of the notice of annual meeting
        with respect to the current year's annual meeting, if the corporation
        did not release a proxy statement to shareholders in connection with the
        previous year's annual meeting, or if no annual meeting was held during
        such year.

                        (c)     A shareholder's notice to the Secretary under
        Section 1.1.2(b) shall set forth, as to each item of business or
        proposal the shareholder intends to bring before the meeting (i) a brief
        description of the item of business or proposal and the reasons for
        bringing it before the meeting, (ii) the

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        name and address, as they appear on the corporation's books, of the
        shareholder and of any other shareholders that the shareholder knows or
        anticipates will support the item of business or proposal, (iii) the
        number and class of shares of stock of the corporation that are
        beneficially owned on the date of such notice by the shareholder and by
        any such other shareholders, and (iv) any financial interest of the
        shareholder or any such other shareholders in such item of business or
        proposal.

                        (d)     The Board of Directors, or a designated
        committee thereof, may reject a shareholder's notice that is not timely
        given in accordance with the terms of Section 1.1.2(b). If the Board of
        Directors, or a designated committee thereof, determines that the
        information provided in a timely shareholder's notice does not satisfy
        the requirements of Section 1.1.2(c) in any material respect, the
        Secretary of the corporation shall notify the shareholder of the
        deficiency in the notice. The shareholder shall have an opportunity to
        cure the deficiency by providing additional information to the Secretary
        within such period of time, not to exceed five (5) days from the date
        such deficiency notice is given to the shareholder, as the Board of
        Directors or such committee shall reasonably determine. If the
        deficiency is not cured within such period, or if the Board of Directors
        or such committee determines that the additional information provided by
        the shareholder, together with information previously provided, does not
        satisfy the requirements of Section 1.1.2(c) in any material respect,
        then the Board of Directors or such committee may reject the
        shareholder's notice.

                        (e)     Notwithstanding the procedures set forth in
        Section 1.1.1(d), if a shareholder desires to bring an item of business
        or proposal before an annual meeting, and neither the Board of Directors
        nor any committee thereof has made a prior determination of whether the
        shareholder has complied with the procedures set forth in this Section
        1.1.1 in connection with such item of business or proposal, then the
        chairman of the annual meeting shall determine and declare at the annual
        meeting whether the shareholder has so complied. If the chairman
        determines that the shareholder has so complied, then the chairman shall
        so state and ballots shall be provided for use at the meeting with
        respect to such item of business or proposal. If the chairman determines
        that the shareholder has not so complied, then, unless the chairman, in
        his sole and absolute discretion, determines to waive such compliance,
        the chairman shall state that the shareholder has not so complied and
        the item of business or proposal shall not be brought before the annual
        meeting.

                        (f)     This Section 1.1.1 shall not prevent the
        consideration and approval or disapproval at the annual meeting of
        reports of officers, directors and committees of the Board of Directors,
        but, in connection with such reports, no item of business may be
        conducted, and no proposal may be considered and acted upon, unless
        there has been compliance with the procedures set forth in this Section
        1.1.1 in connection therewith.

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   6
        1.2     Special Meetings. Special meetings of the shareholders for any
purpose or purposes may be called at any time by the Board of Directors or by
the Chairman of the Board (if one be appointed) or by the President or by one or
more shareholders holding not less than one-tenth (1/10) of all the shares
entitled to be cast on any issue proposed to be considered at that meeting, to
be held at such time and place as the Board or the Chairman (if one be
appointed) or the President may prescribe; provided, that, at any time when the
corporation is subject to the reporting requirements of Section 13 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), special
meetings of the shareholders for any purpose or purposes may be called at any
time only by the Board of Directors or the Chairman of the Board (if one be
appointed) or the President or one or more shareholders holding not less than
twenty-five percent (25%) of all the shares entitled to be cast on any issue
proposed to be considered at that meeting..

        If a special meeting is called by any person or persons other than the
Board of Directors or the Chairman of the Board (if one be appointed) or the
President, then a written demand, describing with reasonable clarity the purpose
or purposes for which the meeting is called and specifying the general nature of
the business proposed to be transacted, shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
Secretary of the corporation. Upon receipt of such a demand, the Secretary shall
cause notice of such meeting to be given, within thirty (30) days after the date
the demand was delivered to the Secretary, to the shareholders entitled to vote,
in accordance with the provisions of Section 1.3 of these Bylaws. Except as
provided below, if the notice is not given by the Secretary within thirty (30)
days after the date the demand was delivered to the Secretary, then the person
or persons demanding the meeting may specify the time and place of the meeting
and give notice thereof.

        1.3     Notice of Meetings. Except as otherwise provided below, the
Secretary, Assistant Secretary, or any transfer agent of the corporation shall
give, in any manner permitted by law, not less than ten (10) nor more than sixty
(60) days before the date of any meeting of shareholders, written notice stating
the place, day, and time of the meeting to each shareholder of record entitled
to vote at such meeting. If mailed, notice to a shareholder shall be effective
when mailed, with first-class postage thereon prepaid, correctly addressed to
the shareholder at the shareholder's address as it appears on the current record
of shareholders of the corporation. Otherwise, written notice shall be effective
at the earliest of the following: (a) when received, (b) five (5) days after its
deposit in the United States mail, as evidenced by the postmark, if mailed with
first class postage, prepaid, and correctly addressed, or (c) on the date shown
on the return receipt, if sent by registered or certified mail, return receipt
requested, and the receipt is signed by or on behalf of the addressee.

                1.3.1   Notice of Special Meeting. In the case of a special
meeting, the written notice shall also state with reasonable clarity the purpose
or purposes for which the meeting is called and the general nature of the
business proposed to be transacted at the meeting. No business other than that
within the purpose or purposes specified in the notice may be transacted at a
special meeting.

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                1.3.2   Proposed Articles of Amendment, Merger, Exchange, Sale,
Lease, or Disposition. If the business to be conducted at any meeting includes
any proposed amendment to the Articles of Incorporation or any proposed merger
or exchange of shares, or any proposed sale, lease, exchange, or other
disposition of all or substantially all of the property and assets (with or
without the goodwill) of the corporation not in the usual or regular course of
its business, then the written notice shall state that the purpose or one of the
purposes is to consider the proposed amendment or plan of merger, exchange of
shares, sale, lease, exchange, or other disposition, as the case may be, shall
describe the proposed action with reasonable clarity, and shall be accompanied
by a copy of the proposed amendment or plan. Written notice of such meeting
shall be given to each shareholder of record, whether or not entitled to vote at
such meeting, not less than twenty (20) days before such meeting, in the manner
provided in Section 1.3 above.

                1.3.3   Proposed Dissolution. If the business to be conducted at
any meeting includes the proposed voluntary dissolution of the corporation, then
the written notice shall state that the purpose or one of the purposes is to
consider the advisability thereof. Written notice of such meeting shall be given
to each shareholder of record, whether or not entitled to vote at such meeting,
not less than twenty (20) days before such meeting, in the manner provided in
Section 1.3 above.

                1.3.4   Declaration of Mailing. A declaration of the mailing or
other means of giving any notice of any shareholders' meeting, executed by the
Secretary, Assistant Secretary, or any transfer agent of the corporation giving
the notice, shall be prima facie evidence of the giving of such notice.

                1.3.5   Waiver of Notice. A shareholder may waive notice of any
meeting at any time, either before or after such meeting. Except as provided
below, the waiver must be in writing, be signed by the shareholder entitled to
the notice, and be delivered to the corporation for inclusion in the minutes or
filing with the corporate records. A shareholder's attendance at a meeting in
person or by proxy waives objection to lack of notice or defective notice of the
meeting unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting on the ground that
the meeting is not lawfully called or convened. In the case of a special
meeting, or an annual meeting at which fundamental corporate changes are
considered, a shareholder waives objection to consideration of a particular
matter that is not within the purpose or purposes described in the meeting
notice unless the shareholder objects to considering the matter when it is
presented.

        1.4     Quorum; Vote Requirement. A quorum shall exist at any meeting of
shareholders if a majority of the votes entitled to be cast is represented in
person or by proxy. Once a share is represented for any purpose at a meeting
other than solely to object to holding the meeting or transacting business at
the meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
must be set for that adjourned meeting. Subject to the foregoing, the
determination of the voting groups entitled to vote (as required by law), and
the quorum and voting requirements applicable thereto, must be


                                       4
   8
made separately for each matter being considered at a meeting. In the case of
any meeting of shareholders that is adjourned more than once because of the
failure of a quorum to attend, those who attend the third convening of such
meeting, although less than a quorum, shall nevertheless constitute a quorum for
the purpose of electing directors, provided that the percentage of shares
represented at the third convening of such meeting shall not be less than
one-third of the shares entitled to vote.

        If a quorum exists, action on a matter (other than the election of
directors) is approved by a voting group if the votes cast within the voting
group favoring the action exceed the votes cast within the voting group opposing
the action unless a greater number of affirmative votes is required by law or by
the Articles of Incorporation.

        1.5     Adjourned Meetings. An adjournment or adjournments of any
shareholders' meeting, whether by reason of the failure of a quorum to attend or
otherwise, may be taken to such date, time, and place as the chairman of the
meeting may determine without new notice being given if the date, time, and
place are announced at the meeting at which the adjournment is taken. However,
if the adjournment is for more than one hundred twenty (120) days from the date
set for the original meeting, a new record date for the adjourned meeting shall
be fixed and a new notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting, in accordance
with the provisions of Section 1.3 of these Bylaws. At any adjourned meeting,
the corporation may transact any business which might have been transacted at
the original meeting. Any meeting at which directors are to be elected shall be
adjourned only from day to day until such directors are elected.

        1.6     Fixing Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders (or, subject to
Section 1.5 above, any adjournment thereof), the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than seventy (70) days prior to the
meeting. If no such record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, then the day
before the first notice is delivered to shareholders shall be the record date
for such determination of shareholders. If no notice is given because all
shareholders entitled to notice have waived notice, then the record date for the
determination of shareholders entitled to notice of or to vote at a meeting
shall be the date on which the last such waiver of notice was obtained. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof, except as provided in Section 1.5 of these Bylaws. If no
notice is given because all shareholders entitled to notice have signed a
consent as described in Section 1.9 below, the record date for determining
shareholders entitled to take action without a meeting is the date the first
shareholder signs the consent.

        1.7     Shareholders' List for Meeting. The corporation shall cause to
be prepared an alphabetical list of the names of all of its shareholders on the
record date who are entitled to notice of a shareholders' meeting or any
adjournment thereof. The list must be arranged by voting group (and within each
voting group by class or series of shares)


                                       5
   9
and show the address of and the number of shares held by each shareholder. The
shareholders' list must be available for inspection by any shareholder,
beginning ten (10) days prior to the meeting and continuing through the meeting,
at the principal office of the corporation or at a place identified in the
meeting notice in the city where the meeting will be held. Such list shall be
produced and kept open at the time and place of the meeting. During such ten-day
period, and during the whole time of the meeting, the shareholders' list shall
be subject to the inspection of any shareholder, or the shareholder's agent or
attorney. In cases where the record date is fewer than ten (10) days prior to
the meeting because notice has been waived by all shareholders, the Secretary
shall keep such record available for a period from the date the first waiver of
notice was delivered to the date of the meeting. Failure to comply with the
requirements of this section shall not affect the validity of any action taken
at the meeting.

        1.8     Ratification. Subject to the requirements of RCW 23B.08.730,
23B.17.020, and 23B.19.040, any contract, transaction, or act of the corporation
or of any director or officer of the corporation that shall be authorized,
approved, or ratified by the affirmative vote of a majority of shares
represented at a meeting at which a quorum is present shall, insofar as
permitted by law, be as valid and as binding as though ratified by every
shareholder of the corporation.

        1.9     Action by Shareholders Without a Meeting. Any action which may
be or which is required by law to be taken at any meeting of shareholders may be
taken, without a meeting or notice of a meeting, if one or more consents in
writing, setting forth the action so taken, are signed by all of the
shareholders entitled to vote or, in the place of any one or more of such
shareholders, by a person holding a valid proxy to vote with respect to the
subject matter thereof, and are delivered to the corporation for inclusion in
the minutes or filing with the corporate records. If notice of the proposed
action to be taken by unanimous consent of the voting shareholders is required
by law to be given to nonvoting shareholders, the corporation must give its
nonvoting shareholders written notice of the proposed action at least ten (10)
days before the action is taken. The notice must contain or be accompanied by
the same material that, by law, would have been required to be sent to nonvoting
shareholders in a notice of meeting at which the proposed action would have been
submitted to such shareholders for action. Action taken by unanimous written
consent is effective when all consents are in possession of the corporation,
unless the consent specifies a later effective date. Such consent shall have the
same force and effect as a meeting vote of shareholders and may be described as
such in any articles or other document filed with the Secretary of State of the
State of Washington.

        1.10    Telephonic Meetings. Shareholders may participate in a meeting
by means of a conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other at the
same time, and participation by such means shall constitute presence in person
at a meeting.

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                                   ARTICLE II

                               BOARD OF DIRECTORS

        2.1     Responsibility of Board of Directors. The business and affairs
and property of the corporation shall be managed under the direction of a Board
of Directors. A director shall discharge the duties of a director, including
duties as a member of a committee, in good faith, with the care an ordinarily
prudent person in a like position would exercise under similar circumstances,
and in a manner the director reasonably believes to be in the best interests of
the corporation. In discharging the duties of a director, a director is entitled
to rely on information, opinions, reports, or statements, including financial
statements and other financial data, if prepared or presented by: (a) one or
more officers or employees of the corporation whom the director reasonably
believes to be reliable and competent in the matters presented; (b) legal
counsel, public accountants, or other persons as to matters the director
reasonably believes are within the person's professional or expert competence;
or (c) a committee of the Board of Directors of which the director is not a
member, if the director reasonably believes the committee merits confidence. A
director is not acting in good faith if the director has knowledge concerning
the matter in question that makes reliance otherwise permitted above
unwarranted. The creation of, delegation of authority to, or action by a
committee does not alone constitute compliance by a director with the standards
of conduct imposed by law upon directors. A director is not liable for any
action taken as a director, or any failure to take any action, if the director
performed the duties of the director's office in compliance with this section.

        2.2     Number of Directors; Qualification. The Board of Directors shall
consist of 6 directors, except as provided in Sections 5(b) and 5(c) of the
Certificate of Designation for the Series A Convertible Preferred Stock and the
Series B Preferred Stock. No reduction of the authorized number of directors
shall have the effect of removing any director before that director's term of
office expires. No director need be a shareholder of the corporation or a
resident of Washington. Each director must be at least eighteen (18) years of
age.

        2.3     Election of Directors; Nominations.

                2.3.1   Election; Term of Office. At the first annual meeting of
shareholders and each annual meeting thereafter, the shareholders shall elect
directors. Each director shall hold office until the next succeeding annual
meeting or, in the case of staggered terms as permitted by RCW 23B.08.060, for
the term for which he is elected, and in each case until his successor shall
have been elected and qualified.

                2.3.2   Nominations for Directors.

                        (a)     Nominations of candidates for election as
        directors at an annual meeting of shareholders may only be made (i) by,
        or at the direction of, the Board of Directors, or (ii) by any
        shareholder of the corporation who is


                                       7
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        entitled to vote at the meeting and who complies with the procedures set
        forth in the remainder of this Section 2.3.2.

                        (b)     If a shareholder proposes to nominate one or
        more candidates for election as directors at an annual meeting, the
        shareholder must have given timely notice thereof in writing to the
        Secretary of the corporation. To be timely, a shareholder's notice must
        be delivered to, or mailed and received at, the principal office of the
        corporation (i) not less than one hundred twenty (120) days prior to the
        first anniversary of the date that the corporation's proxy statement was
        released to shareholders in connection with the previous year's annual
        meeting; (ii) a reasonable time before the corporation begins to print
        and mail its proxy materials if the date of this year's annual meeting
        has been changed by more than thirty (30) days from the date of the
        previous year's meeting; or (iii) not more than seven (7) days following
        the mailing to shareholders of the notice of annual meeting with respect
        to the current year's annual meeting, if the corporation did not release
        a proxy statement to shareholders in connection with the previous year's
        annual meeting, or if no annual meeting was held during such year.

