CRAFT BREWERS ALLIANCE, INC. (Form: 10-K, Received: 04/01/2011 06:07:24)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

Form 10-K

T	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2010
	or
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _______________ to ______________

Commission File Number 0-26542

CRAFT BREWERS ALLIANCE, INC.

(Exact name of registrant as specified in its charter)

Washington	91-1141254
(State of incorporation)	(I.R.S. Employer Identification Number)
929 North Russell Street Portland, Oregon	97227-1733
(Address of principal executive offices)	(Zip Code)

(503) 331-7270

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act :

Title of Each Class

Common Stock, Par Value $0.005 Per Share

Name of Each Exchange on Which Registered

The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None.

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes £ No T

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes £ No T

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 T No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. T

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company See the definitions of “larger accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer £	Accelerated Filer £
Non-accelerated Filer £ (Do not check if a smaller reporting company)	Smaller Reporting Company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T

The aggregate market value of the Common Stock held by non-affiliates of the registrant as of the last day of the registrant’s most recently completed second quarter on June 30, 2010 (based upon the closing sale price of the registrant’s Common Stock, as reported by The Nasdaq Stock Market) was $38,964,406. (1)

The number of shares of the registrant’s Common Stock outstanding as of March 17, 2011 was 18,819,053.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates specified information by reference from the proxy statement for the annual meeting of shareholders to be held on May 25, 2011.

___________________

(1) Excludes shares held of record on that date by directors and executive officers and greater than 10% shareholders of the registrant. Exclusion of such shares should not be construed to indicate that any such person directly or indirectly possesses the power to direct or cause the direction of the management or the policies of the registrant.

CRAFT BREWERS ALLIANCE, INC.

FORM 10-K

TABLE OF CONTENTS

	PART I

ITEM 1.	Business	1
	Executive Officers of the Company	15
ITEM 1A.	Risk Factors	16
ITEM 1B.	Unresolved Staff Comments	21
ITEM 2.	Properties	22
ITEM 3.	Legal Proceedings	23

	PART II

ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
ITEM 6.	Selected Financial Data	24
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
ITEM 7A.	Quantitative and Qualitative Disclosures about Market Risk	39
ITEM 8.	Financial Statements and Supplementary Data	40
ITEM 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	67
ITEM 9A.	Controls and Procedures	67
ITEM 9B.	Other Information	67

	PART III

ITEM 10.	Directors, Executive Officers and Corporate Governance	68
ITEM 11.	Executive Compensation	68
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	68
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	68
ITEM 14.	Principal Accountant Fees and Services	69

	PART IV

ITEM 15.	Exhibits and Financial Statement Schedules	69
SIGNATURES		70

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

In this report, we refer to Craft Brewers Alliance, Inc. as “we,” “us,” “our,” “the Company,” or “CBA.”

This annual report on Form 10-K includes forward-looking statements. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” ”may,” “plan” and similar expressions or their negatives identify forward-looking statements, which generally are not historical in nature. These statements are based upon assumptions and projections that the Company believes are reasonable, but are by their nature inherently uncertain. Many possible events or factors could affect the Company’s future financial results and performance, and could cause actual results or performance to differ materially from those expressed, including those risks and uncertainties described in “Item 1A. — Risk Factors” and those described from time to time in the Company’s future reports filed with the Securities and Exchange Commission. Caution should be taken not to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report.

Third Party Information

In this report, the Company relies and refers to information regarding industry data obtained from market research, publicly available information, industry publications, U.S. government sources or other third parties. Although the Company attempts to utilize third-party sources of information that the Company believes to be materially complete, accurate and reliable, there is no assurance of the accuracy, completeness or reliability of third-party information.

PART I

Item 1. Business

Craft Brewers Alliance, Inc. is an independent, publicly traded craft brewing company, whose present operations reflect the merger of two leading Pacific Northwest craft brewers, Widmer Brothers Brewing Company and Redhook Ale Brewery (“Redhook”) on July 1, 2008. CBA acquired the operations of Kona Brewing Co., Inc, and related entities, including the Kona Brewery LLC (“Kona”) on October 1, 2010.

When Kurt & Rob Widmer founded their company in 1984, they sought to create innovative beers that expanded upon the style guidelines of that time. Widmer Brothers brands are craft beers created with a unique and unconventional twist on traditional styles that are award winning and consumed by a wide range of craft beer lovers.

Redhook began operations in a former Seattle transmission shop in 1981, and those colorful roots remain reflected in the Redhook brand’s personality. The Redhook brands are well-balanced beers that are favorably received critically and by beer drinkers across the United States.

Kona Brewing Co. Inc. was founded in 1995 by a father and son with dreams of crafting quality beer as ‘liquid aloha’ for the locals. As the largest craft brewery in Hawaii, the company personifies the laid-back, passionate lifestyle and environmental respect of the Hawaiian people and culture.

CBA owns and operates four production breweries with adjacent restaurants or pubs: one that is Widmer Brothers-branded in Portland, Oregon; two that are Redhook-branded, in Woodinville, Washington and Portsmouth, New Hampshire; and a Kona-branded facility in Kona, Hawaii. The Company also operates a small pilot brewpub-style brewery in Portland, Oregon that is Widmer Brothers-branded and several Kona-branded restaurants and pubs on the Hawaiian Islands. We believe that CBA’s production capacity is of high quality and that the Company is one of only a handful of domestic craft brewers that own and operate substantial production facilities in both the western and eastern regions of the United States. We are focused on delivering to our target markets the freshest and highest quality beers, while fulfilling channel demand from the most efficient and environmentally friendly sources available.

CBA produces a variety of specialty craft beers using a mix of traditional and innovative brewing methods, using only high-quality hops, malted barley, wheat, rye and other natural ingredients. Our beers are divided into three brand families: Widmer Brothers, Redhook and Kona Brewing. See “Beers” below. In addition, the Company has sales and marketing relationships with Fulton Street Brewing, LLC (“FSB”) of Chicago, Illinois, which brews malt beverages under the brand name Goose Island Beer Company. The Company also currently holds a minority equity interest in FSB. See Item 8, Note 17, Subsequent Events, for a discussion of the pending sale of this interest to Anheuser-Busch, Incorporated (“A-B”).

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The Company’s products are widely distributed in the United States in all major retail channels through a distribution agreement with A-B. During 2010, the Company sold its products in 48 states. See “Distribution – Relationship with A-B” below.

Merger Activities

On November 13, 2008, the Company entered into an Agreement and Plan of Merger with WBBC that was subsequently amended on April 30, 2008. On July 1, 2008, the merger with WBBC with and into the Company was consummated (the “WBBC Merger”). As a result of the WBBC Merger, the Company acquired all of the assets, rights, privileges, properties, franchises, liabilities and obligations of WBBC. In connection with the WBBC Merger, Craft Brands Alliance, LLC (“Craft Brands”), a sales and marketing joint venture between the Company and WBBC, was terminated, with all assets and liabilities merged with and into the Company effective July 1, 2008.

As of July 31, 2010, the Company, KBC including Kona, KBC’s shareholders, and related entities entered into an agreement and plan of merger (the "KBC Merger Agreement”). As of October 1, 2010 (the “effective date”), the merger was completed and Kona Brewing Co., Inc. merged with and into a wholly owned subsidiary of the Company (the “KBC Merger”). The KBC Merger Agreement was filed as Exhibit 2.1 to the Company’s Form 8-K filed on August 3, 2010. Now a wholly owned subsidiary of the Company, Kona continues to own and operate its brewery located in Kailua-Kona, Hawaii.

We believe that CBA, as it is currently constituted, should be able to secure advantages beyond those that have already been achieved in its long-term strategic relationship with KBC by supporting the Kona Brewing brand family of products with increased financial, marketing and operating capabilities, allowing the Kona Brewing brand to reach more consumers in both Hawaii and the U.S. mainland. This acquisition increases the breadth and variety of the Company’s brand offerings, creating favorable selling opportunities in a greater number of lucrative markets.

Industry Background

The Company is a brewer in the craft brewing segment of the U.S. brewing industry. The domestic beer market is comprised of ales and lagers produced by large domestic brewers, international brewers and craft brewers. Shipments of craft beer in the United States in 2010 are estimated by industry sources to have increased by approximately 11.4% over 2009 shipments, up from the 7.2% shipment increase for 2009 from 2008. Although the overall domestic beer market experienced a decrease in 2010, the craft beer segment continued its upward trajectory and captured market share from the rest of the domestic market. Craft beer shipments in 2010 and 2009 were approximately 4.9% and 4.3%, respectively, of total beer shipped in the United States. Approximately 9.9 million barrels and 8.9 million barrels were shipped in the United States by the craft beer segment during 2010 and 2009, while total beer sold in the United States including imported beer was 203.6 million barrels and 205.8 million barrels, respectively. Compared with the other segments of the U.S. brewing industry, craft brewing is a relative newcomer. Twenty years ago, Redhook and WBBC were among the approximately 200 craft breweries in operation. At the end of 2010, the number of craft breweries in operation had grown to 1,700.

The recent competitive environment has been characterized by two divergent trends; the number and diversity of craft brewers have significantly increased while simultaneously the national domestic brewers have acquired or been acquired by other national domestic and international brewers, spurring consolidation in the quest for market share and penetration into emerging global markets. Foreign brewing conglomerates have also entered the merger and acquisition market. This trend culminated with SABMiller and Molson Coors creating a joint venture, merging their U.S. operations as MillerCoors to better compete with market leader A-B. MillerCoors was momentarily the world’s largest brewer by volume, until InBev’s acquisition of A-B, which was consummated in the fourth quarter of 2008. According to industry sources, A-B and MillerCoors accounted for more than 80 percent of total beer shipped in the United States, including imports, in 2010.

The strength of consumer demand for craft beer has enabled certain craft brewers, such as CBA, to grow from microbreweries or brewpubs into regional and national craft brewers by constructing larger breweries while still adhering to the brewing methods that typically characterize the craft brewing segment. Industry sources estimate that craft beer produced by regional and national specialty brewers, such as CBA, account for approximately two-thirds of total craft beer sales. Some craft brewers have sought to take advantage of growing consumer demand and excess industry capacity, when available, by contract brewing at underutilized facilities.

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Business Strategy

CBA strives to be the preeminent specialty craft brewing company in the United States by brewing authentic, distinct craft beers that suit the active lifestyles of our drinkers for the greatest number of events and occasions.

The central elements of our business strategy include:

Production of high-quality craft beers. CBA is committed to the production of a variety of distinctive, flavorful craft beers. We brew our craft beers using both traditional European brewing styles and methods as adapted by American craft brewing innovation and invention, using only high-quality ingredients to brew in company-owned and operated breweries or through collaboration with accomplished and expert brewing partners. The Company does not intend to compete directly in terms of the production style, pricing or extensive mass-media advertising typical of large national brands.

Offering a full complement of beers through a robust collection of brand families. CBA has established a collection of brand families to enable it to match individual brands to a variety of preferences exhibited at the local and regional level. We expect this approach to enable us to deploy brands that will appeal to the idiosyncrasies exhibited within the diversity of local markets throughout the United States. Through the taste profiles and brand awareness created by CBA, customers are able to forge a strong relationship with the targeted brands. The breadth of our product offerings also provides consumers with the opportunity to match their mood, surroundings and activities with a product in CBA’s brand families.

Strategic distribution relationship with the A-B distribution network and A-B. Since October 1994, CBA has maintained a distribution relationship with A-B, pursuant to which the Company distributes its products in substantially all of its markets through A-B’s wholesale distribution network. A-B’s domestic network consists of more than 525 independent wholesale distributors, most of which are geographically contiguous, and 12 wholesale distributors owned and operated by A-B. This distribution relationship with A-B has offered efficiencies in logistics and product delivery, state reporting and licensing, billing and collections. We have realized these efficiencies while maintaining full autonomy over the production, sales and marketing of our products as an independent company. Recent developments in the relationship between A-B and its independent wholesalers have led to an increase in craft and specialty brewers with access to this channel, diminishing the benefit to the Company of its relationship.

Control of production. At December 31, 2010, CBA owned and operated all of its breweries to optimize the quality and consistency of its products and to achieve greater control over its production costs. We may engage third party brewers to provide contract brewing from time to time to further expand our packaging and brand offerings. We believe that maximizing the production under CBA’s direct ownership and through selection of accomplished and expert partners is critical to our success. We believe that our ability to engage in ongoing product innovation and to control product quality provides critical competitive advantages. CBA’s highly automated breweries are designed to produce beer in smaller batches relative to the national domestic brewers, thereby maximizing its ability to brew a wide variety of brand offerings. The Company believes that its investment in brewing and logistic technologies enables it to optimize employee productivity, contain related operating costs, and consistently produce innovative beer styles and tastes, while achieving the production flexibility afforded by its brewing configuration, with minimal loss of efficiency and enhanced process reliability.

Sales and marketing efforts focused on identifying and monetizing profitable channel opportunities. We believe that CBA is able to use the sales and marketing skills of its diverse talent pool and to leverage the complementary brand families and product offerings to create a unique identity in the distribution channel and with the consumer. We believe that the combination of the complementary brand families promoted by one integrated sales and marketing organization not only delivers financial benefits but also delivers greater impact at the point of sale. We focus our brand families and product offerings on those markets and regions that represent the most significant opportunities from the standpoint of profitability and sales growth.

Passion for the Craft Beer Culture. The founders of our various craft beer companies all share a passion for craft beers and the community of drinkers that enjoy them. We promote a set of core values in our business, including developing the highest quality beers, operating with integrity, and minimizing our impact on our natural environment. These core values attract employees who are enthusiastic and knowledgeable about the beers that CBA makes and sells. To preserve these values, we seek to promote from within and empower our employees to innovate and improve processes so that CBA is always at the forefront of the craft beer industry. The energy and passion of our employees allow CBA to successfully execute our business strategy, enhance brand loyalty and strengthen the bonds with our customers.

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Promotion of products. We promote our products through a variety of advertising programs; by training and educating wholesalers and retailers about our products; through promotions at local festivals, venues, and pubs; by utilizing our restaurants and pubs; and through price discounting. CBA’s principal advertising programs include television, radio, billboards, print advertising (magazines, newspapers, industry publications) and social media. CBA also markets its products to distributors, retailers and consumers through a variety of specialized training and promotional methods. Our communications with distributors and retailers focus on the brewing process, the craft beer segment and our brand families and product offerings and dissemination of point of sale and promotional support items, such as in-store and signage displays. The promotional methods for our consumers focus on hosting sampling sessions of CBA’s draft products in pubs and restaurants, designing and hosting beer dinners, using promotional items including tap handles, glassware and coasters, and participating in local festivals and sports venues to increase brand name recognition. In addition, CBA’s production breweries integrate pubs and retail outlets, offering guided tours of the breweries to further increase consumer awareness of the Company’s brands.

CBA enters into a mix of advertising and promotion programs where the entire program is funded by CBA, and co-operative programs where the Company’s efforts are matched with an investment by a local distributor. Co-operative programs align our interests with those of the wholesaler while leveraging the knowledge and market intelligence held by the wholesaler. Sharing these efforts with a wholesaler helps us to amplify our investment in advertising programs and gives the participating wholesaler a vested interest in the program’s success.

Beers

We produce a variety of specialty craft beers using traditional European brewing methods adapted by American innovation and invention. CBA brews its beers using primarily hops, malted barley, wheat, rye and other natural and traditional ingredients. The Company’s brands are marketed in a variety of ways, from the distinctive flavor profiles and the use of a mixture of traditional and innovative brewing methods and ingredients to the high-quality authenticity of the beers that comprise the CBA portfolio. To help maintain full flavor, CBA’s products are not pasteurized. CBA distributes its products in glass bottles and kegs, but has also packaged certain brands in cans to highlight specific characteristics of that brand. In 2009, the Company introduced a 5-liter steel can package to give consumers a draft experience at home and will be introducing a 12-ounce aluminum can for a Redhook brand to suit the Redhook consumers’ active lifestyles. The Company applies a freshness date to its products for the benefit of wholesalers and consumers.

Our beers are divided into three brand families: Widmer Brothers, Redhook, and Kona Brewing.

Within each brand family, we have created several types and styles of offerings to communicate with the myriad of consumer taste preferences. CBA has created year round brands and flagship brands that define the brand family’s identity with the loyal consumer for that brand family. These are the brands that consumers principally think of when they think of the brand family, and generally are always available to the consumer. The year round and flagship brands are types of beers that consumers can always relate to and create a strong bond with the brand.

Seasonal brand offerings give the consumer something new and exciting on the grocery shelf or at the pub or bar. These brand offerings can be paired to match the seasonal change in weather, specific events (e.g. Oktoberfest) or popular activities, but then are replaced with a new offering when the season or conditions change. These brands allow our brewers to experiment and innovate with ingredients and brewing styles. Each of the brand families has developed a wide range of premium brands that are offered exclusively at its restaurants and pubs.

Given the long relationship that consumers have with each of the brand families, we have also developed a select group of super-premium high-end and luxury series of beers for these brand families that are brewed, bottled and packaged in a manner befitting the unique nature of the beers. Our high-end brands are marketed toward the beer connoisseur, a rapidly emerging class of consumer within the craft beer segment. We have deliberately limited the shipment volumes associated with these high-end and luxury beers to retain the rarity and uniqueness of these beers to the connoisseur community. Some of the beers within this category, including our brands, compete directly with the higher-end wine segment.

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The brands within each of the brand families are categorized below, with details provided for key year round contributors within each of the families. These brands are usually offered both in draft and packaged formats.

Widmer Brothers’ Beers

The Widmer Brothers beers are unique interpretations of classic beer styles meant to expand beer drinkers’ perceptions of these styles. The Widmer Brothers beers frequently use newly developed hop varieties and unusual ingredients in their recipes. Key brands within the Widmer Brothers brand family are:

Widmer Brothers Hefeweizen. The top selling beer within the brand family is a golden, cloudy wheat beer with a pronounced citrus aroma and flavor. This beer is intentionally left unfiltered to create its unique appearance and flavor profile and is usually served with a lemon slice to enhance the beer’s natural citrus notes. This beer’s relatively low alcohol content by volume makes it perfect for consumption as a session beer. Its most recent award, among many, was the 2008 World Cup Gold medal winner for the American-style Hefeweizen category.

Drifter Pale Ale (“Drifter”). Drifter possesses a unique citrus character, smooth drinkability, and a distinctive hop character. Brewed with generous amounts of Summit hops, a variety known for its intense citrus flavors and aromas, this beer has a taste unique to the Pale Ale category. This beer started as a seasonal offering, becoming a year round brand in 2009, and was a Great American Beer Festival (“GABF”) Silver Medal Winner in 2006 for the American-style Pale Ale category .

Other Year Round Brands		Seasonal Offerings

Drop Top Amber Ale – 2008 GABF Gold Medal Winner		Citra Blonde – A very smooth, light, refreshing beer for summer time. Features Citra hops.
Rotator India Pale Ale (“IPA”) series – Four different IPA recipes highlighting different hop characteristics and styles rotated throughout the year.		Okto – Full bodied with malty flavor containing floral aroma and finish. Available late Summer and Fall
		W Series – Designed to demonstrates our brewers’ creativity, brewing a variety of styles. Available Winter to early Summer

Brothers’ Reserve – This brand is the super-premium high-end offering for the Widmer Brothers brand, with only two offerings a year. The beers chosen for this brand reflect the passion and uniqueness of the Widmer brothers and are extremely limited, with the promise that any style brewed under this brand will not be brewed again. The brand is focused on the knowledgeable and enthusiastic beer lover who is looking for something exclusive, rare and collectible.

Series 924 – Named for the Oregon Brewery’s street number, the beers in this brand are made for those who share our passion for the art of brewing and the taste for authentic beers. Initial beers in the 924 Series include the Nelson Imperial IPA and the Pitch Black IPA, which is a Pacific Northwest twist on a traditional IPA brewed in the style of a Cascadian Dark, an emerging style. Beers in this brand will be offered as a draft product and as a four pack for bottles.

Redhook Beers

The Redhook family is comprised of beers with character reflecting big taste profiles that push style boundaries without being over the top. Even as the brand family turns 30, it is a brand targeted at the age 21 - 35 demographic of craft beer drinkers. Key brands within the Redhook family are:

Long Hammer IPA (“Long Hammer”). Long Hammer is the top-selling beer within the brand family and is a premium English pub-style bitter ale with a bold hop aroma and profile that is not overpoweringly bitter.

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Redhook ESB (“ESB”). ESB is modeled after the premium Extra Special Bitters found in classic English pubs. ESB is a rich, full bodied amber ale with a smooth flavor profile featuring toasted malts and a pleasant finishing sweetness.

Other Year Round Brands		Seasonal Offerings

Big Ballard Imperial IPA –A rich, deep golden and very assertive hop character and aroma. Brewed for the diehard IPA fan.		Mudslinger Spring Ale – A medium bodied Nut Brown ale with a fresh aroma. Available late Winter and Spring.
Copperhook Ale – A brilliant copper colored ale with distinctive caramel notes, and a clean refreshing finish.		Winterhook Winter Ale – Red chestnut in color, full bodied and a toasty, complex profile. Available late Fall and Winter.

Blueline Series – This brand is the high-end offering from the Redhook brand family for the West Coast beer drinker. These beers are hand crafted by the brewers and will only be available on draft at the pub at the brewery in Woodinville, Washington ("Washington Brewery") as well as select restaurants and public houses in the Seattle, Washington area, and as a 22-ounce bottle at exclusive bottleshops and at the Washington Brewery. The styles selected for this brand will be drawn from the brewers reaching back into the vault of recipes that Redhook has created during its three decades of operations, as well as new experiments and twists on the familiar.

Brewery Backyard Series – This brand is produced at our Portsmouth, New Hampshire Brewery (“New Hampshire Brewery”) as a draft product available only at the brewery’s pub and at select local establishments. These premium beers are experimental in nature and designed to appeal to craft beer connoisseurs and the community of self-described beer geeks.

Kona Brewing Beers

The Kona Brewing brand family is comprised of beers that deliver the authentic essence of the Hawaiian Islands that is “Always Aloha”. The Aloha Series in the Kona Brewing brand family uses ingredients that are unique to the Islands. Key brands within the Kona brand family are:

Longboard Island Lager (“Longboard”). Kona’s top selling beer and flagship brand is a traditionally brewed lager with a delicate, slightly spicy hop aroma that is complimented by a fresh, malt forward flavor and a smooth, refreshing finish.

Fire Rock Pale Ale (“Fire Rock”). Fire Rock is a crisp “Hawaiian Style” pale ale with pronounced citrus and floral hop aromas and flavors that are backed up by a generous malt profile.

Aloha Series – Seasonal Offerings

Koko Brown Ale (“Koko”). Available Spring 2011 on the West Coast. Koko is an American brown ale, a deep amber color with rich mahogany hues. This ale has a smoky, roasted nut aroma and flavor, with a coconut twist.

Pipeline Porter (“Pipeline”). Available Fall and Winter. Pipeline is smooth and dark with distinctive, roasty aroma and earthy flavor. This ale is brewed with fresh 100% Kona coffee to impart a rich complexity not found in many beers.

Wailua Wheat (“Wailua”). Available late Spring and Summer. Wailua is a golden, sun colored ale with a bright, citrusy flavor. This beer is brewed with a touch of tropical passion fruit to impart a slightly tart and crisp finish.

New Products and Brands . In an effort to stay ahead of shifting consumer style and flavor preferences, we routinely analyze consumer trends and behavior, trends in other food and beverage segments, and our brand families and product offering to identify beer styles or consumer taste preferences that appear to be under served or not currently addressed. After identifying a potential new product offering, we attempt to determine whether we may have offered this style in a previous incarnation, either on a one-time basis or as a limited run seasonal. When CBA determines that it has previously brewed this style or taste profile, the Company’s marketing department may adapt the brand identity, including the associated packaging, to align the identity with the stated consumer preference. These beers may begin as draft-only offerings and many are offered exclusively at one of our pubs or restaurant. Several of CBA’s current offerings, including Drifter, were developed through this process. In the case where the Company has not brewed this style or taste profile in the past, it may use its pilot brewing system to create an experimental or new beer. We may then offer this experimental or new brew directly to consumers through on-premise test marketing at our own pubs and at exclusive retail sites or we may refine this product through customer preference and focus group testing. If the initial consumer reception of an experimental or new brew appears to meet the desired taste profile, CBA develops a brand identity to solidify the consumer perception of the product. Drop Top is an example of a product offering developed by the Company in this manner. We believe that our continued success is based on our ability to be attentive and responsive to consumer desires for new and distinctive tastes, and our capacity to meet these desires with original and novel taste profiles while maintaining consistently high product quality.

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Contract Brewing. Beginning in the third quarter of 2009, CBA executed a contract brewing arrangement under which the Company will produce beer in volumes and per specifications as designated by a third party. During 2010, CBA shipped more than 23,000 barrels under this contract arrangement, and the Company anticipates that the volume of this contract may approach 35,000 barrels for 2011, although the third party may designate greater or lesser quantities per the terms of the contract. During the fourth quarter of 2010, CBA executed a three-year contract brewing arrangement with FSB, under which the Company will produce beer at its New Hampshire Brewery in volumes and per specifications as designated by FSB. We anticipate that the volume of this contract may approximate 25,000 to 30,000 barrels per year, with shipments under this arrangement beginning in the first quarter of 2011. CBA continues to evaluate other operating configurations and arrangements, including expansion of its contract brewing operations, to improve the utilization of its production breweries at a faster rate.

Brewing Operations

The Brewing Process. Beer is made primarily from four natural ingredients: malted grain, hops, yeast and water. The grain most commonly used in brewing is barley. CBA uses the finest barley malt, using predominantly strains of barley having two rows of grain in each ear. A broad assortment of hops may be used as some varieties best confer bitterness, while others are chosen for their ability to impart distinctive aromas to the beer. Most of the yeasts used to conduct fermentation of beer are of the species Saccharomyces cerevisiae, a top-fermenting yeast used in ale production, or of the species Saccharomyces uvarum, a bottom-fermenting yeast used to produce lagers.

The brewing process begins when the malt supplier soaks the barley in water, thereby initiating germination, and then dries and cures the grain through kilning. This process, referred to as malting, breaks down protein so that starches in the grain can be easily extracted by the brewer. The malting process also imparts color and flavor characteristics to the grain. The cured grain, referred to as malt, is then sold to the brewery. At the brewery, various malts are cracked by milling, and mixed with warm water. This mixture, or mash, is heated and stirred in the mash tun, allowing the simple carbohydrates and proteins to be converted into fermentable sugars. Naturally occurring enzymes facilitate this process. The mash is then strained and rinsed in the lauter tun to produce a residual liquid, high in fermentable sugars, called wort, which then flows into a brew kettle to be boiled and concentrated. Hops are added at various stages in the process to impart bitterness, balance and aroma. The specific mixture of hop types used further affects the flavor and aroma of the beer. After the boil, the wort is strained and cooled before it is moved to a fermentation cellar, where specially-cultured yeast is added to induce fermentation. During fermentation, the sugars from the wort are metabolized by the yeast, producing carbon dioxide and alcohol. Some of the carbon dioxide is recaptured and absorbed back into the beer, providing a natural source of carbonation. After fermentation, the beer is cooled for several days while the beer is clarified and full flavor develops. Filtration, the final step for a filtered beer, removes unwanted yeast. At this point, the beer is in its peak condition and ready for bottling or keg racking. The entire brewing process of ales, from mashing through filtration, is typically completed in 14 to 21 days, depending on the formulation and style of the product being brewed.

Brewing Facilities. CBA uses highly automated brewing equipment at its four production breweries and also operates a smaller, manual brewpub-style brewing system.

As a result of the KBC Merger, CBA acquired a brewery located in Kailua-Kona, Hawaii (“Hawaiian Brewery”). The Hawaiian Brewery is comprised of a 25-barrel combination mash and laurter tun 25-barrel wort kettle, 25-barrel whirlpool kettle; 12 fermenters ranging in size from 20 barrels to 80 barrels; and five bright tanks ranging in size from 30 barrels to 80 barrels. During 2010, the Hawaiian Brewery installed a 229-kilowatt photovoltaic solar energy generating system to supply approximately 50 percent of its energy requirements through renewable energy.

CBA owns and operates the New Hampshire Brewery, which employs a 100-barrel mash tun, lauter tun, wort receiver, wort kettle, whirlpool kettle; four 70,000-pound and two 35,000-pound grain silos; nine 100-barrel, two 200-barrel and 34 400-barrel fermenters; four 400-barrel, two 200-barrel, one 600-barrel and one 130-barrel bright tanks, and an anaerobic waste-water treatment facility that completes the process cycle.

CBA owns and operates two breweries in Portland, Oregon. These breweries are its largest capacity production brewery (“Oregon Brewery”) and its pilot brewing system at the Rose Quarter (“Rose Quarter Brewery”). The Oregon Brewery consists of a 230-barrel mash tun, lauter tun, wort receiver, wort kettle, whirlpool kettle; two 100,000-pound and two 25,000-pound grain silos; six 1,000-barrel, six 1,500-barrel and six 750-barrel fermenters as well as 14 smaller fermenters; and five 200-barrel, eight 250-barrel and three 160-barrel bright tanks. The Rose Quarter Brewery is CBA’s smallest brewery with a 10-barrel mash tun, lauter tun, wort receiver, wort kettle, whirlpool kettle; three 10-barrel fermenters; and a 10-barrel bright tank.

