MANUFACTURING  BUSINESS  EXPANSION  AND  RELOCATION  AGREEMENT FOR
MENDOCINO  BREWING COMPANY 

This  Agreement is made and entered on August 8, 1996,  in Ukiah,  California by
and between Mendocino Brewing Company,  Inc. (MBC). a corporation  organized and
operated  under and in compliance  with the laws of the State of California  and
the Ukiah Redevelopment  Agency (Agency),  a public agency of the City of Ukiah,
located in Mendocino County, California.
RECITALS: 
1. MBC is a small brewery currently located in Mendocino County, California, and
outside  the City of Ukiah.  MBC's  current  facility  only  permits  it to brew
approximately 18,000 bbls. per year.
2. MBC wishes to expand and relocate its business and  manufacturing  facilities
within the City of Ukiah and Agency  wishes to provide  MBC with  incentives  to
facilitate the expansion and  relocation of its operations in the  Redevelopment
Project Area.
3. In providing MBC with the incentives  provided in this Agreement,  Agency has
relied upon the  representations  of MBC, that it will expand  operations in the
Redevelopment  Project Area with employees,  who have been or will be hired from
the  local  labor  force  whenever  possible,  If  MBC  fails  to  complete  the
manufacturing facility and commence  manufacturing  operations by April 1, 1997,
this Agreement shall terminate and Agency shall have no obligations to MBC under
the terms of this Agreement.
4. Agency has determined that the attraction of new manufacturing  jobs into the
local  economy  will  provide  general  public  benefits  for the  Agency  which
constitute  a  sufficient  public  purpose to justify the use of Agency funds to
provide public  improvements to support MBC expansion to  Redevelopment  Project
Area.

AGREEMENT:  
Wherefore,  in  consideration  of the  above-recited  facts  and the  terms  and
conditions as further stated herein, the parties hereby agree as follows:
1. Definitions:  The following terms shall have the following meaning,
unless another meaning is expressly  provided  elsewhere in this  Agreement.  
A.  "Manufacturing  facility" means the  brewing and bottling  plant,  the water
treatment  storage pond and  installed  equipment  necessary  for  manufacturing
operations.
B. "Manufacturing operations" means production of bottled beverages for sale.
C.  "Existing  work force" means 65 full and part-time  employees,  including 40
full-time and 25 part-time/seasonal employees.
D.  "Local  labor  force"  means  persons  residing  and  available  for work in
Mendocino County.
E. "Whenever  possible"  means,  in connection  with hiring from the local labor
force, that MBC will include Mendocino County in its recruitment efforts to fill
positions through advertisements in local newspapers, job announcements to local
EDD offices,  social service  agencies,  college  placement  offices and similar
organizations.  If MBC receives applications from qualified local residents,  it
will  hire  from  those  applicants,  unless  it has  specific  reasons  why the
qualified applicants are unacceptable. MBC will not hire outside the local labor
force,  unless it has been unable to hire a qualified  applicant  as a result of
such local recruitment effort.
2.  Relocation and expansion of  manufacturing  facility:  As of April 1996, MBC
will continue to add up to 15 full-time  employees to its existing  workforce in
accordance  with the schedule  contained in the attached  Exhibit "A",  which is
incorporated herein by reference. MBC shall hire these additional employees from
the local labor force, whenever possible.
3. Public Improvements: Agency agrees to provide access and utilities to the MBC
manufacturing   facility.   Agency   further   agrees  to  complete  all  public
improvements  including curb and gutter  normally  associated  with the improved
roadway  along the Brewery  frontage.  Extension of water,  sewer,  and electric
utilities will be the  responsibility  of Agency.  Value of said improvements is
estimated at $550,000.
4. Incentives:  After the execution of this Agreement by the parties hereto, the
Agency shall offer the following incentives to MBC:
4.1 Utility  Connection Fees: The Agency shall pay on MBC's behalf the following
utility connection fees in the following amounts, subject to the limitations and
conditions set forth in this paragraph.