                        (c)     A shareholder's notice to the Secretary under
        Section 2.3.2(b) shall set forth, as to each person whom the shareholder
        proposes to nominate for election as a director (i) the name, age,
        business address and residence address of such person, (ii) the
        principal occupation or employment of such person, (iii) the number and
        class of shares of stock of the corporation that are beneficially owned
        on the date of such notice by such person, and (iv) if the corporation
        at such time has or at the time of the meeting will have any security
        registered pursuant to Section 12 of the Exchange Act, any other
        information relating to such person required to be disclosed in
        solicitations of proxies with respect to nominees for election as
        directors pursuant to Regulation 14A under the Exchange Act, including
        but not limited to information required to be disclosed by Schedule 14A
        of Regulation 14A, and any other information that the shareholder would
        be required to file with the Securities and Exchange Commission in
        connection with the shareholder's nomination of such person as a
        candidate for director or the shareholder's opposition to any candidate
        for director nominated by, or at the direction of, the Board of
        Directors. In addition to the above information, a shareholder's notice
        to the Secretary under Section 2.3.2(b) shall (A) set forth (i) the name
        and address, as they appear on the corporation's books, of the
        shareholder and of any other shareholders that the shareholder knows or
        anticipates will support any candidate or candidates nominated by the
        shareholder and (ii) the number and class of shares of stock of the
        corporation that are beneficially owned on the date of such notice by
        the shareholder and by any such other shareholders and (B) be
        accompanied by a written statement, signed and acknowledged by each
        candidate nominated by the shareholder, that the candidate agrees to be
        so nominated and to serve as a director of the corporation if elected at
        the annual meeting.

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                        (d)     The Board of Directors, or a designated
        committee thereof, may reject any shareholder's nomination of one or
        more candidates for election as directors if the nomination is not made
        pursuant to a shareholder's notice timely given in accordance with the
        terms of Section 2.3.2(b). If the Board of Directors, or a designated
        committee thereof, determines that the information provided in a
        shareholder's notice does not satisfy the requirements of Section
        2.3.2(c) in any material respect, the Secretary of the corporation shall
        notify the shareholder of the deficiency in the notice. The shareholder
        shall have an opportunity to cure the deficiency by providing additional
        information to the Secretary within such period of time, not to exceed
        five (5) days from the date such deficiency notice is given to the
        shareholder, as the Board of Directors or such committee shall
        reasonably determine. If the deficiency is not cured within such period,
        or if the Board of Directors or such committee determines that the
        additional information provided by the shareholder, together with
        information previously provided, does not satisfy the requirements of
        Section 2.3.2(c) in any material respect, then the Board of Directors or
        such committee may reject the shareholder's notice.

                        (e)     Notwithstanding the procedures set forth in
        Section 2.3.2(d), if a shareholder proposes to nominate one or more
        candidates for election as directors at an annual meeting, and neither
        the Board of Directors nor any committee thereof has made a prior
        determination of whether the shareholder has complied with the
        procedures set forth in this Section 2.3.2 in connection with such
        nomination, then the chairman of the annual meeting shall determine and
        declare at the annual meeting whether the shareholder has so complied.
        If the chairman determines that the shareholder has so complied, then
        the chairman shall so state and ballots shall be provided for use at the
        meeting with respect to such nomination. If the chairman determines that
        the shareholder has not so complied, then, unless the chairman, in his
        sole and absolute discretion, determines to waive such compliance, the
        chairman shall state that the shareholder has not so complied and the
        defective nomination shall be disregarded.

        2.4     Vacancies. Except as otherwise provided by law, any vacancy
occurring in the Board of Directors (whether caused by resignation, death or
otherwise) may be filled by the affirmative vote of a majority of the directors
present at a meeting of the Board at which a quorum is present, or, if the
directors in office constitute less than a quorum, by the affirmative vote of a
majority of all of the directors in office. Notice shall be given to all of the
remaining directors that such vacancy will be filled at the meeting. However, if
the vacant director's position was held by a director elected by one or more
voting groups composed of less than all of the voting shareholders, such vacancy
may only be filled by (i) the remaining directors, if any, elected by the same
voting group or groups; or (ii) the shareholders in the voting group or groups
that elected the director who formerly held the vacant office. A director
elected to fill any vacancy shall hold office until the next meeting of
shareholders at which directors are elected, and until his successor shall have
been elected and qualified.

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        2.5     Removal. One or more members of the Board of Directors
(including the entire Board) may be removed, with or without cause, at a special
meeting of shareholders called expressly for that purpose. A director (or the
entire Board) may be removed if the number of votes cast in favor of removing
such director (or the entire Board) exceeds the number of votes cast against
removal; provided that, if a director (or the entire Board) has been elected by
one or more voting groups, only those voting groups may participate in the vote
as to removal. However, a director may not be removed if a number of votes
sufficient to elect such director under cumulative voting (computed on the basis
of the number of votes actually cast at the meeting on the question of removal)
is cast against such director's removal.

        2.6     Resignation. A director may resign at any time by delivering
written notice to the Board of Directors, its Chairman, the President, or the
Secretary. A resignation is effective when the notice is delivered unless the
notice specifies a later effective date.

        2.7     Annual Meeting. The first meeting of each newly elected Board of
Directors shall be known as the annual meeting thereof and shall be held without
notice immediately after the annual shareholders' meeting or any special
shareholders' meeting at which a Board is elected. Such meeting shall be held at
the same place as such shareholders' meeting unless some other place shall be
specified by resolution of the shareholders.

        2.8     Regular Meetings. Regular meetings of the Board of Directors may
be held at such place, day, and time as shall from time to time be fixed by
resolution of the Board without notice other than the delivery of such
resolution as provided in Section 2.10 below.

        2.9     Special Meetings. Special meetings of the Board of Directors may
be called by the President or the Chairman of the Board (if one be appointed) or
any two or more directors, to be held at such place, day, and time as specified
by the person or persons calling the meeting.

        2.10    Notice of Meeting. Notice of the place, day, and time of any
meeting of the Board of Directors for which notice is required shall be given,
at least three (3) days preceding the day on which the meeting is to be held, by
the Secretary or an Assistant Secretary, or by the person calling the meeting,
in any manner permitted by law, including orally. Any oral notice given by
personal communication over the telephone or otherwise may be communicated
either to the director or to a person at the office of the director who, the
person giving the notice has reason to believe, will promptly communicate it to
the director. Notice shall be deemed to have been given on the earliest of (a)
the day of actual receipt, (b) five (5) days after the day on which written
notice is deposited in the United States mail, as evidenced by the postmark,
with first-class postage prepaid, and correctly addressed, or (c) on the date
shown on the return receipt, if sent by registered or certified mail, return
receipt requested, and the receipt is signed by or on behalf of the addressee.

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   14
        No notice of any regular meeting need be given if the place, day, and
time thereof have been fixed by resolution of the Board of Directors and a copy
of such resolution has been given to every director at least three (3) days
preceding the day of the first meeting held in pursuance thereof.

        Notice of a meeting of the Board of Directors need not be given to any
director if it is waived by the director in writing, whether before or after
such meeting is held. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting unless required by law, the
Articles of Incorporation, or these Bylaws.

        A director's attendance at or participation in a meeting shall
constitute a waiver of notice of such meeting except when a director attends or
participates in a meeting for the express purpose of objecting on legal grounds
prior to or at the beginning of the meeting (or promptly upon the director's
arrival) to the holding of the meeting or the transaction of any business and
does not thereafter vote for or assent to action taken at the meeting. Any
meeting of the Board of Directors shall be a legal meeting without any notice
thereof having been given if all of the directors have received valid notice
thereof, are present without objecting, or waive notice thereof, or any
combination thereof.

        2.11    Quorum of Directors. Except in particular situations where a
lesser number is expressly permitted by law, and unless a greater number is
required by the Articles of Incorporation, a majority of the number of directors
specified in or fixed in accordance with these Bylaws shall constitute a quorum
for the transaction of business, and the affirmative vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. If the number of directors in office at any time is less
than the number specified in or fixed in accordance with these Bylaws, then a
quorum shall consist of a majority of the number of directors in office;
provided that in no event shall a quorum consist of fewer than one-third of the
number specified in or fixed in accordance with these Bylaws.

        Directors at a meeting of the Board of Directors at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, provided such withdrawal does not reduce the number of
directors attending the meeting below the level of a quorum.

        A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the Board of Directors to another time and
place. If the meeting is adjourned for more than forty-eight (48) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 2.10 of these
Bylaws, to the directors who were not present at the time of the adjournment.

        2.12    Dissent by Directors. Any director who is present at any meeting
of the Board of Directors at which action on any corporate matter is taken shall
be presumed to have assented to the action taken unless the director objects at
the beginning of the meeting (or promptly upon the director's arrival) to the
holding of, or the transaction of


                                       11
   15
business at, the meeting; or unless the director's dissent or abstention shall
be entered in the minutes of the meeting; or unless the director delivers
written notice of the director's dissent or abstention to the presiding officer
of the meeting before the adjournment thereof or to the corporation within a
reasonable time after the adjournment of the meeting. Such right to dissent or
abstention shall not be available to any director who votes in favor of such
action.

        2.13    Action by Directors Without a Meeting. Any action required by
law to be taken or which may be taken at a meeting of the Board of Directors may
be taken without a meeting if one or more consents in writing, setting forth the
action so taken, shall be signed either before or after the action so taken by
all of the directors and delivered to the corporation for inclusion in the
minutes or filing with the corporate records. Such consent shall have the same
effect as a meeting vote. Action taken under this section is effective when the
last director signs the consent, unless the consent specifies a later effective
date.

        2.14    Telephonic Meetings. Except as may be otherwise restricted by
the Articles of Incorporation, members of the Board of Directors may participate
in a meeting of the Board by any means of communication by which all directors
participating in the meeting may simultaneously hear each other during the
meeting. Participation by such means shall constitute presence in person at a
meeting.

        2.15    Compensation. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, and may be paid a fixed sum or a
stated salary as a director, for attendance at each meeting of the Board. No
such payment shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.

        2.16    Committees. The Board of Directors, by resolution adopted by the
greater of (a) a majority of all of the directors in office, or (b) the number
of directors required by the Articles of Incorporation or these Bylaws to take
action may from time to time create, and appoint individuals to, one or more
committees, each of which must have at least two (2) members. If a committee is
formed for the purpose of exercising functions of the Board, the committee must
consist solely of directors. If the only function of a committee is to study and
make recommendations for action by the full Board, the committee need not
consist of directors. Members of a committee composed solely of directors, in
fulfilling their standard of conduct, may rely upon Section 2.1 above.
Committees of directors may exercise the authority of the Board of Directors to
the extent specified by such resolution or in the Articles of Incorporation or
these Bylaws. However, no committee shall:

                (a)     authorize or approve a distribution (as defined in RCW
        23B.01.400) except according to a general formula or method prescribed
        by the Board of Directors;

                (b)     approve or propose to shareholders action that by law is
        required to be approved by shareholders;

                                       12
   16
                (c)     fill vacancies on the Board of Directors or on any of
        its committees;

                (d)     amend the Articles of Incorporation;

                (e)     adopt, amend, or repeal Bylaws;

                (f)     approve a plan of merger not requiring shareholder
        approval; or

                (g)     authorize or approve the issuance or sale or contract
        for sale of shares, or determine the designation and relative rights,
        preferences, and limitations of a class or series of shares, except that
        the Board of Directors may authorize a committee of directors (or a
        senior executive officer of the corporation) to do so within limits
        specifically prescribed by the Board of Directors.

        Committees shall be governed by the same provisions as govern the
meetings, actions without meetings, notice and waiver of notice, quorum and
voting requirements, and standards of conduct of the Board of Directors. The
Executive Committee (if one be established) shall meet periodically between
meetings of the full Board. All committees shall keep regular minutes of their
meetings and shall cause them to be recorded in books kept for that purpose at
the office of the corporation.

                                  ARTICLE III

                                    OFFICERS

        3.1     Appointment. The officers of the corporation shall be appointed
annually by the Board of Directors at its annual meeting held after the annual
meeting of the shareholders. If the appointment of officers is not held at such
meeting, such appointment shall be held as soon thereafter as a Board meeting
conveniently may be held. Except in the case of death, resignation, or removal,
each officer shall hold office until the next annual meeting of the Board and
until his successor is appointed and qualified.

        3.2     Qualification. None of the officers of the corporation need be a
director, except as specified below. Any two or more of the corporate offices
may be held by the same person.

        3.3     Officers Enumerated. Except as otherwise provided by resolution
of the Board of Directors, the officers of the corporation and their respective
powers and duties shall be as follows:

                3.3.1   Chairman of the Board. The Chairman of the Board (if
such an officer be appointed) shall be a director and shall perform such duties
as shall be assigned to him by the Board of Directors and in any employment
agreement. The Chairman shall preside at all meetings of the shareholders and at
all meetings of the


                                       13
   17
Board at which he is present. The Chairman may sign deeds, mortgages, bonds,
contracts, and other instruments, except when the signing thereof has been
expressly delegated by the Board or by these Bylaws to some other officer or
agent of the corporation or is otherwise required by law to be signed by some
other officer or in some other manner. If the President dies or becomes unable
to act, the Chairman shall perform the duties of the President, except as may be
limited by resolution of the Board of Directors, with all the powers of and
subject to all the restrictions upon the President.

                3.3.2   President. Subject to such supervisory powers as may be
given by the Board of Directors to the Chairman of the Board (if such an officer
be appointed), the President shall be the chief executive officer of the
corporation unless some other officer is so designated by the Board and, subject
to the control of the Board and the Executive Committee (if one be established),
shall supervise and control all of the assets, business, and affairs of the
corporation. If no Chairman of the Board has been appointed, the President shall
be a director. The President may sign certificates for shares of the
corporation, deeds, mortgages, bonds, contracts, and other instruments, except
when the signing thereof has been expressly delegated by the Board or by these
Bylaws to some other officer or agent of the corporation or is otherwise
required by law to be signed by some other officer or in some other manner. The
President shall vote the shares owned by the corporation in other corporations,
domestic or foreign, unless otherwise prescribed by law or resolution of the
Board. In general, the President shall perform all duties incident to the office
of President and such other duties as may be prescribed by the Board from time
to time. In the absence of the Chairman of the Board, the President, if a
director, shall preside over all meetings of the shareholders and over all
meetings of the Board of Directors. The President shall have the authority to
appoint one or more Assistant Secretaries and Assistant Treasurers, as he deems
necessary.

                3.3.3   Vice Presidents. If no Chairman of the Board has been
appointed, in the absence or disability of the President, the Vice Presidents,
if any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a Vice President designated by the Board shall perform all the duties of
the President and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the President; provided that no such Vice President
shall assume the authority to preside as Chairman of meetings of the Board
unless such Vice President is a member of the Board. The Vice Presidents shall
have such other powers and perform such other duties as from time to time may be
respectively prescribed for them by the Board, these Bylaws, the President, or
the Chairman of the Board (if one be appointed).

                3.3.4   Secretary. The Secretary shall:

                        (a)     have responsibility for preparing minutes of
        meetings of the shareholders and the Board of Directors and for
        authenticating records of the corporation;

                        (b)     see that all notices are duly given in
        accordance with the provisions of Sections 1.3, 1.5, 2.8, and 2.10 of
        these Bylaws and as required by law;

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   18
                        (c)     be custodian of the corporate records and seal
        of the corporation, if one be adopted;

                        (d)     keep a register of the post office address of
        each shareholder and director;

                        (e)     attest certificates for shares of the
        corporation;

                        (f)     have general charge of the stock transfer books
        of the corporation;

                        (g)     when required by law or authorized by resolution
        of the Board of Directors, sign with the President, or other officer
        authorized by the President or the Board, deeds, mortgages, bonds,
        contracts, and other instruments; and

                        (h)     in general, perform all duties incident to the
        office of Secretary and such other duties as from time to time may be
        assigned by the President or the Board of Directors.

        In the absence of the Secretary, an Assistant Secretary may perform the
duties of the Secretary.