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CBA owns and operates the Washington Brewery, which is located in Woodinville, Washington, a suburb of Seattle. The Washington Brewery employs a 100-barrel mash tun, lauter tun, wort receiver, wort kettle, whirlpool kettle; five 70,000-pound, one 35,000-pound and two 25,000-pound grain silos; two 100-barrel, fifty-four 200-barrel and ten 600-barrel fermenters; and two 300-barrel and four 400-barrel bright tanks.

Packaging. CBA packages its craft beers in bottles, kegs and 5-liter steel cans for the Hefeweizen brand. All of CBA’s production breweries, with the exception of the Hawaiian Brewery, have fully automated bottling and keg lines. The bottle filler at all of the breweries utilizes a carbon dioxide environment during bottling ensuring that minimal oxygen is dissolved in the beer, extending the shelf life. At the Oregon Brewery, CBA has installed a keg-filling line that is capable of racking 300 kegs per hour. In 2010, the Company implemented a lighter-weight bottle design that reduces CBA’s shipping costs and improves its carbon footprint. During 2011, CBA will launch new packaging for the Redhook brand family, including a unique glass bottle for all of the brands offered off premise and, exclusively for Copperhook Ale , a 12 fluid ounce aluminum can. The Company offers an assortment of packages to highlight the unique characteristics of each of its beers and to provide greater opportunities for customers to drink CBA’s beers in more locations, events and occasions, matching the active lifestyles and preferences of a greater number of CBA’s consumers.

Quality Control. The Company monitors production and quality control at all of its breweries, with central coordination at the Oregon Brewery. All of the breweries have an on-site laboratory where microbiologists and lab technicians supervise on-site yeast propagation, monitor product quality, test products, measure color and bitterness, and test for oxidation and unwanted bacteria. CBA also regularly utilizes outside laboratories for independent product analysis.

Ingredients and Raw Materials. CBA currently purchases a significant portion of its malted barley from two suppliers and its premium-quality select hops, mostly grown in the Pacific Northwest, from competitive sources. CBA also periodically purchases small lots of hops from global locales, such as New Zealand and Western Europe, which it uses to achieve a special hop character in certain of its beers. In order to ensure the supply of the hop varieties used in its products, CBA enters into supply contracts for its hop requirements. We believe that comparable quality malted barley and hops are available from alternate sources at competitive prices, although there can be no assurance that pricing would be consistent with our current arrangements. We currently cultivate our own Saccharomyces cerevisiae yeast supply and maintain a separate, secure supply in-house. CBA has access to multiple competitive sources for packaging materials, such as labels, six-pack carriers, crowns, cans and shipping cases.

Distribution

The Company’s beers are available for sale directly to consumers in draft and bottles at restaurants, bars and liquor stores, as well as in bottles at supermarkets, warehouse clubs, convenience stores and drug stores. Like substantially all craft brewers, CBA’s products are delivered to these retail outlets through a network of local distributors whose principal business is the distribution of beer and, in some cases, other alcoholic beverages, and who traditionally have distribution relationships with one or more national beer brands. CBA offers directly to consumers both draft and packaged beers at three of its four on-premise retail establishments located at CBA’s production breweries, and draft beers at its restaurants and pubs located on the Hawaiian Islands. The Forecasters Public House and the Cataqua Public House at the Washington Brewery and the New Hampshire Brewery, respectively, offer Redhook-branded beers. The Gasthaus Pub and Restaurant at the Oregon Brewery offers Widmer Brothers-branded beers. The restaurant adjacent to the Hawaiian Brewery and two other pubs operated by KBC on the island of Oahu offer Kona-branded beers on draft.

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The Company’s products have been distributed in 48 of the 50 states for more than a decade, primarily pursuant to a master distribution agreement with A-B that allows CBA access to A-B’s national distribution network. The current master distribution agreement for Widmer Brothers-, Redhook- and Kona-branded products was signed in 2004 (as amended, the “A-B Distribution Agreement”). Substantially all of CBA’s products distributed in the United States by a wholesaler are currently distributed pursuant to the A-B Distribution Agreement.

For additional information regarding CBA’s relationship with A-B, see “ Relationship with A-B ” below.

A-B distributes its products throughout the United States through a network of more than 525 independently owned and operated wholesale distributors, most of whom are geographically contiguous, and 12 wholesale distributors owned and operated directly by A-B. We believe that the typical A-B distributor is financially stable and has both a long-standing presence and a substantial market share of beer sales in its territory. According to industry sources, A-B’s products accounted for 48.6% of total beer shipped by volume in the United States in 2010.

The Company’s relationship with A-B and the associated A-B alliance wholesaler network garnered CBA access to comprehensive distribution throughout the United States. CBA was the first and is the largest independent craft brewer to have a formal distribution agreement with a major U.S. brewer. Management believes that CBA’s competitors in the craft beer segment generally negotiate distribution relationships separately with distributors in each locality and, as a result, typically distribute through a variety of wholesalers representing differing national beer brands with uncoordinated territorial boundaries.

In 2010 and 2009, CBA sold approximately 574,900 barrels and 573,200 barrels, respectively, to A-B through the A-B Distribution Agreement, accounting for 94.6% and 97.6%, respectively, of the Company’s shipment volume for the corresponding periods.

Relationship with Anheuser-Busch, Incorporated

In July 2004, CBA executed three agreements with A-B, the A-B Distribution Agreement, an exchange and recapitalization agreement (as amended, the “Exchange Agreement”), and a registration rights agreement, which collectively represent the framework of its current relationship with A-B. On July 1, 2008, CBA and A-B entered into a Consent and Amendment Agreement pursuant to which A-B consented to the WBBC Merger, and the A-B Distribution Agreement and the Exchange Agreement were amended to reflect the effects of the WBBC Merger and to revise pricing under the A-B Distribution Agreement. As discussed below, the A-B Distribution Agreement was amended in August 2010 to exempt qualifying shipments from certain fees for the next five years.

Pursuant to the Exchange Agreement, A-B is entitled to designate two members of the board of directors of the Company. A-B also generally has the contractual right to have one of its designees observe each committee of the board of directors of the Company. The Exchange Agreement also contains limitations on the Company’s ability to take certain actions without A-B’s prior consent, including but not limited to the Company's ability to issue equity securities or acquire or sell assets or stock, amend its Articles of Incorporation or bylaws, grant board representation rights, enter into certain transactions with affiliates, distribute its products in the United States other than through A-B or as provided in the A-B Distribution Agreement, or voluntarily delist or terminate its listing on the Nasdaq Stock Market. Further, if the A-B Distribution Agreement is terminated, A-B has the right to solicit and negotiate offers from third parties to purchase all or substantially all of the assets or securities of the Company or to enter into a merger or consolidation transaction with the Company and the right to cause the board of directors of the Company to consider any such offer.

The A-B Distribution Agreement provides for the distribution of Widmer Brothers-, Redhook-, and Kona Brewing branded beers in all states, territories and possessions of the United States, including the District of Columbia and all U.S. military, diplomatic, and governmental installations in a U.S. territory or possession. Under the A-B Distribution Agreement, CBA has granted A-B the right of first refusal to distribute the Company’s products, including any new products. The Company is responsible for marketing its products to A-B’s distributors, as well as to retailers and consumers. The A-B distributors then place orders with CBA through A-B for the Company’s products, except for those states where state law requires CBA to sell directly to the wholesaler, such as in Washington state. The Company separately packages and ships these orders in refrigerated trucks to the A-B distribution center closest to the distributor or, under certain circumstances, directly to the distributor.

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Beginning in 2008, A-B modified the restrictions around its program associated with its decade-long policy of rewarding financial incentives to those wholesalers and distributors that exclusively distributed products within the A-B brand family and its allies, including CBA’s products. Introduced in 1996, the program was designed to create ”100 percent share of mind” of the core A-B brands and create barriers of entry for rival brands. However, with the increasing market share and resulting financial significance of the specialty and craft beer segments, wholesalers and distributors negotiated with A-B to allow them to carry a small volume of specialty and local craft brands without forgoing all of the financial incentives associated with the exclusivity program. Media reports indicated that at the height of this program, 70 percent of A-B sales were made through wholesalers and distributors carrying only the A-B and alliance brands, but this amount has steadily declined to its present level of under 60 percent. Under the current version of the program, a second tier is available for those wholesalers and distributors who carry up to three percent of their volume in competitive beer brands and non-alcohol brands, allowing them to retain some of the financial incentives as an aligned A-B wholesaler or distributor. This modification has led to increased direct competition as many specialty, regional and local craft brewers are able to access the distribution channels through which CBA markets its products.

The A-B Distribution Agreement has a term that expires on December 31, 2018, subject to automatic renewal for an additional ten-year period unless A-B provides written notice of non-renewal to the Company on or prior to June 30, 2018. The A-B Distribution Agreement is also subject to immediate termination, by either party, upon the occurrence of certain events, including the following:

A material default by the other party in the performance of the A-B Distribution Agreement or any other agreement between the parties, provided written notice is given to the other party and that such notice was given a specified number of days prior to terminating the A-B Distribution Agreement;

the assignment of the other party’s assets for the benefit of creditors;

the appointment of a trustee, receiver or similar officer of any court for the other party or for a substantial part of the property of the other party, provided that the appointment is not terminated within 60 days;

the commencement of bankruptcy, reorganization, insolvency or liquidation proceedings by or against the other party, provided that the proceedings are not dismissed within 90 days; or

any material misrepresentation made by the other party under or in the course of performance of the A-B Distribution Agreement or any other agreement between the parties.

Additionally, the A-B Distribution Agreement may be terminated by A-B, upon six months’ prior written notice to the Company, upon the occurrence of any of the following events:

the Company engages in certain incompatible conduct that is not cured to A-B's satisfaction (at A-B’s sole discretion) within 30 days. Incompatible conduct is defined as any act or omission of the Company that, in A-B’s opinion, damages the reputation or image of A-B or the brewing industry;

any A-B competitor or affiliate thereof acquires 10% or more of the outstanding equity securities of the Company, and that entity designates one or more persons to the Company’s board of directors;

the Company’s current chief executive officer ceases to function in that role or is terminated, and a satisfactory successor, in A-B’s opinion, is not appointed within six months;

the Company is merged or consolidated into or with any other entity or any other entity merges or consolidates into or with the Company without A-B’s prior approval; or

A-B, its subsidiaries, affiliates, or parent, incur any obligation or expense as a result of a claim asserted against them by or in the name of the Company, its affiliates or shareholders, and the Company does not reimburse and indemnify A-B and its corporate affiliates on demand for the entire amount of the obligation or expense.

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As of December 31, 2010 and 2009, A-B owned approximately 32.2% and 35.5%, respectively, of the Company’s Common Stock outstanding.

On March 27, 2011, the Company and A-B signed a binding term sheet, under which, upon closing of the pending sale of the Company’s minority equity interest in FSB, the Exchange Agreement and A-B Distribution Agreement would be amended. See Item 8, Note 17, Subsequent Events, for a discussion of this term sheet, and Item 7, “Management Discussion and Analysis – Overview ” for a discussion of its anticipated impact on the Company’s financial results.

Fees. Generally, CBA pays the following fees to A-B in connection with the sale of the Company’s products:

Margin . In connection with all sales through the A-B Distribution Agreement, CBA pays a Margin fee to A-B (“Margin”). For the first nine months of 2010 and all of 2009, the Margin applied to all product shipments, except for those made under its contract brewing arrangements and from its retail operations and dock sales. The A-B Distribution Agreement also provides that CBA shall pay an additional fee to A-B on all shipments that exceed specified shipments levels as established in the A-B Distribution Agreement, (together with Margin, “Total Margin”). On August 12, 2010, CBA entered into an amendment to the A-B Distribution Agreement with A-B that exempts certain product sales from Total Margin beginning in the fourth quarter of 2010, with the exemption to be phased out over a five-year period. For the years ended December 31, 2010 and 2009, the Company paid a total of $5.6 million and $5.8 million, respectively, related to Total Margin. These fees are reflected as a reduction of sales in CBA’s consolidated statements of income. We estimate that, if the amendment had been in place for the entire 2010 fiscal year, sales revenues for the year would have been approximately $1.2 million more than the net sales that were recognized for 2010 due to lower fees paid to A-B for Total Margin. The Company expects the gross margin to increase in periods in which sales revenues are anticipated to be higher due to the effect of the lower fees paid to A-B; however, the Company is required to reinvest all of the savings resulting from this amendment into the development, marketing and support of its brands, fully offsetting any anticipated improvement in gross margin due to this amendment.

Invoicing Cost . Since July 1, 2004, the invoicing cost is payable on sales through the A-B Distribution Agreement. The fee does not apply to sales by CBA’s retail operations or to dock sales. The basis for this charge is number of pallet lifts. The fee per pallet lift is generally adjusted on January 1 of each year under the terms of the A-B Distribution Agreement.

Staging Cost and Cooperage Handling Charge . The Staging Cost is payable on all sales through the A-B Distribution Agreement that are delivered to an A-B brewery or A-B distribution facility. The fee does not apply to product shipped directly to a wholesaler or wholesaler support center. The Cooperage Handling Charge is payable on all draft sales through the A-B Distribution Agreement that are delivered to a wholesaler support center or directly to a wholesaler. The basis for these fees is number of pallet lifts, and the fees per pallet lift are generally adjusted on January 1 of each year.

Inventory Manager Fee. The Inventory Manager Fee is paid to reimburse A-B for a portion of the salary of a corporate inventory management employee, a substantial portion of whose responsibilities are to coordinate and administer logistics of CBA’s product distribution to wholesalers. At the time of the WBBC Merger, this fee was increased to more than $200,000 per year to reflect the increase in coordination responsibilities associated with the shipment levels for CBA’s broader array of brand offering.

The Invoicing Cost, Staging Cost, Cooperage Handling Charge and Inventory Manager Fee are reflected in cost of sales in the Company’s consolidated statements of income. These fees totaled approximately $373,000 and $394,000 for the years ended December 31, 2010 and 2009, respectively.

Wholesaler Support Center (“WSC”) Fee . In certain instances, CBA may ship its product to A-B WSCs rather than directly to the wholesaler. WSCs assist CBA by consolidating small wholesaler orders with orders of other A-B products prior to shipping to the wholesaler. Total WSC fees of $163,000 and $418,000 are reflected in cost of sales in the Company’s consolidated statements of income for the years ended December 31, 2010 and 2009, respectively. The reduction in WSC fees for 2010 is due to A-B implementing a phase out of its WSCs during the year. This action by A-B may cause CBA to incur incremental expenses in the future associated with master wholesalers that provide cross-docking services that were provided by A-B’s WSCs in the past.

The Company purchased certain materials, primarily bottles and other packaging materials, through A-B totaling $22.6 million in 2009. During 2009, CBA also paid A-B amounts totaling $63,000 for media purchases and advertising services. Beginning in January 2010, CBA procured these materials and services from third party vendors and did not make similar purchases for materials or services from A-B during 2010.

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If the A-B Distribution Agreement were terminated early, CBA would have to implement information technology systems to manage its supply chain, order management and logistics efforts, establish and maintain direct contracts with the existing wholesaler and distributor network or negotiate agreements with replacement wholesalers and distributors on an individual basis, and enhance its credit evaluation and regulatory processes. The current form of A-B’s exclusivity program, as it has evolved, allows wholesalers and distributors within the A-B Alliance presently carrying CBA’s products to continue to carry the Company’s products within the three percent allowance offered to aligned wholesalers and distributors without financial penalty. Consequently, assuming that the exclusivity program is not materially modified by A-B, CBA might not be required to fully rebuild its existing distribution network. The Company believes that the total one-time and recurring costs associated with revamping its distribution arrangement may be lower than the total fees paid to A-B under the current arrangement with A-B.

Sales and Marketing

The Company promotes its products through a variety of means, including a) creating and executing a range of advertising programs with its wholesalers; b) training and educating wholesalers and retailers about CBA’s products; c) promoting CBA’s name, product offerings and brands, and experimental beers at local festivals, venues and pubs; d) selling its beers in the restaurants and pubs owned and operated by the Company; and e) targeted discounting to create competitive advantage within the market place.

The Company advertises its products through an assortment of media, including television, radio, billboard, print and social media, including Facebook and Twitter, in key markets and by participating in a co-operative program with its distributors whereby CBA’s spending is matched by the distributor. The Company believes that the financial commitment by the distributor helps align the distributor’s interests with those of CBA, and the distributor’s knowledge of the local market results in an advertising and promotion program that is targeted in a manner that will best promote CBA’s products.

The Company incurs costs for the promotion of its products through a variety of advertising programs with its wholesalers and downstream retailers. The Company’s sales and marketing staff offers education, training and other support to wholesale distributors of CBA’s products. Because CBA’s wholesalers generally also distribute much higher volume national beer brands and other specialty brands, a critical function of the sales and marketing staff is to elevate each distributor’s awareness of CBA’s products and to maintain the distributor’s interest in promoting increased sales of these products. This is accomplished primarily through personal contact with each distributor, including on-site sales training, educational tours of CBA’s breweries, and promotional activities and expenditures shared with the distributors. The Company’s sales representatives also provide other forms of support to wholesale distributors, such as direct contact with restaurant and grocery chain buyers; direct involvement in the in-store display design; stacking, merchandising and exhibition of beer inventory; and dissemination of point-of-sale materials to the off-premise retailer.

The Company’s sales representatives devote considerable effort to the promotion of the on-premise channel at participating pubs and restaurants. We believe that educating retailers about the freshness and quality of our products will in turn allow retailers to assist in educating consumers. We consider on-premise product sampling and education to be among our most effective tools for building brand awareness with consumers and establishing word-of-mouth reputation. On-premise marketing is also accomplished through a variety of other point-of-sale tools, such as neon signs, tap handles, coasters, table tents, banners, posters, glassware and menu guidance. CBA seeks to identify its products with local markets by participating in or sponsoring cultural and community events, local music and other entertainment venues, local craft beer festivals and cuisine events, hosted beer dinners and local sporting events.

The Company’s breweries also play a significant role in increasing consumer awareness of CBA’s products and enhancing its image as a craft brewer. Many visitors take tours at CBA’s breweries. All of CBA’s production breweries have a retail restaurant or pub where the Company’s products are served. In addition, several of the breweries have meeting rooms that the public can rent for business meetings, parties and holiday events, and that CBA uses to entertain and educate distributors, retailers and the media about the Company’s products. See Item 2. Properties . At its pubs, CBA also sells various items of apparel and memorabilia bearing its trademarks, which creates further awareness of CBA’s beers and reinforces its quality image.

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To further promote retail bottled product sales and in response to local competitive conditions, CBA regularly offers “post-offs,” or price discounts, to distributors in most of its markets. Distributors and retailers usually participate in the cost of these price discounts.

Seasonality

Sales of CBA’s products generally reflect a degree of seasonality, with the first and fourth quarters historically being the slowest and the middle two quarters typically demonstrating stronger sales. The volume of shipments and related sales revenues is frequently affected by weather conditions and by the number of selling days in the period. Therefore, CBA’s results for any quarter are not likely to be indicative of the results that may be achieved for the full fiscal year.

Competition

The Company competes in the highly competitive craft brewing market as well as in the much larger specialty beer market, which encompasses producers of imported beers, major national brewers that have introduced fuller-flavored products, and large spirit companies and national brewers that produce flavored alcohol beverages. Beyond the beer market, craft brewers have also faced increasing competition from producers of wines and spirits. See “ Industry Background ” above.

Competition within the domestic craft beer segment and the specialty beer market is based on product quality, taste, consistency and freshness, ability to differentiate products, promotional methods and product support, transportation costs, distribution coverage, local appeal and price.

The craft beer segment is highly competitive due to the proliferation of small craft brewers, including contract brewers, and the large number of products offered by such brewers. Craft brewers have also encountered more competition as their peers expand distribution. Just as CBA expanded distribution of its products to markets outside of its home in the Pacific Northwest, so have other craft brewers expanded distribution of their products to other regions of the country, leading to an increase in the number of craft brewers in any given market. Competition also varies by regional market. Depending on the local market preferences and distribution, CBA has encountered strong competition from microbreweries, regional specialty brewers and several national craft brewers. Because of the large number of participants and number of different products offered in this segment, the competition for bottled product placements and especially for draft beer placements has intensified. Although certain of these competitors distribute their products nationally and may have greater financial and other resources than the Company, management believes that CBA possesses certain competitive advantages, including its broad array of brand offerings within the Company’s three brand families and the scale of its production breweries.

The Company also competes against producers of imported brands, such as Heineken, Corona Extra, and Guinness. Most of these foreign brewers have significantly greater financial resources than the Company. Although imported beers currently account for a greater share of the U.S. beer market than craft beers, CBA believes that craft brewers possess certain competitive advantages over some importers, including lower transportation costs, no importation costs, proximity to and familiarity with local consumers, a higher degree of product freshness, eligibility for lower federal excise taxes and absence of currency fluctuations.

In response to the growth of the craft beer segment, most of the major domestic national brewers have introduced fuller-flavored beers, including well-funded significant product launches in the wheat category. While these product offerings are intended to compete with craft beers, many of them are brewed according to methods used by these brewers in their other product offerings. The major national brewers have significantly greater financial resources than the Company and have access to a greater array of advertising and marketing tools to create product awareness of these offerings. Although increased participation by the major national brewers increases competition for market share and can heighten price sensitivity within the craft beer segment, we believe that their participation tends to increase advertising, distribution and consumer education and awareness of craft beers, and thus may ultimately contribute to further growth of this industry segment.

In the past several years, several major distilled spirits producers and national brewers have introduced flavored alcohol beverages. Products such as Smirnoff Ice, Bacardi Silver and Mike’s Hard Lemonade have captured sizable market share in the higher priced end of the malt beverage industry. We believe sales of these products, along with strong growth in the imported and craft beer segments of the malt beverage industry, contributed to an increase in the overall U.S. alcohol market. These products are particularly popular in certain regions and markets in which CBA sells its products.

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Competition for consumers of craft beers has also come from wine and spirits. Some of the growth in the past five years in the wine and spirits market, industry sources believe, has been drawn from the beer market. Media reports indicate that the U.S. beer market has lost nearly 1% share of alcohol beverage servings per year since 2003. While the wine and spirits markets have been impacted by the most recent economic downturn, similar to the premium beer market, industry sources indicate that the wine industry will experience its fourteenth consecutive year of growth by volume and the spirits industry its tenth consecutive year of growth by volume. This growth appears to be attributable to competitive pricing, television advertising, increased merchandising, and increased consumer interest in wine and spirits. Recently, the wine industry has been aided, on a limited basis, by its ability to sell outside of the three tier system, allowing sales to be made directly to the consumer.

A significant portion of CBA’s sales continues to be in the Pacific Northwest and in California, which the Company believes are among the most competitive craft beer markets in the United States, both in terms of number of participants and consumer awareness. CBA believes that these areas offer significant competition to its products, not only from other craft brewers but also from the growing wine market and from flavored alcohol beverages. This intense competition is magnified because some of the Company’s brands are viewed as being relatively mature. The Company’s recent marketing efforts have been to focus on creating appealing new brands and better communicating the attributes of its stable of existing beers, highlighting and strengthening the identities to better match the preferences and lifestyles of a greater number of consumers. CBA believes that its broad array of beers and brands enables the Company to offer an assortment of flavors and experiences that appeal to more people.

Regulation

The Company’s business is highly regulated at Federal, state and local levels. Various permits, licenses and approvals necessary to CBA’s brewery and pub operations and the sale of alcoholic beverages are required from various agencies, including the U.S. Treasury Department, Alcohol and Tobacco Tax and Trade Bureau (“TTB”), the U.S. Department of Agriculture, the U.S. Food and Drug Administration, state alcohol regulatory agencies for the states in which CBA sells its products, and state and local health, sanitation, safety, fire and environmental agencies. In addition, the beer industry is subject to substantial federal and state excise taxes, although smaller brewers producing less than two million barrels annually, including CBA, benefit from favorable treatment.

Management believes that CBA currently has all of the licenses, permits and approvals required for its current operations. However, existing permits or licenses could be revoked if CBA were to fail to comply with the terms of such permits or licenses and additional permits or licenses may be required in the future for CBA’s current operations or as a result of CBA expanding its operations in the future.

Alcoholic Beverage Regulation and Taxation. All of CBA’s breweries and pubs are subject to licensing and regulation by a number of governmental authorities. CBA operates its breweries under federal licensing requirements imposed by the TTB. The TTB requires the filing of a “Brewer’s Notice” upon the establishment of a commercial brewery and the filing of an amended Brewers’ Notice any time there is a material change in the brewing or warehousing locations, brewing or packaging equipment, brewery’s ownership, or officers or directors. CBA’s operations are subject to audit and inspection by the TTB at any time.

In addition to the regulations imposed by the TTB, CBA’s breweries and operations are subject to federal and state regulations applicable to wholesale and retail sales, pub operations, deliveries and selling practices in those states in which CBA sells its products. Significant conditions associated with the holding a valid TTB permit include paying its taxes and applicable fees, maintaining proper accounts and records, obtaining and holding appropriate surety bonds, and abiding by federal alcoholic beverage production and distribution regulations. The TTB performs background searches of all directors, officers and individuals holding more than 10 percent of the Company’s outstanding shares. Permits issued by state regulatory agencies have many, if not all, of the same requirements.

The U.S. federal government currently levies an excise tax of $18 per barrel on beer sold for consumption in the United States; however, brewers that produce less than two million barrels annually are taxed at $7 per barrel on the first 60,000 barrels shipped, with shipments above this amount taxed at the normal rate. Certain states also levy excise taxes on alcoholic beverages, which have also been subject to change. It is possible that excise taxes may be increased in the future by the federal government or any state government or both. In the past, increases in excise taxes on alcoholic beverages have been considered in connection with various governmental budget-balancing or funding proposals.

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Federal and State Environmental Regulation. The Company’s brewing operations are subject to environmental regulations and local permitting requirements and agreements regarding, among other things, air emissions, water discharges and the handling and disposal of hazardous wastes. While CBA has no reason to believe the operations of its breweries violate any such regulation or requirement, if such a violation were to occur, or if environmental regulations were to become more stringent in the future, CBA could be adversely affected.

Dram Shop Laws. The serving of alcoholic beverages to a person known to be intoxicated may, under certain circumstances, result in the server being held liable to third parties for injuries caused by the intoxicated customer. CBA’s restaurants and pubs have addressed this issue by maintaining relatively reasonable hours of operations and routinely performing training for their personnel.

Trademarks

CBA has obtained U.S. trademark registrations for its numerous products including its proprietary bottle designs. Trademark registrations generally include specific product names, marks and label designs. The Widmer Brothers, Redhook and Kona Brewing marks and certain other Company marks are also registered in various foreign countries. CBA regards its Widmer Brothers, Redhook, Kona Brewing and other trademarks as having substantial value and as being an important factor in the marketing of its products. The Company is not aware of any infringing uses that could materially affect its current business or any prior claim to the trademarks that would prevent CBA from using such trademarks in its business. CBA’s policy is to pursue registration of its trademarks in its markets whenever possible and to oppose vigorously any infringement of its trademarks.

Employees

At December 31, 2010, CBA employed approximately 600 people, including nearly 300 employees in the pubs, restaurant and retail stores, 160 employees in production, 100 employees in sales and marketing, and 45 employees in corporate and administration. The pubs and restaurants have 142 part-time employees and 35 seasonal or temporary employees, both of which are included in the totals above. None of CBA’s employees are represented by a union or employed under a collective bargaining agreement. The Company believes its relations with its employees to be good.

Available Information

Our Internet address is www.craftbrewers.com. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with or furnish it to the Securities and Exchange Commission (“SEC”). Our SEC reports can be accessed through the investor relations section of our Web site. The information found on our Web site is not part of this or any other report we file with or furnish to the SEC.

Executive Offi cers of the Company

Terry E. Michaelson (57) – Chief Executive Officer

Mr. Michaelson has served as CBA’s sole Chief Executive Officer since November 13, 2008 and was the Company’s Co-Chief Executive Officer prior to that beginning with the effective date of the WBBC Merger, July 1, 2008. He served as President of Craft Brands from July 2004 to July 1, 2008. From March 1995 to June 2004, he served as Chief Operating Officer and Executive Vice President of WBBC.

Mark D. Moreland (46) – Chief Financial Officer and Treasurer

Mr. Moreland has served as CBA’s Chief Financial Officer and Treasurer since August 2008 and prior to that was the Company's Chief Accounting Officer, beginning with the effective date of the WBBC Merger. From April 1, 2008 to June 30, 2008, Mr. Moreland served as Chief Financial Officer of WBBC. He was Executive Vice President and Chief Financial Officer of Knowledge Learning Corporation from July 2006 to November 2007. From July 2005 to June 2006, Mr. Moreland held the positions of Interim CFO, Senior Vice President - Finance and Treasurer with Movie Gallery, Inc., which operated the Movie Gallery and Hollywood Entertainment video rental chains. From August 2002 to July 2005, he was Senior Vice President, Finance and Treasurer of Hollywood Entertainment Corporation, which Movie Gallery, Inc. acquired in April 2005. Movie Gallery and each of its U.S. affiliates filed voluntary petitions under Chapter 11of the U.S. Bankruptcy Code on October 16, 2007, and the plan of reorganization was subsequently confirmed by the U.S. Bankruptcy Court in 2008.

