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                        SETTLEMENT AGREEMENT AND RELEASE



        THIS SETTLEMENT AGREEMENT AND RELEASE, (this "AGREEMENT"), is entered

into by and between Mark Anderson, an individual ("ANDERSON"); House of Daniels,

Inc. dba Golden Gate Distributing Company, a California corporation ("HOUSE OF

DANIELS"); Laz-Bev Inc. dba, Tri-Eagle Beverage, a California corporation

("TRI-EAGLE"); Dr. Vijay Mallya, an individual ("MALLYA"); Mendocino Brewing

Company, Inc. a California corporation ("MBC"); Mesa Beverage Co., Inc. a

California corporation ("MESA"); and United Breweries of America, Inc., a

Delaware corporation ("UBA") (collectively, the "PARTIES" and each individually

a "PARTY"), on the terms and conditions set forth herein.



        A.      On or about April 1, 2003, House of Daniels initiated a civil

action in the Superior Court of California, County of Marin, entitled HOUSE OF

DANIELS, INC. DBA GOLDEN GATE DISTRIBUTING V. MENDOCINO BREWING COMPANY, ET AL.,

Case No. CV 031489 (the "ACTION").



        B.      Subsequently, MBC filed a cross-complaint in the Action (the

"MBC CROSS-COMPLAINT"); House of Daniels amended its pleadings culminating in

the filing of a Third Amended Complaint (the "OPERATIVE COMPLAINT"); and Mesa

and Tri-Eagle jointly filed a cross-complaint against MBC (the "MESA

CROSS-COMPLAINT").



        C.      As used in this Agreement, (1) the term "ACTION" shall mean the

lawsuit identified by name and case number in Recital A, above, and shall

include, without limitation, the Operative Complaint, all complaints filed prior

thereto by House of Daniels (the "PRIOR COMPLAINTS"), the MBC Cross-Complaint,

and the Mesa Cross-Complaint; (2) the term "CLAIMS" shall include all claims

asserted by and in the Operative Complaint, the Prior Complaints, and/or the MBC

Cross-Complaint (but not by or in the Mesa Cross-Complaint); and (3) the term

"INDEMNITY CLAIMS" shall mean all claims asserted by and in the Mesa

Cross-Complaint (but not by or in the Claims).



        D.      The Parties now wish to resolve all Disputes (as defined in

Section 5(a)(ii), below) and Claims between them, as of the Effective Date,

PROVIDED, that MBC on the one hand, and Mesa and Tri-Eagle on the other hand,

and only those parties, do not intend hereby to agree, and are not herein

agreeing, to resolve the Indemnity Claims.



        NOW, THEREFORE, for good and valuable consideration, the receipt and

sufficiency of which are hereby acknowledged, the Parties, and each of them, do

hereby agree as follows.



                                    AGREEMENT



        1.      EFFECTIVE DATE.



                This Agreement shall be effective as of and on the date on which

all of the Parties have executed this Agreement, such date being referred to

herein as the "EFFECTIVE DATE." For purposes of clarity, it is understood and

agreed that this Agreement shall not become effective as to any Party unless and

until all Parties have executed it.



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        2.      PAYMENTS BY MBC; INSTALLMENTS.



                a.      SETTLEMENT AMOUNT; INSTALLMENT SCHEDULE. In complete and

final settlement of the Claims and Disputes as described more fully below, MBC

shall pay to House of Daniels a total of Nine Hundred Thousand and 00/100

Dollars ($900,000.00) in three installment payments (the "SETTLEMENT AMOUNT"),

to be made in the amounts and on or by the dates set forth below:



                        (i)     January 31, 2005 - Four Hundred Thousand and

00/100 Dollars ($400,000.00);



                        (ii)    June 30, 2005 - Three Hundred Thousand and

00/100 Dollars ($300,000.00);



                        (iii)   December 31, 2005 - Two Hundred Thousand and

00/100 Dollars ($200,000.00).



        Payment shall be made by wire, bank draft, cashiers check, or other

commercially reasonable method as to be mutually agreed by the Parties.



                b.      SUBORDINATION. Anything to the contrary herein

notwithstanding, MBC's obligation to pay the Settlement Amount shall be

subordinate to the claims of all of MBC's existing and future secured creditors

(other than UBA), including but not limited to Savings Bank of Mendocino County

and CIT Group/Credit Finance, Inc. From time to time after the Effective Date

House of Daniels shall, at MBC's expense, execute and deliver to all such

secured creditors, or cause to be so executed and delivered, any further

instruments or agreements evidencing or effecting such subordination, and shall

take all other actions as such secured creditors may reasonably request, in

order to more effectively carry out the purposes expressed in this paragraph.



                c.      INTEREST. Any balance unpaid on the installment payments

shown above, commencing on the first working day following the date on which

due, shall accrue interest at the simple rate of 6% per annum.



        3.      GUARANTY BY UBA.



                Within ten (10) business days of the Effective Date, UBA shall

provide House of Daniels with a written guaranty for the installment payments to

be made by MBC pursuant to the schedule set forth in Section 2, above. The

guaranty shall be in the form attached hereto as EXHIBIT A, and shall not be

subordinate to any other creditor of UBA.



        4.      DISMISSAL WITH PREJUDICE.



                Within three (3) business days following the Effective Date, the

Parties shall jointly cause to be filed with the Marin County Superior Court a

dismissal WITH PREJUDICE of the Operative Complaint and the MBC Cross-Complaint,

(i.e., of all the Claims), in the form attached hereto as EXHIBIT B (the

"DISMISSAL"). The Dismissal shall not include the Mesa

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