                3.3.5   Treasurer. If required by the Board of -Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board shall determine. The Treasurer
shall:

                        (a)     have charge and custody of and be responsible
        for all funds and securities of the corporation;

                        (b)     receive and give receipts for moneys due and
        payable to the corporation from any source whatsoever and deposit all
        such moneys in the name of the corporation in banks, trust companies, or
        other depositories selected in accordance with the provisions of these
        Bylaws; and

                        (c)     in general, perform all of the duties incident
        to the office of Treasurer and such other duties as from time to time
        may be assigned by the President or the Board of Directors.

        In the absence of the Treasurer, an Assistant Treasurer may perform the
duties of the Treasurer.

        3.4     Delegation. In case of the absence or inability to act of any
officer of the corporation and of each person herein authorized to act in his
place, the Board of Directors may from time to time delegate the powers and
duties of such officer to any other officer or other person whom it may select.

                                       15
   19
        3.5     Resignation. Any officer may resign at any time by delivering
notice to the corporation. Any such resignation shall take effect at the time
the notice is delivered unless the notice specifies a later effective date.
Unless otherwise specified therein, acceptance of such resignation by the
corporation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.

        3.6     Removal. Any officer or agent may be removed by the Board with
or without cause. An officer empowered to appoint another officer or assistant
officer also has the power to remove any officer he would have the power to
appoint whenever in his judgment the best interests of the corporation would be
served thereby. The removal of an officer or agent shall be without prejudice to
the contract rights, if any, of the corporation or the person so removed.
Appointment of an officer or agent shall not of itself create contract rights.

        3.7     Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, creation of a new office, or any other
cause may be filled by the Board of Directors for the unexpired portion of the
term or for a new term established by the Board.

        3.8     Other Officers and Agents. One or more Vice Presidents and such
other officers and assistant officers as may be deemed necessary or advisable
may be appointed by the Board of Directors or, to the extent provided in Section
3.3.2 above, by the President. Such other officers and assistant officers shall
hold office for such periods, have such authorities, and perform such duties as
are provided in these Bylaws or as may be provided by resolution of the Board.
Any officer may be assigned by the Board any additional title that the Board
deems appropriate. The Board may delegate to any officer or agent the power to
appoint any such assistant officers or agents and to prescribe their respective
terms of office, authorities, and duties.

        3.9     Compensation. Compensation, if any, for officers and other
agents and employees of the corporation shall be determined by the Board of
Directors, or by the President to the extent such authority may be delegated to
him by the Board. No officer shall be prevented from receiving compensation in
such capacity by reason of the fact that he is also a director of the
corporation.

        3.10    General Standards for Officers. Officers with discretionary
authority shall discharge their duties under that authority in accordance with
the same standards of conduct applicable to directors as specified in Section
2.1 above (except for subsection (c) thereof).

                                   ARTICLE IV

                          CONTRACTS, CHECKS AND DRAFTS

        4.1     Contracts. The Board of Directors may authorize any officer or
officers or agent or agents to enter into any contract or execute and deliver
any instrument in the


                                       16
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name of and on behalf of the corporation. Such authority may be general or
confined to specific instances.

        4.2     Checks, Drafts, Etc. All checks, drafts, and other orders for
the payment of money, notes, and other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers or agent or
agents of the corporation and in such manner as may be determined from time to
time by resolution of the Board of Directors.

        4.3     Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies, or other depositories as the Treasurer, subject to the
direction of the Board of Directors, may select.

                                   ARTICLE V

                                      STOCK

        5.1     Issuance of Shares. No shares of the corporation shall be issued
unless authorized by the Board of Directors, which authorization shall include
the maximum number of shares to be issued, the consideration to be received for
each share, and, if the consideration is in a form other than cash, the
determination of the value of the consideration.

        5.2     Certificates of Stock. All shares of the corporation shall be
represented by certificates in such form, not inconsistent with the Articles of
Incorporation, as the Board of Directors may from time to time prescribe.
Certificates of stock shall be issued in numerical order, and each shareholder
shall be entitled to a certificate signed by the President or a Vice President,
attested to by the Secretary or an Assistant Secretary, and sealed with the
corporate seal, if any. If any certificate is manually signed by a transfer
agent or a transfer clerk and by a registrar, the signatures of the President,
Vice President, Secretary or Assistant Secretary upon that certificate may be
facsimiles that are engraved or printed. If any person who has signed or whose
facsimile signature has been placed on a certificate no longer is an officer
when the certificate is issued, the certificate may nevertheless be issued with
the same effect as if the person were still an officer at the time of its issue.
Every certificate of stock shall state:

                (a)     The state of incorporation;

                (b)     The name of the registered holder of the shares
        represented thereby;

                (c)     The number and class of shares, and the designation of
        the series, if any, which such certificate represents;

                (d)     If the corporation is authorized to issue different
        classes of shares or different series within a class, either a summary
        of (on the face or back of the certificate), or a statement that the
        corporation will furnish to any


                                       17
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        shareholder upon written request and without charge a summary of, the
        designations, relative rights, preferences, and limitations applicable
        to each class and the variations in rights, preferences and limitations
        determined for each series, and the authority of the Board of Directors
        to determine variations for future series; and

                (e)     If the shares are subject to transfer or other
        restrictions under applicable securities laws or contracts with the
        corporation, either a complete description of or a reference to the
        existence and general nature of such restrictions on the face or back of
        the certificate.

        5.3     Stock Records. The corporation or its agent shall maintain at
the registered office or principal office of the corporation, or at the office
of the transfer agent or registrar of the corporation, if one be designated by
the Board of Directors, a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders in
alphabetical order by class of shares showing the number and class of shares
held by each. The person in whose name shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for all
purposes.

        5.4     Restrictions on Transfer. The Board of Directors shall have the
authority to issue shares of the capital stock of this corporation and the
certificates therefor subject to such transfer restrictions and other
limitations as it may deem necessary to promote compliance with applicable
federal and state securities laws, and to regulate the transfer thereof in such
manner as may be calculated to promote such compliance or to further any other
reasonable purpose. Except to the extent that the corporation has obtained an
opinion of counsel acceptable to the corporation that transfer restrictions are
not required under applicable securities laws, all certificates representing
shares of the corporation shall bear the following legend (or a legend of
substantially the same import) on the face of the certificate or on the reverse
of the certificate if a reference to the legend is contained on the face:

                NOTICE: RESTRICTIONS ON TRANSFER

                The securities represented by this certificate have not been
                registered under the Securities Act of 1933, or any state
                securities laws, and may not be offered, sold, transferred,
                encumbered, or otherwise disposed of except upon satisfaction of
                certain conditions. Information concerning these restrictions
                may be obtained from the corporation or its legal counsel. Any
                offer or disposition of these securities without satisfaction of
                said conditions will be wrongful and will not entitle the
                transferee to register ownership of the securities with the
                corporation.

        5.5     Transfers. Shares of stock may be transferred by delivery of the
certificates therefor, accompanied by:

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                (a)     an assignment in writing on the back of the certificate,
        or an assignment separate from certificate, or a written power of
        attorney to sell, assign, and transfer the same, signed by the record
        holder of the certificate; and

                (b)     such additional documents, instruments, and other items
        of evidence as may be reasonably necessary to satisfy the requirements
        of any transfer restrictions applicable to such shares, whether arising
        under applicable securities or other laws, or by contract, or otherwise.

        Except as otherwise specifically provided in these Bylaws, no shares of
stock shall be transferred on the books of the corporation until the outstanding
certificate therefor has been surrendered to the corporation. All certificates
surrendered to the corporation for transfer shall be cancelled, and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except that, in case of a
lost, destroyed, or mutilated certificate, a new one may be issued therefor upon
such terms (including indemnity to the corporation) as the Board of Directors
may prescribe.

                                   ARTICLE VI

                          RECORDS OF CORPORATE MEETINGS

        The corporation shall keep, as permanent records, minutes of all
meetings of its shareholders and Board of Directors, a record of all actions
taken by the shareholders or Board of Directors without a meeting, and a record
of all actions taken by a committee of the Board of Directors exercising the
authority of the Board of Directors on behalf of the corporation. The
corporation shall keep at its principal office a copy of the minutes of all
shareholders' meetings that have occurred, and records of all action taken by
shareholders without a meeting, within the past three (3) years. Any person
dealing with the corporation may rely upon a copy of any of the records of the
proceedings, resolutions, or votes of the Board or shareholders when certified
by the President or Secretary.

                                   ARTICLE VII

                                FINANCIAL MATTERS

        The corporation shall maintain appropriate accounting records at its
principal office and shall prepare the annual financial statements required by
RCW 23B.16.200. Except to the extent otherwise expressly determined by the Board
of Directors or otherwise required by law, the accounting records of the
corporation shall be kept and prepared in accordance with generally accepted
accounting principles applied on a consistent basis from period to period. The
fiscal year of the corporation shall be the calendar year unless otherwise
expressly determined by the Board of Directors.

                                       19
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                                  ARTICLE VIII

                                  DISTRIBUTIONS

        The Board of Directors may from time to time authorize, and the
corporation may make, distributions (as defined in RCW 23B.01.400) to its
shareholders to the extent permitted by RCW 23B.06.400, subject to any
limitation in the Articles of Incorporation. A director who votes for or assents
to a distribution made in violation of RCW 23B.06.400 is personally liable to
the corporation for the amount of the distribution that exceeds that which could
have been distributed without violating RCW 23B.06.400 if it is established that
the director did not perform the director's duties in compliance with Section
2.1 above.

                                   ARTICLE IX

                                 CORPORATE SEAL

        The Board of Directors may, but shall not be required to, adopt a
corporate seal for the corporation in such form and with such inscription as the
Board may determine. If such a corporate seal shall at any time be so adopted,
the application of or the failure to apply such seal to any document or
instrument shall have no effect upon the validity or invalidity of such document
or instrument under otherwise applicable principles of law.

                                    ARTICLE X

                                   MISCELLANY

        10.1    Communications by Facsimile. Whenever these Bylaws require
notice, consent, or other communication to be delivered for any purpose,
transmission by phone, wire, or wireless equipment which transmits a facsimile
of such communication shall constitute sufficient delivery for such purpose.
Such communication shall be deemed to have been received by or in the possession
of the addressee upon completion of the transmission.

        10.2    Inspector of Elections. Before any annual meeting of
shareholders, the Board of Directors may appoint an inspector of elections to
act at the meeting and any adjournment thereof. If no inspector of elections is
so appointed by the Board, then the chairman of the meeting may appoint an
inspector of elections to act at the meeting. If any person appointed as
inspector fails to appear or fails or refuses to act, then the chairman of the
meeting may, and upon the request of any shareholder or a shareholder's proxy
shall, appoint a person to fill that vacancy.

        Such inspector of elections shall:

                (a)     determine the number of shares outstanding and the
        voting power of each, the number of shares represented at the meeting,
        the existence of a quorum, and, with the advice of legal counsel to the
        corporation, the authenticity, validity, and effect of proxies pursuant
        to RCW 23B.07.220 and

                                       20
   24
        23B.07.240 and any procedure adopted by the Board of Directors pursuant
        to RCW 23B.07.230;

                (b)     receive votes, ballots, or consents;

                (c)     hear and determine all challenges and questions in any
        way arising in connection with the right to vote;

                (d)     count and tabulate all votes or consents;

                (e)     determine the result; and

                (f)     do any other acts that may be proper to conduct the
        election or vote with fairness to all shareholders.

        10.3    Rules of Order. The rules contained in the most recent edition
of Robert's Rules of Order, Revised, shall govern all meetings of shareholders
and directors where those rules are not inconsistent with the Articles of
Incorporation or Bylaws, subject to the following:

                (a)     The chairman of the meeting shall have absolute
        authority over matters of procedure, and there shall be no appeal from
        the ruling of the chairman. If the chairman in his absolute discretion
        deems it advisable to dispense with the rules of parliamentary procedure
        for any meeting or any part thereof, the chairman shall so state and
        shall clearly state the rules under which the meeting or appropriate
        part thereof shall be conducted.

                (b)     If disorder should arise which prevents continuation of
        the legitimate business of the meeting, the chairman may quit the chair
        and announce the adjournment of the meeting; upon so doing, the meeting
        shall be deemed immediately adjourned, subject to being reconvened in
        accordance with Section 1.5 or 2.11 of these Bylaws, as the case may be.

                (c)     The chairman may ask or require that anyone not a bona
        fide shareholder or proxy leave the meeting of shareholders.

                (d)     A resolution or motion at a meeting of shareholders
        shall be considered for vote only if proposed by a shareholder or duly
        authorized proxy and seconded by an individual who is a shareholder or
        duly authorized proxy other than the individual who proposed the
        resolution or motion.

        10.4    Construction. Within these Bylaws, words of any gender shall be
construed to include any other gender, and words in the singular or plural
number shall be construed to include the plural or singular, respectively,
unless the context otherwise requires.

        10.5    Severability. If any provision of these Bylaws or any
application thereof shall be invalid, unenforceable, or contrary to applicable
law, the remainder of these

                                       21
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Bylaws, and the application of such provisions to individuals or circumstances
other than those as to which it is held invalid, unenforceable, or contrary to
applicable law, shall not be affected thereby.

                                   ARTICLE XI

                               AMENDMENT OF BYLAWS

        Subject to the requirements of RCW 23B.10.210 relating to supermajority
quorum provisions for the Board of Directors, the Bylaws of the corporation may
be amended or repealed, or new Bylaws may be adopted, by: (a) the shareholders,
even though the Bylaws may also be amended or repealed, or new Bylaws may also
be adopted, by the Board of Directors; or (b) subject to the power of the
shareholders of the corporation to change or repeal the Bylaws, the Board of
Directors unless such power is reserved, by the Articles of Incorporation or by
law, exclusively to the shareholders in whole or in part or unless the
shareholders, in amending or repealing a particular bylaw, provide expressly
that the Board of Directors may not amend or repeal that bylaw.

                                  ARTICLE XII

                                 AUTHENTICATION

        The foregoing Bylaws were read, approved, and duly adopted by the Board
of Directors of Redhook Ale Brewery, Incorporated on the 22nd day of May, 2001,
and the President and Secretary of the corporation were empowered to
authenticate such Bylaws by their signatures below.

                                            /s/  Paul S. Shipman
                                            -------------------------------
                                            Paul S. Shipman, President

ATTEST:

/s/  Douglass A. Raff
- ----------------------------------
Douglass A. Raff, Secretary

                                       22

EX-10.44

   1
                                 FIFTH AMENDMENT
                    TO AMENDED AND RESTATED CREDIT AGREEMENT

                This fifth amendment to amended and restated credit agreement
("Amendment"), dated as of June 19, 2001, is made and entered into by and
between REDHOOK ALE BREWERY, INCORPORATED, a Washington corporation
("Borrower"), and U.S. BANK NATIONAL ASSOCIATION, a national banking
association, successor by merger to U. S. Bank of Washington, National
Association ("U.S. Bank"). Words and phrases with initial capital letters have
the meanings given to them in Article I of this Amendment.

                                R E C I T A L S :

                A.      On or about June 5, 1995, U.S. Bank and Borrower entered
into that certain amended and restated credit agreement (together with all
amendments, supplements, exhibits, and modifications thereto, the "Credit
Agreement"), whereby U.S. Bank agreed to make loans and advances of credit to
Borrower on the terms and conditions set forth therein.

                B.      Borrower and U.S. Bank have entered into four amendments
to the Credit Agreement, dated as of July 25, 1996, September 15, 1997, February
22, 1999, and August 10, 2000, respectively, whereby U.S. Bank extended the
Commitment Period of the Revolving Loan and otherwise modified the terms of the
Term Loan, Revolving Loan, and Acquisition Loan.

                C.      Borrower and U.S. Bank have agreed to extend the
deadline by which the entire principal and any accrued interest on the Term Loan
shall be paid in full. The purpose of this Amendment is to set forth the terms
and conditions of U.S. Bank's and Borrower's agreements.

                NOW, THEREFORE, in consideration of the mutual covenants and
conditions set forth herein, the parties agree as follows:

                      ARTICLE I. DEFINITIONS AND AMENDMENT

                1.1     Defined Terms. As used in this Amendment, words and
phrases with initial capital letters shall have the meanings given to them in
the Credit Agreement, except as otherwise defined herein, or as the context
otherwise requires.