Danielle A. Katcher (40) – Vice President, Marketing

Ms. Katcher was promoted to Vice President, Marketing for the Company effective March 1, 2010. Prior to that, Ms. Katcher served as CBA’s Senior Director, Marketing since the effective date of the WBBC Merger. She served as Senior Director of Marketing for Craft Brands from April 2008 to the effective date of the WBBC Merger, and was the Brand Director, Redhook and Kona for Craft Brands from December 2006 to April 2008. Ms. Katcher served as Director of Innovation for Craft Brands during this period as well, joining Craft Brands in January 2006.

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V. Sebastian Pastore (44) – Vice President, Brewing Operations and Technology

Mr. Pastore has served as Vice President, Brewing Operations and Technology for CBA since the WBBC Merger. Prior to that, Mr. Pastore served as Vice President of Brewing of WBBC from March 2002 to the effective date of the WBBC Merger. From June 2000 to March 2002, he worked for Coca-Cola Enterprises. From December 1994 to June 2000, Mr. Pastore worked at WBBC serving as the Director of Brewing.

Martin J. Wall (39) – Vice President, Sales

Mr. Wall has served as CBA’s Vice President, Sales since the WBBC Merger. Prior to that, Mr. Wall served as Vice President of Sales of Craft Brands from July 2004 to the effective date of the WBBC Merger. From September 2000 to June 2004, he served as Vice President of Sales of WBBC.

There is no family relationship among any of the directors or executive officers of the Company, except that Kurt R. Widmer, the Chairman of the Company’s Board, is the brother of Robert Widmer, who serves as the Company’s Vice President of Corporate Quality Assurance and Industry Relations, a non-executive position.

Item 1A. Risk Factors

Cautionary Language Regarding Forward-Looking Statements. This report contains “forward-looking statements” with the meaning of the Private Securities Litigation Reform Act of 1995. These statements include the discussion of our business strategies and expectations concerning future operations, margins, profitability, liquidity and capital resources. In addition, in certain portions of this report, the words “anticipate”, “project”, “believe”, “estimate”, “may”, “will”, “expect”, “plan” and “intend” and similar expressions, as they relate to us and the views of our management, are intended to identify forward-looking statements. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These statements are based upon the current expectations and assumptions of, and on information available to, our management. Further, investors are cautioned that, unless required by law, we do not assume any obligation to update forward-looking statements based on unanticipated events or changed expectations. In addition to specific factors that may be described in connection with any particular forward-looking statement, factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include (but are not limited to) the following:

Increased competition could adversely affect sales and results of operations. We compete in the highly competitive craft brewing market as well as in the much larger high-end beer category, which includes the high-end imported beer segment and fuller-flavored beer offered by major national brewers. Beyond this category of the beer market, craft brewers, including us, have also faced increasing competition from producers of wine, spirits and flavored alcohol beverages offered by the larger spirit producers and national brewers. Increased competition could cause our future sales and results of operations to be adversely affected.

We operate in the highly competitive craft beer industry and the maturity of some of our brands may result in a further decline in our market share. We face intense competition in the craft beer industry. Our beers compete primarily with beers produced by other craft brewers and foreign brewers and, to a lesser extent, national domestic brewers. We believe that the principal bases upon which we compete are quality, brand loyalty and price. A significant portion of the craft beer market is comprised of customers seeking new and exciting tastes, flavors and experiences. Certain of our key brands, including our top selling brand, have been marketed for more than two decades. As our brands continue to mature, it becomes more difficult for us to sell these brands to this portion of the craft beer market. Other craft brewers with whom we compete may offer brands that these consumers perceive to be newer, exciting and unique, and therefore preferable. These factors could lead to declining sales. We may respond by increasing discounts to offset these effects, which may further damage our overall brand image. Such events would cause our future sales, results of operations, and cash flows to be adversely affected.

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If we are unable to gauge trends and react to changing consumer preferences in a timely manner, our sales and market share will decrease. As discussed above, certain of our brands are relatively mature within the craft beer industry. In the coming year, we plan to engage in aggressive marketing and selling campaigns to reestablish these brands with the craft beer market, while simultaneously releasing new brands with unique and distinctive tastes. Our efforts include changing the packaging and design of these brands to be more appealing. The costs and management attention involved in these campaigns have been, and are expected to continue to be, significant. If we have not gauged consumer preferences correctly, or are unable to maintain consistently high quality beers as we develop new brands, our overall brand image may be damaged. If this were to occur, our future sales, results of operations and cash flows would be adversely affected.

Our business is sensitive to reductions in discretionary consumer spending. Consumer demand for luxury or perceived luxury goods, including craft beer, is sensitive to downturns in the economy and the corresponding impact on discretionary spending. The overall craft beer segment continued to grow in the face of the challenging economic environment of the prior year; however, there is no assurance that it will continue to enjoy growth in future periods. Changes in discretionary consumer spending or consumer preferences brought about by factors such as perceived or actual general economic conditions, job losses and the resultant rising unemployment rate, perceived or actual disposable consumer income and wealth, the current U.S. economic recession and changes in consumer confidence in the economy, could significantly reduce customer demand for craft beer in general, and the products we offer specifically. Certain of our core markets, particularly in the West, have been harder hit by the recent economic recession, with job loss and unemployment rates in excess of the national averages. Furthermore, our consumers may choose to replace our products with the fuller-flavored national brands or other more affordable, although lower quality, alternatives available in the market. Any such decline in consumption of our products would likely have a significant negative impact on our operating results.

We are dependent upon our continuing relationship with Anheuser-Busch, Incorporated (“A-B”) and the current distribution network. Substantially all of our products are sold and distributed through A-B’s distribution network. If the July 1, 2004 Master Distributor Agreement (as amended, the “A-B Distribution Agreement”) were terminated, we would be faced with a number of operational tasks, including implementing information technology systems to manage our supply chain including order management and logistics efforts, establishing and maintaining direct contracts with the existing wholesaler and distributor network or negotiating agreements with replacement wholesalers and distributors on an individual basis, and enhancing our credit evaluation and regulatory processes. Such an undertaking would require significant effort and substantial time to complete, during which the distribution of our products may be impaired. While the Company believes that the total one-time and recurring costs associated with such an undertaking may be lower than the total fees paid under the current arrangement with A-B, if we are required to undertake all of the above activities as a result of the A-B Distribution Agreement being terminated, the costs of such an undertaking could exceed the total fees that we currently pay to A-B.

Presently, we distribute our products through a network of more than 525 independently owned and operated wholesale distributors, most of which are geographically contiguous, and 12 wholesale distributors owned and operated by A-B. If we are required to negotiate agreements with replacement wholesalers and distributors on an individual basis, it may be challenging for us to build a distribution network as seamless and contiguous as the one we currently enjoy through A-B.

The parent company for A-B, Anheuser-Busch InBev, headquartered in Leuven, Belgium, is the leading global brewer and one of the world’s top five consumer products companies. Anheuser-Busch InBev manages a portfolio of over 200 brands that includes global flagship brands Stella Artois and Beck’s, in addition to A-B’s Budweiser.

A-B has entered into an Equity Purchase Agreement (“Purchase Agreement”) among Goose Holdings Inc. (“GHI”), FSB and the Company in regard to which GHI and the Company have agreed to sell their equity interests in FSB. Upon closing of the Purchase Agreement, FSB will become a wholly owned subsidiary of A-B. FSB and the Company compete in the same market segment, the craft beer segment, in largely separate but somewhat overlapping geographic territories. Prior to the transactions contemplated by the Purchase Agreement, the Company and FSB agreed to provide mutual support pursuant to a sales and marketing agreement and did not compete directly. As sole owner of FSB, while A-B has agreed to continue to support the Company’s sales and marketing efforts in the Midwest, FSB will have access to and may use the increased financial resources of A-B to expand its competitive footprint and seek to increase sales in territories which currently represent a significant percentage of the Company ’ s total shipments. Introduction of and support by A-B of FSB ’ s competing products, or other products developed or introduced by FSB, A-B or its parent, may reduce wholesaler attention and financial resources committed to our products. There is no assurance that we will be able to successfully compete in the marketplace against other A-B supported products or beers produced by other companies. A reduction in the level of A-B’s support of our products could cause our sales and results of operations to be adversely affected.

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We are dependent on our distributors for the sale of our products. Although substantially all of our products are sold and distributed through A-B, we continue to rely heavily on distributors, most of which are independent wholesalers, for the sale of our products to retailers. Any disruption in the ability of the wholesalers, A-B, or us to distribute products efficiently due to any significant operational problems, such as wide-spread labor union strikes or the loss of a major wholesaler as a customer, could hinder our ability to get our products to retailers and could have a material adverse impact on our sales, results of operations and cash flows.

Our agreements with A-B place limitations on our ability to engage in or reject certain transactions, including acquisitions and changes of control. Our Exchange and Recapitalization Agreement (as amended, the “Exchange Agreement”) requires us to obtain the consent of A-B prior to taking certain actions. The practical effect of these restrictions is to grant A-B the ability to veto certain transactions that management may believe to be in the best interest of our shareholders, including our expansion through acquisitions of other craft brewers or new brands, mergers with other brewing companies or distribution of our products outside of the United States. As a result, our financial condition, results of operations, cash flows and the trading price of our common stock may be adversely affected.

A-B holds certain rights affecting corporate governance and significant corporate transactions. As of December 31, 2010, A-B owns approximately 32.2% of our outstanding common stock and, under the Exchange Agreement, has the right to appoint two designees to our board of directors and to observe the conduct of all standing board committees. As a result, A-B is able to exercise significant control and influence over us and matters requiring approval of our shareholders, including the election of directors and approval of significant corporate transactions. This could limit the ability of other shareholders to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control of us. In addition, A-B may have actual or potential interests that differ from our other shareholders. The securities markets may also react unfavorably to A-B’s ability to influence certain matters involving the Company, which may have an adverse impact on the trading price of our common stock.

We are dependent on certain A-B information systems and operational support. We rely on the A-B supply-chain, order management, logistics and other financial systems to support our operations, particularly for the distribution of our products. As the maintenance and upkeep of these systems is under A-B’s control, any disruption or revisions to these systems will be remediated or made at A-B’s direction, which may cause the restoration of these critical systems to be delayed, especially in the short-term. Any disruption in these critical information services could have a material adverse effect on our financial condition, results of operations and cash flows. We may also incur incremental costs associated with changes to either A-B’s information systems, operational support or the A-B distribution network, which could have a material adverse effect on our financial condition, results of operations and cash flows.

We may be unable to successfully realize all of the anticipated benefits of the KBC Merger. The KBC Merger involves the integration of two companies that previously had operated independently. Among the factors that we considered in connection with the KBC Merger were the opportunities for synergies in efficiently utilizing the available production capacity, implementing a national sales strategy and reducing costs associated with duplicate functions. There can be no assurance that these synergies will be realized within the time periods contemplated or that they will be realized at all. There also can be no assurance that our integration with KBC will result in the realization of the full benefits anticipated by us.

Our shareholders may not realize a benefit from the KBC Merger commensurate with the ownership dilution they have experienced in connection with the KBC Merger. If we are unable to realize the strategic and financial benefits currently anticipated from the KBC Merger, our shareholders will have experienced dilution of their ownership interests without receiving commensurate benefit.

Operating breweries at production levels substantially below their current designed capacities could negatively impact our financial results. As of December 31, 2010, the annual working capacity of our breweries was approximately 900,000 barrels. Due to many factors including seasonality and production schedules of various draft products and bottled products and packages, actual production capacity will rarely, if ever, approach full working capacity. We believe that capacity utilization of the breweries will fluctuate throughout the year, and even though we expect that capacity of our breweries will be efficiently utilized during periods when our sales are strongest, there likely will be periods when the capacity utilization will be lower. If we are unable to achieve significant sales growth, the resulting excess capacity and unabsorbed overhead will have an adverse effect on our gross margins, operating cash flows and overall financial performance. We periodically evaluate whether we expect to recover the costs of our production breweries over the course of their useful lives. If facts and circumstances indicate that the carrying value of these long-lived assets may be impaired, an evaluation of recoverability will be performed by comparing the carrying value of the assets to projected future undiscounted cash flows along with other quantitative and qualitative analyses. If we determine that the carrying value of such assets does not appear to be recoverable, we will recognize an impairment loss by a charge against current operations, which could have a material adverse effect on our results of operations.

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Our sales are concentrated in the Pacific Northwest and California. Nearly two-thirds of our sales in 2010 have been in the Pacific Northwest and California and, consequently, our future sales may be adversely affected by changes in economic and business conditions within these areas. We also believe these regions are among the most competitive craft beer markets in the United States, both in terms of number of market participants and consumer awareness. The Pacific Northwest and California offer significant competition to our products, not only from other craft brewers but also from wine producers and flavored alcohol beverages.

The craft beer business is seasonal in nature, and we are likely to experience fluctuations in results of operations and financial condition. Sales of craft beer products are somewhat seasonal, with the first and fourth quarters historically being lower and the rest of the year generating stronger sales. Our sales volume may also be affected by weather conditions and selling days within a particular period. Therefore, the results for any given quarter will likely not be indicative of the results that may be achieved for the full fiscal year. If an adverse event such as a regional economic downturn or poor weather conditions should occur during the second and third quarters, the adverse impact to our revenues would likely be greater as a result of the seasonal business.

Changes in consumer preferences or public attitudes about alcohol could decrease demand for our products. If consumers were unwilling to accept our products or if general consumer trends caused a decrease in the demand for beer, including craft beer, it would adversely impact our sales and results of operations. If the markets for wine, spirits or flavored alcohol beverages continue to grow, this could draw consumers away from the beer industry in general and our products specifically and have an adverse effect on our sales and results of operations. Further, 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. As an outgrowth of these concerns, the possibility exists that advertising by beer producers could be restricted, that additional cautionary labeling or packaging requirements might be imposed or that there may be renewed efforts to impose at either the federal or state level, increased excise or other taxes on beer sold in the United States. If beer in general were to fall out of favor among domestic consumers, or if the domestic beer industry were subjected to significant additional governmental regulation, it would likely have a significant adverse impact on our financial condition, operating results and cash flows.

We are dependent upon the services of our key personnel. If we lose the services of any members of senior management or key personnel for any reason, we may be unable to replace them with qualified personnel, which could have a material adverse effect on our operations. Additionally, the loss of Terry Michaelson as our chief executive officer, and the failure to find a replacement satisfactory to A-B, would be a default under the A-B Distribution Agreement.

Our gross margin may fluctuate. Future gross margin may fluctuate and even decline as a result of many factors, including product pricing levels; sales mix between draft and bottled product sales and within the various bottled product packages; level of fixed and semi-variable operating costs; level of production at our breweries in relation to current production capacity; availability and prices of raw materials, production inputs such as energy, and packaging materials; rates charged for freight; and federal and state excise taxes. The high percentage of fixed and semi-variable operating costs causes our gross margin to be particularly sensitive to relatively small changes in sales volume.

We are subject to governmental regulations affecting our breweries and pubs. Federal, state and local laws and regulations govern the production and distribution of beer, including permitting, licensing, trade practices, labeling, advertising and marketing, distributor relationships and various other matters. A variety of federal, state and local governmental authorities also levy various taxes, license fees and other similar charges and may require bonds to ensure compliance with applicable laws and regulations. Certain actions undertaken by the Company may cause the Alcohol and Tobacco Tax and Trade Bureau or any particular state or jurisdiction to revoke its license or permit, restricting the Company’s ability to conduct business. One or more regulatory authorities could determine that the Company has not complied with applicable licensing or permitting regulations or has not maintained the approvals necessary for the Company to conduct business within its jurisdiction. If licenses, permits or approvals necessary for our brewery or pub operations were unavailable or unduly delayed, or if any permits or licenses that we hold were to be revoked, our ability to conduct business may be disrupted, which would have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

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We believe that we currently have all of the licenses, permits and approvals required for our current operations. However, we do business in almost every state through the A-B distribution network, and for many of these states, we rely on the licensing, permitting and approvals maintained by A-B. If a state or a number of states required us to obtain our own licensing, permitting or approvals to operate within the state’s boundaries, a combination of events may occur, including a disruption of sales or significant increases in compliance costs. If licenses, permits or approvals not previously required for the sale of our malt beverage products were to be required, the ability to conduct our business could be disrupted, which may have a material adverse effect on our financial condition, results of operations and cash flows.

Our common stock price may be at a level at June 30, 2011 that requires us to incur significant additional compliance costs under SEC regulations. Since January 1, 2011, the Company’s common stock has been trading in a range from $7.04 to $8.80 per share. Based our common shares outstanding of 18,819,053 as of March 17, 2011, if our common stock price is at or above $7.21 per share, we will become an accelerated filer for SEC annual and quarterly reports filed after December 31, 2011. As an accelerated filer, we would be required to file our annual and quarterly reports with the SEC more quickly than currently required. We may incur additional costs to redesign our current financial reporting process to meet these accelerated deadlines.

In addition, we will no longer be exempt from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal controls over financial reporting on an annual basis. In this event, we expect to incur additional effort and costs associated with the review by our independent registered public accounting firm of the applicable documentation produced by the Company and attesting to our assertions regarding the effectiveness of our internal controls over financial reporting as of December 31, 2011 and subsequent years. Furthermore, if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls, investors could lose confidence in our financial information, which is likely to adversely affect our common stock price.

An increase in excise taxes could adversely affect our financial condition and results of operations. The U.S. federal government currently levies an excise tax of $18 per barrel on beer sold for consumption in the United States; however, brewers that produce less than two million barrels annually are taxed at $7 per barrel on the first 60,000 barrels shipped, with the remainder of the shipments taxed at the normal rate. Individual states that the Company operates in also impose excise taxes on beer and other alcohol beverages in varying amounts, which have been subject to change. Federal and state legislators routinely consider various proposals to impose additional excise taxes on the production of alcoholic beverages, including beer. Due in part to the prolonged economic recession and the follow-on effect on state budgets, a number of states are proposing legislation that would lead to significant increases in the excise tax rate on alcoholic beverages for their states. Any such increases in excise taxes, if enacted, would adversely affect our financial condition, results of operations and cash flows.

Changes in state laws regarding distribution arrangements may adversely impact our operations. In 2006, the Washington state legislature enacted legislation removing the long-standing requirement that small producers of wine and beer distribute their products through wholesale distributors, thus permitting these small producers to distribute their products directly to retailers. The law further provides that any brewery that produces more than 2,500 barrels annually may distribute its products directly to retailers, if its distribution facilities are physically separate and distinct from its production breweries. The legislation stipulates that prices charged by a brewery must be uniform for all distributors and retailers, but does not mandate the price retailers may charge consumers. Our operations will continue to be substantially impacted by the Washington state regulatory environment. This law may also impact the financial stability of Washington state wholesalers on which we rely.

Other states in which we have a significance sales presence may enact similar legislation, which is likely to have the same or similar effect on the competitive environment for those states. An increase in the competitive environment in those states could have an adverse effect on our future sales and results of operations.

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We may experience a shortage of kegs necessary to distribute draft beer. We distribute our draft beer in kegs that are owned by us as well as leased from a third-party vendor, and on a limited basis from A-B. During periods when we experience stronger sales, we may need to rely on kegs leased from A-B and the third-party vendor to address the additional demand. If shipments of draft beer increase, we may experience a shortage of available kegs to fill sales orders. If we cannot meet our keg requirements through either lease or purchase, we may be required to delay some draft shipments. Such delays could have an adverse impact on sales and relationships with wholesalers and A-B. We may also decide to pursue other alternatives for leasing or purchasing kegs, but there is no assurance that we will be successful in securing additional kegs.

We are dependent on certain suppliers for key raw materials, packaging materials and production inputs. Although we seek to maintain back-up and alternative suppliers for all key raw materials and production inputs, we are reliant on certain third parties for key raw materials, packaging materials and utilities. Any disruption in the willingness or ability of these third parties to supply these critical components could hinder our ability to continue production of our products, which could have a material adverse impact on our financial condition, results of operations and cash flows.

Loss of income tax benefits could negatively impact our results of operations. As of December 31, 2010, our deferred tax assets were primarily comprised of federal net operating losses (“NOLs”) of $23.5 million, or $8.0 million tax-effected; state NOL carryforwards of $211,000 tax-effected; and federal and state alternative minimum tax credit carryforwards of $452,000 tax-effected. The ultimate realization of deferred tax assets is dependent upon generating taxable income during the periods in which those temporary differences become deductible. To the extent that the Company is unable to generate adequate taxable income in future periods, the Company may be required to record a valuation allowance to provide for potentially expiring NOLs or other deferred tax assets. Any such allowance would generally be charged to earnings in the period of increase.

A small number of shareholders hold a significant ownership percentage of the Company and uncertainty over their continuing ownership plans could cause the market price of our common stock to decline. As noted above, A-B has a significant ownership stake in the Company. In addition, the founders of Widmer Brothers Brewing Company (“WBBC”) and their close family members own approximately 3.6 million shares of our common stock. Collectively, these two groups own 51.2% of the Company’s equity. All of these shares are available for sale in the public market, subject to volume, manner of sale and other limitations under Rule 144 in the case of shares held by any of these shareholders who are affiliates of the Company. Such sales in the public market or the perception that such sales could occur may cause the market price of our common stock to decline.

We do not intend to pay and are limited in our ability to declare or pay dividends; accordingly, shareholders must rely on stock appreciation for any return on their investment in us. We do not anticipate paying cash dividends. Further, under our loan agreement with Bank of America (“BofA”), we are not permitted to declare or pay a dividend without BofA’s prior consent. As a result, only appreciation of the price of our common stock will provide a return to shareholders. Investors seeking cash dividends should not invest in our common stock.

The fair value of our intangible assets, including goodwill, may become impaired. As a result of the KBC Merger, the Company has recognized a significant increase in its total intangible assets, including goodwill. As of December 31, 2010, the Company holds more than $30.4 million in an assortment of intangible assets, on a net basis, which represents nearly 20% of the Company’s total assets, and another $5.2 million in an investment in another corporate entity. If any circumstances were to occur, such as economic recession or other factors causing a reduction in consumer demand, or for any other reason we were to experience a significant decrease in sales growth, which had a negative impact on the Company’s estimated cash flows associated with these assets, our analyses of these assets may conclude that a decrease in the fair value of these assets occurred. If this were to occur, we would be required to recognize a potentially significant loss on impairment of these assets. Any such impairment loss would be charged against current operations in the period of change.

Item 1B. Unresolved Staff Comments

None.

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It em 2. Properties

The Company currently owns and operates four highly automated small-batch breweries, the Hawaiian Brewery, the New Hampshire Brewery, the Oregon Brewery and the Washington Brewery, as well as a small, manual brewpub-style brewing system at the Rose Quarter Brewery. The Company leases the sites upon which the the Hawaiian Brewery, New Hampshire Brewery and the Rose Quarter Brewery are located, in addition to its office space and warehouse locations in Portland, Oregon for its corporate, administrative and sales functions. These operating leases expire at various times between 2011 and 2047. Certain of these leases are with entities that have members that include related parties to the Company. See Notes 15 and 16 to the Consolidated Financial Statements included elsewhere herein for further discussion regarding these arrangements. The Company’s annual production capacity is estimated assuming a total of two weeks shut down for maintenance and other interruptions. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview ” for a discussion of the factors considered in developing annual working capacity.

The Hawaiian Brewery. As a result of the KBC Merger, the Company acquired the Hawaiian Brewery located in Kailua-Kona, Hawaii. The Hawaiian Brewery sources the Kona branded restaurants and pubs in the islands of Hawaii and Oahu, as well as other restaurants and pubs throughout the Hawaiian Islands. As of December 31, 2010, the brewery’s annual production capacity is approximately 11,000 barrels, which is also the expected annual production capacity for 2011.

The New Hampshire Brewery . The New Hampshire Brewery is located on approximately 23 acres in Portsmouth, New Hampshire. The Company leases the land under a contract that expires in 2047, with an option to renew for up to two seven-year extensions. The New Hampshire Brewery is modeled after the Washington Brewery and is similarly equipped, but is larger in design, covering 125,000 square feet to accommodate all phases of the Company’s brewing operations under one roof. Also included is a retail merchandise outlet; the Cataqua Public House, a 4,000 square-foot family-oriented pub with an outdoor beer garden, and a special events room accommodating up to 250 people. Production began in October 1996, with an initial brewing capacity of approximately 100,000 barrels per year. In order to accommodate sales growth, the Company has steadily expanded the production capacity at this location. As of December 31, 2010, the brewery’s annual production capacity is approximately 181,000 barrels, which is also the expected annual production capacity for 2011.

The Oregon Brewery . The Oregon Brewery, located in Portland, Oregon, is comprised of an approximately 135,000 square-foot building housing the primary brewery equipment, a 40,000 square-foot building and a 10,000 square-foot addition. The three structures house a 230-barrel brewhouse, fermentation cellars, filter rooms, grain storage silos, a bottling line, a keg filling line, dry storage, two coolers and loading docks. The brewery includes a retail merchandise outlet and the Gasthaus Pub and Restaurant, a 3,100 square-foot family-oriented pub that seats 125 patrons. There are also two special events rooms that combined represent 3,700 square feet and can accommodate up to 125 people. The brewery also houses office space, where most of the Company’s corporate and sales and marketing staff is located. As of December 31, 2010, the brewery’s annual production capacity is approximately 481,000 barrels, which is also the expected annual production capacity for 2011.

The Washington Brewery . The Washington Brewery, located on approximately 22 acres (17 of which are developable) in Woodinville, Washington, a suburb of Seattle, is across the street from the Chateau Ste. Michelle Winery and next to the Columbia Winery. The Washington Brewery is comprised of an approximately 88,000 square-foot building, a 40,000 square-foot building and an outdoor tank farm. The two buildings house a 100-barrel brewhouse, fermentation cellars, filter rooms, grain storage silos, a bottling line, a keg filling line, dry storage, two coolers and loading docks. The brewery includes a retail merchandise outlet and the Forecasters Public House, a 4,000 square-foot family-oriented pub that seats 200 patrons and features an outdoor beer garden that seats an additional 200 people. Additional entertainment facilities include a 4,000 square-foot special events room accommodating up to 250 people. The brewery also houses office space, in a portion of which some of the Company’s operations staff are located. The remaining space is leased out to a third party under an operating agreement that was on a month-to-month basis for 2010, but became a long-term arrangement beginning in the first quarter of 2011 with the completion of certain contractual tenant improvements. As of December 31, 2010, the brewery’s annual production capacity is approximately 236,000 barrels, which is also the expected annual production capacity for 2011.

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The Rose Quarter Brewery. The Company also operates a second location in Portland, Oregon, which is a pilot 10-barrel brewhouse located in the Rose Quarter, a sports and entertainment venue in the city. The Company uses the Rose Quarter Brewery to brew one-off and specialty beers and to source primarily the Gasthaus and to a lesser degree, other restaurants, public houses and bars in the Portland, Oregon region.

Substantially all of the personal property and the real properties associated with the Oregon Brewery and the Washington Brewery secure the Company’s loan agreement with BofA. See Notes 5 and 8 to the Consolidated Financial Statements included elsewhere herein.

Item 3. Legal Proceedings

The Company is involved from time to time in claims, proceedings and litigation arising in the normal course of business. The Company believes that, to the extent that any pending or threatened litigation involving the Company or its properties exists, such litigation will not likely have a material adverse effect on the Company’s financial condition or results of operations.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s Common Stock trades on the Nasdaq Stock Market (“Nasdaq”) under the trading symbol HOOK. The table below sets forth, for the fiscal quarters indicated, the reported high and low sale prices of the Company’s Common Stock, as reported on the Nasdaq:

	2010				2009
	High		Low		High		Low

First quarter	$	2.73	$	2.16	$	1.32	$	0.85
Second quarter	$	5.15	$	2.31	$	2.78	$	0.93
Third quarter	$	9.94	$	4.40	$	4.20	$	1.61
Fourth quarter	$	8.27	$	6.01	$	3.87	$	2.03

We had approximately 684 common shareholders of record as of March 17, 2011.

The Company has not declared or paid normal or ordinary dividends during its existence. Under the terms of the Company’s loan agreement with Bank of America, N.A. (“BofA”) as modified, the Company may not declare or pay dividends without our lender’s consent. The Company anticipates that for the foreseeable future, all earnings, as applicable, will be retained for the operation and expansion of its business and that it will not pay cash dividends. The payment of dividends, if any, in the future will be at the discretion of the board of directors and will depend upon, among other things, future earnings, capital and operating requirements, restrictions in future financing agreements, the general financial condition of the Company and general business conditions.

Item 6. Selected Financial Data

Not applicable.

