On September 18, 2013, Mendocino Brewing Company Inc. and its wholly-owned subsidiary, Releta Brewing Company LLC received a notice (the "Default Notice") from Cole Taylor Bank (the lender) regarding its intention to exercise certain rights with respect to events of default of the company pursuant to the Credit and Security Agreement, dated as of June 23, 2011, by and among the Borrowers and the Lender, as amended by that certain First Amendment, dated as of March 29, 2013 (collectively, the "Loan Agreement"). The Loan Agreement provides the Borrowers with a credit facility, with a maturity date of June 23, 2016, of up to $10,000,000, which consists of a $4,119,000 revolving facility, a $1,934,000 machinery and equipment term loan, a $2,947,000 real estate term loan and a $1,000,000 capital expenditure line of credit. The credit facility is secured by the personal property of the company and Releta, and the Company's Ukiah, California facility, among other items of the Borrowers' property.

The company has been in default of the fixed charge coverage ratio for the trailing twelve month periods ending March 31, 2013, April 30, 2013, May 31, 2013 and June 30, 2013. On each of such dates, the fixed charge coverage ratio was required to be at least 1.05 to 1. On March 31, 2013, the fixed charge coverage ratio for the trailing twelve month period was 0.90 to 1.00, which such ratio decreased to 0.28 to 1.00 as of June 30, 2013.