                1.2     Modified and Additional Defined Terms. Section 1.1 of
the Credit Agreement is modified to amend in their entirety (if presently
defined in Section 1.1 of the Credit Agreement) or add (if not presently defined
in Section 1.1 of the Credit Agreement) the following defined terms:

                "Cash Flow" means, for any period, Net Income (before taxes) for
        such period, (1) plus depreciation, amortization, and other noncash
        charges for such period, plus Interest Expense for such period (2) less
        unfunded Capital Expenditures, less dividends and distributions paid to
        Borrower's shareholders during such period, less cash taxes and (3)
        divided by the sum of Interest Expense


                                      -1-
   2
        plus mandatory debt retirement payable during such period.

                "Fifth Amendment" means that certain fifth amendment to amended
        and restated credit agreement, dated as of 19, 2001, by and between
        Borrower and U.S. Bank, and includes all amendments, supplements,
        exhibits, and modifications to the Fourth Amendment.

                1.3     Incorporation of Recitals and Exhibits. The foregoing
recitals are incorporated into this Amendment by reference. All references to
"Exhibits" contained herein are references to exhibits attached to this
Amendment, the terms and conditions of which are made a part of this Amendment
for all purposes.

                1.4     Amendment. The Credit Agreement and the other Loan
Documents are hereby amended as set forth herein. Except as specifically
provided herein, all of the terms and conditions of the Credit Agreement and
each of the other Loan Documents and all amendments thereto shall remain in full
force and effect throughout the terms of the Loans and any extensions or
renewals thereof.

                             ARTICLE II. TERM LOAN

                2.1     Term Loan. Article III of the Credit Agreement is hereby
amended in its entirety to read as follows:

                3.1     Term Loan. Prior to the date of the Fifth Amendment and
        on the terms and conditions of this Agreement, U.S. Bank made a term
        loan to Borrower in the initial principal amount of $10,000,000 and with
        an outstanding principal balance, as of the date of the Fifth Amendment,
        of $7,200,000, the repayment of which, as well as other terms and
        conditions, are subject to this Agreement, as amended ("Term Loan").

                3.2     Term Note. The Term Loan is evidenced by and repayable
        with interest in accordance with the terms of a promissory note in the
        form attached to the Fifth Amendment as Exhibit A (the "Term Note").

                3.3     Interest Rates. Subject to Section 4.9 herein, Borrower
        shall pay interest on the principal amount of the Term Loan remaining
        unpaid from time to time at a per annum rate of interest equal to the
        applicable LIBOR Borrowing Rate for any LIBOR Rate Borrowing, pursuant
        to the other terms and conditions of this Agreement and subject to
        adjustment as set forth in Section 4.1 of this Agreement.

                3.4     Repayment.

                        (a)     Borrower shall pay in arrears to U.S. Bank an
        amount equal to all accrued interest on the Term Loan; such monthly
        payments of interest commenced on July 1, 1996, and shall continue on
        the first day of each month thereafter.

                                      -2-
   3
                        (b)     In addition to the interest payments required in
        Section 3.4(a), Borrower shall make monthly payments of principal to
        Lender in 60 equal, consecutive installments of $37,500, such monthly
        installments commenced on July 1, 1997, and shall continue on the first
        day of each month thereafter until June 5, 2007, at which time the
        entire principal and any accrued and unpaid interest on the Term Loan
        shall be paid in full.

                2.2     Term Loan Fee. Concurrently with the execution and
delivery of this Fifth Amendment to U.S. Bank, Borrower shall pay a
nonrefundable fee in the amount of $18,000 for the Term Loan Amendment.

            ARTICLE III. GENERAL PROVISIONS APPLICABLE TO THE LOANS

                3.1     Interest Rates. Section 4.1(a) and Section 4.1(b) of the
Credit Agreement are hereby amended in their entirety to read as follows:

                4.1     Interest Rates.

                        (a)     Subject to the terms of this Section 4.1 and
        Section 4.9, and during the period commencing with the date of the Fifth
        Amendment and ending on June 4, 2002, the LIBOR Borrowing Rate
        applicable to the Term Loan for any LIBOR Rate Borrowing shall be the
        LIBOR Rate plus 1.25 percent (125 basis points). Subject to the terms of
        this Section 4.1 and Section 4.9, for the period commencing on June 5,
        2002, and continuing thereafter, the LIBOR Borrowing Rate applicable to
        the Term Loan for any LIBOR Rate Borrowing shall be the LIBOR Rate plus
        1.75 percent (175 basis points).

                        (b)     Subject to the terms of this Section 4.1 and
        Section 4.9, for the period commencing on June 6, 1999, and continuing
        thereafter, the interest rates for the Revolving Loan and the
        Acquisition Loans shall be adjusted based on the Funded Debt Ratio, as
        established for any preceding fiscal quarter of Borrower by the
        financial statements delivered to U.S. Bank pursuant to Section 6.1(a)
        of this Agreement, whether as initially submitted or as revised, as set
        forth in the following matrix:

                                      -3-
   4
     
- ----------------------------------------------------------------------------------
                          JUNE 6, 1999, AND THEREAFTER
- ----------------------------------------------------------------------------------
                         REVOLVING LOANS               ACQUISITION LOANS
                    -------------------------- -----------------------------------
                      PRIME
                    BORROWING       LIBOR            PRIME        LIBOR BORROWING
FUNDED DEBT RATIO      RATE     BORROWING RATE   BORROWING RATE         RATE
- ------------------- ---------- --------------- ----------------- -----------------
   Less than or       Prime      LIBOR Rate       Prime Rate        LIBOR Rate
     equal to         Rate     plus 1 percent     plus 0.25         plus 1.25
     2.25:1.0                    (100 basis        percent           percent
                                  points)         (25 basis         (125 basis
                                                   points)           points)
- ------------------- ---------- --------------- ----------------- -----------------
   Less than or       Prime      LIBOR Rate       Prime Rate        LIBOR Rate
     equal to         Rate       plus 1.25        plus 0.25      plus 1.5 percent
   3.0:1.0 and                    percent          percent          (150 basis
     greater                     (125 basis    (25 basis points      points)
  than 2.25:1.0                   points)
- ------------------- ---------- --------------- ----------------- -----------------
   Less than or       Prime      LIBOR Rate       Prime Rate        LIBOR Rate
     equal to         Rate        plus 1.5        plus 0.25         plus 1.75
   3.75:1.0 and                   percent          percent           percent
     greater                     (150 basis    (25 basis points     (175 basis
  than 3.0 :1.0                   points)                            points)
- ------------------- ---------- --------------- ----------------- -----------------
   Greater than       Prime      LIBOR Rate       Prime Rate        LIBOR Rate
     3.75:1.0         Rate        plus 2.0        plus 0.25         plus 2.25
                                  percent          percent           percent
                                 (200 basis    (25 basis points     (225 basis
                                  points)                            points)
- ------------------- ---------- --------------- ----------------- -----------------



                3.2     Manner of Borrowing. Section 4.2(a) of the Credit
Agreement is hereby amended in its entirety to read as follows:

                4.2     Manner of Borrowing.

                        (a)     Whenever Borrower desires to use the LIBOR
        Borrowing Rate, Borrower shall give U.S. Bank irrevocable notice (either
        in writing or orally and promptly confirmed in writing) between 8:00
        a.m. and 1:00 p.m. (Seattle, Washington time) two Business Days prior to
        the desired effective date of the LIBOR Borrowing Rate ("Borrowing
        Notice"). Any oral Borrowing Notice shall be given by, and any written
        Borrowing Notice or confirmation of an oral Borrowing Notice shall be
        signed by Paul Shipman, David Mickelson, or Anne Mueller, each of whom
        is authorized to request Loans, until written notice by Borrower of the
        revocation of such authority is received by U.S. Bank. Each Borrowing
        Notice shall specify the requested effective date of the LIBOR Borrowing
        Rate, the Interest Period, the amount of the LIBOR Rate Borrowing, and
        whether Borrower is requesting a new advance at the LIBOR Borrowing
        Rate, conversion of all or any portion of the Prime Rate Borrowing to a
        LIBOR Rate Borrowing, or a new Interest Period for an outstanding LIBOR
        Rate Borrowing. Notwithstanding any other term of this Agreement,
        Borrower may elect the LIBOR Borrowing Rate to apply to Loans or
        portions thereof only in the minimum principal amount of $500,000. In
        the event Borrower has not given U.S. Bank a Borrowing Notice two
        Business Days in advance of the expiration of any Interest Period of
        Borrower's intent to convert a LIBOR Rate Borrowing to a new LIBOR Rate
        Borrowing at the expiration of such Interest Period, then such LIBOR
        Rate Borrowing will, at U.S. Bank's option, at the expiration of such
        Interest Period, be deemed to be a Prime Rate Borrowing. Until such
        reversion to a Prime Borrowing Rate, interest will accrue on such LIBOR
        Rate Borrowing at


                                      -4-
   5
        the same LIBOR Borrowing Rate as the expired LIBOR Rate Borrowings.

                           ARTICLE IV. MISCELLANEOUS

                4.1     Section 10.13 of Article X of the Credit Agreement
entitled "Arbitration" is hereby deleted in its entirety and replaced as
follows:

                10.13   JURY WAIVER. U.S. BANK AND BORROWER HEREBY WAIVE THE
        RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
        BROUGHT BY EITHER U.S. BANK OR BORROWER AGAINST THE OTHER.


                BORROWER'S INITIALS /S/  DM       U.S. BANK'S INITIALS /S/  KP

                        ARTICLE V. CONDITIONS PRECEDENT

                U.S. Bank shall have no obligation to modify the terms of the
Loans as provided in this Amendment unless the following conditions have been
fulfilled to the satisfaction of U.S. Bank:

                (a)     U.S. Bank shall have received this Amendment and the
Term Note, duly executed and delivered by Borrower.

                (b)     U.S. Bank shall have received the Term Loan fee as set
forth in Section 2.2 herein

                (c)     U.S. Bank shall have received the Renewal Revolving
Note, the Acquisition Note, the Unconditional Guaranty, and the Security
Agreement, in the forms attached hereto as Exhibit B, Exhibit C, Exhibit D, and
Exhibit E, duly executed and delivered by Borrower and Guarantor.

                (d)     All corporate proceedings of Borrower and its
Subsidiaries shall be satisfactory in form and substance to U.S. Bank, and U.S.
Bank shall have received all information and copies of all documents, including
records of all corporate proceedings, that U.S. Bank has requested in connection
therewith, such documents where appropriate to be certified by proper corporate
authorities or Governmental Bodies.

                (e)     There shall not then exist any Default or Event of
Default hereunder as of the date hereof.

                (f)     All representations and warranties of Borrower contained
herein or made in writing in connection herewith shall be true and correct as of
the date hereof.

                         ARTICLE VI. GENERAL PROVISIONS

                6.1     Representations and Warranties. Borrower hereby
represents and warrants to U.S. Bank that, to the best knowledge and belief of
Borrower, as of the date of this Amendment, there exists no Default or Event of
Default. All representations and warranties of


                                      -5-
   6
Borrower contained in the Credit Agreement and the other Loan Documents, or
otherwise made in writing in connection therewith, are true and correct as of
the date of this Amendment. Borrower acknowledges and agrees that all of
Borrower's Indebtedness to U.S. Bank is payable without offset, defense, or
counterclaim.

                6.2     Guaranties. The parties hereby acknowledge and agree
that all guaranties now existing or hereafter obtained by U.S. Bank shall remain
in full force and effect, are valid and enforceable in accordance with their
terms, and are not subject to offset, defense, or counterclaim.

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

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

                IN WITNESS WHEREOF, U.S. Bank and Borrower have caused this
Amendment to be duly executed by their respective duly authorized officers or
agents as of the date first above written.

                                       REDHOOK ALE BREWERY, INCORPORATED

                                       By:     /s/  David J. Mickelson
                                               -----------------------
                                               David Mickelson, Executive Vice
                                               President


                                       U.S. BANK NATIONAL ASSOCIATION


                                       By:     /s/  Kenneth D. Plank
                                               ---------------------
                                               Kenneth D. Plank, Vice President



                                      -6-
   7
               By execution of this Amendment, the undersigned Guarantor
approves of the changes to the Credit Agreement set forth herein, agrees to be
bound by Section 4.2 herein, reaffirms its Guaranty, and acknowledges and agrees
that its obligations under its Guaranty are not subject to any defense, offset,
or counterclaim.

                                         REDHOOK OF NEW HAMPSHIRE, INC.



                                         By:     /s/  David J. Mickelson
                                                 -------------------------------
                                                 David Mickelson, Executive Vice
                                                 President


                                      -7-
   8
                                    TERM NOTE

$10,000,000                                                         June 5, 2001

                For value received, the undersigned, REDHOOK ALE BREWERY, INC.,
a Washington corporation ("Borrower"), promises to pay to the order of U.S. BANK
OF WASHINGTON, NATIONAL ASSOCIATION ("U.S. Bank"), at its principal place of
business, 1420 Fifth Avenue, Seattle, Washington 98111-0720, or such other place
or places as the holder hereof may designate in writing, the principal sum of
Ten Million Dollars ($10,000,000) or so much thereof as advanced by U.S. Bank in
lawful, immediately available money of the United States of America, in
accordance with the terms and conditions of that certain amended and restated
credit agreement of even date herewith by and between Borrower and U.S. Bank
(together with all supplements, exhibits, amendments and modifications thereto,
the "Credit Agreement"). Borrower also promises to pay interest on the unpaid
principal balance hereof, commencing as of the first date of an advance
hereunder, in like money in accordance with the terms and conditions, and at the
rate or rates provided for in the Credit Agreement. All principal, interest, and
other charges are due and payable in full on June 5, 2007.

                Borrower and all endorsers, sureties, and guarantors hereof
jointly and severally waive presentment for payment, demand, notice of
nonpayment, notice of protest, and protest of this Note, and all other notices
in connection with the delivery, acceptance, performance, default, dishonor, or
enforcement of the payment of this Note except such notices as are specifically
required by this Note or by the Credit Agreement, and they agree that the
liability of each of them shall be unconditional without regard to the liability
of any other party and shall not be in any manner affected by any indulgence,
extension of time, renewal, waiver, or modification granted or consented to by
U.S. Bank. Borrower and all endorsers, sureties, and guarantors hereof (1)
consent to any and all extensions of time, renewals, waivers, or modifications
that may be granted by U.S. Bank with respect to the payment or other provisions
of this Note and the Credit Agreement; (2) consent to the release of any
property now or hereafter securing this Note with or without substitution; and
(3) agree that additional makers, endorsers, guarantors, or sureties may become
parties hereto without notice to them and without affecting their liability
hereunder.

                This Note is made in substitution for, but not in payment of,
that certain revolving term note dated as of June 5, 1995, is the Term Note
referred to in the Credit Agreement, and, as such, is entitled to all of the
benefits and obligations specified in the Credit Agreement, including but not
limited to any Collateral and any conditions to making advances hereunder. This
Note is secured by a deed of trust covering real and personal property located
in King County, Washington, dated August 9, 1993, and recorded with the Division
of Records and Elections of King County, Washington on August 10, 1993, under
recording number 9308101757, to which reference is hereby made for a description
of the nature and extent of the security provided thereby and the rights and
limitations of rights of U.S. Bank and of Borrower in respect of such security.

                Borrower grants to U.S. Bank a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to U.S. Bank all
Borrower's right, title and


                                      -1-
   9
interest in and to, Borrower's accounts with U.S. Bank (whether checking,
savings, or some other account), including without limitation all accounts held
jointly with someone else and all accounts Borrower may open in the future,
excluding however all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Borrower authorizes
U.S. Bank, to the extent permitted by applicable law, to charge or setoff all
sums owing on this Note against any and all such accounts.