Item 7. 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 Consolidated Financial Statements and Notes thereto included herein. The discussion and analysis includes period-to-period comparisons of the Company’s financial results. Although period-to-period comparisons may be helpful in understanding the Company’s financial results, the Company believes that they s hould 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 in the United States. The Company generated gross sales of $140.9 million and net income of $1.7 million for the year ended December 31, 2010, compared with gross sales of $133.3 million and net income of $887,000 for the corresponding period in 2009. The Company generated earnings per share on a fully diluted basis of $0.10 on 17.6 million shares for fiscal year 2010 compared with $0.05 on 17.0 million shares for fiscal year 2009.

The Company’s sales volume (shipments) increased 3.5% to 607,800 barrels in 2010 as compared with 587,500 barrels in 2009, due primarily to an increase in shipments made under its contract brewing arrangements.

The Company produced its specialty bottled and draft Redhook- and Widmer Brothers- branded products in its three Company-owned production breweries, one in the Seattle suburb of Woodinville, Washington (“Washington Brewery”), another in Portsmouth, New Hampshire (“New Hampshire Brewery”), and in Portland, Oregon. The production facility located in Portland, Oregon, is the Company’s largest production facility (“Oregon Brewery”). The Company also owns and operates another facility in Portland, Oregon, its smallest, a manual brewpub-style brewery at the Rose Quarter (“Rose Quarter Brewery”). Prior to October 1, 2010, the Company sold these products in addition to the Kona- branded products purchased from Kona Brewery LLC, (“Kona”) predominantly to Anheuser-Busch, Incorporated (“A-B”) and its network of wholesalers pursuant to the July 1, 2004 Master Distributor Agreement (as amended, the “A-B Distribution Agreement”). The Redhook-, Widmer Brothers- and Kona- branded products are readily available in 48 states. For additional information regarding the A-B Distribution Agreement, see Part 1, Item 1, Business “ — Product Distribution, ” and “ — Relationship with Anheuser-Busch, Incorporated. ”

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As of July 31, 2010, the Company, Kona Brewing Co., Inc.; Kona; and related entities (collectively, “KBC”) and KBC’s shareholders, entered into an agreement and plan of merger. As of October 1, 2010 (the “effective date”), the merger was completed and Kona Brewing Co., Inc. merged with and into a wholly owned subsidiary of the Company (the “KBC Merger”). Now a wholly owned subsidiary of the Company, Kona continues to own and operate its brewery (the “Hawaiian Brewery”) located in Kailua-Kona, Hawaii. The restaurant and pub operations of KBC are comprised of three restaurants and pubs, including one adjacent to the Hawaiian Brewery, situated in Honolulu, Oahu and Kailua-Kona, Hawaii.

Management believes that the Company, as it is currently constituted, should be able to secure advantages beyond those that have already been achieved in its long-term strategic relationship with KBC in supporting the Kona Brewing brand family of beers with increased financial, marketing and operating capabilities, allowing the Kona Brewing brand to reach more consumers in both Hawaii and the U.S. mainland. This acquisition increases the breadth and variety of the Company’s brand offerings, creating favorable selling opportunities in a greater number of lucrative markets.

Prior to the effective date, the Company also earned revenue in connection with two operating agreements with Kona — an alternating proprietorship agreement and a distribution agreement. Pursuant to the alternating proprietorship agreement, Kona produced a portion of its malt beverages at the Company’s Oregon Brewery. The Company received a facility fee from Kona based on the barrels brewed and packaged at the Company’s brewery. Fees were also recognized as revenue upon completion of the brewing process and packaging of the product. In connection with the alternating proprietorship agreement, the Company also sold certain raw materials to Kona for use in brewing. Revenue was recognized when the raw materials are removed from the Company’s stock. Under the distribution agreement, the Company purchased Kona-branded product from Kona, then sold and distributed the product. Under this arrangement, the Company recognized revenue when the product is delivered to A-B or the wholesaler. After the effective date, as the Company consolidates the activities of Kona, any such intercompany activities are eliminated, including the revenues and costs associated with the alternating proprietorship agreement and the distribution agreement.

The Company also derives other revenues from sources including the sale of retail beer, food, apparel and other retail items in its three restaurants and pubs that are adjacent to its production breweries, and after the effective date, the restaurants and pubs operated by KBC.

On March 27, 2011, the Company executed a binding term sheet (the "Term Sheet") with A-B, relating to the Company’s investment in FSB. A-B had previously entered into an equity purchase agreement (the "Purchase Agreement") dated as of February 18, 2011, with Goose Holdings, Inc. ("GHI"), under which GHI had agreed to sell its 58 percent equity interest in FSB. The Company holds a right of first refusal under the operating agreement among FSB, GHI and the Company that permitted it to purchase GHI's interest in FSB on the same terms and conditions as set forth in the Purchase Agreement. A copy of the Term Sheet was included as an exhibit to the Company’s current report on Form 8-K filed with the SEC on March 28, 2011.

Pursuant to the Term Sheet, the Company has agreed to sell its equity interest in FSB to A-B and not to exercise its right of first refusal under the operating agreement with FSB. A-B has agreed to pay $16.3 million in cash for the Company's equity interest in FSB in accordance with the terms and conditions in the Purchase Agreement and an additional $150,000 in respect of transaction costs. A-B has further agreed to reductions in Total Margin for the remaining term of the A-B Distribution Agreement, as well as any renewal term, to allow the Company to use an alternate distribution network in the event the Company purchases additional beer brands in the future, and to provide the Company with greater flexibility with respect to future acquisitions or divestitures of assets without obtaining A-B’s prior consent. A-B also agreed to provide enhanced selling support for the Company’s brands.

The Company estimates that, had the proposed deal been in place throughout 2010, the increase in 2010 sales revenues resulting from the reduced distribution fees would have been approximately $2.1 million. The loss of the Company’s share of earnings from FSB will partially offset any increase in sales revenues resulting from the reduced distribution fees. The Company’s share of FSB’s earnings was $696,000 for 2010.

Prior to the execution of the KBC Merger, the Company accounted for its 20% equity ownership interest in Kona under ASC 323 as outlined above. As a result of the KBC Merger, the Company recognized its investment in Kona at its fair value as a component of the assets transferred in the KBC Merger. The Company also discontinued recognizing earnings on an equity basis for Kona from the effective date of the KBC Merger, and will not recognize equity earnings associated with Kona in future periods.

The Company’s sales are affected by several factors, including consumer demand, price discounting and competitive considerations. The Company competes in the highly competitive craft brewing market as well as in the much larger beer, wine, spirits and flavored alcohol markets, which encompass producers of import beers, major national brewers that produce fuller-flavored products, large spirit companies, and national brewers that produce flavored alcohol beverages. The craft beer segment is highly competitive due to the proliferation of small craft brewers, including contract brewers, and the large number of products offered by such brewers. Certain national domestic brewers have also sought to appeal to this growing demand for craft beers by producing their own fuller-flavored products. These fuller-flavored products have been most successful within the wheat beer category, including Shock Top Belgian White and Blue Moon Belgian White. These beers are generally considered to be within the same category as the Company’s Hefeweizen beer, putting them in direct competition. The wine and spirits market has also experienced significant growth in the past five years or so, attributable to competitive pricing, increased merchandising, and increased consumer interest in wine and spirits. In recent years, the specialty segment has seen the introduction of flavored alcohol beverages, the consumers of which, industry sources generally believe, correlate closely with the consumers of the import and craft beer products. Sales of these flavored alcohol beverages were initially very strong, but growth rates have slowed in recent years. While there appear to be fewer participants in the flavored alcohol category than at its peak, there is still significant volume associated with these beverages. Because the number of participants and number of different products offered in this segment have increased significantly in the past ten years, the competition for bottled and draft product placements has intensified.

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While the craft beer market has seen a significant growth in the number of competitors, the national domestic and international brewers have undergone a second round of consolidation, reducing the number of market participants at the top of the beer market. A number of factors have driven this consolidation, including the desire to capture market share and positioning as either the largest brewer or second largest brewer in any given market. The U.S. beer market, in which the Company competes, was once dominated by three companies, A-B, Miller Brewing Company and Adolph Coors Company. During the past decade, Miller Brewing Company and Adolph Coors Company were merged with international brewers, South African Brewers (“SAB”) and Molson of Canada, respectively, to increase the global market reach of their brands. During 2009, the resulting companies, SABMiller and MolsonCoors, completed the terms of a joint venture to merge their U.S. operations, competing under the name MillerCoors. Likewise, A-B was acquired by Belgium-based InBev in a deal consummated in the fourth quarter of 2008. Shipments for the two entities, A-B and MillerCoors, represented more than 80 percent of the total U.S. market, including imports, for 2010.

Another factor driving consolidation is the desire on the part of these larger consolidated national brewers to control the rising cost of the majority of the inputs to the brewing process, primarily barley, wheat and hops, and packaging and shipping costs. While consolidation promises to alleviate these cost pressures for the national brewers, the Company faces these same pressures with only limited resources available to achieve similar benefits.

Management periodically monitors the annual working capacity of each brewery in connection with production, resource and capital planning. Because an industry standard for defining brewery capacity does not exist, there are numerous variables that can be considered in arriving at an estimate of annual working capacity. In its latest analysis of annual working capacity, management reviewed each facility and considered the following factors, among others, in estimating annual working capacity:

Brewhouse capacity, fermentation capacity, and packaging capacity;

A normal production year;

The brand mix and associated product cycle times; and

Brewing losses and packaging losses.

As the conditions under which each brewery operates differ (including such variables as the age and configuration of the equipment and the local environment), the impact that these factors may have on the estimate of capacity also vary by brewery. The Washington Brewery is constrained by the size of its brewhouse (the brewery has adequate capacity to ferment and package all of the beer that can be brewed there), and the other three production breweries are constrained by the volume and configuration of their respective fermenters relative to the capacity of their respective brewhouse and packaging facilities.

Management did not consider the impact that seasonality clearly has on its capacity analysis, but rather assumed that each brewery produces beer to its full working capacity throughout a 50 week year. As seasonality is a significant factor affecting the Company’s sales, the Company expects that the breweries’ capacity may only approach full capacity utilization during periods when the Company’s sales are strongest, i.e. the second and third quarters of any year, and there likely will be periods where the breweries’ capacity utilization will be lower.

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Management estimates the annual working capacity for its production breweries as follows:

	Annual Working Capacity at December 31, 2010
	(In barrels)
Production Breweries
Oregon Brewery (1)		481,000
Washington Brewery		236,000
New Hampshire Brewery		181,000
Hawaiian Brewery		11,000
		909,000

____________________________

Note 1 - Excludes the annual working capacity for the Rose Quarter Brewery, which is less than 1,000 barrels.

In its latest analysis of annual working capacity, management determined that numerous production best practices implemented over the course of the past two years contributed to a significant increase in its total annual working capacity, especially at the Oregon Brewery.

Beginning in the fourth quarter of 2010, the Company increased the rate of its capital expenditures, and expects this elevated rate to continue for all of 2011. A significant component of this future spending may not directly contribute to an increase in working capacity but rather towards improving order management and demand forecasting. In addition, a portion will enable the Company to fulfill consumer demand for an increasing variety of packages and brands. At the New Hampshire Brewery, the Company incurred $1.4 million and $0.9 million in capital expenditures in 2010 and 2009, respectively, for projects primarily intended to improve quality and increase capacity, including the installation of a chiller and a water treatment facility. These projects have enabled the Company to expand the brands produced at that facility, leading to an increase in annual working capacity. The Company anticipates that near term working capacity will continue to approximate 900,000 barrels due to a combination of these improvements and its estimated brand mix produced at its breweries.

The Company’s capacity utilization has a significant impact on gross profit. Generally, as breweries operate at higher levels of capacity utilization, profitability is favorably affected as fixed and semi-variable operating costs, such as depreciation and production salaries, are spread over a larger base. As the Company has made significant investments both with its personnel and its capital, the Company has created a significant amount of working capacity, some of which remains unutilized. While the Company anticipates that future sales growth will fully absorb this amount, the Company continues to evaluate other operating configurations and arrangements, including contract brewing, to improve the utilization of its production breweries and recoup these investments.

In addition to capacity utilization, other factors that could affect gross margin include product pricing levels including the extent of price promotion, sales mix between draft and bottled product sales and within the various bottled product packages, availability and prices of raw materials and packaging materials, and rates charged for freight and federal or state excise taxes.

Brand Trends

Widmer Brothers’ Beers . The Widmer Brothers’ brand family has been able to secure a measurable share of the craft beer segment created by the popular consumer response to the Hefeweizen category within the craft beer segment and the role that Widmer Brothers Hefeweizen has enjoyed as the pioneer and leader in this category. This category continues to experience positive trends nationally, but has continued to see a significant increase in competitive products from other craft brewers and offerings from large domestic brewers such as A-B’s Shock Top Belgian White and MillerCoors’ Blue Moon Belgian White . Compounding the effects of the increased competitive landscape has been a difficult environment for the restaurant and dining industry, as a result of the prolonged U.S. economic recession for much of 2010. Widmer Brothers Hefeweizen is significantly more dependent on on-premise sales than the Company’s other brands, although the mix continues to move towards a more even balance each year. In an effort to keep top of mind with consumers and to shift the emphasis of this brand from the on-premise market, during 2009, the Company began offering Widmer Brothers Hefeweizen in the Western U.S. markets in a 5-liter steel mini keg. The Company believes this allows consumers the opportunity to enjoy the draft characteristics of this brand at home.

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The Company began selling and marketing other Widmer Brothers-branded products in the Midwest and Eastern United States in 2009, ramping these efforts up in these markets in 2010. These efforts rounded out the Widmer Brothers-brand offering in these regions, giving the consumers in these markets a true Widmer Brothers brand family to enjoy, especially Drop Top Amber Ale and Drifter Pale Ale (“Drifter”) . The growth and development of both of these brands, Drifter in particular, have helped stabilize the performance of the overall brand family and partially offset the unfavorable trends impacting the Widmer Brothers Hefeweizen , These supporting brands drove the volume growth for the Widmer Brothers brand’s off-premise sales.

The success of the Brothers’ Reserve brand in 2010 demonstrated the ability of the brand family to create new and one-of-a-kind premium priced beers for the connoisseur and beer enthusiast segments. While the Company will seek to keep the Brothers’ Reserve volume limited to preserve its cach é , the Widmer Brothers brand family will offer a greater number of high-end and luxury brands, such as the Pitch Black India Pale Ale (“IPA”) , and Nelson Imperial IPA in 4-pack bottles and draft in 2011 to capture the growth of these markets.

Redhook Beers. The Redhook brand family’s volume is largely derived from Long Hammer IPA, ESB and the seasonal lineup . Long Hammer IPA has been able to leverage the growth of consumer demand within the IPA category coupled with an aggressive pricing strategy to become one of the market leaders in this category. As the IPA category has grown, the number of competitors entering this category has increased significantly, and in 2010, two larger craft brewing competitors introduced year round IPAs in bottles. This development, along with scores of smaller craft brewers producing both draft and bottled IPA products, has had an unfavorable impact on the growth rate for Long Hammer IPA .

The Redhook brand family will also develop its most unique and one-off beers tailored to the geographic differences in the brand family’s footprint, with introduction of the Brewery Backyard series of brands for the Cataqua Public House at the New Hampshire Brewery and surrounding local markets and the Blueline series of brands for the Forecasters Public House at the Washington Brewery and surrounding local markets. These beers will be experimental in nature, and designed to appeal to the connoisseur and craft beer enthusiast communities. Beers produced for either brand series will be offered only for a limited time to preserve the excitement and exclusivity of the brands.

The overall Redhook brand family, including Long Hammer IPA, has been most competitive in its core and traditional markets where the brand identity is well known; however, in markets where it has been a recent entrant, achieving positive sales momentum has been more difficult. The Redhook brand family will seek to replicate many of the strategies deployed in Redhook’s local markets to select markets that are targeted for their growth potential for the brand family. Combined with the packaging changes, including a redesigned bottle for all Redhook brand offerings, as well as cans exclusively for the Copperhook Ale brand, the Company hopes to reverse the recent sales declines for the Redhook brand family in 2011.

Kona Brewing Beers. The volume growth of the Kona Brewing brand has outpaced the craft beer segment’s growth since its introduction to the mainland in 2004 facilitated through its relationships with WBBC and Craft Brands Alliance, LLC (“Craft Brands”), a sales and marketing joint venture between the Company and WBBC. Although early success for the Kona Brewing brand may have been due to its relative newness, benefiting from increased distribution into new geographic regions and trial from consumers, its performance in 2010 continued to be strong, becoming a top-15 brand within the craft beer segment.

The Company identifies Longboard Island Lager as the brand family’s flagship, creating a direct connection to Hawaii with consumers. The brand family has a clear identity, marketed as “Always Aloha”, which creates a strong message easily understood by consumers. The beer is of high quality and often made with ingredients from Hawaii, making it popular with wholesalers, retailers and consumers.

As a relatively new brand in the U.S. mainland, Kona-branded beers are distributed in fewer markets than the other two brand families, which both offer some, if not all of their brands in 48 states. Management believes that the Kona Brewing brands will continue to experience significant near-term organic growth in addition to volume growth generated by continued geographic expansion of the brand into the Eastern United States. The Company believes that the Kona Brewing brand will benefit from the KBC Merger by creating favorable selling opportunities in a greater number of lucrative markets, supported by the Company’s financial, marketing, selling and operational resources to further expand consumer demand for the brand.

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For additional information about risks and uncertainties facing the Company, see “Part 1, Item 1A. Risk Factors”.

Results of Operations

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

	Year Ended December 31,
	2010			2009

Sales		106.9	%		106.9	%
Less excise taxes		6.9			6.9
Net sales		100.0			100.0
Cost of sales		74.5			77.9
Gross profit		25.5			22.1
Selling, general and administrative expenses		22.7			20.0
Merger-related expenses		0.4			0.2
Operating income		2.4			1.9
Income from equity investments		0.6			0.4
Interest expense		(1.1	)		(1.7	)
Interest and other income, net		0.2			0.3
Income before income taxes		2.1			0.9
Income tax provision		0.8			0.2
Net income		1.3	%		0.7	%

Non-GAAP Financial Measures

Since June 2008, the Company has maintained a loan agreement (as amended, the “Loan Agreement”) with Bank of America, N.A. (“BofA”), which is presently comprised of a $22.0 million revolving line of credit (“Line of Credit”), including provisions for cash borrowings and up to $2.5 million notional amount of letters of credit, and a $13.5 million term loan (“Term Loan”). The Loan Agreement was most recently amended effective September 30, 2010 (the “Third Amendment”), primarily to accommodate the KBC Merger. The Company’s Loan Agreement subjects the Company to a financial covenant based on earnings before interest, taxes, depreciation and amortization (“EBITDA”). See “ Liquidity and Capital Resources .” EBITDA is defined per the Loan Agreement and requires additional adjustments, among other items, to (a) exclude merger-related expenses, subject to limitations, (b) adjust losses (gains) on sale or disposal of assets, (c) exclude certain other non-cash income and expense items and (d) adjust for certain items that are specifically identified in either the Loan Agreement or the Third Amendment. The financial covenants under the Loan Agreement are measured on a trailing four-quarter basis, and the Company generated EBITDA as defined of $13.5 million for the trailing four quarters ended December 31, 2010. As of December 31, 2010, the Company was required to maintain a ratio of funded debt to EBITDA, as defined, less than or equal to 3.0 to 1. The Company was in compliance with all contractual financial covenants, including the ratio of funded debt to EBITDA, as of December 31, 2010. The following table reconciles net income to EBITDA per the modified loan agreement for this period:

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	For the Trailing Four Quarters Ended December 31, 2010
	(In thousands)

Net income	$	1,686
Interest expense		1,497
Income tax provision		1,100
Depreciation expense		6,494
Amortization expense		550
Merger-related expenses, to extent allowable		450
Prior period EBITDA generated by acquired subsidiary, to extent allowable		1,567
Other non-cash charges		111
EBITDA per the Loan Agreement	$	13,455

Year Ended December 31, 2010 Compared with Year Ended December 31, 2009

The following table sets forth, for the periods indicated, a comparison of certain items from the Company’s Consolidated Statements of Income:

	Year Ended December 31,						Increase /
	2010			2009			(Decrease)			% Change
	(Dollars in thousands)

Sales	$	140,852		$	133,308		$	7,544			5.7	%
Less excise taxes		9,121			8,595			526			6.1
Net sales		131,731			124,713			7,018			5.6
Cost of sales		98,064			97,230			834			0.9
Gross profit		33,667			27,483			6,184			22.5
Selling, general and administrative expenses		29,938			24,911			5,027			20.2
Merger-related expenses		559			225			334			148.4
Operating income		3,170			2,347			823			35.1
Income from equity investments		842			552			290			52.5
Interest expense		(1,497	)		(2,139	)		(642	)		(30.0	)
Interest and other income, net		271			313			(42	)		(13.4	)
Income before income taxes		2,786			1,073			1,713			159.6
Income tax provision		1,100			186			914			N/M
Net income	$	1,686		$	887		$	799			90.1	%

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Note:

N/M - Not Meaningful

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The following table sets forth, for the periods indicated, a comparison of sales revenues within the specified categories:

	Year Ended December 31,				Increase /			%
	2010		2009		(Decrease)			Change
	(Dollar in thousands)

Sales Revenues by Category
A-B and A-B related (1)	$	114,296	$	110,840	$	3,456			3.1	%
Contract brewing		2,543		431		2,112			N/M
Alternating proprietorship		9,846		10,744		(898	)		(8.4	)
Pubs and other (2)		14,167		11,293		2,874			25.4
Total Sales	$	140,852	$	133,308	$	7,544			5.7	%

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Note 1 - A-B related revenues include fees earned on wholesaler or distibutor sales made via a non-wholesaler.

Note 2 - Other revenues include international sales, sales of promotional merchandise and other.

N/M - Not Meaningful

Gross Sales. Total sales revenues increased 5.7% to $140.9 million for the year ended December 31, 2010 from $133.3 million for the same period in 2009. The primary factors contributing to the increase in the sales revenues for the year ended December 31, 2010 was an increase in sales to A-B and A-B related revenues, an increase in contract brewing revenues, and the effects of the KBC Merger, which included the sales generated by the acquired restaurants and pubs on the Hawaiian Islands during the fourth quarter of 2010 partially offset by the elimination of alternating proprietorship fees for the fourth quarter of 2010.

Sales to A-B and A-B related increased due to the net selling price for the Company’s products sold through A-B, a slight increase in the shipments to A-B of 1,700 barrels or 0.3% from shipments of 573,200 barrels in 2009 to 574,900 barrels in 2010, and a reduction in the fees paid to A-B associated with the amendment to the A-B Distribution Agreement. The Company experienced a net price increase for both the Company’s draft and bottled products. This pricing increase was primarily due to increased prices at the wholesaler levels, package mix, and a greater percentage of higher priced brands sold during the year ended December 31, 2010 as compared with the corresponding period a year ago. The rate of change in depletions for the year ended December 31, 2010 increased as a 1.6% rate from the prior period a year ago, reflecting the increase in demand for Kona-branded products.

The increase in contract revenues of $2.1 million was primarily due to a full year of contract brewing for 2010 as compared with a little more than a quarter’s activity for 2009 under the Company’s contract brewing arrangement with a third party.

Revenues from pub and other sales increased by $2.9 million for 2010 primarily due to the contribution in the fourth quarter of 2010 of the restaurant and pub operations acquired in the KBC Merger. The contribution of the KBC restaurants and pubs was only in the 2010 period.

The above factors were partially offset by a decrease in alternating proprietorship fees of $898,000 earned from Kona for leasing the Oregon Brewery and sales of raw materials for the year ended December 31, 2010 as compared with the corresponding period in 2009. The decrease in fees was primarily due to the effect of the KBC Merger, as no alternating proprietorship fees were recognized in the fourth quarter of 2010 as the activities of the Company, KBC and Kona are consolidated after the effective date, while a full year of the corresponding activities were recorded in 2009.

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Shipments – Customer . The following table sets forth a comparison of shipments by customer for the periods indicated:

	Year Ended December 31,
	2010 - Shipments						2009 - Shipments
	Draft		Bottle		Total		Draft		Bottle		Total		Increase / (Decrease)		% Change
	(Shipments in barrels)

A-B		219,400		355,500		574,900		229,100		344,100		573,200		1,700		0.3	%
Contract brewing		23,100		—		23,100		5,000		—		5,000		18,100		N/M
Pubs and other (1)		7,700		2,100		9,800		7,400		1,900		9,300		500		5.4
Total shipped		250,200		357,600		607,800		241,500		346,000		587,500		20,300		3.5	%

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Note 1 - Other includes international, non-wholesalers, pubs and other

N/M - Not Meaningful

Total Company shipments increased 3.5% to 607,800 barrels in 2010 as compared with 587,500 barrels in 2009, primarily driven by contract brewing for a full year of shipments in 2010 as compared with a little more than a quarter for the year ended December 31, 2009, and the increase in shipments to A-B for the 2010 period.

Pricing and Fees . Average revenue per barrel on shipments of beer excluding contract brewing for 2010 was 2.8% higher than average revenue per barrel for 2009. During 2010 and 2009, the Company sold 94.6% and 97.6%, respectively, of its beer through A-B at wholesale pricing levels throughout the United States.

Management believes that most, if not all, craft brewers are evaluating their pricing strategies in the face of the current economic environment and competitive landscape which is partially countered by an increased cost structure due to the costs of raw materials. Pricing changes implemented by the Company have generally followed pricing changes initiated by large domestic or import brewing companies. While the Company has implemented modest price increases during the past few years, some of the benefit has been offset by competitive promotions and discounting. The Company expects that product pricing will continue to demonstrate modest increases in the near term as tempered by the unfavorable economic climate, with the Company’s pricing expected to follow the general trend in the industry.

In connection with all sales through the A-B Distribution Agreement, the Company pays a Margin fee to A-B (“Margin”). The Margin does not apply to sales under the Company’s contract brewing arrangement or from its retail operations and dock sales. The A-B Distribution Agreement also provides for payment of Additional Margin for shipments that exceed a specified level (together with Margin, “Total Margin”). For the year ended December 31, 2010 and 2009, the Company recognized expense of $5.6 million and $5.8 million, respectively, related to Total Margin associated with sales to A-B. These fees are reflected as a reduction of sales in the Company’s consolidated statements of income. On August 12, 2010, the Company entered into an amendment to the A-B Distribution Agreement that exempts certain product sales from Total Margin effective as of the fourth quarter of 2010. The Company estimates that, if the amendment had been in place for the entire 2010 fiscal year, sales revenues for the year would have been approximately $1.2 million more than the net sales that were recognized for 2010 due to lower fees paid to A-B for Total Margin. This estimate is exclusive of any effect of the pending sale of FSB. The Company expects the gross margin to increase in periods in which sales revenues are anticipated to be higher due to the effect of the lower fees paid to A-B; however, the Company is required to reinvest all of the savings resulting from this amendment into the development, marketing and support of its brands, fully offsetting any anticipated improvement in gross margin due to this amendment.

As of December 31, 2010, the net amount due from A-B under all Company agreements with A-B totaled $3.9 million. In connection with the sale of beer pursuant to the A-B Distribution Agreement, the Company’s accounts receivable reflect significant balances due from A-B, and the refundable deposits and accrued expenses reflect significant balances due to A-B. Although the Company considers these balances to be due to or from A-B, the final destination of the Company’s products is an A-B wholesaler and payments by the wholesaler are settled through A-B. The Company purchases packaging, other materials and services under separate arrangements; balances due to A-B under these arrangements are reflected in accounts payable and accrued expenses. These amounts are also included in the net amount presented above.

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Shipments – Brand . The following table sets forth a comparison of shipments by brand for the periods indicated:

	Year Ended December 31,
	2010 - Shipments						2009 - Shipments
	Draft		Bottle		Total		Draft		Bottle		Total		Increase / (Decrease)			% Change
	(Shipments in barrels)

Widmer Brothers brand		133,700		143,500		277,200		144,600		141,100		285,700		(8,500	)		(3.0	)%
Redhook brand		46,700		127,400		174,100		50,100		133,500		183,600		(9,500	)		(5.2	)
Kona brand		46,700		86,700		133,400		41,800		71,400		113,200		20,200			17.8
Total shipped (1)		227,100		357,600		584,700		236,500		346,000		582,500		2,200			0.4	%

____________________________

N ote 1 - Total shipments by brand exclude shipments produced under the Company's contract brewing arrangement.

During the year ended December 31, 2010, 73.2% of Redhook-branded shipments were shipments of bottled beer as compared with 72.7% in the year ended December 31, 2009. Although the sales mix of Kona-branded beer is also weighted toward bottled product, it is somewhat less than Redhook-branded beer as 65.0% and 63.1% of Kona-branded shipments was bottled beer for the corresponding periods. The sales mix of Widmer Brothers-branded products contrasts significantly from that of these two brands with 51.8% and 49.4% of Widmer Brothers-branded products being bottled beer in 2010 and 2009, respectively. Although the average revenue per barrel for sales of bottled beer is typically significantly higher than that of draft beer, the cost per barrel is also higher, resulting in a gross margin that is approximately 10% less than that of draft beer sales.