Electric Utility Connection Fee      $ 12,360
Water Utility  Connection Fee*       $  7,040 
Sewer Utility Connection Fee**       $244,000 

* Water utility connection fee is based upon a three-inch service connection.
** Sewer Utility Connection Fee of $244,000 is calculated at a discharge rate of
up to 55,000 gpd of Brewery  discharge.  For each  10,000 gpd over 55,000 gpd, a
fee will be assessed  based on 44.44 times the capital  improvement  fee that is
established by City Code. The Brewery further agrees to develop a recycling plan
prior to any expansion  that would increase  discharge  levels above 55,000 gpd.
Any provision for utilities not specifically mentioned herein such as telephone,
natural gas, or any other  utility fees which may be required and not  mentioned
herein are the sole  responsibility of MBC. All other fees, taxes, or levies not
specifically defined herein are the sole responsibility of MBC.

5.  Term:  This  Agreement  shall  remain in effect  for  three  years  from its
effective date.
6.  Modifications:  Agency or MBC may, from time to time, request changes in the
terms of this  Agreement.  Such changes,  which are mutually  agreed upon by and
between  Agency and MBC,  and  approved by the  Redevelopment  Agency,  shall be
incorporated in written amendments to this Agreement. To be effective,  all such
changes as  referred to in this  section  must be agreed upon in writing by both
parties to this Agreement.
7.  Assignment:  MBC shall not assign any interest in this Agreement,  and shall
not transfer  any  interest in the some  (whether by  assignment  or  notation),
without the prior written consent of Agency.
8.  Application of Laws:  The parties hereby agree that all applicable  Federal,
State  and  local  rules,  regulations  and  guidelines  not  written  into this
Agreement shall hereby prevail during the period of this Agreement.
9.  Governing  Law:  This  Agreement  shall  be  governed  by and  construed  in
accordance with the laws of the State of California. Any legal action concerning
the  Agreement  must be filed and  litigated  in the proper  court in  Mendocino
County.
10.  Integration:  This Agreement contains the entire expansion  agreement among
the  parties  and  supersedes  all prior and  contemporaneous  oral and  written
agreements, understandings, and representations among the parties. No amendments
to this  Agreement  shall be binding  unless  executed  in writing by all of the
parties.
11.  Waiver:  No  waiver of any of the  provisions  of this  Agreement  shall be
deemed,  or shall  constitute  a waiver  of any other  provision,  nor shall any
waiver  constitute  a  continuing  waiver.  No waiver  shall be  binding  unless
executed in writing by the party making the waiver.
12.  Notice:  Whenever  notice,  payment or other  communication  is required or
permitted  under  this  Agreement  it shall be deemed to have  been  given  when
personally  delivered or when  deposited  in the United  States Mail with proper
first class postage affixed thereto and addressed as follows:

MENDOCINO BREWING CO, INC.         UKIAH 
Michael Laybourn                   Ukiah Redevelopment Agency 
Mendocino Brewing Co.              c/o Candace Horsley 
PO Box 400                         300 Seminary Avenue 
Hopland, CA 95449                  Ukiah, CA 95482 

13.  Paragraph  headings:  The  paragraph  headings  contained  herein  are  for
convenience and reference only and are not intended to define or limit the scope
of this Agreement.
14. Duplicate originals: This Agreement may be executed in one or more duplicate
originals  bearing the  original  signature of both parties and when so executed
any such  duplicate  original  shall be admissible as proof of the existence and
terms of the Agreement between the parties.
15. Hold Harmless:  MBC waives and agrees to hold Agency harmless from any claim
for  damages  including,  but not  limited to,  compensatory  and  consequential
damages,  based on Agency's failure to provide the public improvements described
in this  Agreement at all or within any  particular  period of time.  MBC's sole
remedies for Agency's breach of this Agreement shall be specific performance.
WHEREFORE,  the parties have entered  this  Agreement on the date first  written
above.

MENDOCINO BREWING COMPANY, INC.    CITY OF UKIAH BY:
/s/ Michael Laybourn               BY: /s/ Candace Horsley 
Michael Laybourn,                  Candace Horsley,
President                          City Manager