                Terms defined in the Credit Agreement are used herein with the
same meanings. Reference is made to the Credit Agreement for provisions for the
repayment of this Note and the acceleration of the maturity hereof. If there is
a lawsuit, Borrower agrees upon U.S. Bank's request to submit to the
jurisdiction of the courts of King County, the state of Washington. U.S. BANK
AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING,
OR COUNTERCLAIM BROUGHT BY EITHER U.S. BANK OR BORROWER AGAINST THE OTHER.

                BORROWER'S INITIALS /S/  DM     U.S. BANK'S INITIALS /S/  KP


                                                REDHOOK ALE BREWERY, INC.


                                                By:     /s/  David J. Mickelson
                                                        ------------------------
                                                        David Mickelson
                                                        Executive Vice President


                                      -2-
   10
                             RENEWAL REVOLVING NOTE

$10,000,000                                                         June 5, 2001


                For value received, the undersigned, REDHOOK ALE BREWERY,
INCORPORATED, a Washington corporation ("Borrower"), promises to pay to the
order of U.S. BANK NATIONAL ASSOCIATION, successor by merger to U. S. Bank of
Washington, National Association ("U.S. Bank"), at its principal place of
business, at Post Office Box 5308, Portland, Oregon 97228-5308, or such other
place or places as the holder hereof may designate in writing, the principal sum
of Ten Million Dollars ($10,000,000) or so much thereof as advanced by U.S. Bank
in lawful immediately available money of the United States of America, in
accordance with the terms and conditions of that certain amended and restated
credit agreement dated as of June 5, 1995, by and between Borrower and U.S. Bank
(together with all supplements, exhibits, modifications, and amendments thereto,
including the fifth amendment to amended and restated credit agreement ("Fifth
Amendment") of dated as of June 19, 2001, the "Credit Agreement"). Borrower also
promises to pay interest on the unpaid principal balance hereof, commencing as
of the date hereof, in like money in accordance with the terms and conditions
and at the rate or rates provided for in the Credit Agreement. All principal,
interest, and other charges are due and payable in full on July 1, 2002.

                Borrower and all endorsers, sureties, and guarantors hereof
jointly and severally waive presentment for payment, demand, notice of
nonpayment, notice of protest, and protest of this Note, and all other notices
in connection with the delivery, acceptance, performance, default, dishonor, or
enforcement of the payment of this Note except such notices as are specifically
required by this Note or by the Credit Agreement, and they agree that the
liability of each of them shall be unconditional without regard to the liability
of any other party and shall not be in any manner affected by any indulgence,
extension of time, renewal, waiver, or modification granted or consented to by
U.S. Bank. Borrower and all endorsers, sureties, and guarantors hereof (1)
consent to any and all extensions of time, renewals, waivers, or modifications
that may be granted by U.S. Bank with respect to the payment or other provisions
of this Note and the Credit Agreement; (2) consent to the release of any
property now or hereafter securing this Note with or without substitution; and
(3) agree that additional makers, endorsers, guarantors, or sureties may become
parties hereto without notice to them and without affecting their liability
hereunder.

                This Note is made in substitution for, but not in payment of,
that certain renewal revolving note dated as of August 10, 2000, is the Renewal
Revolving Note referred to in the Fourth Amendment, and is a "Revolving Note"
for purposes of the Credit Agreement and as such is entitled to all of the
benefits and obligations specified in the Credit Agreement, including but not
limited to any Collateral and any conditions to making advances hereunder. This
Note is secured by the lien of the Deed of Trust encumbering real and personal
property in King County, Washington, dated August 9, 1993, and recorded with the
Division of Records and Elections of King County, Washington, on August 10,
1993, under recording No. 9308101757, to which reference is hereby made for a
description of the nature and extent of the security provided thereby and the
rights and limitations of rights of U.S. Bank and of Borrower in respect of such
security.

                                      -1-
   11
                Borrower grants to U.S. Bank a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to U.S. Bank all
Borrower's right, title and interest in and to, Borrower's accounts with U.S.
Bank (whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts Borrower
may open in the future, excluding however all IRA and Keogh accounts, and all
trust accounts for which the grant of a security interest would be prohibited by
law. Borrower authorizes U.S. Bank, to the extent permitted by applicable law,
to charge or setoff all sums owing on this Note against any and all such
accounts.

                Terms defined in the Credit Agreement are used herein with the
same meanings. Reference is made to the Credit Agreement for provisions for the
repayment of this Note and the acceleration of the maturity hereof. If there is
a lawsuit, Borrower agrees upon U.S. Bank's request to submit to the
jurisdiction of the courts of King County, the state of Washington. U.S. BANK
AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING,
OR COUNTERCLAIM BROUGHT BY EITHER U.S. BANK OR BORROWER AGAINST THE OTHER.

                BORROWER'S INITIALS /S/  DM      U.S. BANK'S INITIALS /S/  KP



                                REDHOOK ALE BREWERY, INCORPORATED

                                By:   /s/  David J. Mickelson
                                      -----------------------
                                      David Mickelson, Executive Vice President


                                      -2-
   12
                                ACQUISITION NOTE

$
 ---------------                                             -------------, ----

                For value received, the undersigned, REDHOOK ALE BREWERY,
INCORPORATED, a Washington corporation ("Borrower"), promises to pay to the
order of U.S. BANK NATIONAL ASSOCIATION ("U.S. Bank"), at Post Office Box 5308,
Portland, Oregon 97228-5308, or such other place or places as the holder hereof
may designate in writing, the principal sum of _______________ Dollars
($___________) in lawful immediately available money of the United States of
America, in accordance with the terms and conditions of that certain amended and
restated credit agreement dated as of June 5, 1995, by and between Borrower and
U.S. Bank (together with all supplements, exhibits, modifications, and
amendments thereto, including the fifth amendment to amended and restated credit
agreement ("Fifth Amendment"), dated as of June ___, 2001, the "Credit
Agreement"). Borrower also promises to pay interest on the unpaid principal
balance hereof, commencing as of the date hereof, in like money in accordance
with the terms and conditions and at the rate or rates provided for in the Fifth
Amendment and the Credit Agreement. All principal, interest, and other charges
are due and payable in full on _____________, ____.

                Borrower and all endorsers, sureties, and guarantors hereof
jointly and severally waive presentment for payment, demand, notice of
nonpayment, notice of protest, and protest of this Note, and all other notices
in connection with the delivery, acceptance, performance, default, dishonor, or
enforcement of the payment of this Note except such notices as are specifically
required by this Note or by the Credit Agreement, and they agree that the
liability of each of them shall be unconditional without regard to the liability
of any other party and shall not be in any manner affected by any indulgence,
extension of time, renewal, waiver, or modification granted or consented to by
U.S. Bank. Borrower and all endorsers, sureties, and guarantors hereof (1)
consent to any and all extensions of time, renewals, waivers, or modifications
that may be granted by U.S. Bank with respect to the payment or other provisions
of this Note and the Credit Agreement; (2) consent to the release of any
property now or hereafter securing this Note with or without substitution; and
(3) agree that additional makers, endorsers, guarantors, or sureties may become
parties hereto without notice to them and without affecting their liability
hereunder.

                This Note is one of the Acquisition Notes referred to in the
Credit Agreement, is a "Note" for all purposes of the Credit Agreement and as
such is entitled to all of the benefits and obligations specified in the Credit
Agreement, including but not limited to any Collateral and any conditions to
making advances hereunder. This Note is secured by the lien of the Deed of Trust
encumbering real and personal property in King County, Washington, dated August
9, 1993, and recorded with the Division of Records and Elections of King County,
Washington, on August 10, 1993, under recording No. 9308101757, to which
reference is hereby made for a description of the nature and extent of the
security provided thereby and the rights and limitations of rights of U.S. Bank
and of Borrower in respect of such security.

                Borrower grants to U.S. Bank a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to U.S. Bank all
Borrower's right, title and


                                      -1-
   13
interest in and to, Borrower's accounts with U.S. Bank (whether checking,
savings, or some other account), including without limitation all accounts held
jointly with someone else and all accounts Borrower may open in the future,
excluding however all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Borrower authorizes
U.S. Bank, to the extent permitted by applicable law, to charge or setoff all
sums owing on this Note against any and all such accounts.

                Terms defined in the Credit Agreement are used herein with the
same meanings. Reference is made to the Credit Agreement for provisions for the
repayment of this Note and the acceleration of the maturity hereof. If there is
a lawsuit, Borrower agrees upon U.S. Bank's request to submit to the
jurisdiction of the courts of King County, the state of Washington. U.S. BANK
AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING,
OR COUNTERCLAIM BROUGHT BY EITHER U.S. BANK OR BORROWER AGAINST THE OTHER.

               BORROWER'S INITIALS _____            U.S. BANK'S INITIALS _____



                                       REDHOOK ALE BREWERY, INCORPORATED

                                       By:
                                          ---------------------------------
                                       Title:
                                             ------------------------------

                                      -2-
   14
                             UNCONDITIONAL GUARANTY

                This guaranty is made as of the 19 day of June, 2001, by REDHOOK
OF NEW HAMPSHIRE, INC., a New Hampshire corporation ("Guarantor"), to and for
the benefit of U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION, and its
successors, participants, and assigns ("U.S. Bank").

                                R E C I T A L S:

                A.      Contemporaneously with the execution hereof, Redhook Ale
Brewery, Incorporated, a Washington corporation ("Borrower"), has entered into a
certain credit agreement with U.S. Bank (together with all supplements,
exhibits, and amendments thereto, the "Credit Agreement"), pursuant to which
Borrower has received, or will receive, advances of credit from U.S. Bank (the
"Loans"). Guarantor acknowledges that Guarantor has had an opportunity to review
the Credit Agreement and all documents and instruments in connection therewith
(collectively, "Loan Documents") and is fully familiar with the terms of the
Loans. Terms defined in the Credit Agreement are used herein with the same
meanings, unless otherwise defined.

                B.      Guarantor is financially interested in Borrower and will
receive certain benefits as a result of Guarantor's execution of this Guaranty.
Guarantor acknowledges that this Guaranty is a condition to U.S. Bank's making
the Loans. Guarantor agrees that this Guaranty is made for the benefit of
Guarantor.

                NOW, THEREFORE, in order to induce U.S. Bank to extend credit to
Borrower pursuant to the Credit Agreement, Guarantor agrees as follows:

                       ARTICLE I. UNCONDITIONAL GUARANTY

                Guarantor jointly, severally, unconditionally, absolutely, and
irrevocably guarantees all past, present, and future Indebtedness of Borrower to
U.S. Bank, including but not limited to the due and punctual payment of the
principal and interest of the Notes and all money due or that may become due
under the Credit Agreement or under the other Loan Document, whether (a)
according to the present terms of any of those documents or at any earlier or
accelerated date or dates as provided therein, (b) pursuant to any extension of
time, or (c) pursuant to any amendment, modification, or replacement of those
documents hereafter made or granted (collectively, "Obligations"). Guarantor
acknowledges and agrees that Guarantor's liability hereunder is cumulative with
the liability of Guarantor under all other unterminated guaranties of Guarantor.

                        ARTICLE II. WAIVERS BY GUARANTOR
                             AND RIGHTS OF U.S. BANK

                Guarantor intends that it shall remain unconditionally liable
for payment of all the Obligations regardless of any act or omission which might
otherwise operate as a legal or equitable defense to discharge Borrower,
Guarantor, or any other guarantor in whole or part other than payment in full of
the Obligations. Therefore, Guarantor hereby waives any defense


                                      -1-
   15
Guarantor may have to the enforceability of its obligations hereunder by virtue
of any of the following and U.S. Bank may do any of the following things as many
times as U.S. Bank wishes, without Guarantor's permission and without notifying
Guarantor, and this will not affect Guarantor's promise to pay U.S. Bank the
amount of the Obligations:

                (a)     U.S. Bank does not have to notify Guarantor of U.S.
Bank's acceptance of this Guaranty;

                (b)     U.S. Bank does not have to notify Guarantor when U.S.
Bank makes advances under the Credit Agreement, extends credit to Borrower, or
pays the obligations of Borrower;

                (c)     U.S. Bank does not have to notify Guarantor of (i)
Borrower's failure to pay Borrower's obligations when due or (ii) Borrower's
failure to perform any other obligation under the Loan Document;

                (d)     U.S. Bank may extend, renew, accelerate, or otherwise
change the time for payment of any of Borrower's obligations to U.S. Bank;

                (e)     U.S. Bank may make any other changes in the Loan
Document pursuant to the terms of the Loan Document;

                (f)     U.S. Bank may release Borrower, any other guarantor, or
anyone else against whom U.S. Bank may have the right to collect amounts that
may become due under the Loan Document;

                (g)     U.S. Bank may apply Collateral and direct the order or
manner of sale thereof as U.S. Bank in its discretion may determine;

                (h)     U.S. Bank may apply any money or Collateral received
from or on behalf of the Borrower to the repayment of any Indebtedness due to
U.S. Bank secured by such Collateral in any order U.S. Bank determines;

                (i)     U.S. Bank may release, surrender, substitute, take
additional, or exchange, any Collateral U.S. Bank now holds or may later acquire
as security for Borrower's Indebtedness to U.S. Bank or Guarantor's obligations
hereunder;

                (j)     U.S. Bank may forbear from pursuing Borrower or from
foreclosing or otherwise realizing upon any security interest, letter of credit,
or other guaranty;

                (k)     U.S. Bank may impair any Collateral Or Guarantor's
obligations hereunder by its acts or omissions, including but not limited to
failing to perfect a security interest in any Collateral;

                (l)     Guarantor hereby waives any defense arising out of the
absence, impairment, or loss of (i) any or all rights of recourse,
reimbursement, contribution, or subrogation or (ii) any other right or remedy of
Guarantor against Borrower or any other party or Collateral to collect amounts
that Guarantor is obligated to pay under this Guaranty;

                                      -2-
   16
                (m)     Guarantor hereby waives any defense arising (i) by
reason of any invalidity, ineffectiveness, or unenforceability of all or any
portion of the Loan Document or (ii) on the basis of any other defense available
to Borrower (other than full payment in cash);

                (n)     Guarantor waives diligence, demand for performance,
notice of nonperformance, presentment, protest, notice of dishonor, and
indulgences and notices of every other kind;

                (o)     Guarantor agrees that U.S. Bank may in its sole
discretion proceed against all or any portion of the Collateral by way of either
judicial or nonjudicial foreclosure;

                (p)     Guarantor understands that a nonjudicial foreclosure of
any deed of trust securing the indebtedness of Borrower to U.S. Bank could
impair or eliminate any subrogation, reimbursement, or contribution rights
Guarantor may have against the grantor of the deed of trust; nevertheless,
Guarantor waives and relinquishes any defense based upon the loss of such rights
or any other defense that may otherwise arise out of RCW 61.24.100 or any other
applicable antideficiency statute of another state. Guarantor understands and
agrees that U.S. Bank may in its discretion nonjudicially foreclose one or more
deeds of trust granted to it by Borrower, then collect from Guarantor a sum
equal to the difference between the total amount of the Obligations and the
amount of the successful bid at each trustee sale.

                 ARTICLE III. U.S. BANK'S RIGHT NOT TO PROCEED
                AGAINST BORROWER, OTHER GUARANTORS OR COLLATERAL

                If an Event of Default occurs under the Credit Agreement, U.S.
Bank may enforce this guaranty against Guarantor (a) without attempting to
collect or without exhausting U.S. Bank's efforts to collect from Borrower, any
other guarantor, or anyone else who is liable for the Obligations or (b) without
attempting to enforce U.S. Bank's rights in any Collateral. Without limiting the
foregoing, U.S. Bank may sue on any Note or Notes or may take any other action
authorized under the Loan Document or by law. In each case, U.S. Bank shall have
the right to exercise its remedies in whatever order it elects and may join
Guarantor in any suit on the Loan Document or can proceed against Guarantor in a
separate proceeding. In case of suit, sale, or foreclosure, only the net
proceeds therefrom, after deducting all reasonable charges and expenses of any
kind and nature whatsoever, shall be applied to the reduction of the amount due
on the Loan Document, and U.S. Bank shall not be required to institute or
prosecute proceedings to recover any deficiency as a condition of payment under
or enforcement of this Guaranty. At any sale of the Collateral, U.S. Bank may at
its discretion purchase all or any part of the Collateral and may apply against
the amount bid therefor all or any portion of the balance due it pursuant to the
terms of any Notes and any deed of trust. Guarantor hereby waives the right to
object to the amount that may be bid by U.S. Bank at such foreclosure sale.