Excise Taxes . Excise taxes for the year ended December 31, 2010 increased $526,000, or 6.1%, primarily due to an increase of total shipments during the year as compared with the corresponding period of 2009, and was also affected by an increase in the marginal tax rate for beer produced in Washington state, which became effective at the mid-year of 2010. Excise tax expense recognized for the year ended December 31, 2010 was also affected by the KBC Merger as the combined companies are only eligible for a single exemption as a result of the merger.

Cost of Sales . Cost of sales increased 0.9% to $98.1 million for the year ended December 31, 2010 from $97.2 million in the same period of 2009 which was primarily due to the increase in shipments for the 2010 fiscal year as compared with the corresponding period a year ago. In addition, the Company incurred costs in the second and third quarters of 2010, including shipping and related logistics, associated with a significant quantity of beer brewed at one of the Company’s breweries that did not meet the Company’s exacting quality standards, causing the Company to dispose of in-process and finished draft and packaged beer. Factors that partially offset these increases were decreases in certain core production inputs, raw materials and packaging materials, and cooperage costs. On a per barrel basis, cost of sales for the year ended December 31, 2010 decreased by $4.16 or 2.5% from $165.50 per barrel for 2009 to $161.34 per barrel for 2010 and as a percentage of net sales to 74.5% from 77.9% primarily due to lower raw material, packaging, energy, and cooperage costs and the net price increase for the Company’s products during the year ended December 31, 2010 as compared with the corresponding period of 2009.

Inventories acquired pursuant to the WBBC Merger were recorded at their estimated fair values as of July 1, 2008, resulting in an increase (the “Step Up Adjustment”) over the cost at which these inventories were stated on the June 30, 2008 WBBC balance sheet. The July 1, 2008 Step Up Adjustment totaled approximately $1.0 million for raw materials acquired and $118,000 for work in process and finished goods acquired. During the year ended December 31, 2010 and 2009, approximately $238,000 and $474,000, respectively, of the Step Up Adjustment was amortized to cost of sales in connection with normal production and sales. Substantially all such costs associated with the Step Up Adjustment have been recognized as of December 31, 2010, and only an immaterial amount of the Step Up Adjustment remains to be recognized in future periods.

The Company’s cost saving initiatives, which were implemented throughout 2009, contributed to the decrease in costs associated with raw materials, packaging, energy and cooperage costs as the Company has sought to aggressively manage its logistics and capture production efficiencies from improved resource rationalization. The Company’s brewing and production initiatives have contributed to an increase in capacity in excess of the anticipated near term demand for the Company’s products. Based upon the Company’s average working capacity of 916,300 barrels and 863,000 barrels for 2010 and 2009, respectively, the utilization rate was 66.3% and 68.1%, respectively. Capacity utilization rates are calculated by dividing the Company’s total shipments by the average working capacity. See “Overview” for discussion of the Company’s methodology in calculating annual working capacity. The capacity utilization for the 2010 period has lagged the 2009 period due to the increases in working capacity caused by the production best practices implemented beginning with the third quarter of 2008 through the end of 2010. While the Company has a certain amount of unused working capacity, the Company anticipates that future sales growth will fully absorb this amount, and the short-term gap between the two will be filled by contract brewing to improve the utilization of its production breweries at a faster rate. To this end, during the third quarter of 2009, the Company executed a contract brewing arrangement under which the Company will produce beer in volumes and per specifications as designated by a third party. The Company anticipates that the volume of this contract may approach 35,000 barrels in 2011, although the third party may designate greater or lesser quantities per the terms of the contract. During the fourth quarter of 2010, the Company executed a three-year contract brewing arrangement with FSB under which the Company will produce beer in volumes and per specifications as designated by FSB. The Company anticipates that the volume of this contract may approximate 25,000 to 30,000 barrels per year, with shipments under this arrangement beginning in the first quarter of 2011.

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Prior to the effective date of the KBC Merger, cost of sales for 2010 and for all of 2009 included costs associated with two distinct Kona revenue streams: (i) direct and indirect costs related to the alternating proprietorship arrangements with Kona and (ii) the cost paid to Kona for the Kona-branded finished goods that are marketed and sold by the Company to wholesalers through the A-B Distribution Agreement. After the effective date, the Company also discontinued recognizing the costs related to these activities as they pertain to Kona, and will not recognize these costs associated with Kona in future periods.

Selling, General and Administrative Expenses . Selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2010 increased by $5.0 million, or 20.2% to $29.9 million from $24.9 million for the same period in 2009 and as a percentage of net sales to 22.7% from 20.0% due primarily to an increase in direct costs associated with sales and marketing activities, and costs associated with the Kona operations for the quarter ended December 31, 2010. The Company also experienced an increase in other SG&A costs for the year ended December 31, 2010, particularly associated with computer software, consulting and professional fees, incentive compensation costs, and travel and related expenses as compared with the corresponding period in 2009.

The Company incurs costs for the promotion of its products through a variety of advertising programs with its wholesalers and downstream retailers. These costs are included in SG&A expenses and frequently involve the local wholesaler sharing in the cost of the program. Reimbursements from wholesalers for advertising and promotion activities are recorded as a reduction to SG&A expenses in the Company’s consolidated statements of income. Reimbursements for pricing discounts to wholesalers are recorded as a reduction to sales. The wholesalers’ contribution toward these activities was an immaterial percentage of net sales for the years ended December 31, 2010 and 2009. Depending on the industry and market conditions, the Company may adjust its advertising and promotional efforts in a wholesaler’s market if a change occurs in a cost-sharing arrangement. The timing of these efforts may also be adjusted due to opportunities available to the Company over the course of the fiscal year; however, the Company anticipates that its expenditures associated with its sales and marketing efforts for most periods in 2011, and especially in the first half of the year, will be significantly greater than its expenditures for SG&A in the corresponding periods of 2010.

Merger-related Expenses . Merger-related expenses for the year ended December 31, 2010 increased $334,000, to $559,000 for 2010 from expenses of $225,000 for the same period in 2009, which is primarily due to the 2009 period reflecting severance expenses associated with the 2008 merger with WBBC, while the 2010 period reflects the activities associated with the KBC Merger, including legal, consulting, accounting and other professional fees, and severance costs, which was completed on October 1, 2010.

The Company estimates that the remaining merger-related severance benefits associated with the WBBC Merger totaling approximately $143,000 will be paid during the first six months of 2011. Additionally, the Company estimates that merger-related severance benefits associated with the KBC Merger totaling $139,000 will be paid during the first six months of 2011 to all affected Kona employees. The Company has recognized all costs associated with its merger-related severance benefits, including these, in accordance with ASC 420, Exit or Disposal Cost Obligations . The Company recognized severance costs of approximately $150,000 and $225,000 as a merger-related expense in the Company’s consolidated statements of income for the years ended December 31, 2010 and 2009, respectively. The Company anticipates that substantially all such costs have been recognized as of the end of the 2010 period and does not expect to recognize significant additional costs associated with either of these mergers in future periods.

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Income from Equity Investments. For the years ended December 31, 2010 and 2009, the Company’s share of FSB’s net income totaled $696,000 and $441,000, respectively. For the years ended December 31, 2010 and 2009, the Company’s share of Kona’s net income totaled $146,000 and $111,000, respectively; however, as of October 1, 2010, with the execution of the KBC Merger, the Company discontinued recognizing earnings on an equity basis for Kona, and will not recognize equity earnings associated with Kona in future periods.

Interest Expense . Interest expense decreased $642,000 to $1.5 million in 2010 from $2.1 million in 2009 due to a lower level of debt outstanding on average during the current period and a lower average interest rate on borrowings under the credit agreement. To support its capital project and working capital requirements for 2009, the Company maintained average outstanding debt for the year ended December 31, 2009 at $31.6 million. The Company has been able to pay down its outstanding borrowings such that its average outstanding debt was $24.2 million for the year ended December 31, 2010. The lower average interest rate was primarily due to the Company’s improved financial results and an associated decrease in its funded debt, and the effects of favorable modifications to its primary borrowing arrangement granted by BofA in the second and third quarters of 2010.

Interest and Other Income, net . Interest and other income, net decreased by $42,000 to $271,000 for 2010 from $313,000 for the same period of 2009, primarily attributable to a reduction in interest income and other income, both occurring during the year ended December 31, 2010 as compared with 2009, partially offset by the gain on the elimination of the Kona equity interest at its fair value as compared to its recorded value as of the effective date. The reduction in interest income recorded for 2010 was primarily due to the expiration of the Company’s interest rate swap agreement in the fouth quarter of 2010 as compared with a full year of activity for 2009.

Income Taxes . The Company’s provision for income taxes was $1.1 million for the year ended December 31, 2010 compared with $186,000 for the corresponding period a year ago. The income tax provision for the year ended December 31, 2010 varies from the statutory tax rate due largely to the impact of the Company’s non-deductible expenses, primarily meals and entertainment and merger-related expenses, partially offset by the full release of the $100,000 valuation allowance established for certain of the Company’s deferred taxes and the generation of tax credits. The income tax provision for the year ended December 31, 2009 varies from the statutory tax rate primarily due to the reversal of $900,000 of the $1.0 million valuation allowance, based on the Company’s assessment that it was more likely than not that certain deferred tax assets would be realized. The Company’s assessment was based upon the future reversal of existing temporary differences, primarily depreciation and amortization, and the fiscal year 2009 results, among others. This favorable effect was partially offset by the impact of the Company’s non-deductible expenses, a shift in the destination of the Company’s shipments resulting in a greater apportionment of earnings and related deferred tax liabilities to states with higher statutory tax rates than in prior periods, and the then expected settlement with the Internal Revenue Service (“IRS”) regarding its examination of the income tax returns for 2007 and 2008 filed by WBBC and related adjustments to deferred tax accounts recorded in the WBBC Merger. See “– Critical Accounting Policies and Estimates” for further discussion related to the Company’s income tax provision and NOL carryforward position as of December 31, 2010.

Liquidity and Capital Resources

The Company has required capital primarily for the construction and development of its production breweries, to support its expansion and growth plans as they have occurred, and to fund its working capital needs. Historically, the Company has financed its capital requirements through cash flow from operations, bank borrowings and the sale of common and preferred stock. The Company anticipates meeting its anticipated obligations in 2011 through a combination of short-term bank borrowing and cash flows from operations. The capital resources available to the Company under its loan agreement and capital lease obligations are discussed in further detail in Item 8, Notes to Consolidated Financial Statements. See Note 8 for further discussion regarding the Company’s debt obligations at December 31, 2010.

The Company had $164,000 and $11,000 of cash and cash equivalents at December 31, 2010 and 2009, respectively. At December 31, 2010, the Company had a working capital deficit totaling $4.4 million, reflecting a $1.9 million increase to the deficit as compared with the Company’s working capital position at December 31, 2009. However, the Company's debt as a percentage of total capitalization (total debt and common stockholders' equity) improved for the year, from 24.5% at December 31, 2009 to 22.4% at December 31, 2010. Similarly, cash provided by operating activities was $10.8 million for the year ended December 31, 2010 as compared with $9.0 million for the year ended December 31, 2009.

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Capital expenditures for the year ended December 31, 2010 and 2009 were $4.7 million and $2.3 million, respectively. Major projects in 2010 included $1.4 million at the New Hampshire Brewery, including quality systems, installation of additional fermenters and water treatment systems; $1.2 million at the Washington Brewery, including tenant improvements at the facility and projects to increase brand and packaging variety; and $0.8 million for planning and design costs associated with a Company-wide demand planning and order management system. Major projects in 2009 included nearly $1.1 million expended for projects at the Oregon Brewery, including the installation of four 250-barrel bright tanks, and nearly $800,000 expended for projects at the New Hampshire Brewery, including the installation of a chiller and projects designed to expand the brands produced at that facility. The Company expects that it will be able to generate sufficient liquidity in 2011 to fund its capital expenditures at the necessary levels.

As of December 31, 2010, the Company’s available liquidity was $15.4 million, comprised of accessible cash and cash equivalents and further borrowing capacity. The Company anticipates increased short-term borrowing due to the effect of the Company’s planned capital expenditures as discussed below, and also due to first quarter shipment levels typically being lower than the other quarters. The Company anticipates that it will be able to generate sufficient liquidity for the 2011 fiscal year between its operating cash flows and its available borrowing capacity to fund its capital expenditures at the necessary levels, including those associated with Kona and certain new projects identified by the Company. The Company has identified opportunities for certain of its brewing and other production areas, primarily associated with the new contract brewing arrangement with FSB, its quality assurance and information technology equipment, and to enhance and target its brand offerings. The Company will be required to make significant near-term capital expenditures to secure these opportunities. Certain of these expenditures began in the 2010 fourth quarter and are expected to continue throughout a majority of the 2011 fiscal year, during which the Company expects to spend a total of approximately $6 million for these capital projects.

Since June 2008, the Company has maintained a loan agreement (as amended, the “Loan Agreement”) with BofA, which is presently comprised of a $22.0 million revolving line of credit (“Line of Credit”), including provisions for cash borrowings and up to $2.5 million notional amount of letters of credit, and a $13.5 million term loan (“Term Loan”). The Company may draw upon the Line of Credit for working capital and general corporate purposes. At December 31, 2010, the Company had $7.5 million outstanding under the Line of Credit.

Under the Loan Agreement, the Company may select either the London Inter-Bank Offered Rate (“LIBOR”) or the Inter-Bank Offered Rate (“IBOR”) (each, a “Benchmark Rate”) as the basis for calculating interest on the outstanding principal balance of the Line of Credit. Interest accrues at an annual rate equal to the Benchmark Rate plus a marginal rate. The Company may select different Benchmark Rates for different tranches of its borrowings under the Line of Credit. The marginal rate varies from 1.00% to 2.25% based on the ratio of the Company’s funded debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined (“funded debt ratio”). LIBOR rates may be selected for one, two, three, or six month periods, and IBOR rates may be selected for no shorter than 14 days and no longer than six months. Accrued interest for the Line of Credit is due and payable monthly. At December 31, 2010, the weighted-average interest rate for the borrowings outstanding under the Line of Credit was 1.25%.

Under the Loan Agreement a quarterly fee on the unused portion of the Line of Credit, including the undrawn amount of the related standby letter of credit, varies from 0.15% to 0.30% based upon the Company’s funded debt ratio. At December 31, 2010, the quarterly fee was 0.15%. An annual fee is payable in advance on the notional amount of each standby letter of credit issued and outstanding multiplied by an applicable rate ranging from 1.00% to 2.00%.

Trend

During the year ended December 31, 2010, the Company has experienced a $1.9 million reduction in working capital, due in large part to the Company’s expenditures of $6.2 million for the KBC Merger, $4.7 million for property, plant and equipment and $2.0 million in debt and interest payments for the year, partially offset by generation of $8.9 million in earnings adjusted for non-cash items. Offsetting the amounts paid for debt service for 2010 is $1.1 million in net borrowings under the revolving line of credit, which the Company may borrow against as its working capital requirements dictate.

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Certain Considerations: Issues and Uncertainties

The Company does not provide forecasts of future financial performance or sales volumes, although this Annual 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 successful execution of market development and other plans, the availability of financing and the issues discussed in “Part I, Item 1A. Risk Factors” above. In the event of a negative outcome of any one of these factors, the trading price of the Company’s common stock could decline and an investment in the Company’s common stock could be impaired.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are based upon the selection and application of significant accounting policies that require management to make significant estimates and assumptions. Management believes that the following are some of the more critical judgment areas in the application of the Company’s accounting policies that currently affect its financial condition and results of operations. Judgments and uncertainties affecting the application of these policies may result in materially different amounts being reported under different conditions or using different assumptions.

Equity Investments. In accordance with ASC 323, the Company accounts for its investment in FSB under the equity method of accounting. The Company owns a 42 percent interest in FSB, which has afforded the Company significant influence, but not control, over FSB. Due to the timing of the receipt of FSB's financial statements, the Company accounts for its share of net earnings of FSB on a one-month lag. The Company recorded the fair value of the investment as its carrying value at acquisition. The difference between the carrying value of the equity investment and the Company’s amount of underlying equity in the net assets of the investee is considered equity method goodwill, which is not amortized.

Goodwill, other intangible assets and long-lived assets . In accordance with ASC Topic 350, Intangibles – Goodwill and Other (“ASC 350”), the Company’s intangible assets with indefinite lives that are not subject to amortization, including goodwill, trade names and trademarks, are reviewed annually for impairment, or more often, if events or changes in circumstances indicate that the Company’s reporting unit carrying value may exceed its fair value. Management has determined the Company consists of a single reporting unit and uses a combination of valuation methods, market capitalization and income approach, to estimate the fair value of the reporting unit. If the carrying value of goodwill exceeds the implied fair value, an impairment charge to current earnings is recorded to reduce the carrying value to the implied estimated fair value. As a result of the KBC Merger, the Company recognized a goodwill asset in the fourth quarter of 2010, and conducted the annual goodwill impairment test as of December 31, 2010.

The Company’s impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate the fair value of the reporting unit, including estimating future cash flows, and if necessary, the fair value of the Company’s assets and liabilities. Further, the Company’s ability to realize the future cash flows used in management’s fair value calculations is affected by factors such as changes in economic conditions, changes in the Company’s operating performance, changes in management’s business strategies, and growth of the overall market for craft beer. As the Company periodically reassesses its fair value calculations, including estimated future cash flows, changes in management’s estimates and assumptions may cause the Company to realize material impairment charges in the future.

The Company evaluates potential impairment of its long-lived assets, including its distributor agreements, non-compete agreements and other intangible assets subject to amortization, in accordance with ASC 360-10-35-15, Property, Plant, and Equipment – Overall – Subsequent Measurement – Impairment or Disposal of Long-Lived Assets. When facts and circumstances indicate that the carrying values of long-lived assets may be impaired, an evaluation of recoverability is performed by comparing the carrying value of the assets to projected future undiscounted cash flows in addition to other quantitative and qualitative analyses. Upon indication that the carrying value of such assets may not be recoverable, the Company recognizes an impairment loss by a charge against current operations. The Company did not identify indicators of impairment during the periods presented.

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Refundable Deposits on Kegs . The Company distributes its draft beer in kegs that are owned by the Company as well as in kegs that have been leased from third parties. Kegs that are owned by the Company are reflected in the Company’s balance sheets at cost and are depreciated over the estimated useful life of the keg. When draft beer is shipped to the wholesaler, regardless of whether the keg is owned or leased, the Company collects a refundable deposit, reflected as a current liability in the Company’s balance sheets. Upon return of the keg to the Company, the deposit is refunded to the wholesaler. When a wholesaler cannot account for some of the Company’s kegs for which it is responsible, the wholesaler pays the Company, for each keg determined to be lost, a fixed fee and also forfeits the deposit. For the years ended December 31, 2010 and 2009, the Company reduced its brewery equipment by $364,000 and $259,000, respectively, comprised of lost keg fees and forfeited deposits.

The Company has experienced some loss of kegs and anticipates that some loss will occur in future periods due to the significant volume of kegs handled by each wholesaler and retailer, the similarities between kegs owned by most brewers, and the relatively low deposit collected on each keg when compared with the market value of the keg. The Company believes that this is an industry-wide problem and the Company’s loss experience is typical of the industry. In order to estimate forfeited deposits attributable to lost kegs, the Company periodically uses internal records, A-B records, other third party records, and historical information to estimate the physical count of kegs held by wholesalers and A-B. These estimates affect the amount recorded as brewery equipment and refundable deposits as of the date of the consolidated financial statements. The actual liability for refundable deposits could differ from estimates. For the years ended December 31, 2010 and 2009, the Company recognized adjustments to its estimates for the refundable deposit liability and brewery equipment. The Company decreased its estimate for the refundable deposit liability and brewery equipment line items by $28,000 during the year ended December 31, 2010. The Company increased its estimate for the corresponding line items by $581,000 during the year ended December 31, 2009. As of December 31, 2010 and 2009, the Company’s balance sheets include $6.0 million and $5.9 million, respectively, in refundable deposits on kegs and $4.1 million and $4.7 million, respectively, in keg equipment, net of accumulated depreciation.

Revenue Recognition . The Company recognizes revenue from product sales, net of excise taxes, discounts and certain fees the Company must pay in connection with sales to a member of the A-B wholesale distributor network, when the products are delivered to the member. A member of the A-B wholesale distributor network may be a branch of A-B or an independent wholesale distributor.

Prior to the effective date of the KBC Merger, the Company also earned revenue in connection with two operating agreements with Kona — an alternating proprietorship agreement and a distribution agreement. Pursuant to the alternating proprietorship agreement, Kona produced a portion of its malt beverages at the Company’s brewery in Portland, Oregon. The Company received a facility fee from Kona based on the barrels brewed and packaged at the Company’s brewery. Fees were also recognized as revenue upon completion of the brewing process and packaging of the product. In connection with the alternating proprietorship agreement, the Company also sold certain raw materials to Kona for use in brewing. Revenue was recognized when the raw materials were removed from the Company’s stock. Under the distribution agreement, the Company purchased Kona-branded product from Kona, whether manufactured at Kona’s Hawaii brewery or the Company’s brewery, then sold and distributed the product. Under this arrangement, the Company recognized revenue when the product was delivered to A-B or the wholesaler.

After the effective date of the KBC Merger, as the Company consolidates the activities of Kona, any such intercompany activities are eliminated, including the revenues and costs associated with the alternating proprietorship agreement and the distribution agreement.

The Company recognizes revenue on retail sales at the time of sale. The Company recognizes revenue from events at the time of the event.

Income Taxes. The Company records federal and state income taxes in accordance with ASC 740, Income Taxes. Deferred income taxes or tax benefits reflect the tax effect of temporary differences between the amounts of assets and liabilities for financial reporting purposes and amounts as measured for tax purposes as well as for tax NOL and credit carryforwards.

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As of December 31, 2010, the Company's deferred tax assets were primarily comprised of federal NOL carryforwards of $23.5 million, or $8.0 million tax-effected; state NOL carryforwards of $211,000 tax-effected; and federal and state alternative minimum tax credit carryforwards of $452,000 tax-effected. Among other factors, in assessing the realizability of its deferred tax assets, the Company considered future taxable income generated by the projected differences between financial statement depreciation and tax depreciation, cumulative earnings generated to date and other evidence available to the Company. Based upon this consideration, the Company assessed that all of its deferred taxes are more likely than not to be realized, and as such, has not recorded a valuation allowance as of December 31, 2010. During 2010, the Company released in its entirety the valuation allowance of $100,000 that it had maintained as of December 31, 2009 based upon its evalution of the realizability of the deferred tax assets as of the corresponding date. During 2009, the Company released $900,000 of the valuation allowance that it had maintained as of December 31, 2008, based on the Company’s assessment that it was more likely than not that certain deferred tax assets would be realized. The Company’s assessment was based upon the future reversal of existing temporary differences, primarily depreciation and amortization, and the fiscal year 2009 results, among others. In both periods, the Company credited the corresponsing release of the valuation allowance to the tax provision.

To the extent that the Company is unable to generate adequate taxable income in future periods, the Company may be required to record an additional valuation allowance to provide for potentially expiring NOLs or other deferred tax assets for which a valuation allowance has not been previously recorded. Any such increase would generally be charged to earnings in the period of change.

Recent Accounting Pronouncements

See Item 8, Notes to Consolidated Financial Statements, Note 2 “ – Recent Accounting Pronouncements ” for further discussion regarding the recent changes to the ASC and the impact of those changes on the Company’s financial statements.

Item 7A. 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. To mitigate this risk, the Company entered into a five-year interest rate swap agreement to hedge the variability of interest payments associated with its variable-rate borrowings. Through this swap agreement, the Company pays interest at a fixed rate of 4.48% and receives interest at a floating-rate of the one-month LIBOR. Since the interest rate swap hedges the variability of interest payments on variable rate debt with similar terms, it qualifies for cash flow hedge accounting treatment under ASC 815 .

This interest rate swap reduces the Company’s overall interest rate risk. However, due to the remaining outstanding borrowings that continue to have variable interest rates, management believes that interest rate risk to the Company could be material if prevailing interest rates increase materially.

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Craft Brewers Alliance, Inc.

We have audited the accompanying consolidated balance sheets of Craft Brewers Alliance, Inc. (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of income, common stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Craft Brewers Alliance, Inc. as of December 31, 2010 and 2009, and the consolidated results of its income and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Moss Adams LLP

Seattle, Washington

March 31, 2011

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Craft Brewers Alliance, Inc.

CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
	2010			2009
	(Dollars in thousands except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	164		$	11
Accounts receivable, net		10,514			11,122
Inventories		8,729			9,487
Deferred income tax asset, net		932			970
Other current assets		3,233			3,941
Total current assets		23,572			25,531
Property, equipment and leasehold improvements, net		98,778			97,339
Equity investments		5,240			5,702
Goodwill		12,917			—
Intangible and other assets, net		17,759			13,013
Total assets	$	158,266		$	141,585


LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	13,825		$	14,672
Accrued salaries, wages, severance and payroll taxes		4,053			4,432
Refundable deposits		6,291			6,288
Other accrued expenses		1,378			1,185
Current portion of long-term debt and capital lease obligations		2,460			1,481
Total current liabilities		28,007			28,058

Long-term debt and capital lease obligations, net of current portion		24,675			24,685
Fair value of derivative financial instruments		849			842
Deferred income tax liability, net		10,118			7,015
Other liabilities		421			353

Commitments and contingencies

Common stockholders' equity:
Common stock, par value $0.005 per share, 50,000,000 shares authorized; 18,819,053 shares and 17,074,063 shares at December 31, 2010 and 2009, respectively, issued and outstanding		94			85
Additional paid-in capital		134,601			122,682
Accumulated other comprehensive loss, net		(528	)		(478	)
Retained deficit		(39,971	)		(41,657	)
Total common stockholders' equity		94,196			80,632
Total liabilities and common stockholders' equity	$	158,266		$	141,585

The accompanying notes are an integral part of these financial statements

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Craft Brewers Alliance, Inc.

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31,
	2010			2009
	(In thousands, except per share amounts)

Sales	$	140,852		$	133,308
Less excise taxes		9,121			8,595
Net sales		131,731			124,713
Cost of sales		98,064			97,230
Gross profit		33,667			27,483
Selling, general and administrative expenses		29,938			24,911
Merger-related expenses		559			225
Operating income		3,170			2,347
Income from equity investments		842			552
Interest expense		(1,497	)		(2,139	)
Interest and other income, net		271			313
Income before income taxes		2,786			1,073
Income tax provision		1,100			186
Net income	$	1,686		$	887
Basic and diluted earnings per share	$	0.10		$	0.05

The accompanying notes are an integral part of these financial statements

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Craft Brewers Alliance, Inc.

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS’ EQUITY

							Accumulated
	Common Stock				Additional		Other						Total Common
			Par		Paid-In		Comprehensive			Retained			Stockholders'
	Shares		Value		Capital		Loss, Net			Deficit			Equity
	(In thousands)

Balance as of December 31, 2008		16,948	$	85	$	122,433	$	(693	)	$	(42,544	)	$	79,281

Issuance of shares under stock plans		108		—		207		—			—			207
Stock-based compensation		18		—		42		—			—			42
Comprehensive income:
Unrealized gains on derivative financial instruments, net of tax provision of $117		—		—		—		215			—			215
Net income		—		—		—		—			887			887
Total comprehensive income														1,102
Balance as of December 31, 2009		17,074		85		122,682		(478	)		(41,657	)		80,632

Issuance of shares under stock plans		60		1		126		—			—			127
Stock-based compensation		18		—		99		—			—			99
Issuance of shares pursuant to merger with Kona Brewing Co., Inc.		1,667		8		11,694		—			—			11,702
Comprehensive income (loss):
Unrealized losses on derivative financial instruments, net of tax benefit of $31		—		—		—		(50	)		—			(50	)
Net income		—		—		—		—			1,686			1,686
Total comprehensive income														1,636
Balance as of December 31, 2010		18,819	$	94	$	134,601	$	(528	)	$	(39,971	)	$	94,196

The accompanying notes are an integral part of these financial statements

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Craft Brewers Alliance, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2010			2009
	(In thousands)
Operating Activities
Net income	$	1,686		$	887
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,044			7,313
Income from equity investment in excess of cash distributions		(647	)		(513	)
Deferred income taxes		1,082			(56	)
Loss on sale or disposal of property, equipment and leasehold improvements		102			31
Stock-based compensation		99			42
Other		(282	)		(136	)
Changes in operating assets and liabilities:
Accounts receivable		2,017			1,391
Inventories		1,445			(202	)
Income tax receivable and other current assets		590			791
Other assets		36			72
Accounts payable and other accrued expenses		(1,353	)		(1,162	)
Accrued salaries, wages, severance and payroll taxes		(1,230	)		802
Refundable deposits and other liabilities		209			(306	)
Net cash provided by operating activities		10,798			8,954

Investing Activities
Expenditures for property, equipment and leasehold improvements		(4,669	)		(2,303	)
Proceeds from sale of property, equipment and leasehold improvements		160			136
Cash paid in merger with Kona Brewing Co., Inc. and related entities, net		(6,206	)		—
Proceeds received for federal grant associated with photovolatic system		402			—
Net cash used in investing activities		(10,313	)		(2,167	)

Financing Activities
Principal payments on debt and capital lease obligations		(1,505	)		(1,394	)
Net borrowings (repayments) under revolving line of credit		1,100			(5,600	)
Issuance of common stock		127			207
Amounts paid for debt issue costs		(54	)		—
Net cash used in financing activities		(332	)		(6,787	)

Increase in cash and cash equivalents		153			—
Cash and cash equivalents:
Beginning of period		11			11

End of period	$	164		$	11

Supplemental Disclosures
Cash paid for interest	$	1,625		$	2,265
Cash paid (received) for income taxes	$	223		$	(760	)

Non-cash Transaction
Fair value of common stock issued in acquisition of Kona Brewing Co., Inc. and related entities (see Note 11)	$	11,702		$	—

The accompanying notes are an integral part of these financial statements

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	Nature of Operations

Craft Brewers Alliance, Inc. (the “Company”) was formed in 1981 to brew and sell craft beer. The Company produces specialty bottled and draft products at its Company-owned breweries and on the premises of each of its production breweries and operates adjacent restaurants or pubs that promote the Company’s products, offer dining and entertainment facilities, and sell retail merchandise. Prior to July 1, 2008, the Company’s name was Redhook Ale Brewery, Incorporated; however, the Company changed to its present name to reflect the acquisition of the Widmer Brothers Brewing Company (“WBBC”) as of the same date. The common stock of the Company trades on the Nasdaq Stock Market under the trading symbol “HOOK.”

The Company’s products are distributed in the United States in 48 states, which has been the case for more than ten years. This national footprint was established primarily through a series of distribution agreements with Anheuser-Busch, Incorporated (“A-B”), a significant shareholder of the Company. In 2004, the Company and A-B entered into three agreements, an exchange and recapitalization agreement (as amended, the “Exchange Agreement”), a distribution agreement (as amended, the “A-B Distribution Agreement”) and a registration rights agreement that collectively constitute the framework of its existing relationship with A-B.

Under the present terms of the A-B Distribution Agreement, the Company distributes its products in substantially all of its markets through A-B’s wholesale distributor network. A-B’s domestic wholesale distributor network consists of a significant number of independent wholesale distributors and branches owned and operated by A-B. The A-B Distribution Agreement is subject to early termination, by either party, upon the occurrence of certain events. The A-B Distribution Agreement will expire December 31, 2018, but may be automatically renewed for an additional ten-year period absent A-B providing written notice to the contrary on or prior to June 30, 2018.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, 2010 Enterprises LLC (“KBC LLC”), which was formed on July 27, 2010 for the purpose of acquiring Kona Brewing Co., Inc. (“KBC”). See Note 11, Merger with KBC for a discussion of the merger (“KBC Merger”) executed October 1, 2010 among the Company, KBC and related entities, including Kona Brewery LLC (“Kona”), and the KBC shareholders. The consolidated financial statements as of and for the year ended December 31, 2010 reflect the KBC Merger as of October 1, 2010. All intercompany transactions and balances subsequent to the KBC Merger are eliminated in consolidation.

2.	Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company maintains cash and cash equivalent balances with financial institutions that may exceed federally insured limits. The carrying amount of cash equivalents approximates fair value because of the short-term maturity of these instruments.

Accounts Receivable

Accounts receivable is comprised of trade receivables due from wholesalers and A-B for beer and promotional product sales. Because of state liquor laws and each wholesaler’s agreement with A-B, the Company does not have collectability issues related to the sale of its beer products. Accordingly, the Company does not regularly provide an allowance for doubtful accounts for beer sales. The Company has provided an allowance for promotional merchandise that has been invoiced to the wholesaler, which reflects the Company's best estimate of probable losses inherent in the accounts. The Company determines the allowance based on historical customer experience and other currently available evidence. When a specific account is deemed uncollectible, the account is written off against the allowance. The allowance for doubtful accounts was $25,000 and $50,000 at December 31, 2010 and 2009, respectively.

Inventories

Inventories, except for pub food, beverages and supplies, are stated at the lower of standard cost, which approximates the first-in, first-out method, or market. Pub food, beverages and supplies are stated at the lower of cost or market.

The Company regularly reviews its inventories for the presence of obsolete product attributed to age, seasonality and quality. If the Company’s review indicates a reduction in utility below the product’s carrying value, the

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Company reduces the product to a new cost basis. The Company records as a non-current asset the cost of inventory for which it estimates it has more than a twelve-month supply.

Equity Investments

The Company holds a 42 percent equity ownership interest in Fulton Street Brewing, LLC (“FSB”), which the Company accounts for under the equity method of accounting as described in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 323, Investments – equity method and joint ventures (“ASC 323”) . The equity method requires that the Company recognize its share of the net receipt of earnings by increasing its investment in FSB in the Company’s consolidated balance sheet and recognizing income from equity investment in the Company’s income statement. Due to the timing of receipt of FSB’s financial statements, the Company accounts for its share of net earnings of FSB on a one-month lag. The difference between the carrying value of the equity investment and the Company’s amount of underlying equity in the net assets of the investee is considered equity method goodwill, which is not amortized.

The Company reassesses its evaluation of the primary beneficiary of a variable interest entity (“VIE”) on an ongoing basis, and assesses its evaluation of an entity as a VIE upon the occurrence of certain events. If the Company determines that it has a variable interest in a VIE, the Company then evaluates if it is the primary beneficiary of the VIE. The evaluation is a qualitative assessment as to whether the Company has the ability to direct the activities of the VIE that most significantly impacts the entity’s economic performance. If the Company determines that it is the primary beneficiary of the VIE, the Company will consolidate the VIE. Through qualitative analysis, the Company determined that it is not the primary beneficiary of FSB as the Company does not direct the activities that most significantly impact the economic performance of FSB, including the day-to-day management of FSB’s operations.

Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements are stated at cost reduced by proceeds received under applicable cash grants, less accumulated depreciation and accumulated amortization. Expenditures for repairs and maintenance are expensed as incurred; renewals and betterments are capitalized. Upon disposal of equipment and leasehold improvements, the accounts are relieved of the costs and related accumulated depreciation or amortization, and resulting gains or losses are reflected in the Company’s statement of income.

Depreciation and amortization of property, equipment and leasehold improvements is provided on the straight-line method over the following estimated useful lives:

Buildings	30 - 50 years
Brewery equipment	10 - 25 years
Furniture, fixtures and other equipment	2 - 10 years
Vehicles	5 years
Leasehold improvements	The lesser of useful life or term of the lease

Impairment of Long-Lived Assets

The Company evaluates potential impairment of long-lived assets in accordance with ASC 360-10-20, Property, Plant, and Equipment – Overall – Glossary – Component of an Entity . This standard establishes procedures for review of recoverability and measurement of impairment, if necessary, of long-lived assets and certain identifiable intangibles. When facts and circumstances indicate that the carrying values of long-lived assets may be impaired, an evaluation of recoverability is performed by comparing the carrying value of the assets to projected future undiscounted cash flows in addition to other quantitative and qualitative analyses. Upon indication that the carrying value of such assets may not be recoverable, the Company recognizes an impairment loss by a charge against current earnings.

Goodwill and Other Intangible Assets

In accordance with ASC Topic 350, Intangibles – Goodwill and Other (“ASC 350”) intangible assets with indefinite useful lives are not amortized but are reviewed periodically for impairment.

Goodwill and other intangible assets, including trade names and trademarks, are tested on an annual basis as of December 31, and between annual tests if indicators of potential impairment exist. The fair value of the Company’s reporting unit was estimated using a combination of the market capitalization and the income approach. Under the income approach, the fair value of the reporting unit was calculated by estimating the fair value of the unit’s associated future cash flows. No impairment of goodwill and other intangible assets has been identified during the periods presented.

The significant estimates and assumptions used by management in assessing the recoverability of goodwill and other intangible assets are estimated future cash flows, present value discount rate, estimated growth of the overall craft beer segment, and other factors. If the Company’s estimated future cash flows were to significantly decline, an impairment charge could result. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgment.

The Company amortizes intangible assets with finite lives over their respective estimated finite lives.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Acquired intangibles and their estimated remaining useful lives include:

Trade name and trademarks	Indefinite
Recipes	Indefinite
Distributor agreements	15 years
Non-compete agreements	3-5 years

Refundable Deposits on Kegs

The Company distributes its draft beer in kegs that are owned by the Company as well as in kegs that have been leased from third parties. Kegs that are owned by the Company are reflected in the Company’s balance sheets at cost and are depreciated over the estimated useful life of the keg. When draft beer is shipped to the wholesaler, regardless of whether the keg is owned or leased, the Company collects a refundable deposit, presented as a current liability – refundable deposits in the Company’s balance sheets. Upon return of the keg to the Company, the deposit is refunded to the wholesaler. See discussion at Note 16, “Related-Party Transactions” for impact of lost kegs on the Company’s brewery equipment.

The Company has experienced some loss of kegs and anticipates that some loss will occur in future periods due to the significant volume of kegs handled by each wholesaler and retailer, the homogeneous nature of kegs owned by most brewers, and the relatively small deposit collected for each keg when compared with its market value. The Company believes that this is an industry-wide problem and that the Company’s loss experience is not atypical. In order to estimate forfeited deposits attributable to lost kegs, the Company periodically uses internal records, records maintained by A-B, records maintained by other third party vendors, and historical information to estimate the physical count of kegs held by wholesalers and A-B. These estimates affect the amount recorded as equipment and refundable deposits as of the date of the consolidated financial statements. The actual liability for refundable deposits may differ from estimates. As of December 31, 2010 and 2009, the Company’s balance sheets include $6.0 million and $5.9 million, respectively, in refundable deposits on kegs and $4.1 million and $4.7 million, respectively, in keg equipment, net of accumulated depreciation.

Fair Value of Financial Instruments

The recorded value of the Company’s financial instruments, with the exception of its debt obligations, is considered to approximate the fair value of the instruments, in all material respects, as the Company’s receivables and payables are recorded at amounts expected to be realized and paid and the Company’s derivative financial instruments are carried at fair value. At December 31, 2010, the total carrying value and fair value of the Company’s debt obligations, including the current portion, was $27.1 million and $27.7 million, respectively. At December 31, 2009, the total carrying value of the Company’s debt obligations approximated its fair value.

Financial instruments that potentially subject the Company to credit risk consist principally of trade accounts receivable. While wholesale distributors and A-B account for substantially all trade accounts receivable, this concentration risk is limited due to the number of distributors, their geographic dispersion, and state laws regulating the financial affairs of distributors of alcoholic beverages.

The Company accounts for its derivative financial instruments under ASC 815, Derivatives and Hedging (“ASC 815”), which requires that all derivatives be recognized at fair value in the balance sheet, and that the corresponding gains or losses be reported either in the statement of income or as a component of comprehensive income. Derivative financial instruments are utilized by the Company to reduce interest rate risk. The Company does not hold or issue derivative financial instruments for trading purposes.

Comprehensive Income

The Company accounts for comprehensive income under ASC 220, Comprehensive Income, which establishes standards for the reporting and presentation of elements of comprehensive income, including deferred gains and losses on unrealized derivative hedge transactions.

Revenue Recognition

A significant portion of the Company’s sales are made pursuant to the A-B Distribution Agreement, under which the Company delivers products to a member of the A-B wholesale distributor network, which may be either a branch of A-B or an independent wholesale distributor. The Company recognizes revenue from product shipments when the products are delivered to the A-B branch or the wholesale distributor. These are recorded net of excise taxes, discounts and certain fees the Company must pay in connection with sales pursuant to the A-B Distribution Agreement.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

The Company recognizes revenue on retail sales at the time of sale. The Company recognizes revenue from events at the time of the event.

Excise Taxes

The federal government levies excise taxes on the sale of alcoholic beverages, including beer. For brewers producing less than two million barrels of beer per calendar year, the federal excise tax is $7 per barrel on the first 60,000 barrels of beer removed for consumption or sale during the calendar year, and $18 per barrel for each barrel in excess of 60,000 barrels. Individual states also impose excise taxes on alcoholic beverages in varying amounts. As presented in the Company’s consolidated statements of income, sales reflect the amounts invoiced to A-B, wholesale distributor and other customers. Excise taxes due to federal and state agencies are not collected from the Company’s customers, but rather are the responsibility of the Company. Net sales, as presented in the Company’s consolidated statements of income, are reduced by applicable federal and state excise taxes.

Shipping and Handling Costs

Costs incurred to ship the Company’s product are included in cost of sales in the Company’s consolidated statements of income.

Advertising Expenses

Advertising costs consisting of television, radio, print, outdoor advertising, on-line and social media, sponsorships, trade events, promotions and printed product information, as well as costs to produce these media, are expensed as incurred. As discussed above, the costs associated with point of sale display items and related promotional merchandise are inventoried and charged to expense when first used. For the years ended December 31, 2010 and 2009, the Company recognized costs for all of these activities totaling $9.5 million and $6.6 million, respectively, which are reflected as selling, general and administrative expenses in the Company’s consolidated statements of income.

The Company incurs costs for the promotion of its products through a variety of advertising programs with its wholesalers and downstream retailers. These costs are included in selling, general and administrative expenses and frequently involve the local wholesaler sharing in the cost of the program. Reimbursements from wholesalers for advertising and promotion activities are recorded as a reduction to selling, general and administrative expenses in the Company's consolidated statements of income. Reimbursements for pricing discounts to wholesalers are recorded as a reduction to sales in the Company’s statement of income.

Stock-Based Compensation

The Company maintains several stock incentive plans under which non-qualified stock options, incentive stock options and restricted stock have been granted to employees and non-employee directors and accounts for these grants consistent with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). ASC 718 addresses the accounting for stock-based payment transactions in which an enterprise receives employee services, including the services of its non-employee directors, in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 generally requires that these transactions be accounted for using a fair-value-based method. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Earnings per Share

The Company follows ASC Topic 260,  Earnings per Share. Basic earnings per share is computed on the basis of the weighted average number of shares that were outstanding during the period. Diluted earnings per share include the dilutive effect of common share equivalents calculated under the treasury stock method.

Income Taxes

The Company records federal and state income taxes in accordance with ASC Topic 740, Income Taxes. Deferred income taxes or tax benefits reflect the tax effect of temporary differences between the amounts of assets and liabilities for financial reporting purposes and amounts as measured for tax purposes as well as for tax net operating loss and credit carryforwards. These deferred tax assets and liabilities are measured under the provisions of the currently enacted tax laws. Deferred tax assets are recognized for deductible temporary differences, net operating loss carryforwards and tax credit carryforwards if it is more likely than not that the tax benefits will be realized. Valuation allowances may be established when necessary to reduce deferred tax assets to the amount expected to be realized. The effect on deferred taxes upon a change in valuation allowance is recognized in the period that the change occurs.

The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits within the interest expense line and selling, general and administrative expenses line, respectively, in the statements of income.

Segment Information

The Company operates in one principal business segment as a manufacturer of beer across domestic markets. The Company believes that its pub operations and brewery operations, whether considered individually or in combination, do not constitute a separate segment under ASC Topic 280, Segment Reporting. The Company believes that its production brewery operations are functionally similar. The Company operates its pubs as an extension of the marketing of its products and views their primary function to be promotion of these products.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances at the time. Actual results could differ from those estimates under different assumptions or conditions.

Reclassifications

Certain reclassifications have been made to the prior year’s data to conform to the current year’s presentation.

Recent Accounting Pronouncements

On January 1, 2010, the Company adopted the guidance in Accounting Standards Update (“ASU”) 2009-17, which was incorporated into ASC Topic 810-10, Consolidation – Overall. This Update requires a qualitative approach to identifying a controlling financial interest in a VIE and requires ongoing assessments of whether an entity qualifies as a VIE and if a holder of an interest in a VIE qualifies as the primary beneficiary of the VIE. The adoption of this new accounting Update did not have a material impact on the Company’s financial statements.

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements.” This Update provides amendments to FASB ASC 820, “Fair Value Measurements,” that requires entities to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. In addition, the Update requires entities to present separately information about purchases, sales, issuances and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). The disclosures related to Level 1 and Level 2 fair value measurements are effective for the Company beginning in 2010 and the disclosures related to Level 3 fair value measurements are effective for the Company in 2011. Adoption of this Update did not have a material impact on the Company’s financial statements.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

In December 2010, the FASB issued ASU No. 2010-29, “Supplementary Pro Forma Information for Business Combinations” (”ASU 2010-29”). This Update clarifies provisions of FASB ASC Topic 805, “Business Combinations.” (“ASC 805”) This Update clarifies the acquisition date that should be used for disclosing the pro forma financial information required by ASC 805 when comparative financial statements are presented. The Company has adopted the provisions of ASU 2010-29 in preparing the pro forma information presented related to the KBC Merger. See Note 11, Merger with KBC .

3.	Inventories

Inventories consist of the following:

	December 31,		December 31,
	2010		2009
	(In thousands)

Raw materials	$	2,870	$	3,660
Work in process		2,244		2,023
Finished goods		1,933		1,647
Packaging materials		343		892
Promotional merchandise		1,184		1,184
Pub food, beverages and supplies		155		81
	$	8,729	$	9,487

Work in process is beer held in fermentation tanks prior to the filtration and packaging process.

4.	Other Current Assets

Other current assets consist of the following:

	December 31,		December 31,
	2010		2009
	(In thousands)

Deposits paid to keg lessor	$	1,734	$	3,279
Prepaid property taxes		165		171
Prepaid insurance		202		88
Income tax receivable		326		—
Other		806		403
	$	3,233	$	3,941

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

5.	Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements consist of the following:

	December 31,		December 31,
	2010		2009
	(In thousands)

Brewery equipment	$	77,519	$	75,734
Buildings		52,036		50,896
Land and improvements		7,594		7,594
Furniture, fixtures and other equipment		4,120		3,234
Leasehold improvements		5,492		2,946
Vehicles		121		105
Construction in progress		2,304		924
		149,186		141,433
Less accumulated depreciation and amortization		50,408		44,094
	$	98,778	$	97,339

As of December 31, 2010 and 2009, brewery equipment included property acquired under a capital lease with a cost of $13.1 million and accumulated amortization of $4.3 million and $2.6 million, respectively. The Company’s consolidated statements of income for the years ended December 31, 2010 and 2009 includes $1.7 million in amortization expense in each year related to these leased assets.

6.	Equity Investments

Equity investments consist of the following:

	December 31,		December 31,
	2010		2009
	(In thousands)

FSB	$	5,240	$	4,544
Kona		—		1,158
	$	5,240	$	5,702

FSB

For the years ended December 31, 2010 and 2009, the Company’s share of FSB’s net income totaled $696,000 and $441,000, respectively. The Company’s investment in FSB was $5.2 million and $4.5 million at December 31, 2010 and 2009, respectively, and the Company’s portion of equity as reported on FSB’s financial statement was $3.2 million and $2.3 million as of the corresponding dates. The Company has not received any cash capital distributions associated with FSB during its ownership period. At December 31, 2010 and 2009, the Company recorded a payable to FSB of $3.3 million and $2.3 million, respectively, primarily for amounts owing for purchases of FSB’s products, which are branded under the Goose Island name.

The selected financial information presented for FSB for the years ended December 31, 2010 and 2009 represents the activities for the entity for its fiscal years ended December 31. The consolidated statements of income for the Company include the results of FSB for the twelve-month periods ended November 30, which represents a one-month lag. If the Company were to record the equity in FSB’s earnings for a year ended December 31, the Company would have recorded an increase of $256,000 and a decrease of $47,000 to its consolidated statement of income for the years ended December 31, 2010 and 2009, respectively.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

The selected financial information for FSB’s fiscal year ended December 31 is as follows:

	Year Ended December 31,
	2010		2009
	(In thousands)
Net sales	$	26,374	$	22,012
Gross profit	$	10,311	$	7,559
Operating income	$	2,285	$	895
Income before income taxes	$	2,266	$	937
Net income	$	2,266	$	937

See Note 17, Subsequent Events for a discussion of the agreement reached March 27, 2011 between the Company and A-B, under which the Company would sell its investment in FSB to A-B.

Kona

For the year ended December 31, 2010 and 2009, the Company’s share of Kona’s net income totaled $146,000 and $111,000, respectively. As a result of the KBC Merger, Kona became a wholly-owned subsidiary of the Company. As such, no earnings under the equity method of accounting will be recognized for periods subsequent to the KBC Merger.

The Company’s investment in Kona was $1.2 million at December 31, 2009 and the Company’s portion of equity as reported on Kona’s financial statement was $419,000 as of the corresponding date. The Company received cash distributions totaling $195,000 and $39,000 associated with Kona during the years ended December 31, 2010 and 2009, respectively. At December 31, 2009, the Company has recorded a receivable from Kona of $1.9 million primarily related to amounts owing under its alternating proprietorship and distribution agreements. Also at the corresponding date, the Company has recorded a payable to Kona of $2.3 million primarily for amounts owing for purchases of Kona-branded product.

At December 31, 2009, the Company had outstanding receivables due from KBC of $57,000. As a result of the KBC Merger, there are no outstanding receivables and payables balances among Kona, KBC and the Company on a consolidated basis after this date.

See Note 11, Merger with KBC for a discussion of the merger executed October 1, 2010 among the Company, KBC and related entities, including Kona, and the KBC shareholders.

7.	Intangibles and Other Assets

Intangibles and other assets consist of the following:

	December 31,		December 31,
	2010		2009
	(In thousands)

Trademarks and other	$	14,681	$	10,027
Distributor agreements		2,200		2,200
Recipes		700		700
Non-compete agreements		540		100
Favorable contracts		643		643
Promotional merchandise		285		321
		19,049		13,991
Less accumulated amortization		1,290		978
	$	17,759	$	13,013

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Estimated amortization expenses to be recorded for the next five fiscal years are as follows (in thousands):

2011	$	292
2012		253
2013		249
2014		248
2015		223

8.	Debt and Capital Lease Obligations

Long-term debt and capital lease obligations consist of the following:

	December 31,		December 31,
	2010		2009
	(In thousands)

Term loan payable to bank, due July 1, 2018	$	12,639	$	13,012
Line of credit payable to bank, due September 30, 2015		7,500		6,400
Promissory notes payable to individual lenders, all due July 1, 2015		600		600
Premium on promissory notes		504		587
Note with affiliated party		1,403		—
Capital lease obligations on equipment		4,489		5,567
		27,135		26,166
Less current portion of long-term debt		2,460		1,481
	$	24,675	$	24,685

Since June 2008, the Company has maintained a loan agreement (as amended, the “Loan Agreement”) with Bank of America, N.A. (“BofA”), which, is presently comprised of a $22.0 million revolving line of credit (“Line of Credit”), including provisions for cash borrowings and up to $2.5 million notional amount of letters of credit, and a $13.5 million term loan (“Term Loan”). The Company may draw upon the Line of Credit for working capital and general corporate purposes. At December 31, 2010 and 2009, the Company had $7.5 million and $6.4 million, respectively, outstanding under the Line of Credit.

On June 8, 2010, the Company and BofA executed a modification to the Loan Agreement effective June 1, 2010 (“Second Amendment”) as a result of the improvement in the Company’s financial position. The significant provisions of the Second Amendment were to reduce the marginal rates for borrowings under the Loan Agreement, reduce the quarterly fees on the unused portion of the Line of Credit, and eliminate the requirements that the Company maintain a minimum asset coverage ratio and provide certain monthly reporting packages to BofA.

The Company and BofA executed a third modification dated September 30, 2010 (“Third Amendment”) to the Loan Agreement. Pursuant to the Third Amendment, the maximum borrowing availability under the revolving line of credit was increased, the maturity date of the Line of Credit was extended, and the marginal rates for borrowing under the Loan Agreement and the quarterly fees on the unused portion of the Line of Credit were further reduced. BofA also consented to the Company’s acquisition of KBC, including the assumption of debt of KBC. Under the Third Amendment, KBC and related entities were added as guarantors with respect to the Loan Agreement. As of the effective date of the Third Amendment, the maximum borrowing available under the Line of Credit increased to its present limit, and the maturity date for the Line of Credit was extended to September 30, 2015.

Under the Loan Agreement, the Company may select either the London Inter-Bank Offered Rate (“LIBOR”) or the Inter-Bank Offered Rate (“IBOR”) (each, a “Benchmark Rate”) as the basis for calculating interest on the outstanding principal balance of the Line of Credit. Interest accrues at an annual rate equal to the Benchmark Rate plus a marginal rate. The Company may select different Benchmark Rates for different tranches of its borrowings under the Line of Credit. Effective with the Third Amendment, the marginal rate will vary from 1.00% to 2.25% based on the ratio of the Company’s funded debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined (“funded debt ratio”). LIBOR rates may be selected for one, two, three, or six month periods, and IBOR rates may be selected for no shorter than 14 days and no longer than six months. Accrued interest for the Line of Credit is due and payable monthly. At December 31, 2010, the weighted-average interest rate for the borrowings outstanding under the Line of Credit was 1.25%.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Under the Loan Agreement, a quarterly fee on the unused portion of the Line of Credit, including the undrawn amount of the related standby letter of credit, will vary from 0.15% to 0.30% based upon the Company’s funded debt ratio. At December 31, 2010, the quarterly fee was 0.15%. An annual fee will be payable in advance on the notional amount of each standby letter of credit issued and outstanding multiplied by an applicable rate ranging from 1.00% to 2.00%.

Interest on the Term Loan will accrue on the outstanding principal balance in the same manner as provided for under the Line of Credit, as established under the LIBOR one-month Benchmark Rate. At December 31, 2010 and 2009, the principal balance outstanding under the Term Loan was $12.6 million and $13.0 million, respectively. The interest rate on the Term Loan was 1.51% as of December 31, 2010. Accrued interest for the Term Loan is due and payable monthly. Principal payments are due monthly in accordance with an agreed-upon schedule set forth in the Loan Agreement, with any unpaid principal balance and unpaid accrued interest due and payable on July 1, 2018.

The Company is in compliance with all applicable contractual financial covenants at December 31, 2010. These financial covenants under the Loan Agreement are measured on a trailing four-quarter basis. For all periods ending subsequent to and including December 31, 2010, the Company is required to maintain a ratio of funded debt to EBITDA, as defined, less than or equal to 3.0 to 1 and a fixed charge coverage ratio in excess of 1.25 to 1.

The Loan Agreement is secured by substantially all of the Company’s personal property and by certain real property (“Collateral”). Pursuant to the KBC Merger, Kona and another of the Company’s wholly owned subsidiaries have unconditionally guaranteed (collectively, the “KBC Guarantees”) the Company’s obligation under the Loan Agreement. The KBC Guarantees also cover obligations of the Company to BofA arising under the interest rate swap agreement. In addition, the Company is restricted in its ability to declare or pay dividends, repurchase any outstanding common stock, incur additional debt or enter into any agreement that would result in a change in control of the Company.

Pursuant to the KBC Merger, the Company assumed an obligation for a promissory note payable (“related party note”) to a counterparty that is an affiliated party. The related party note is secured by the certain equipment comprising a photovoltaic cell generation system (“photovoltaic system”) installed at the Company’s brewery located in Kailua-Kona, Hawaii. The balance of the related party note payable as of December 31, 2010 is $1.4 million. Accrued interest on the related party note is due and payable monthly at a fixed interest rate of 4.75%, with monthly loan payments of $16,129. Any unpaid principal balance and unpaid accrued interest under the related party note will be due and payable on November 15, 2014. The photovoltaic system is eligible for certain federal grants and state tax credits, which were applied for but not collected prior to the closing of the KBC Merger. Any proceeds collected by the Company associated with the applicable federal grants and state tax credits are required to be remitted to the creditor, as a reduction of principal.

The Company assumed an obligation for promissory notes signed in connection with the acquisition of commercial real estate related to the Portland, Oregon brewery. These notes were separately executed by WBBC with three individuals, but under substantially the same terms and conditions. Each promissory note is secured by a deed of trust on the commercial real estate. The outstanding note balance to each lender as of December 31, 2010 and 2009 was $200,000, with each note bearing a fixed interest rate of 24% per annum through June 30, 2010, after which time the rate increased to 27.8% per annum as a result of a one-time adjustment reflecting the change in the consumer price index from the date of issue, July 1, 2005, to July 1, 2010. The promissory notes are carried at the total of stated value plus a premium reflecting the difference between the Company’s incremental borrowing rate and the stated note rate. The premium on the promissory notes was $504,000 and $587,000 at December 31, 2010 and 2009, respectively. The effective interest rate for each note is 6.31%. Each note matures on the earlier of the individual lender’s death or July 1, 2015, with prepayment of principal not allowed under the notes’ terms. Interest payments are due and payable monthly.