                ARTICLE IV. BANKRUPTCY AND ASSIGNMENT OF RIGHTS

                Guarantor agrees that its obligation to make payment under the
terms of this Guaranty shall not be impaired, modified, changed, released, or
limited in any manner by any impairment, modification, change, release, defense,
or limitation of the liability of Borrower or of a receiver, trustee,
debtor-in-possession, or estate under any bankruptcy or receivership


                                      -3-
   17
proceeding. If any payment made by Borrower is reclaimed in a bankruptcy or
receivership proceeding, Guarantor shall pay to U.S. Bank the dollar amount of
the amount reclaimed. Guarantor further assigns to U.S. Bank all rights
Guarantor may have in any proceeding relating to Borrower under the U.S.
Bankruptcy Code or any receivership or insolvency proceeding until all
Indebtedness of Borrower to U.S. Bank has been paid in full. This assignment
includes all rights of Guarantor to be paid by Borrower even if those rights
have nothing to do with this Guaranty. This assignment does not prevent U.S.
Bank from enforcing Guarantor's obligations under this Guaranty in any way.

           ARTICLE V. GUARANTOR'S DUTY TO KEEP INFORMED OF BORROWER'S
                  AND THE OTHER GUARANTOR'S FINANCIAL CONDITION

                Guarantor is now adequately informed of Borrower's financial
condition, and Guarantor agrees to keep so informed. U.S. Bank need not provide
Guarantor with any present or future information concerning the financial
condition of Borrower or any other guarantor, and changes in Borrower's or
Guarantor's financial condition shall not affect Guarantor's obligations under
this Guaranty. Guarantor has not relied on financial information furnished by
U.S. Bank, nor will Guarantor do so in the future.

            ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF GUARANTOR

                Guarantor represents and warrants to U.S. Bank as follows:

                (a)     The execution, delivery, and performance by Guarantor of
this Guaranty do not and will not (i) conflict with or contravene any law, rule,
regulation, judgment, order, or decree of any government, governmental
instrumentality, or court having jurisdiction over Guarantor or Guarantor's
activities or properties, (ii) conflict with, or result in any default under,
any agreement or instrument of any kind to which Guarantor is a party or by
which Guarantor or any of Guarantor's properties may be bound or affected, or
(iii) require the consent, approval, order, or authorization of, or registration
with, or the giving of notice to any United States or other governmental
authority or any person or entity not a party to the Loan Document;

                (b)     This Guaranty constitutes a legal, valid, and binding
obligation of Guarantor, enforceable against Guarantor in accordance with its
terms;

                (c)     There is no action, litigation, or other proceeding
pending or to Guarantor's knowledge threatened against Guarantor before any
court, arbitrator, or administrative agency that may have a material adverse
effect on the assets or the business or financial condition of Guarantor or that
would prevent, hinder, or jeopardize the performance by Guarantor of Guarantor's
obligations under this Guaranty;

                (d)     Guarantor is fully familiar with all the covenants,
terms, and conditions of the Loan Document; and

                (e)     Guarantor is not party to any contract, agreement,
indenture, or instrument or subject to any restriction individually or in the
aggregate would have a material adverse affect on Guarantor's financial
condition or business or that would in any way jeopardize the ability of
Guarantor to perform under this Guaranty.

                                      -4-
   18
             ARTICLE VII. INDEMNITY REGARDING HAZARDOUS SUBSTANCES

                Borrower has made various representations in the Loan Document
with respect to hazardous substances. Borrower has further agreed to defend and
indemnify U.S. Bank against, and hold U.S. Bank harmless from, various matters
identified in the Loan Document concerning hazardous substances. Those
indemnities will survive payment of the Notes and satisfaction of the Notes
through foreclosure or otherwise. Guarantor hereby guarantees payment and
performance of that indemnity and agrees that Guarantor's guaranty of that
indemnity will survive payment of the Notes and satisfaction of the Notes
through foreclosure or otherwise and will survive payment of Guarantor's other
obligations under this Guaranty.

                  ARTICLE VIII. SUBORDINATION OF INDEBTEDNESS
                            OF BORROWER TO GUARANTOR

                Any Indebtedness of Borrower now or hereafter held by Guarantor
is hereby subordinated to the Indebtedness of Borrower to U.S. Bank, and such
Indebtedness of Borrower to Guarantor, if U.S. Bank so requests after the
occurrence of a Default or an Event of Default, shall be collected, enforced,
and received by Guarantor as trustee for U.S. Bank and be paid over to U.S. Bank
on account of the Indebtedness of Borrower to U.S. Bank, but without reducing or
affecting in any manner the liability of Guarantor under the other provisions of
this Guaranty.

                   ARTICLE IX. WAIVER OF RIGHT OF SUBROGATION

                Guarantor agrees that Guarantor shall not have, and hereby
expressly waives, any claim, right, or remedy that Guarantor may now have or
hereafter acquire against Borrower including, without limitation, any claim,
remedy, or right of subrogation, reimbursement, exoneration, indemnification, or
participation in any claim, right, or remedy that U.S. Bank has or may hereafter
have against Borrower or any Collateral that U.S. Bank now has or hereafter
acquires, whether or not such claim, right, or remedy arises in equity, under
contract, by statute, under common law, or otherwise. Guarantor hereby
acknowledges and agrees that this waiver is intended to benefit Borrower and
U.S. Bank and shall not limit or otherwise affect Guarantor's liability under
this Guaranty.

            ARTICLE X. PAYMENT OF OBLIGATIONS; EFFECT OF BANKRUPTCY

                This Guaranty shall terminate upon payment in full of the
Obligations and termination of U.S. Bank's commitment to make advances of credit
and to lend funds to Borrower; but this Guaranty shall be automatically
reinstated if any payment is reclaimed in a bankruptcy, receivership, or similar
proceeding, until Guarantor pays U.S. Bank the amount reclaimed or the amount is
otherwise paid to U.S. Bank and is not subject to further reclamation.

                    ARTICLE XI. EVENTS OF DEFAULT; REMEDIES

                11.1    Events of Default. "Event of Default," whenever used
herein, means any one of the following events (whatever the reason for the Event
of Default, whether it shall relate to one or more of the parties hereto, and
whether it shall be voluntary or involuntary or be pursuant to or effected by
operation of Applicable Law):

                                      -5-
   19
                (a)     If there shall occur an Event of Default under the
Credit Agreement; or

                (b)     If Guarantor fails to observe or perform any term,
covenant, or agreement to be performed or observed pursuant to this Guaranty.

                11.2    Remedies.

                (a)     Upon the occurrence of any Event of Default hereunder,
the Obligations shall then or at any time thereafter, at the option of U.S. Bank
become immediately due and payable without notice or demand, and U.S. Bank shall
have an immediate right to pursue the remedies provided herein.

                (b)     If an Event of Default occurs hereunder, U.S. Bank shall
have all remedies provided by law. Guarantor hereby waives any notice of the
occurrence of any Event of Default hereunder.

                (c)     In addition to all liens upon and rights of setoff
against the moneys, securities, or other property of Guarantor given to U.S.
Bank by law, U.S. Bank shall have, with respect to Guarantor's obligations to
U.S. Bank under this Guaranty and to the extent permitted by law, a contractual
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, pledges, and transfers to U.S. Bank all of Guarantor's right,
title, and interest in and to all deposits, moneys, securities, and other
property of Guarantor now or hereafter in the possession of or on deposit with
U.S. Bank, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of U.S. Bank or by any neglect to
exercise such right of setoff or to enforce such security interest or by any
delay in so doing. Every right of setoff and security interest shall continue in
full force and effect until such right of setoff or security interest is
specifically waived or released by an instrument in writing executed by U.S.
Bank.

                        ARTICLE XII. GENERAL PROVISIONS

                12.1    Benefits of Agreement. Guarantor agrees that (a) this
Guaranty shall inure to the benefit of and may be enforced by U.S. Bank and any
subsequent holder of any of the Notes and related Loan Document and (b) this
Guaranty shall be binding upon and enforceable against Guarantor and its
successors and assigns.

                12.2    No Assignment. Guarantor agrees that no assignment of
Guarantor's obligations under this Guaranty may be made to any Person without
the prior written consent of U.S. Bank.

                12.3    Rules of Construction. Unless some other meaning and
intent is apparent from the context, the plural shall include the singular and
vice versa, and masculine, feminine, and neuter words shall be used
interchangeably.

                                      -6-
   20
                12.4    Governing Law. This Guaranty shall be construed
according to the laws of the state of Washington, without giving effect to its
principles of conflicts of law.

                12.5    Entire Agreement: Merger: This Agreement constitutes the
entire understanding between U.S. Bank and Guarantor with respect to the subject
matter hereof; no course of prior dealing between the parties, no usage of
trade, and no parole or extrinsic evidence of any nature shall be used to
supplement or modify any terms; and there are no conditions to the M
effectiveness of this Guaranty. All prior, and contemporaneous negotiations,
understandings, and agreements between Guarantor and U.S. Bank with respect to
the subject matter hereof are merged in this Guaranty.

                12.6    Invalid Provisions. If any provision of this Guaranty is
invalid, illegal, or unenforceable, such provision shall be considered severed
from the rest of this Guaranty and the remaining provisions shall continue in
full force and effect as if the invalid provision had not been included. This
Guaranty may be changed, modified, or supplemented only through a writing signed
by Guarantor and U.S. Bank.

                12.7    Attorney Fees and Collection Expenses. If there shall
occur any Default or Event of Default, U.S. Bank shall be entitled to recover
from Guarantor, upon demand, any reasonable costs and expenses incurred in
connection with the preservation of rights under, and enforcement of, this
Guaranty and the other Loan Document whether or not any lawsuit or arbitration
proceeding is commenced, in all such cases including, without limitation,
reasonable attorney fees and costs (including the allocated fees of internal
counsel). Costs and expenses as referred to above shall include, without
limitation, a reasonable hourly rate for collection personnel, whether employed
in-house or otherwise, overhead costs as reasonably allocated to the collection
effort, and all other expenses actually incurred. Reasonable attorney fees and
costs shall include, without limitation, attorney fees and costs incurred in
connection with any bankruptcy case or other insolvency proceeding commenced by
or against Borrower or any Person granting a security interest in any item of
Collateral, including all fees incurred in connection with (a) moving for relief
from the automatic stay, to convert or dismiss the case or proceeding, or to
appoint a trustee or examiner or (b) proposing or opposing confirmation of a
plan of reorganization or liquidation, in any case without regard to the
identity of the prevailing party.

                12.8    Consent to Jurisdiction and Venue. Guarantor hereby (a)
irrevocably submits to the jurisdiction of any state or federal court sitting in
Seattle, King County, Washington, in any action or proceeding brought to
enforce, or otherwise arising out of or relating to, this Guaranty; (b)
irrevocably waives to the fullest extent permitted by law any objection that
Guarantor may now or hereafter have to the laying of venue in any such action or
proceeding in any such forum; and (c) further irrevocably waives any claim that
any such forum is an inconvenient forum. Guarantor agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in any
other jurisdiction by suit on the judgment or in any other manner provided by
law. Nothing herein shall impair the right of U.S. Bank to bring any action or
proceeding against Guarantor in any court of any other jurisdiction.

                                      -7-
   21
                12.9    JURY WAIVER. U.S. BANK AND GUARANTOR HEREBY WAIVE THE
RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY
EITHER U.S. BANK OR GUARANTOR AGAINST THE OTHER.

                GUARANTOR'S INITIALS  /S/  DM    U.S.  BANK'S INITIALS  /S/  KP

                12.10   Counterparts. This Guaranty can be executed in
counterpart originals. This Guaranty shall be binding on each person who signs a
counterpart of this Guaranty even if everyone listed in the Guaranty does not
agree to the Guaranty.

                THE UNDERSIGNED CLEARLY UNDERSTANDS THAT U.S. BANK DOES NOT HAVE
TO PURSUE BORROWER OR PURSUE ANY OTHER REMEDIES BEFORE DEMANDING PAYMENT FROM
GUARANTOR. GUARANTOR FURTHER UNDERSTANDS THAT IT WILL HAVE TO PAY AMOUNTS THEN
DUE EVEN IF BORROWER OR ANY OF THE OTHER GUARANTORS DO NOT MAKE THE PAYMENTS OR
ARE OTHERWISE RELIEVED OF THE OBLIGATION TO MAKE PAYMENTS.


                                                  REDHOOK OF NEW HAMPSHIRE, INC.


                                                  By:    /s/  David J. Mickelson
                                                         -----------------------
                                                  Its:   EVP
                                                         ---


                                      -8-
   22
                               SECURITY AGREEMENT

                This security agreement ("Agreement") is made and entered into
as of June 19, 2001, by REDHOOK ALE BREWERY, INCORPORATED, a Washington
corporation ("Borrower"), for the benefit of U.S. BANK NATIONAL ASSOCIATION, a
national banking association ("U.S. Bank"). Words and phrases with initial
capital letters have the meanings given to them in Article I of this Agreement.

                                R E C I T A L S :

                A.      On or about June 5, 1995, Borrower and U.S. Bank entered
  into that certain amended and restated credit agreement (together with all
supplements, exhibits, and amendments thereto, referred to as the "Credit
Agreement"), whereby U.S. Bank agreed to make loans and advances of credit to
Borrower on the terms and conditions set forth therein. Concurrently with the
execution of this Agreement, Borrower and U.S. Bank entered into the fifth
amendment to amended and restated credit agreement ("Fifth Amendment") whereby
U.S. Bank and Borrower agreed to modify the terms of the Loans.

                B.      Borrower's grant to U.S. Bank of a security interest in
 all of its assets as security for the Secured Obligations is among the agreed
upon modifications to the Loans.


                NOW, THEREFORE, in order for U.S. Bank to modify the Loans in
accordance with the terms of the Fifth Amendment, Borrower agrees as follows:

                             ARTICLE I. DEFINITIONS

                Unless otherwise defined herein, terms defined in the Credit
Agreement shall have the same meanings when used herein. For the purposes of
this Agreement, the following terms shall have the following meanings:

                "Account" means any right to payment for goods sold or leased or
for services rendered that is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.

                "Account Debtor" means the party who is obligated on or under
any Account, Chattel Paper, or General Intangible.

                "Assignee Deposit Account" shall have the meaning set forth in
Section 5.7 hereof.

                "Chattel Paper" means all interest of Borrower in writings that
evidence both a monetary obligation and a security interest in or a lease of
specific goods, including any group of writings consisting of both a security
agreement or a lease and an Instrument or series of Instruments.

                "Collateral" means all property, real, personal, and mixed,
tangible and intangible, wherever located, now owned or hereafter acquired by
Borrower, or in which

                                      -1-
   23
Borrower has or later obtains an interest, including but not limited to
Accounts, Chattel Paper, Deposit Accounts, Documents, Equipment, Financial
Assets, General Intangibles, Goods, Instruments, Inventory, Investment Property,
Trademarks, and Vehicles, and all products, profits, rents, and proceeds of such
property. As used in this Agreement, "Collateral" shall not include any property
owned by any Subsidiary of Borrower.

                "Deposit Account" means a demand, time, savings, passbook, or
like account maintained with a bank, savings and loan association, credit union,
or like organization, other than an account evidenced by a certificate of
deposit.

                "Document" means all of Borrower's right, title, and interest in
or to any document of title as defined in RCW 62A.1-201 and any receipt of the
kind described in RCW 62A.7-201(2).

                "Equipment" means all of Borrower's right, title, and interest
in and to Goods that are used or bought for use primarily in business and that
are not included within the definition of Inventory, including but not limited
to all machinery, equipment, furnishings, fixtures, vehicles, tools, supplies,
and other equipment of any kind and nature and all additions, substitutions, and
replacements of any of the foregoing, together with all attachments, components,
parts, accessories, improvements, upgrades, and accessories installed thereon or
affixed thereto.

                "Event of Default" means an occurrence of an Event of Default as
defined in the Credit Agreement.