The Company assumed a capital equipment lease obligation to BofA, which is secured by substantially all of the brewery equipment and restaurant furniture and fixtures located in Portland, Oregon. The outstanding balance for the capital lease as of December 31, 2010 and 2009 was $4.5 million and $5.6 million, respectively, with monthly loan payments of $119,020 required through the maturity date of June 30, 2014. The capital lease carries an effective interest rate of 6.56%. The capital lease is subject to a prepayment penalty equal to a specified percentage multiplied by the amount prepaid. This specified percentage began at 4% and, except in the event of acceleration due to an event of default, ratably declines 1% for every year the lease is outstanding until July 31, 2011, at which time the capital lease is not subject to a prepayment penalty. The specified percentage is 1% as of December 31, 2010. In the event of acceleration due to an event of default, the prepayment penalty is restored to 4%.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

For the Company’s outstanding debt obligations as of December 31, 2010, required principal payments for the next five fiscal years are as follows:

	Long Term Debt
	Line of Credit		Term Loan		Note with Affiliated Party		Promissory Notes		Capital Lease Obligations
	(In thousands)
Succeeding periods:

2011	$	-	$	397	$	881	$	-	$	1,442
2012		-		421		173		-		1,437
2013		-		451		181		-		1,437
2014		-		477		168		-		719
2015		7,500		516		-		600		-
Thereafter		-		10,377		-		-		-
		7,500		12,639		1,403		600		5,035
Amounts representing interest		-		-		-		-		(546	)
	$	7,500	$	12,639	$	1,403	$	600	$	4,489

9.	Derivative Financial Instruments and Fair Value Measurements

Interest Rate Swap Contracts

The Company’s risk management objectives are to ensure that business and financial exposures to risk that have been identified and measured are minimized using the most effective and efficient methods to reduce, transfer and, when possible, eliminate such exposures. Operating decisions contemplate associated risks and management strives to structure proposed transactions to avoid or reduce risk whenever possible.

The Company has assessed its vulnerability to certain business and financial risks, including interest rate risk associated with its variable-rate long-term debt. To mitigate this risk, the Company entered into with BofA a five-year interest rate swap agreement with a total notional value of $9.5 million and $9.8 million as of December 31, 2010 and 2009, respectively, to hedge the variability of interest payments associated with its variable-rate borrowings under its Term Loan. Through this swap agreement, the Company pays interest at a fixed rate of 4.48% and receives interest at a floating-rate of the one-month LIBOR. Since the interest rate swap hedges the variability of interest payments on variable rate debt with similar terms, it qualifies for cash flow hedge accounting treatment under ASC 815. As of December 31, 2010 and 2009, unrealized net losses of $849,000 and $768,000, respectively, were recorded in accumulated other comprehensive loss as a result of this hedge. There was no hedge ineffectiveness recognized for the years ended December 31, 2010 and 2009 associated with this contract. The effective portion of the gain or loss on the derivative is reclassified into interest expense in the same period during which the Company records interest expense associated with the Term Loan.

The Company assumed WBBC’s contract with BofA for a $7.0 million notional interest rate swap agreement. In July 2008, the Company entered into with BofA an equal and offsetting interest rate swap contract. Both contracts expired on November 1, 2010. Neither swap contract qualified for hedge accounting under ASC 815. The assumed contract required the Company to pay interest at a fixed rate of 4.60% and receive interest at a floating rate of the one-month LIBOR, while the offsetting contract required the Company to pay interest at a floating rate of the one-month LIBOR and receive interest at a fixed rate of 3.47%. The Company recorded a net gain on the contracts of $74,000 and $78,000 for the years ended December 31, 2010 and 2009, respectively, which was recorded to other income.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

		December 31,		December 31,
	Balance Sheet Location	2010		2009
		(In thousands)
Derivative instruments in liability positions:
Derivatives designated as hedging instruments under ASC 815
Interest rate swap contracts	Non-current liabilities - derivative financial instruments	$	849	$	768

Derivatives not designated as hedging instruments under ASC 815
Interest rate swap contracts	Non-current liabilities - derivative financial instruments		-		74
Total derivatives		$	849	$	842

All swap obligations with BofA are secured by the Collateral under the Loan Agreement and the KBC Guaranties.

Fair Value Measurements

Under the three-tier fair value hierarchy established in ASC 820, Fair Value Measurements and Disclosures , the inputs used in measuring fair value are prioritized as follows:

Level 1:

Observable inputs (unadjusted) in active markets for identical assets and liabilities;

Level 2:

Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets and inputs other than quoted prices that are observable for the asset or liability;

Level 3:

Unobservable inputs for the asset or liability, including situations where there is little, if any, market activity or data for the asset or liability.

The Company has assessed its assets and liabilities that are measured and recorded at fair value within the above hierarchy and that assessment is as follows:

	Fair Value Hierarchy Assessment
	Level 1		Level 2		Level 3		Total
	(In thousands)
2010
Derivative financial instruments – interest rate swap contracts	$	-	$	849	$	-	$	849

2009
Derivative financial instruments – interest rate swap contracts	$	-	$	842	$	-	$	842

10.	Common Stockholders’ Equity

Stock Plans

The Company maintains several stock incentive plans, including those discussed below, under which non-qualified stock options, incentive stock options and restricted stock are granted to employees and non-employee directors. The Company issues new shares of common stock upon exercise of stock options. Under the terms of the Company’s stock option plans, subject to certain limitations, employees and directors may be granted options to purchase the Company’s common stock at the market price on the date the option is granted.

On May 26, 2010, the shareholders approved the 2010 Stock Incentive Plan (the “2010 Plan”), as recommended by the Company’s board of directors. The 2010 Plan provides for grants of stock options, restricted stock, restricted stock units, performance awards and stock appreciation rights to directors and employees. While incentive stock options may only be granted to employees, awards other than incentive stock options may be granted to employees and directors. The 2010 Plan is administered by the compensation committee of the board of directors (“Compensation Committee”), which determines the grantees, the number of shares of common stock for which options are exercisable and the exercise prices of such shares, among other terms and conditions of equity-based awards under the 2010 Plan. Options granted to the Company’s employees were generally designated to vest over a five-year period. Vested options are generally exercisable for ten years from the date of grant. A maximum of 750,000 shares of common stock is authorized for issuance under the 2010 Plan. As of December 31, 2010, the 2010 Plan had 706,320 shares available for future grants of options.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

The Company maintains the 2002 Stock Option Plan (the “2002 Plan”) under which non-qualified stock options and incentive stock options were granted to employees and non-qualified stock options were granted to non-employee directors and independent consultants or advisors, subject to certain limitations. Options granted to the Company’s employees were generally designated to vest over either a four-year or five-year period while options granted to the Company’s directors were generally designated to become exercisable from the date of grant up to three months following the grant date. Vested options are generally exercisable for ten years from the date of grant. The Compensation Committee administers the 2002 Plan.

The Company maintains the 2007 Stock Incentive Plan (the “2007 Plan”) under which grants of stock options and restricted stock were made to the Company’s employees and restricted stock grants were made to the Company’s directors. These grants have been made since the inception of the 2007 Plan in May 2007 through May 2010. Options granted to the Company’s employees were generally designated to vest over a five-year period. Vested options are generally exercisable for ten years from the date of grant. The 2007 Plan is administered by the Compensation Committee.

With the approval of the 2010 Plan, no further grants of stock options or similar stock awards may be made under either the 2002 Plan or the 2007 Plan; however, the provisions of these plans will remain in effect until all outstanding options are terminated or exercised.

The Company maintains the 1992 Stock Incentive Plan, as amended (the “1992 Plan”) under which non-qualified stock options and incentive stock options were granted to employees through August 2001. These options were generally designated to vest over a five-year period. Vested options are generally exercisable for ten years from the date of grant. Although the 1992 Plan expired in October 2002, preventing further option grants, the provisions of the 1992 Plan remain in effect until all options are terminated or exercised. The remaining options outstanding under the 1992 Plan, if not previously exercised, will expire on August 3, 2011.

The Company had maintained the Amended and Restated Directors Stock Option Plan (the “Directors Plan”) under which non-qualified stock options were granted to non-employee directors through October 2002, at which time the Directors Plan expired. Vested options under the Directors Plan were generally exercisable for ten years from the date of grant. As all outstanding options granted under the Directors Plan were exercised during 2010, the Directors Plan is no longer in effect.

Stock-Based Compensation Expense

On May 26, 2010 and May 29, 2009, the board of directors approved, under the 2007 Plan an annual grant of 3,000 shares of fully-vested Common Stock to each non-employee director. In conjunction with these stock grants, the Company issued 18,000 shares of Common Stock in each period. The Company recognized stock-based compensation of $61,000 and $36,000 during the years ended December 31, 2010 and 2009, respectively, related to these awards.

The Company recognized stock-based compensation of $38,000 and $6,100 for the years ended December 31, 2010 and 2009, respectively, associated with the grant of stock options to its employees beginning in 2009. At December 31, 2010, the total unrecognized stock based compensation associated with unvested option grants was approximately $335,000, which is expected to be recognized over a period of approximately 4.1 years.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Stock Option Plan Activity

Presented below is a summary of the Company’s stock option plan activity:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
	(In thousands)			(Per share)		(In years)		(In thousands)

Outstanding at December 31, 2009		137		$	2.00		4.4	$	67
Granted		149			3.71		10.0	$	—
Exercised		(60	)		2.10		2.1
Canceled		(7	)		1.95		1.3
Outstanding at December 31, 2010		219		$	3.14		8.0	$	931

Exercisable at December 31, 2010		48		$	2.25		3.6	$	244

A total of 7,500 stock options vested for the year ended December 31, 2010. No stock options vested during the corresponding period of 2009. The total intrinsic value of stock options exercised during the years ended December 31, 2010 and 2009 was $252,000 and $99,000, respectively.

The following table summarizes information for options outstanding and exercisable at December 31, 2010:

	Outstanding						Exercisable
Range of Exercise Prices	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
	(In thousands)		(Per share)		(In years)		(In thousands)		(Per share)		(In years)

$ 1.25 to $ 2.00		37	$	1.37		6.6		15	$	1.56		4.4
$ 2.01 to $ 3.00		126		2.36		8.2		21		2.22		2.5
$ 3.01 to $ 3.15		12		3.15		4.4		12		3.15		4.4
$ 6.88 to $ 6.88		44		6.88		9.9		—		N/A		N/A
$ 1.25 to $ 6.88		219	$	3.14		8.0		48	$	2.25		3.6

N/A - Not applicable

For stock options granted in 2010 and 2009, the following key assumptions were used in the Company’s valuation model to determine the fair value of the stock options granted and the weighted-average fair values of stock options granted were as follows:

	2010		2009

Expected life (years)		10		10
Risk-free interest rate		2.64% - 3.86%		2.87%
Expected volatility rate		62.54%		60.98%
Expected dividend yield		0.00%		0.00%

Weighted average fair value per option	$	2.68%	$	0.89

11.	Merger with KBC

On October 1, 2010, the Company completed its acquisition of KBC and related entities pursuant to an agreement and plan of merger dated July 31, 2010. The Company acquired all outstanding shares of KBC common stock in exchange for $6.2 million in cash and also issued to the former KBC shareholders 1,667,000 shares of the Company’s common stock.

The Company believes that the combined entity is able to secure advantages beyond those that had already been achieved in its long-term strategic relationship with KBC in supporting its brand family of products. This acquisition increases the breadth and variety of the Company’s brand offerings, creating favorable selling opportunities in a greater number of lucrative markets.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Merger-Related Costs

In connection with the business combination, the Company incurred merger-related expenses, including legal, consulting, accounting and other professional fees, and severance costs. The Company recognized expenses of $559,000 associated with the KBC Merger, which are reflected in merger-related expenses in the consolidated statement of income for the year ended December 31, 2010. No expenses associated with the KBC Merger were recognized during the year ended December 31, 2009.

Accounting for the Acquisition of KBC

The business combination was accounted for using the acquisition method of accounting, which requires an acquirer to recognize the assets acquired and liabilities assumed at the acquisition date measured at their fair values. The excess of the consideration transferred and the acquisition date fair value of the previous equity interest held in Kona over the fair value of net assets acquired is recognized as goodwill. The following table summarizes the consideration (in thousands):

Fair value of the Company's common stock issued	$	11,702
Cash consideration paid		6,237
		17,939
Fair value of equity interest in Kona held at acquisition date		1,200
Total consideration	$	19,139

The fair value of the Company’s common stock issued was computed by multiplying the number of shares of common stock issued by $7.02, the closing price of the Company’s common stock as reported by Nasdaq as of the date of the acquisition.

The carrying value of the 20 percent equity interest in Kona was $1.1 million on the acquisition date. The Company recognized a gain of $91,000 as a result of measuring Kona at fair value. The gain is included in other income in the consolidated statement of income for the year ended December 31, 2010.

The following table summarizes the identified assets acquired and liabilities assumed at the acquisition date (in thousands):

KBC assets acquired and liabilities assumed:
Current assets	$	4,858
Property, equipment and leasehold improvements		4,174
Trade name and trademarks		4,600
Intangible assets - non-compete agreements		440
Total assets acquired		14,072

Current liabilities		(4,091	)
Interest bearing liabilities and other long-term liabilities		(1,476	)
Deferred income tax liability, net and other noncurrent liabilities		(2,283	)
Total liabilities assumed		(7,850	)

Net assets acquired		6,222
Goodwill recorded	$	12,917

The KBC Merger was structured as a stock purchase and therefore the values assigned to the trade name and trademarks, non-compete agreements and goodwill are not deductible for tax purposes.

Prior to the acquisition date, the Company accounted for its 20 percent equity ownership interest in Kona under the equity method of accounting. Upon completion of the business combination, the Company consolidates the operations of KBC, including Kona. The Company’s results include net sales of $3.2 million and net income of $309,000, both attributable to KBC, for the period from October 1, 2010 to December 31, 2010. Net income attributable to KBC for the period includes the effect of acquisition accounting adjustments, primarily amortization of intangible assets.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Unaudited Pro Forma Results of Operations

The unaudited pro forma results of operations data are being furnished solely for informational purposes and are not intended to represent or be indicative of the consolidated results of operations that the Company would have reported had the KBC Merger and related transactions been completed as of the dates and for the periods presented, nor are they necessarily indicative of future results.

The unaudited pro forma results of operations data are derived from the consolidated financial statements of the Company and KBC and reflect pro forma adjustments relating to the KBC Merger and associated borrowing that are of a recurring nature consisting of pro forma amortization of intangible assets, primarily non-compete agreements, and pro forma effects for increased excise taxes associated with the loss of the lower rate benefit to KBC as a separate company, and of interest expense on the associated borrowing. Certain nonrecurring expenses assessed by the Company to be directly related to the KBC Merger have been eliminated from the pro forma results presented for the year ended December 31, 2010. These nonrecurring expenses have been included in the pro forma results presented for the year ended December 31, 2009. These nonrecurring expenses are the merger-related expenses of $559,000 and certain incentive compensation costs that were triggered as a result of the KBC Merger totaling $449,000. These pro forma results of operations do not give effect to any cost savings, revenue synergies or restructuring costs which may result from the integration of KBC’s or Kona’s operations.

Consistent with ASU 2010-29, unaudited pro forma combined condensed results of operations are presented below as if the KBC Merger had occurred on January 1, 2009.

	Pro Forma Results Year Ended December 31,
	2010		2009
	(In thousands, except per share data)

Net sales	$	128,260	$	120,457
Gross profit	$	39,936	$	35,163
Operating income	$	4,287	$	1,735
Income before income taxes	$	3,606	$	251
Net income	$	2,181	$	391
Basic and diluted earnings per share	$	0.12	$	0.02

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

12.	Earnings per Share

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

	Year Ended December 31,
	2010		2009
	(In thousands, except per share amounts)
Numerator for basic and diluted earnings per share:
Net income	$	1,686	$	887
Denominator for basic earnings per share:
Weighted average common shares outstanding		17,523		17,004
Dilutive effect of stock options on weighted average common shares		45		37
Denominator for diluted earnings per share		17,568		17,041

Basic and diluted earnings per share	$	0.10	$	0.05

The potential common shares excluded from the calculation of diluted earnings per share totaled 82,000 and 160,000 for the year ended December 31, 2010 and 2009, respectively, because their effect would be anti-dilutive.

13.	Income Taxes

The components of income tax expense are as follows:

	Year Ended December 31,
	2010		2009
	(In thousands)

Current	$	18	$	242
Deferred		1,082		(56	)
Income tax provision	$	1,100	$	186

Current tax expense is attributable to state taxes, federal alternative minimum tax (“AMT”), and for the 2009 period, recognition of the settlement with the Internal Revenue Service (“IRS”) over examination issues arising from the Company’s acquisition of WBBC. The Company paid income, equity and franchise taxes totaling $223,000 and $83,000 for the years ended December 31, 2010 and 2009, respectively.

The income tax benefit differs from the amount computed by applying the statutory federal income tax rate to the income before income taxes. The sources and tax effects of the differences are as follows:

	Year Ended December 31,
	2010			2009
	(In thousands)

Provision at U.S. statutory rate	$	947		$	365
State taxes, net of federal benefit		119			119
Permanent differences, primarily meals and entertainment		213			171
Merger expenses and true up of Merger treatment		135			14
Accrual of examination issues		—			104
Tax credits		(214	)		—
Increase to deferred tax asset tax rate		—			313
Release of the valuation allowance		(100	)		(900	)
Income tax provision	$	1,100		$	186

The income tax provision for the year ended December 31, 2010 varies from the statutory tax rate due largely to the impact of the Company’s non-deductible expenses, primarily meals and entertainment and merger-related expenses, partially offset by the release of the valuation allowance established for certain of the Company’s deferred taxes and the generation of certain tax credits. The income tax provision for the year ended December 31, 2009 varies from the statutory tax rate by the partial release of the valuation allowance during 2009, partially offset by the impact of the Company’s non-deductible expenses, a gradual shift in the destination of the Company’s shipments resulting in a greater apportionment of earnings and related deferred tax liabilities to states with higher statutory tax rates than in prior periods and the expected settlement with the IRS over its examination of the income tax returns for 2007 and 2008 filed by WBBC and related adjustments to deferred tax accounts recorded in the WBBC Merger.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Significant components of the Company’s deferred tax liabilities and assets are as follows:

	December 31,		December 31,
	2010		2009
	(In thousands)
Deferred tax liabilities:
Property, equipment and leasehold improvements	$	11,462	$	11,343
Intangible assets		6,539		4,743
Equity investments		1,093		1,267
Other		52		123
Total deferred tax liabilities		19,146		17,476

Deferred tax assets:
Net operating losses and alternative minimum tax credit carryforwards		8,310		9,736
Accrued salaries and severance		828		927
Other		822		868
Valuation allowance		—		(100	)
Total deferred tax assets		9,960		11,431
Net deferred tax liability	$	9,186	$	6,045

As Presented on the Balance Sheet:
Long-term deferred income tax liability, net	$	10,118	$	7,015
Current deferred income tax asset, net		932		970
Net deferred tax liability	$	9,186	$	6,045

As of December 31, 2010, the Company's deferred tax assets were primarily comprised of federal net operating loss carryforwards ("NOLs") of $23.5 million, or $8.0 million tax-effected; state NOL carryforwards of $211,000 tax-effected; and federal and state alternative minimum tax credit carryforwards of $452,000 tax-effected. Among other factors, in assessing the realizability of its deferred tax assets, the Company considered future taxable income generated by the projected differences between financial statement depreciation and tax depreciation, cumulative earnings generated to date and other evidence available to the Company. Based upon this consideration, the Company assessed that all of its deferred taxes are more likely than not to be realized, and as such, has not recorded a valuation allowance as of December 31, 2010. During 2010, the Company released in its entirety the valuation allowance of $100,000 that it had maintained as of December 31, 2009 based upon its evalution of the realizability of the deferred tax assets as of the corresponding date. During 2009, the Company released $900,000 of the valuation allowance that it had maintained as of December 31, 2008. In both periods, the Company credited the corresponsing release of the valuation allowance to the tax provision.

There were no unrecognized tax benefits as of December 31, 2010 or 2009. The Company does not anticipate significant changes to its unrecognized tax benefits within the next twelve months.

The Company reached a settlement with the IRS during the second quarter of 2010 over outstanding examination issues associated with the income tax returns for 2007 and 2008 filed by WBBC. The amount associated with this settlement was $86,000, all of which the Company had provided for during 2009. Tax years that remain open for examination by the IRS include the years from 2007 through 2010. In addition, tax years from 1997 to 2003 may be subject to examination by the IRS and state tax jurisdictions to the extent that the Company utilizes these NOLs in its tax returns.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

14.	Employee Benefit Plans

The Company sponsors a defined contribution or 401(K) plan for all employees 18 years or older. Employee contributions may be made on a before-tax basis, limited by IRS regulations. For the year ended December 31, 2010, the Company matches 50 percent of the employee’s contributions up to six percent of eligible compensation. For the year ended December 31, 2009, the Company matched the employee’s contribution up to four percent of eligible compensation. Eligibility for the matching contribution in both years begins after the participant has worked a minimum of three months. The Company’s matching contributions to the plan vest ratably over five years of service by the employee. The Company recognized expense associated with matching participants’ contributions to the plan of $428,000 and $600,000 for the years ended December 31, 2010 and 2009, respectively.

15.	Commitments

The Company leases office space, restaurant and production facilities, warehouse and storage space, land and equipment under operating leases that expire at various dates through the year ending December 31, 2047. Certain leases contain renewal options for varying periods and escalation clauses for adjusting rent to reflect changes in price indices. Certain leases require the Company to pay for insurance, taxes and maintenance applicable to the leased property. Under the terms of the land lease for the New Hampshire Brewery, the Company holds a first right of refusal to purchase the property should the lessor decide to sell the property.

Minimum aggregate future lease payments under non-cancelable operating leases as of December 31, 2010 are as follows (in thousands):

2011	$	1,066
2012		945
2013		896
2014		725
2015		729
Thereafter		12,679
	$	17,040

Rent expense under all operating leases, including short-term rentals as well as cancelable and noncancelable operating leases, totaled $2.4 million and $2.9 million for the years ended December 31, 2010 and 2009, respectively.

The Company leases its headquarters office space, restaurant and storage facilities located in Portland, land and certain equipment from two limited liability companies, both of whose members include the Company’s current Board Chair and a nonexecutive officer of the Company. Lease payments to these lessors totaled $124,000 and $118,000 for the years ended December 31, 2010 and 2009, respectively. The Company is responsible for taxes, insurance and maintenance associated with these leases. The lease for the headquarters office space and restaurant facility expires in 2034, with an extension at the Company’s option for two 10-year periods, while the lease for the other facilities, land and equipment expires in 2017 with an extension at the Company’s option for two five-year periods. Rental payments under the leases are adjusted each year to reflect increases in the Consumer Price Index. The rent during an extension period, if applicable, will be established at fair market levels at the beginning of each period. The Company holds a right to purchase the headquarters office space and restaurant facility at the greater of $2.0 million or the fair market value of the property as determined by a contractually established appraisal method. The right to purchase is not valid in the final year of the lease term or in each of the final years of the renewal terms, as applicable.

The Company holds lease and sublease obligations for certain office space and the land underlying the brewery and pub location in Kona, Hawaii, with a company whose owners include a shareholder who owns more than five percent of the Company’s shares and a nonexecutive officer of the Company. The sublease contracts expire on various dates through 2020, with an extension at the Company’s option for two five-year periods. The rent during an extension period, if applicable, will be established at fair market levels at the beginning of each period. Lease payments to this lessor totaled $41,000 for the year ended December 31, 2010. The Company is responsible for taxes, insurance and maintenance associated with these leases and subleases. Annual rental payments under the leases and subleases are specified per the lease and sublease contracts.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

The Company leases corporate office space to an unrelated party; however, the lease agreement expired during 2009. Upon expiration of the agreement, the Company continued the lease on a month-to-month basis, with all other terms similar to the expired lease contract. On September 1, 2010, the Company renegotiated the lease agreement with the lessee, the terms of which are a five-year lease term commencing upon completion of specified tenant improvements by the Company and an expanded occupancy by the lessee. Prior to the completion of the tenant improvements, the terms were similar to the expired lease contract, but continuing on a month to month basis. The lessee may renew the lease contract for two additional five-year periods. The Company completed the specified tenant improvements subsequent to December 31, 2010; therefore, the five-year lease term commenced in 2011. The Company recognized rental income of $193,000 and $177,000 for the years ended December 31, 2010 and 2009, respectively. Future minimum lease rentals under the renegotiated lease agreement will be 2011, $226,000; 2012, $253,000; 2013, $261,000; 2014, 269,000; 2015, $277,000; and thereafter, $23,000.

The Company periodically enters into commitments to purchase certain raw materials in the normal course of business. Furthermore, the Company has entered into purchase commitments and commodity contracts to ensure it has the necessary supply of malt and hops to meet future production requirements. Certain of the malt and hop commitments are for crop years through 2015. The Company believes that malt and hop commitments in excess of future requirements, if any, will not have a material impact on its financial condition or results of operations. The Company may take delivery of the commodities in excess of or make payments against the purchase commitments earlier than contractually obligated, which means the Company’s cash outlays in any particular year may exceed or be less than the commitment amount disclosed.

The Company has recorded liabilities of $1.3 million at December 31, 2010 associated with purchase commitments for which it has already taken title to the related commodity. These amounts are excluded from the table below. The Company has also executed agreements with selected vendors to source its requirements for certain malt varieties for the years ended December 31, 2012 and 2013; however, either the quantity to be delivered or the full price for the commodity have not been established at the present time, to the extent the commitment is not measurable or has not been fixed, that portion of the commitment, including the entire commitment as applicable, has been excluded from the table below.

The Company has entered into multi-year sponsorship and promotional commitments with certain professional sports teams and entertainment companies. Generally, in exchange for its sponsorship consideration, the Company posts signage and provides other promotional materials at the site or the event. In certain instances, the Company is granted an exclusive right to provide the craft beer products at the site or event. The terms of these sponsorship commitments expire at various dates through the year ending December 31, 2015.

Aggregate payments under unrecorded, unconditional purchase and sponsorship commitments as of December 31, 2010 are as follows:

	Total Noncancelable Commitments
	Purchase Obligations		Sponsorship Obligations		Total
	(In thousands)

2011	$	9,129	$	952	$	10,081
2012		2,963		778		3,741
2013		2,697		632		3,329
2014		921		452		1,373
2015		458		80		538
	$	16,168	$	2,894	$	19,062

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

16.	Related-Party Transactions

For the years ended December 31, 2010 and 2009, sales to A-B through the A-B Distribution Agreement totaled $114.3 million and $110.8 million, respectively, which represented 81.1% and 83.1%, respectively, of the Company’s sales for the corresponding period.

For all sales made pursuant to the A-B Distribution Agreement, the Company pays A-B certain fees, described in further detail below, including a Margin fee (“Margin”). For the first nine months of 2010 and all of 2009, the Margin applied to all product shipments, except for those made under its contract brewing arrangements and from its retail operations and dock sales. The Company also pays an additional fee for any shipments that exceed shipment levels as established in the A-B Distribution Agreement (collectively with Margin, “Total Margin”). Pursuant to an amendment to the A-B Distribution Agreement entered into on August 12, 2010, certain product shipments beginning in the fourth quarter of 2010 were exempted from Total Margin that would otherwise have been payable by the Company to A-B. For the years ended December 31, 2010 and 2009, the Company paid fees of $5.6 million and $5.8 million, respectively, related to Total Margin. These fees are reflected as a reduction of sales in the Company’s consolidated statements of income.

Also included in the A-B Distribution Agreement are fees associated with administration and handling, including invoicing costs, staging costs, cooperage handling charges and inventory manager fees. These fees totaled approximately $373,000 and $394,000 for the years ended December 31, 2010 and 2009, respectively, and are reflected in cost of sales in the Company’s consolidated statements of income.

In certain instances, the Company shipped its product to A-B wholesaler support centers (“WSCs”) than directly to the wholesaler. WSCs consolidated small wholesaler orders for the Company’s products with orders of other A-B products prior to shipping to the wholesaler. WSC fees for these shipments totaled $163,000 and $418,000 for the years ended December 31, 2010 and 2009, respectively, and are charged to cost of sales in the Company’s consolidated statements of income.

Under a separate agreement, the Company purchased certain materials, primarily bottles and other packaging materials, through A-B totaling $22.6 million in 2009. During 2009, the Company also paid A-B amounts totaling $63,000 for media purchases and advertising services. For 2010, the Company procured these materials and services from third party vendors and did not make similar purchases for materials or services from A-B during the year.

The Company entered into a purchase and sale agreement with A-B for the purchase of the Pacific Ridge brand, trademark and related intellectual property. In consideration, the Company agreed to pay A-B an annual royalty based upon the Company’s shipments of this brand, expiring in 2023. Royalties of $48,000 and $66,000 are reflected in cost of sales in the Company’s consolidated statements of income for the years ended December 31, 2010 and 2009, respectively.

In connection with the shipment of its draft products per the A-B Distribution Agreement, the Company collects refundable deposits on its kegs from A-B’s wholesalers. As these wholesalers generally hold an inventory of the Company’s kegs at their warehouse and in retail establishments, A-B assists in monitoring the inventory of kegs received by its wholesalers. The wholesaler pays a flat fee to the Company for each keg determined to be lost and also forfeits the deposit. For the years ended December 31, 2010 and 2009, the Company reduced its brewery equipment by $364,000 and $259,000, respectively, for amounts received in lost keg fees and forfeited deposits.

The Company periodically will lease kegs from A-B pursuant to a separate agreement. Lease and handling fees of $23,000 and $48,000 are reflected in cost of sales for the years ended December 31, 2010 and 2009, respectively.