                "Financial Assets" means all of Borrower's right, title, and
interest in and to any financial asset as defined in RCW 62A.8-102.

                "General Intangibles" means all personal property (including
things in action) other than Goods, Accounts, Chattel Paper, Documents,
Financial Assets, Instruments, Investment Property, and money, including but not
limited to all Trademarks, insurance proceeds, patents, copyrights, trade names,
trade secrets, goodwill, registration, license rights, licenses, permits,
corporate and other business records, rights to refunds or indemnification, and
all other intangible personal property of Borrower of every kind and nature.

                "Goods" means all things that are movable or that are fixtures,
not including money, Documents, Financial Assets, Instruments, Accounts, Chattel
Paper, Investment Property, or General Intangibles.

                "Instrument" means any negotiable instrument or other writing
that evidences a right to the payment of money and is not itself a security
agreement or lease and is of a type that is in the ordinary course of business
transferred by delivery with any necessary endorsement or assignment.

                "Inventory" means all Goods held by Borrower for sale or lease,
furnished or to be furnished by Borrower under any contract of service, or held
by Borrower as raw materials, work in progress, or materials used or consumed in
Borrower's business.

                                      -2-
   24
                "Investment Property" means all of Borrower's right, title, and
interest in and to any investment property as defined in RCW 62A.9-115.

                "Secured Obligations" means any past, present, or future
Indebtedness of Borrower to U.S. Bank, and includes but is not limited to (a)
any indebtedness, obligation, or liability of any kind arising in any way of
Borrower to U.S. Bank, now existing or hereafter created, under the Credit
Agreement, the Notes, or the other Loan Documents, including any refinancing,
renewal, replacement, extension, amendment, or substitution of such
indebtedness, (b) any liability or obligation of Borrower hereunder, (c) the
obligations of Borrower under any guaranty executed by Borrower and delivered to
U.S. Bank, whereby Borrower guarantees the Indebtedness of any Person other than
Borrower to U.S. Bank, and (d) any cost, expense, or liability, including but
not limited to reasonable attorney fees, that may be incurred and advances that
may be made by U.S. Bank in any way in connection with any of the foregoing or
any security therefor.

                "Trademark" means (a) any trademark, trade name, corporate name,
company name, business name, fictitious business name, trade style, service
mark, logo or other source or business identifier, and the goodwill associated
therewith, now existing or hereafter adopted or acquired, (b) any registration
or recording of any Trademark, and any application in connection therewith,
whether in the United States Patent and Trademark Office or in any similar
office or agency of the United States or of any state of the United States, or
any other country or any political subdivision of another country or otherwise,
and (c) all renewals of any Trademark.

                "Vehicle" means any car, truck, trailer, construction or
earth-moving equipment, or other vehicle covered by a certificate of title of
any state, including but not limited to any tires or other appurtenances to any
Vehicle.

                     ARTICLE II. GRANT OF SECURITY INTEREST


                As security for the payment and satisfaction of the Secured
Obligations, Borrower hereby grants to U.S. Bank a continuing security interest
in and assigns to U.S. Bank all of Borrower's right, title, and interest in the
Collateral and all products, profits, rents, and proceeds thereof.

                       ARTICLE III. COVENANTS OF BORROWER

                Borrower shall fully perform each of the following covenants:

                3.1     Obligations to Pay.

                (a)     Borrower shall pay to U.S. Bank, in timely fashion and
in full, all amounts payable by Borrower to U.S. Bank, pursuant to the Credit
Agreement, the Notes, and the other Loan Documents; and

                (b)     Borrower shall pay and reimburse U.S. Bank for all
expenditures including reasonable attorney fees and legal expenses in connection
with the exercise by U.S. Bank of any of its rights or remedies under the Credit
Agreement or the other Loan Documents.

                                      -3-
   25
                3.2     Performance. Borrower shall fully perform in a timely
fashion every covenant, agreement, and obligation set forth in the Credit
Agreement and the other Loan Documents.

                3.3     Further Documentation. At its own expense, Borrower
shall execute and deliver any financing statement, any renewal, substitution, or
correction thereof, or any other document; shall procure any document; and shall
take such further action as U.S. Bank reasonably may require in obtaining the
full benefits of this Agreement.

                3.4     Filing Fees. Borrower shall pay all costs of filing any
financing, continuation, or termination statement with respect to the security
interests granted herein.

                3.5     Pledges. Borrower shall deliver and pledge to U.S. Bank,
endorsed or accompanied by instruments of assignment or transfer satisfactory to
U.S. Bank, any Instruments, Investment Property, Documents, General Intangibles,
or Chattel Paper that U.S. Bank may specify from time to time.

                3.6     Maintenance of Records. Borrower shall keep and maintain
at its own cost and expense satisfactory and complete records of the Collateral
including but not limited to a record of all payments received and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. Borrower shall deliver and turn over to U.S. Bank all books and
records pertaining to the Collateral at any time after the occurrence and during
the continuation of an Event of Default, if so demanded by U.S. Bank.

                3.7     Disposition of Collateral. Except for the sale of
Equipment that was used in Borrower's location at Phinney Avenue North, Seattle,
Washington, or in the ordinary course of Borrower's business or as otherwise
allowed in the Credit Agreement, Borrower shall not sell or transfer any of the
Collateral or release, compromise, or settle any obligation or material
receivable due to Borrower.

                3.8     Indemnification. Borrower agrees to pay, and to
indemnify U.S. Bank and hold U.S. Bank harmless from, all liabilities, costs,
and expenses including but not limited to reasonable legal fees and expenses
with respect to or resulting from (a) any delay in paying any excise, sales, or
other taxes that may be payable or determined to be payable with respect to any
of the Collateral, (b) any delay by Borrower in complying with any requirement
of law applicable to any of the Collateral, or (c) any of the transactions
contemplated by this Agreement. In any reasonable suit, proceeding, or action
brought by U.S. Bank to enforce payment of any sum owing on any Account or to
enforce any provisions of any Account, Borrower will indemnify U.S. Bank and
hold U.S. Bank harmless from all expense, loss, or damage suffered by reason of
any defense, setoff, counterclaim, recoupment, or reduction allowed with respect
to the Account to the extent arising out of a breach by Borrower of any
obligation under the Account or arising out of any other agreement,
indebtedness, or liability at any time owing to or in favor of such Account
Debtor or its successors from Borrower.

                3.9     Limitations on Amendments, Modifications, Terminations,
Waivers, and Extensions of Contracts and Agreements Giving Rise to Accounts.
Except, in each case, in the ordinary course of Borrower's business or
consistent with industry practice, Borrower will not


                                      -4-
   26
(a) amend, modify, terminate, waive, or extend any provision of any agreement
giving rise to an Account in any manner that could reasonably be expected to
have a material adverse effect on the aggregate value of the Accounts as
Collateral or (b) fail to exercise promptly and diligently every material right
that it may have under each agreement giving rise to an Account, other than any
right of termination.

                3.10    Limitations on Discounts, Compromises, and Extensions of
Accounts. Borrower will not grant any extension of the time of payment of any of
the Accounts; compromise, compound, or settle the same for less than the full
amount thereof; release, wholly or partially, any Person liable for the payment
thereof; or allow any credit or discount whatsoever thereon, except, in each
case, in the ordinary course of Borrower's business or consistent with industry
practice.

                3.11    Further Identification of Collateral. Borrower will
furnish to U.S. Bank, upon its reasonable request, statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as U.S. Bank may reasonably request.

                3.12    Notices. Borrower will advise U.S. Bank promptly in
reasonable detail at its address set forth in Section 7.9 of the occurrence of
any event that could reasonably be expected to have a material adverse effect on
the Collateral or on the liens created hereunder, including any lien (other than
liens created hereby or permitted under the Credit Agreement) on or claim
asserted against any of the Collateral.

                3.13    Changes in Locations, Name, Etc. Borrower will not (a)
change the location of its chief executive office/chief place of business or
remove its books and records from the locations specified on Schedule II to this
Agreement, (b) except in the ordinary course of Borrower's business and
consistent with prior practice, permit any of the Inventory or Equipment
(excluding Vehicles) to be kept at locations other than those listed on Schedule
II, or (c) change its name, identity, or structure to such an extent that any
financing statement filed by U.S. Bank in connection with this Agreement would
become seriously misleading, unless it shall have given U.S. Bank at least ten
days' prior written notice thereof.

                3.14    Trademarks.

                (a)     Borrower (either itself or through licensees) will, in a
manner consistent with prior practice, (i) continue to use its Trademarks in
order to maintain such Trademarks in full force, free from any claim of
abandonment for nonuse that would materially decrease the aggregate value of the
Trademarks, (ii) maintain the quality of products and services offered under
such Trademarks, (iii) employ such Trademarks with the appropriate notice of
registration, (iv) not adopt or use any mark that is confusingly similar to or a
colorable imitation of such Trademarks unless U.S. Bank shall have obtained a
perfected security interest in such mark pursuant to this Agreement, and (v) not
(and not permit any licensee or sublicensee thereof to) do any act or knowingly
omit to do any act whereby any currently-used Trademark may become invalidated.

                                      -5-
   27
                (b)     Borrower will notify U.S. Bank immediately if it knows,
or has reason to know, of (i) any application or registration relating to any
Trademark material to its business that may become abandoned or dedicated, or
(ii) any adverse determination or development (including but not limited to the
institution of, or any adverse determination or development in, any proceeding
in the United States Patent and Trademark Office or any court or tribunal in any
country) regarding Borrower's ownership of any material Trademark or its right
to register, keep, or maintain the same.

                (c)     Whenever Borrower, either by itself or through any
agent, employee, licensee, or designee, shall file an application for the
registration of any material Trademark with the United States Patent and
Trademark Office, Borrower shall report such filing to U.S. Bank within 30 days
after the last day of the calendar month in which such filing occurs. Borrower
shall execute and deliver to U.S. Bank all agreements, instruments, powers of
attorney, documents, and papers that U.S. Bank may request to evidence U.S.
Bank's security interest in any Trademark and in the goodwill and general
intangibles of Borrower relating to or represented by the Trademark. Borrower
hereby constitutes U.S. Bank its attorney-in-fact to execute and file all such
writings for the foregoing purposes, with all acts of such attorney being hereby
ratified and confirmed; and such power, being coupled with an interest, is
irrevocable until all Secured Obligations are paid in full.

                (d)     Borrower will take all reasonable and necessary steps,
including but not limited to all reasonable and necessary steps in any
proceeding before the United States Patent and Trademark Office or any similar
office or agency in any other country or any political subdivision thereof to
which Borrower has applied for any Trademark, to maintain and pursue each
application, to obtain the relevant registration, and to maintain each
registration of material Trademarks, including but not limited to filing
applications for renewal, affidavits of use, and affidavits of incontestability.

                (e)     If any Trademark that is included in the Collateral is
infringed, misappropriated, or diluted by a third party, Borrower shall promptly
notify U.S. Bank after it learns thereof and shall take such action as Borrower
reasonably deems appropriate under the circumstances to protect such Trademark.

                3.15    Vehicles. Upon request by U.S. Bank, the application for
certificate of title to any vehicle indicating U.S. Bank's first priority lien
on such Vehicle, and any other necessary documentation, shall be filed in each
office in each jurisdiction that U.S. Bank deems advisable to perfect its lien
on any Vehicle constituting Collateral.

                3.16    Insurance. Borrower agrees to insure the Collateral
against all hazards in form and amount consistent with the prior practices of
Borrower and reasonably acceptable to U.S. Bank. If Borrower fails to obtain
such insurance, U.S. Bank shall have the right, but not the obligation, to
obtain either insurance covering both Borrower's and U.S. Bank's interest in the
Collateral, or insurance covering only U.S. Bank's interest in the Collateral.
Borrower agrees to pay such premium that would be charged for insurance that
Borrower is required to maintain by this Section 3.16. This amount may be added
to the outstanding balance of the Loans, and interest thereon shall be charged
at the rate specified in any applicable Loan Document, or U.S. Bank may demand
immediate payment. Any unpaid insurance premium advanced by


                                      -6-
   28
U.S. Bank shall be secured under the terms of this Agreement. U.S. Bank will
have no liability whatsoever for any loss which may occur by reason of the
omission or lack of coverage of any such insurance. Any insurer shall make
payable jointly to the Borrower and U.S. Bank as secured party (or otherwise as
its interest may appear) any loss payments from casualty/property loss insurance
covering any of the Collateral in excess of $100,000.

                3.17    Copy of Financing Statement. Borrower agrees that a
carbon, photographic, or other reproduction of a financing statement or this
Agreement is sufficient as a financing statement.

                   ARTICLE IV. REPRESENTATIONS AND WARRANTIES


                Borrower hereby makes the following representations and
warranties:

                4.1     Title to Collateral. Borrower has good and marketable
title to all the Collateral, free and clear of all liens excepting only the
security interests created pursuant to this Agreement or permitted pursuant to
the Credit Agreement.

                4.2     No Impairment of Collateral. None of the Collateral
shall be impaired or jeopardized because of the security interest herein
granted.

                4.3     Other Agreements. The execution and delivery of this
Agreement, the consummation of the transactions provided for herein, and the
fulfillment of the terms hereof will not result in the breach of any of the
terms, conditions, or provisions of, or constitute a default under, or conflict
with, or cause any acceleration of any obligation under any (a) agreement or
other instrument to which Borrower is a party or by which Borrower is bound or
(b) Applicable Law.

                4.4     No Approvals. No Governmental Approvals of any nature
are required in connection with the security interests herein granted.

                4.5     Authority. Borrower has full power and authority to
assign to U.S. Bank and to grant to U.S. Bank a security interest in the
Collateral.

                4.6     Location of Records. The address of the office where the
books and records of Borrower are kept concerning the Collateral is set forth on
Schedule II.

                4.7     Location of Collateral. The locations of all Inventory
and Equipment of Borrower are described on Schedule II.

                4.8     Name. Borrower, but not necessarily any of its
Subsidiaries, conducts its business only under the name "Redhook Ale Brewery,
Incorporated."

                4.9     Accounts. The amount represented by Borrower to U.S.
Bank from time to time as owing by each Account Debtor or by all Account Debtors
in respect of the Accounts will at such time be the materially correct amount
actually owing by such Account Debtor or Debtors thereunder. No material amount
payable to Borrower under or in connection with any


                                      -7-
   29
Account is evidenced by anyInstrument or Chattel Paper that has not been
delivered to U.S. Bank.

                4.10    Chief Executive Office. Borrower's chief executive
office and chief place of business is located at the address set forth on
Schedule II.

                4.11    Trademarks. Schedule I hereto includes all Trademarks
owned by Borrower in its own name as of the date hereof. To the best of
Borrower's knowledge, the Trademarks are valid, subsisting, unexpired, and
enforceable and have not been abandoned. Except as set forth in Schedule I, none
of the Trademarks is the subject of any licensing or franchise agreement. No
holding, decision, or judgment that would limit, cancel, or question the
validity of the Trademarks has been rendered by any Governmental Body. No action
or proceeding is pending that seeks to limit, cancel, or question the validity
of such Trademarks and that would, if adversely determined, have a material
adverse effect on the aggregate value of the Trademarks.

                4.12    Governmental Obligors. No Account Debtor is a
Governmental Body.

                   ARTICLE V. U.S. BANK'S RIGHTS WITH RESPECT
                                TO THE COLLATERAL

                5.1     No Duty on U.S. Bank's Part. U.S. Bank shall not be
required (except at its option upon the occurrence and during the continuation
of any Event of Default) to realize upon any Accounts, Financial Assets,
Instruments, Investment Property, Chattel Paper, or General Intangibles; collect
the principal, interest, or payment due thereon, exercise any rights or options
of Borrower pertaining thereto; make presentment, demand, or protest; give
notice of protest, nonacceptance, or nonpayment; or do any other thing for the
protection, enforcement, or collection of such Collateral. The powers conferred
on U.S. Bank hereunder are solely to protect U.S. Bank's interests in the
Collateral and shall not impose any duty upon U.S. Bank to exercise any such
powers. U.S. Bank shall be accountable only for amounts that U.S. Bank actually
receives as a result of the exercise of such powers; and neither U.S. Bank nor
any of its officers, directors, employees, or agents shall be responsible to
Borrower for any act or failure to act hereunder.

                5.2     Negotiations with Account Debtors. During the existence
of any Event of Default, U.S. Bank may, in its sole discretion, extend or
consent to the extension of the time of payment or maturity of any Instruments,
Accounts, Chattel Paper, or General Intangibles.

                5.3     Right to Assign. Except as otherwise provided in the
Credit Agreement, U.S. Bank may assign or transfer the whole or any part of the
Secured Obligations and may transfer therewith U.S. Bank's security interests in
the whole or any part of the Collateral; and all obligations, rights, powers,
and privileges herein provided shall inure to the benefit of the assignee and
shall bind the successors and assigns of the parties hereto.

                5.4     Duties Regarding Collateral. Beyond the safe custody
thereof, U.S. Bank shall not have any duty as to any Collateral in its
possession or control, or as to any preservation of any rights of or against
other parties.

                                      -8-
   30
                5.5     Collection From Account Debtors. During the existence of
any Event of Default, Borrower shall, upon demand by U.S. Bank (and without any
grace or cure period), notify all Account Debtors to make payment to U.S. Bank
of any amounts due or to become due. Borrower authorizes U.S. Bank to contact
the Account Debtors for the purpose of having all or any of them pay their
obligations directly to U.S. Bank. Upon demand by U.S. Bank, Borrower shall
enforce collection of any indebtedness owed to it by Account Debtors.

                5.6     Inspection. U.S. Bank and its designees, from time to
time at reasonable times and intervals, may inspect the Equipment and Inventory
and inspect, audit, and make copies of and extracts from all records and all
other papers in the possession of Borrower.

                5.7     Assignee Deposit Account. Upon demand by U.S. Bank,
during the existence of an Event of Default, Borrower will transmit and deliver
to U.S. Bank, in the form received, immediately after receipt, all cash, checks,
drafts, Chattel Paper, Instruments, or other writings for the payment of money
including Investment Property (properly endorsed, where required, so that the
items may be collected by U.S. Bank) that may be received by Borrower at any
time. All items or amounts that are delivered by Borrower to U.S. Bank, or
collected by U.S. Bank from the Account Debtors, shall be deposited to the
credit of a Deposit Account ("Assignee Deposit Account") of Borrower with U.S.
Bank, as security for the payment of the Secured Obligations. Borrower shall
have no right to withdraw any funds deposited in the Assignee Deposit Account.
U.S. Bank may, from time to time in its discretion, and shall, upon the request
of Borrower made not more than twice in any week, apply all or any of the
balance, representing collected funds, in the Assignee Deposit Account, to
payment of the Secured Obligations, whether or not then due, in such order of
application, not inconsistent with the terms of the Credit Agreement and this
Agreement, as U.S. Bank may determine; and U.S. Bank may, from time to time in
its discretion, release all or any of such balance to Borrower.

                5.8     Right of Setoff. Borrower grants to U.S. Bank a
contractual security interest in, and hereby assigns, conveys, delivers,
pledges, and transfers to U.S. Bank all Borrower's right, title and interest in
and to, Borrower's accounts with U.S. Bank (whether checking, savings, or some
other account), including without limitation all accounts held jointly with
someone else and all accounts Borrower may open in the future, excluding however
all IRA and Keogh accounts, and all trust accounts for which the grant of a
security interest would be prohibited by law. Borrower authorizes U.S. Bank, to
the extent permitted by applicable law, to charge or setoff all sums owing under
the Loan Documents against any and all such accounts.

                  ARTICLE VI. U.S. BANK'S RIGHTS AND REMEDIES

                6.1     General. During the existence of any Event of Default,
U.S. Bank may exercise its rights and remedies in the Credit Agreement and in
any other Loan Documents and any other rights and remedies at law and in equity,
simultaneously or consecutively, all of which rights and remedies shall be
cumulative. The choice of one or more rights or remedies shall not be construed
as a waiver or election barring other rights and remedies. Borrower hereby
acknowledges and agrees that U.S. Bank is not required to exercise all rights
and remedies available to it equally with respect to all the Collateral and that
U.S. Bank may select less than all the Collateral with respect to which the
rights and remedies as determined by U.S. Bank may be exercised.

                                      -9-
   31
                6.2     Notice of Sale; Duty to Assemble Collateral. In addition
to or in conjunction with the rights and remedies referred to in Section 6.1
hereof:

                (a)     Written notice mailed to Borrower at the address
designated herein ten days or more prior to the date of public or private sale
of any of the Collateral shall constitute reasonable notice.

                (b)     If U.S. Bank requests, Borrower will assemble the
Collateral and make it available to U.S. Bank at places that U.S. Bank shall
reasonably select, whether on Borrower's premises or elsewhere.

                        ARTICLE VII. GENERAL PROVISIONS

                7.1     Entire Agreement. This Agreement, together with the
Credit Agreement and the other Loan Documents, sets forth all the promises,
covenants, agreements, conditions, and understandings between the parties hereto
with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements, or conditions,
express or implied, oral or written, with respect thereto, except as contained
or referred to herein. This Agreement may not be amended, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of such amendment, waiver, discharge, or termination is
sought.

                7.2     Invalidity. If any provision of this Agreement shall for
any reason be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereunder, but this
Agreement shall be construed as if such invalid or unenforceable provision had
never been contained herein.

                7.3     Nonwaiver and Nonexclusive Rights and Remedies.

                (a)     No right or remedy herein conferred upon or reserved to
U.S. Bank is intended to be to the exclusion of any other right or remedy, but
each and every such right or remedy shall be cumulative and shall be in addition
to every other right or remedy given hereunder and now or hereafter existing at
law or in equity.

                (b)     No delay or omission by U.S. Bank in exercising any
right or remedy accruing upon an Event of Default shall impair any such right or
remedy, or shall be construed to be a waiver of any such Event of Default, or an
acquiescence therein, nor shall it affect any subsequent Event of Default of the
same or of a different nature.

                7.4     Termination of Security Interest. When all the Secured
Obligations have been paid in full, the security interest provided herein shall
terminate and U.S. Bank shall return to Borrower all Collateral then held by
U.S. Bank, if any, and upon written request of Borrower, shall execute, in form
for filing, termination statements of the security interests herein granted.
Thereafter, no party hereto shall have any further rights or obligations
hereunder.

                7.5     Successors and Assigns. All rights of U.S. Bank
hereunder shall inure to the benefit of its successors and assigns, and all
obligations of Borrower shall be binding upon its successors and assigns.

                                      -10-
   32
                7.6     U.S. Bank's Appointment as Attorney-in-Fact.

                (a)     Borrower hereby irrevocably constitutes and appoints
U.S. Bank and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of Borrower and in the name of Borrower or in its own
name, from time to time during the existence of an Event of Default, in U.S.
Bank's discretion, for the purpose of carrying out the terms of this Agreement,
to take any and all appropriate action, and to execute any and all documents and
instruments that may be necessary or desirable to accomplish the purposes of
this Agreement; and without limiting the generality of the foregoing, Borrower
hereby gives U.S. Bank the power and right, on behalf of Borrower, without
consent by or notice to Borrower, to do the following during the existence of an
Event of Default:

                (i)     to transfer to U.S. Bank or to any other Person all or
        any of the Collateral, to endorse any Instruments pledged to U.S. Bank,
        and to fill in blanks in any transfers of Collateral, powers of
        attorney, or other documents delivered to U.S. Bank;

                (ii)    to pay or discharge taxes and liens levied or placed on
        or threatened against the Collateral, to effect any repairs or any
        insurance called for by the terms of this Agreement, and to pay all or
        any part of the premiums therefor and the costs thereof;

                (iii)   to take possession of, endorse, and collect any checks,
        drafts, notes, acceptances, or other instruments for the payment of
        moneys due under any Account, Instrument, or General Intangible or with
        respect to any other Collateral and to file any claim or to take any
        other action or proceeding in any court of law or equity or otherwise
        deemed appropriate by U.S. Bank for the purpose of collecting all such
        moneys due under any Account, Financial Assets, Instrument, Investment
        Property, or General Intangible or with respect to any other Collateral
        whenever payable; and

                (iv)    to direct any party liable for any payment under any of
        the Collateral to make payment of all moneys due or to become due
        thereunder directly to U.S. Bank or as U.S. Bank shall direct; to ask
        for, demand, collect, and receive payment of and receipt for, any and
        all moneys, claims and other amounts due or to become due at any time in
        respect of or arising out of any Collateral; to sign and endorse any
        invoices, freight or express bills, bills of lading, storage or
        warehouse receipts, drafts against debtors, assignments, verifications,
        notices, and other documents in connection with any of the Collateral;
        to commence and prosecute any suits, actions, or proceedings at law or
        in equity in any court of competent jurisdiction to collect the
        Collateral and to enforce any other right in respect of any Collateral;
        to defend, settle, compromise, or adjust any suit, action, or proceeding
        brought against Borrower with respect to any Collateral and, in
        connection therewith, to give such discharge or releases as U.S. Bank
        may deem appropriate; to assign any Trademark (along with the goodwill
        of the business to which any such Trademark pertains) throughout the
        world for such terms, on such

                                      -11-
   33
        conditions, and in such manner as U.S. Bank shall in its sole discretion
        determine; and generally, to sell, transfer, pledge, and make any
        agreement with respect to or otherwise deal with any of the Collateral
        as fully and completely as though U.S. Bank were the absolute owner
        thereof for all purposes; and to do, at U.S. Bank's option and
        Borrower's expense, at any time or from time to time, all acts and
        things that U.S. Bank deems necessary to protect, preserve or realize
        upon the Collateral and U.S. Bank's liens thereon and to effect the
        intent of this Agreement, all as fully and effectively as Borrower might
        do.

                (b)     Borrower hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue of this appointment. This power of
attorney is a power coupled with an interest and shall be irrevocable until all
Secured Obligations are paid in full.

                (c)     Borrower also authorizes U.S. Bank, at any time and from
time to time, to execute, in connection with the sale provided for in Article VI
hereof, any endorsements, assignments, or other instruments of conveyance or
transfer with respect to the Collateral.

                (d)     The powers conferred on U.S. Bank hereunder are solely
to protect U.S. Bank's interests in the Collateral and shall not impose any duty
upon U.S. Bank to exercise any such powers. U.S. Bank shall be accountable only
for amounts that it actually receives as a result of the exercise of such
powers, and neither it nor any of its officers, directors, employees, or agents
shall be responsible to Borrower for any act or failure to act hereunder.

                7.7     Performance by U.S. Bank of Borrower's Obligations. If
Borrower fails to perform or comply with any of its agreements contained herein
and U.S. Bank, as provided for by the terms of this Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, the expense of U.S. Bank incurred in connection with such performance
or compliance, together with interest thereon at the rate provided for in the
Credit Agreement upon the occurrence of an Event of Default, shall be payable by
Borrower to U.S. Bank on demand and shall constitute Secured Obligations.

                7.8     Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be construed and enforced in
accordance with and shall be governed by the laws of the state of Washington,
without regard to the state's rules and principles relating to conflicts of law.

                7.9     WAIVER OF RIGHT TO JURY TRIAL. U.S. BANK AND BORROWER
HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT BY EITHER U.S. BANK OR BORROWER AGAINST THE OTHER.

                BORROWER'S INITIALS /S/  DM      U.S. BANK'S INITIALS /S/  KP

                7.10    Notices. All notices, requests, consents, demands,
approvals, and other communications hereunder shall be deemed to have been duly
given, made, or served if given, made or served in accordance with the notice
provisions of Section 10.1 of the Credit Agreement.

                                      -12-
   34
                7.11    Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original Agreement, but all
of which together shall constitute one and the same instrument.

                IN WITNESS WHEREOF, Borrower and U.S. Bank have caused this
Agreement to be duly executed by their respective duly authorized officers or
agents, to be effective as of June 19, 2001.

                                    REDHOOK ALE BREWERY, INCORPORATED

                                    By:     /s/  David J. Mickelson
                                            -----------------------
                                            David Mickelson,
                                            Executive Vice President

ACCEPTED BY:                        U.S. BANK NATIONAL ASSOCIATION, a national
                                    banking association






                                    By:     /s/  Kenneth D. Plank
                                            ---------------------
                                            Kenneth D. Plank,
                                            Vice President


                                      -13-
   35

                                   SCHEDULE I

                             TRADEMARK REGISTRATIONS




                 Mark                      Country          Reg. No.              Issued
- --------------------------------------- --------------- ----------------- -----------------------
                                                                 
BALLARD BITTER                              Canada          426,849            May 6, 1994

BALLARD BITTER                              Mexico           484957         November 30, 1994

BALLARD BITTER                               U.S.          1,755,631          MARCH 2, 1993

BALLARD BITTER                            State: New     Vol. 90 Pg 26      February 15, 1995
                                          Hampshire

BLACK HOOK                                   U.S.          1,299,809         OCTOBER 9, 1984

BLACK HOOK                                  Mexico           484959         November 30, 1994

BLACK HOOK                                State: New     Vol. 90 Pg 24      February 15, 1995
                                          Hampshire

BLACKHOOK PORTER & DESIGN                    U.S.          1,296,703        SEPTEMBER 18, 1984

BLUELINE                                     U.S.          1,892,301           MAY 2, 1995

DESIGN (BALLARD BITTER)                      U.S.          1,409,762        SEPTEMBER 16, 1986

DESIGN (WINTERHOOK)                          U.S.          1,493,423          JUNE 21, 1988

FORECASTERS                                  U.S.          1,929,789         OCTOBER 24, 1995

RED HOOK                                    Canada          418,500          October 22, 1993

RED HOOK                                  Hong Kong         2375/93           June 18, 1993

RED HOOK                                    Japan           2601613         November 30, 1993

RED HOOK                                 South Korea        247,104          August 17, 1992

RED HOOK                                    Mexico           484960         November 30, 1994

RED HOOK                                  Singapore         7563/91          August 13, 1991

RED HOOK                                    Taiwan           556831           April 16, 1992

RED HOOK                                     U.S.          1,253,138         OCTOBER 4, 1983


                                      -14-
   36



                 Mark                      Country          Reg. No.              Issued
- --------------------------------------- --------------- ----------------- -----------------------
                                                                 

RED HOOK ALE & DESIGN                        U.S.          1,332,480          APRIL 23, 1985

RED HOOK BLUELINE AND DESIGN                 U.S.          1,802,237         NOVEMBER 2, 1993

RED HOOK DOUBLE BLACK                       Japan           4143687            May 8, 1998

RED HOOK ESB                              State: New      Vol 90 Pg 25      February 15, 1995
                                          Hampshire

RED HOOK ESB AND DESIGN                      U.S.          1,940,873        DECEMBER 12, 1995

REDHOOK DOUBLBLACK STOUT                     U.S.          2,093,507        SEPTEMBER 2, 1997

TROLLEYMAN                                   U.S.          1,929,788         OCTOBER 24, 1995

WHEAT HOOK                                  Canada          413,666           June 18, 1993

WHEAT HOOK                                  Mexico           484958         November 30, 1994

WHEAT HOOK                                   U.S.          1,682,181          APRIL 7, 1992

WHEAT HOOK                                State: New      Vol 90 Pg 7       February 15, 1995
                                          Hampshire

WHEATHOOK and Design                        State:           18,915            May 10, 1989
                                          Washington

WINTERHOOK                                   U.S.          1,490,430           MAY 31, 1988

WINTERHOOK                                State: New                          March 20, 1996
                                           Hampshire


                                      TRADEMARK APPLICATIONS


BALLARD BITTER, IPA and Design               U.S.          75/479,479          May 5, 1998

ESB                                         Japan         1997-103375         April 3, 1997

RED HOOK                                    Japan         1997-103376         April 3, 1997

RED HOOK Logo                             Community          440966         December 11, 1996



                                      -15-
   37
                                   SCHEDULE II

Address of

Chief executive office:      3400 Phinney Avenue North
                             Seattle, WA  98103

Address of Office where
Books and records are kept:  Same as Chief Executive Office

Addresses of locations of
Collateral:                  Washington

                                      -16-
   38
                                  SCHEDULE II