As of December 31, 2010 and 2009, net amounts due from A-B of $3.9 million and $1.8 million, respectively, were outstanding.

The Company has entered into several lease arrangements with lessors whose members include related parties to the Company. See Note 15, “Commitments.”

For the years ended December 31, 2010 and 2009, the Company earned alternating proprietorship fees of $4.8 million and $5.0 million, respectively, by leasing the Oregon Brewery to Kona and $5.0 million and $5.7 million, respectively, by selling raw materials and packaging products to Kona. These fees are recorded as sales revenues in the Company’s statements of income for the corresponding periods. The Company also charged rent to Kona for its use of kegs for products that are distributed to Hawaii, as these sales are outside of the Company’s distribution agreement with Kona. Cooperage rental fees of $97,000 and $107,000 were charged to Kona for the years ended December 31, 2010 and 2009, respectively. These fees were credited to cost of sales for the corresponding periods.

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Craft Brewers Alliance, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

At December 31, 2010 and 2009, the Company had net amounts due to FSB of $3.3 million and $2.3 million, respectively. At December 31, 2009, the Company had a net amount due to Kona of $374,000. At December 31, 2009, the Company had outstanding receivables due from KBC of $57,000. As a result of the KBC Merger, there were no outstanding receivables and payables balances among the Company, KBC, and Kona at December 31, 2010. See Notes 6 and 11.

As a result of the KBC Merger, the Company assumed a note payable with a related party. See Note 8, “Debt and Capital Lease Obligations.”

17.	Subsequent Events

On March 27, 2011, the Company executed a binding term sheet (the "Term Sheet") with A-B, relating to Company’s investment in FSB. A-B had previously entered into an equity purchase agreement (the "Purchase Agreement") dated as of February 18, 2011, with Goose Holdings, Inc. ("GHI"), under which GHI had agreed to sell its 58 percent equity interest in FSB. The Compay holds a right of first refusal under the operating agreement among FSB, GHI and CBA that permitted it to purchase GHI's interest in FSB on the same terms and conditions as set forth in the Purchase Agreement. A copy of the Term Sheet was included as an exhibit to the Company’s current report on Form 8-K filed with the SEC on March 28, 2011.

Pursuant to the Term Sheet, the Company has agreed to sell its equity interest in FSB to A-B and not to exercise its right of first refusal under the operating agreement with FSB. A-B has agreed to pay $16.3 million in cash for the Company's equity interest in FSB in accordance with the terms and conditions in the Purchase Agreement and an additional $150,000 in respect of transaction costs. A-B has further agreed to reductions in Total Margin for the remaining term of the A-B Distribution Agreement, as well as any renewal term, to allow the Company to use an alternate distribution network in the event the Company purchases additional beer brands in the future, and to provide the Company with greater flexibility with respect to future acquisitions or divestitures of assets without obtaining A-B's prior consent. A-B also agreed to provide enhanced selling support for the Company’s brands.

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Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) or 15d-15(e)) as of the end of the period covered by this Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission (“SEC”) and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management believes that key controls are in place and the disclosure controls are functioning effectively at the reasonable assurance level as of December 31, 2010.

While reasonable assurance is a high level of assurance, it does not mean absolute assurance. Disclosure controls and internal control over financial reporting cannot prevent or detect all errors, misstatements or fraud. In addition, the design of a control system must recognize that there are resource constraints, and the costs associated with controls must be proportionate to their costs. Notwithstanding these limitations, the Company's management believes that its disclosure controls and procedures provide reasonable assurance that the objectives of its control system are being met.

Changes in Internal Control Over Financial Reporting

During the fourth quarter of 2010, no changes in the Company’s internal control over financial reporting were identified in connection with the evaluation required by Exchange Act Rule 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

R eport of Management on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Exchange Act Rule 13a-15(f). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Company’s financial statements would be prevented or detected.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting based on the framework and criteria established in Internal Control — Integrated Framework , issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2010, at the reasonable assurance level.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which exempts non-accelerated filers, such as the Company, from Section 404(b) of the Sarbanes-Oxley Act of 2002.

Item 9B . Other Information

None.

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PART III

Item 10 . Directors, Executive Officers and Corporate Governance

The response to this Item is contained in part in the Company’s definitive proxy statement for its 2011 Annual Meeting of Stockholders to be held on May 25, 2011 (the “2011 Proxy Statement”) under the captions “Board of Directors,” “Audit Committee,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” and the information contained therein is incorporated herein by reference.

Information regarding executive officers is set forth herein in Part I, under the caption -“ — Executive Officers of the Company .”

Code of Conduct

The Company has adopted a Code of Conduct and Ethics (the “Code”) applicable to all employees, including the principal executive officer, principal financial officer, principal accounting officer and directors. The Code and the charters of each of the Board committees are posted on the Company’s website at www.Craftbrewers.com (select Investor Relations — Governance — Highlights). Copies of these documents are available to any shareholder who requests them. Such requests should be directed to Investor Relations, Craft Brewers Alliance, Inc., 929 N. Russell Street, Portland, OR 97227. Any waivers of the Code for the Company’s directors or executive officers are required to be approved by the Board of Directors. The Company will disclose any such waivers on a current report on Form 8-K within four business days after the waiver is approved.

Item 11 . Executive Compensation

The response to this Item is contained in the 2011 Proxy Statement under the captions “Executive Compensation,” “Director Compensation” and “Compensation Committee” and the information contained therein is incorporated herein by reference.

Item 12 . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Securities Authorized for Issuance Under Equity Compensation Plans

The following is a summary as of December 31, 2010 of all of the Company’s plans that provide for the issuance of equity securities as compensation. See Note 10 to the Consolidated Financial Statements — Common Stockholders’ Equity for additional discussion.

Plan Category	Number to be Issued Upon Exercise of Outstanding Options and Rights (a)		Weighted Average Exercise Price of Outstanding Options and Rights (b)		Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		219,000	$	3.14		706,320
Equity compensation plans not approved by security holders		—		—		—
Total		219,000	$	3.14		706,320

The remaining response to this Item is contained in part in the 2011 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management,” and the information contained therein is incorporated herein by reference.

Item 13 . Certain Relationships and Related Transactions, and Director Independence

The response to this Item is contained in the 2011 Proxy Statement under the caption “Related Person Transactions” and “Board of Directors – Director Independence” and the information contained therein is incorporated herein by reference.

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Item 14 . Principal Accountant Fees and Services

The response to this Item is contained in the 2011 Proxy Statement under the caption “Proposal No. 2 — Ratification of Appointment of Independent Registered Public Accounting Firm” and the information contained therein is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report:

1. Consolidated Financial Statements		Page
Report of Moss Adams LLP, Independent Registered Public Accounting Firm		40
Consolidated Balance Sheets as of December 31, 2010 and 2009		41
Consolidated Statements of Income for the Years Ended December 31, 2010 and 2009		42
Consolidated Statements of Common Stockholders’ Equity for the Years Ended December 31, 2010 and 2009		43
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010 and 2009		44
Notes to Consolidated Financial Statements		45

2. Exhibits

Exhibits are listed in the Exhibit Index that appears immediately following the signature page of this report and is incorporated herein by reference, and are filed or incorporated by reference as part of this Annual Report on Form 10-K.

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SIGN ATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in Portland, Oregon, on March 31, 2011.

	Craft Brewers Alliance, Inc.

	By:	/s/ Joseph K. O’Brien
		Joseph K. O’Brien
		Controller and Chief Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ T erry E. M ichaelson	Chief Executive Officer	March 31, 2011
Terry E. Michaelson	(Principal Executive Officer)

/s / Mark D. Moreland	Chief Financial Officer and Treasurer	March 31, 2011
Mark D. Moreland	(Principal Financial Officer)

/s/ Joseph K. O’Brien	Controller	March 31, 2011
Joseph K. O’Brien	(Principal Accounting Officer)

*	Chairman of the Board and Director	March 31, 2011
Kurt R. Widmer

*	Director	March 31, 2011
Timothy P. Boyle

*	Director	March 31, 2011
Marc J. Cramer

*	Director	March 31, 2011
Andrew R. Goeler

*	Director	March 31, 2011
Kevin R. Kelly

*	Director	March 31, 2011
David R. Lord

*	Director	March 31, 2011
John D. Rogers, Jr.

*By:	/s / Mark D. Moreland
	Mark D. Moreland,
	as attorney in fact

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Exhibit Index

Exhibit

Number

Description

2.1	Agreement and Plan of Merger between the Registrant and Kona Brewing Co., Inc. and related parties dated July 31, 2010 (incorporated by reference from Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on August 3, 2010)

2.2	Equity Purchase Agreement by and among each of the members of Fulton Street Brewery, LLC, as Sellers, and A-B, as Purchaser, dated as of February 18, 2011

3.1	Restated Articles of Incorporation of the Registrant, dated July 1, 2008 (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on July 2, 2008)

3.2	Amended and Restated Bylaws of the Registrant, dated December 1, 2010

10.1*

1992 Stock Incentive Plan, approved October 20, 1992, as amended October 11, 1994 and May 25, 1995 (incorporated by reference from Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1, No. 33-94166)

10.2*

Amendment dated as of February 27, 1996 to the 1992 Stock Incentive Plan, as amended (incorporated by reference from Exhibit 10.31 to the Registrant’s Form 10-Q for the quarter ended June 30, 1996 (File No. 0-26542) (“1996 Form 10-Q”))

10.3*

Amendment dated as of July 25, 1996 to 1992 Stock Incentive Plan, as amended (incorporated by reference from Exhibit 10.33 to the 1996 Form 10-Q)

10.4*

Form of Incentive Stock Option Agreement for the 1992 Stock Incentive Plan, as amended (incorporated by reference from Exhibit 10.8 to the Registrant’s Form 10-K for the year ended December 31, 2004)

10.5*

2002 Stock Option Plan (incorporated by reference from Exhibit A to the Registrant’s Proxy Statement for its 2002 Annual Meeting of Shareholders (File No. 0-26542)

10.6*

Form of Stock Option Agreement (Directors Grants) for the 2002 Stock Option Plan (incorporated by reference from Exhibit 10.10 to the Registrant’s Form 10-K for the year ended December 31, 2004)

10.7*

Form of Nonqualified Stock Option Agreement (Executive Officer Grants) for the 2002 Stock Option Plan (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended September 30, 2010)

10.8*

2007 Stock Incentive Plan (incorporated by reference from Appendix B to the Registrant’s Proxy Statement for its 2007 Annual Meeting of Shareholders)

10.9*

Form of Nonstatutory Stock Option Agreement (Executive Officer Grants) for the 2007 Stock Incentive Plan (incorporated by reference from Exhibit 10.3 to the Registrant’s Form 10-Q for the quarter ended June 30, 2010)

10.10*

2010 Stock Incentive Plan (incorporated by reference from Appendix B to the Registrant’s Proxy Statement for its 2010 Annual Meeting of Shareholders)

10.11*

Form of Nonqualified Stock Option Agreement (Executive Officer Grants) for the 2010 Stock Incentive Plan

10.12*

Letter of Agreement between the Registrant and Terry E. Michaelson dated March 29, 2010 (incorporated by reference from Exhibit 10.14 to the Registrant’s Form 10-K for the year ended December 31, 2009)

10.13*

Letter of Agreement between the Registrant and Mark D. Moreland dated March 29, 2010 (incorporated by reference from Exhibit 10.15 to the Registrant’s Form 10-K for the year ended December 31, 2009)

10.14*

Letter of Agreement between the Registrant and V. Sebastian Pastore dated March 29, 2010 (incorporated by reference from Exhibit 10.16 to the Registrant’s Form 10-K for the year ended December 31, 2009)

10.15*

Letter of Agreement between the Registrant and Martin J. Wall, IV dated March 29, 2010 (incorporated by reference from Exhibit 10.17 to the Registrant’s Form 10-K for the year ended December 31, 2009)

10.16*

Letter of Agreement between the Registrant and Danielle Katcher dated March 29, 2010 (incorporated by reference from Exhibit 10.18 to the Registrant’s Form 10-K for the year ended December 31, 2009)

10.17*

Letter of Agreement between the Registrant and Kurt Widmer dated May 26, 2010 (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2010)

10.18*

Letter of Agreement between the Registrant and Robert Widmer dated May 26, 2010 (incorporated by reference from Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended June 30, 2010)

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10.19*

Non-Competition and Non-Solicitation Agreement dated June 30, 2008 between the Registrant and Kurt Widmer (incorporated by reference from Exhibit 10.10 to the Registrant’s Current Report on Form 8-K filed on July 2, 2008)

10.20*

Non-Competition and Non-Solicitation Agreement dated June 30, 2008 between the Registrant and Robert Widmer (incorporated by reference from Exhibit 10.11 to the Registrant’s Current Report on Form 8-K filed on July 2, 2008)

10.21*

Non-Competition and Non-Solicitation Agreement dated October 1, 2010 between the Registrant and W. Cameron Healy (incorporated by reference from Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on October 6, 2010)

10.22*

Non-Competition and Non-Solicitation Agreement dated October 1, 2010 between the Registrant and Mattson Davis (incorporated by reference from Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on October 6, 2010)

10.23*

Summary of Compensation Arrangements for Non-Employee Directors (incorporated by reference from Exhibit 10.23 to the Registrant’s Form 10-K for the year ended December 31, 2009)

10.24*

Summary of Annual Cash Incentive Bonus Plan for Executive Officers

10.25†

Services Agreement dated January 1, 2009 between the Registrant and Kona Brewery LLC (incorporated by reference from Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended September 30, 2010)

10.26

Sublease between Pease Development Authority as Sublessor and the Registrant as Sublessee, dated May 30, 1995 (incorporated by reference from Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1, No. 33-94166)

10.27

Loan Agreement dated as of July 1, 2008 between Registrant and Bank of America, N.A. (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 7, 2008)

10.28

Loan Modification Agreement dated November 14, 2008 to Loan Agreement dated July 1, 2008 between Registrant and Bank of America, N.A. (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended September 30, 2008)

10.29

Second Loan Modification Agreement dated June 8, 2010 to the Loan Agreement dated July 1, 2008 between the Registrant and Bank of America, N.A. (incorporated by reference from Exhibit 10.4 to the Registrant’s Form 10-Q for the quarter ended June 30, 2010)

10.30

Third Loan Modification Agreement dated September 30, 2010 to the Loan Agreement dated July 1, 2008 between the Registrant and Bank of America, N.A. (Incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 6, 2010)

10.31

Exchange and Recapitalization Agreement dated as of June 30, 2004 between the Registrant and Anheuser-Busch, Incorporated (“A-B”) (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 2, 2004)

10.32

Master Distributor Agreement dated as of July 1, 2004 (“Master Distributor Agreement”) between the Registrant and A-B (incorporated by reference from Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on July 2, 2004)

10.33

Amendment dated July 25, 2008 to Master Distributor Agreement between the Registrant and A-B

10.34

Second Amendment dated August 6, 2010 to Master Distributor Agreement between the Registrant and A-B (incorporated by reference from Exhibit 10.5 to the Registrant’s Form 10-Q for the quarter ended June 30, 2010)

10.35

Registration Rights Agreement dated as of July 1, 2004 between the Registrant and A-B (incorporated by reference from Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on July 2, 2004)

10.36

Consent and Amendment dated as of July 1, 2008 among the Registrant, Widmer Brothers Brewing Company, Craft Brands Alliance LLC, and A-B (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 2, 2008)

10.37

Master Lease Agreement dated as of June 6, 2007 between Banc of America Leasing & Capital, LLC and Widmer Brothers Brewing Company (incorporated by reference to Exhibit 10.2 from Amendment No. 1 to the Registrant’s Registration Statement on Form S-4, No. 333-149908 filed on May 1, 2008 (“S-4 Amendment No. 1”))

10.38

Amended and Restated License Agreement dated as of February 28, 1997 between Widmer Brothers Brewing Company and Widmer’s Wine Cellars, Inc. and Canandaigua Wine Company, Inc. (incorporated by reference to Exhibit 10.3 from the S-4 Amendment No. 1)

Table of Contents

10.39

Restated Lease dated as of January 1, 1994 between Smithson & McKay Limited Liability Company and Widmer Brothers Brewing Company (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarter ended September 30, 2010)

10.40

Commercial Lease (Restated) dated as of December 18, 2007 between Widmer Brothers LLC and Widmer Brothers Brewing Company (incorporated by reference to Exhibit 10.5 from the S-4 Amendment No. 1)

10.41

Sublease dated as of September 1, 2010 between Manini Holdings, LLC and Kona Brewing Co., Inc.

10.42†

Amended and Restated Continental Distribution and Licensing Agreement between the Registrant and Kona Brewery LLC dated March 26, 2009 (incorporated by reference from Exhibit 10.4 to the Registrant’s Form 10-Q for the quarter ended September 30, 2010)

10.43

Sublease dated as of March 31, 2011 between Manini Holdings, LLC and Kona Brewing Co., LLC

10.44

Term Sheet between A-B and the Registrant, dated March 27, 2011 (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 28, 2011)

21.1	Subsidiaries of the Registrant

23.1	Consent of Moss Adams LLP, Independent Registered Public Accounting Firm

24.1	Power of Attorney – Directors of Craft Brewers Alliance, Inc.

31.1	Certification of Chief Executive Officer of Craft Brewers Alliance, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer of Craft Brewers Alliance, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of Form 10-K for the year ended December 31, 2010 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1	Press Release dated March 31, 2011

*	Denotes a management contract or a compensatory plan or arrangement.

†	Confidential treatment has been requested with respect to portions of this exhibit. A complete copy of the agreement, including the redacted terms, has been separately filed with the Securities and Exchange Commission

EXHIBIT 2.2

EXECUTION VERSION

EQUITY PURCHASE AGREEMENT

BY AND AMONG

EACH OF THE MEMBERS OF FULTON STREET BREWERY, LLC,

AS SELLERS,

AND

ANHEUSER-BUSCH, INCORPORATED,

AS PURCHASER

DATED AS OF FEBRUARY 18, 2011

TABLE OF CONTENTS

			Page

ARTICLE I Definitions			1
	1.1	Definitions	1

ARTICLE II Purchase and Sale of Membership Interests; Closing and Manner of Payment			9
	2.1	Agreement to Purchase and Sell Membership Interests	9
	2.2	Purchase Price; Allocation	9
	2.3	Working Capital Adjustment	9
	2.4	Determination of Indebtedness and Working Capital	10
	2.5	Disputes Regarding Closing Balance Sheet	10
	2.6	Payment of Purchase Price; Delivery of Membership Interests	11
	2.7	Time and Manner of Payment of Working Capital Adjustment	11
	2.8	Time and Place of Closing	11
	2.9	Merger	12
	2.10	Allocation of Purchase Price	12

ARTICLE III Representations and Warranties			12
	3.1	General Statement	12
	3.2	Representations and Warranties of Purchaser	12
	3.3	Representations and Warranties of the Sellers	14
	3.4	Individual Representations and Warranties of the Sellers	26
	3.5	Limitation on Warranties	27
	3.6	Definition of Knowledge	27

ARTICLE IV Conduct Prior to the Closing			28
	4.1	General	28
	4.2	Sellers’ Obligations	28
	4.3	Purchaser’s Obligations	30
	4.4	Joint Obligations	31

ARTICLE V Conditions to Closing			31
	5.1	Conditions to Sellers’ Obligations	31
	5.2	Conditions to Purchaser’s Obligations	32

ARTICLE VI Closing			33
	6.1	Form of Documents	33
	6.2	Purchaser’s Deliveries	33
	6.3	Sellers’ Deliveries	34

ARTICLE VII Post‑Closing Agreements			35
	7.1	Post‑Closing Agreements	35
	7.2	Inspection of Records	35
	7.3	Use of Trademarks	35
	7.4	Third Party Claims	35
	7.5	Agreement to Defend and Indemnify	35
	7.6	Governmental Filings	35
	7.7	Tax Matters	36

	7.8	Additional Capital Expenditures	38
	7.9	Further Assurances	39

ARTICLE VIII Indemnification			39
	8.1	General	39
	8.2	Sellers’ Indemnification Obligations	39
	8.3	Limitation on the Sellers’ Indemnification Obligations	39
	8.4	Purchaser’s Indemnification Covenants	41
	8.5	Cooperation	41
	8.6	Third Party Claims	41
	8.7	Environmental Indemnities	43
	8.8	Use of Escrow Amount	44
	8.9	Indemnification Exclusive Remedy	44

ARTICLE IX Termination			45
	9.1	General	45
	9.2	Right to Terminate	45
	9.3	Certain Effects of Termination	45
	9.4	Remedies	45
	9.5	Right to Damages	46

ARTICLE X Sellers’ Committee			46
	10.1	Appointment of Sellers’ Committee	46
	10.2	Authority	46
	10.3	Reliance	47
	10.4	Actions by the Sellers	48
	10.5	Indemnification of Purchaser and Its Affiliates	48
	10.6	Indemnification of Sellers’ Committee	48

ARTICLE XI Miscellaneous			48
	11.1	Broker’s Fees	48
	11.2	Publicity	48
	11.3	Notices	49
	11.4	Expenses	50
	11.5	Entire Agreement	50
	11.6	Non-Waiver	50
	11.7	Counterparts	50
	11.8	Severability	50
	11.9	Applicable Law	50
	11.1	Binding Effect; Benefit	51
	11.11	Assignability	51
	11.12	Rule of Construction	51
	11.13	Governmental Reporting	51
	11.14	WAIVER OF TRIAL BY JURY	51
	11.15	Consent to Jurisdiction; Agent for Service of Process	51
	11.16	Dispute Resolution	52
	11.17	Amendments	53
	11.18	Headings	53

TABLE OF EXHIBITS AND SCHEDULES


Exhibit A	Sellers’ Membership Interests and Ownership Percentages
Exhibit B *	Employment Terms

Schedule 2.10 *	Tax Allocation
Schedule 4.2(c) *	Material Consents
Schedule 10.1 *	Sellers’ Committee

Disclosure Schedule *

* The Exhibit and Schedules have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. CBA will furnish copies of any such Exhibit and Schedules to the SEC upon request.

iii

EQUITY PURCHASE AGREEMENT

THIS EQUITY PURCHASE AGREEMENT (“ Agreement ”) is made as of February 18, 2011, by and among Anheuser-Busch, Incorporated, a Missouri corporation (“ Purchaser ”), Goose Holdings, Inc., an Illinois corporation (“ GHI ”), and upon execution of a joinder hereto, Craft Brewers Alliance, Inc., a Washington corporation (“ CBA ”). Purchaser and GHI are each bound by this Agreement on the date hereof, and CBA shall be bound by this Agreement upon execution of a joinder hereto. GHI and CBA are each individually referred to herein as a “ Seller ” and collectively, as the “ Sellers ”.

RECITALS

A. Sellers own all of the Membership Interests (as herein defined) of Fulton Street Brewery, LLC, an Illinois limited liability company (the “ Company ”). The Company is engaged in the manufacture and sale of malt beverages to the wholesale market under the “Goose Island” brand, as well as the marketing, advertising and promotion of such malt beverages (the “ Business ”).

B. GHI owns 58% of the issued and outstanding Membership Interests of the Company.

C. GHI, in its capacity as a Member (as herein defined) of the Company holding Membership Interests representing 58% of the total Sharing Ratios (as herein defined), has approved, by written consent executed simultaneously with the execution of this Agreement, an Approved Sale (as herein defined) of all of the Membership Interests of the Company to Purchaser pursuant to Section 7.4 of the FSB Operating Agreement, on the terms and subject to the conditions herein contained.

D. Purchaser desires to purchase all of the Membership Interests of the Company from Sellers, on the terms and subject to the conditions herein contained.

AGREEMENTS

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I

Definitions

1.1 Definitions . For purposes of this Agreement, the following terms have the meanings set forth below.

“ Affiliate ” with respect to any Person means any other Person who directly or indirectly Controls, is Controlled by, or is under common Control with such Person including, in the case of any Person who is an individual, his or her spouse, any of his or her descendants (lineal or adopted) or ancestors, and any of their spouses.

“ Agreement ” has the meaning set forth in the Introductory Paragraph.

“ Approved Sale ” has the meaning set forth in the FSB Operating Agreement.

“ Arbitrating Accountant ” means the Chicago, Illinois office of a nationally recognized accounting firm (which accounting firm has not performed accounting, tax or auditing services for Purchaser, the Company or any Seller during the past three years) selected by Purchaser and the Sellers’ Committee. If the Purchaser and the Sellers’ Committee are unable to agree, then the Arbitrating Accountant shall be selected by lot conducted jointly by the Sellers’ and Purchaser’s respective accountants.

“ Benefit Plan ” means each Plan, Multiemployer Plan, Welfare Plan and Other Benefit Plan described in the Disclosure Schedule.

“ Benefitted Party ” has the meaning set forth in Section 7.7 .

“ Business ” has the meaning set forth in the Recitals.

“ Business Day ” means any day other than Saturday, Sunday and any day that is a legal holiday or a day on which banking institutions in Chicago, Illinois are permitted or required to be closed.

“ Cash Equivalents ” means all cash on hand in the Company’s bank, lock box or other accounts (including cash resulting from the clearance of checks received by the Company prior to the Closing Date, whether or not such clearance occurs before, on or after the Closing Date), and all marketable securities (if any) owned by the Company, in each case as of 11:59 pm (Chicago time) on the day immediately preceding the Closing Date.

“ CBA ” has the meaning set forth in the Introductory Paragraph.

“ CERCLA ” has the meaning set forth in Section 3.3(v) .

“ Closing ” has the meaning set forth in Section 2.8 .

“ Closing Balance Sheet ” means a balance sheet of the Company as of 11:59 p.m. (Chicago time) on the day immediately preceding the Closing Date.

“ Closing Date ” has the meaning set forth in Section 2.8 .

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Company ” has the meaning set forth in the Recitals.

“ Company Intellectual Property ” means all Intellectual Property owned by the Company.

“ Confidentiality Agreement ” means that certain confidentiality agreement dated as of November 30, 2010 among Goose Holdings, Inc., John Hall, Greg Hall and Anheuser-Busch Companies, Inc.

“ Consulting Agreement ” has the meaning set forth in Section 6.2(h) .

“ Contracts ” has the meaning set forth in Section 3.3(o) .

“ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through ownership of securities, by contract or otherwise.

“ Damages ” means all assessments, levies, losses, fines, penalties, damages, costs and expenses, including, without limitation, reasonable attorneys’, accountants’, investigators’, and experts’ fees and expenses, sustained or incurred in connection with the defense or investigation of any claim, action, litigation, proceeding or demand. Damages shall not include internal management, administrative or overhead costs that an Indemnified Party incurs in connection with the administration, supervision or performance of actions in connection with, or related to, a matter for which indemnification is to be provided.

“ Deductible ” means Three Hundred Thousand Dollars ($300,000).

“ Delivery Date ” has the meaning set forth in Section 2.4 .

“ Disclosure Schedule ” has the meaning set forth in Section 3.3 .

“ Dispute ” means any dispute regarding the elements of or amounts reflected on the Closing Balance Sheet and affecting the calculation of the Purchase Price.

“ Dispute Notice ” means a written notice of a Dispute presented by the Sellers’ Committee within the Dispute Period.

“ Dispute Period ” means the period beginning on the Delivery Date and ending at 5:00 p.m., Chicago time, on the date thirty (30) days after the Delivery Date.

“ Employment Agreement Amendment(s) ” has the meaning set forth in Section 6.2 .

“ Environmental Claim ” means any and all administrative, regulatory or judicial actions, suits, demands, proceedings or notices of noncompliance or violation by any Person alleging potential liability of the Company or any Affiliate or former Affiliate of either arising out of or resulting from: (a) the presence or Release into the environment of any Hazardous Substance by the Company; or (b) any violation or alleged violation of any Environmental Law; or (c) any and all claims by any Person seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence at the Owned Real Estate, the Leased Real Estate or any property previously owned, leased, operated or used by the Company or an Affiliate or former Affiliate of either or Release by the Company or an Affiliate or former Affiliate of either of any Hazardous Substances.

“ Environmental Indemnification Claim ” means a claim for breach of any of the representations and warranties contained in Section 3.3(v) .

“ Environmental Laws ” means all federal, state or local Laws, including common law, in effect on the Closing Date (but shall not include changes in any Laws after the Closing Date) and relating to protection of human health or the environment, including Laws and regulations relating to Releases or threatened Releases of Hazardous Substances, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances.

“ Environmental Permits ” means all environmental, health and safety permits, licenses, registrations, and governmental approvals and authorizations.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

“ ERISA Affiliate ” means any affiliate of the Company as determined under Code section 414(b), (c), (m) or (o).

“ Escrow Account ” has the meaning set forth in Section 2.6 .

“ Escrow Agent ” means The PrivateBank and Trust Company.

“ Escrow Agreement ” has the meaning set forth in Section 2.6 .

“ Escrow Amount ” means an amount equal to seven and one-half percent (7.5%) of the Estimated Closing Payment.

“ Estimated Closing Payment ” has the meaning set forth in Section 2.6(a) .

“ Facility ” means any “facility” as defined in CERCLA.

“ Financial Statements ” means the balance sheet, statement of operations, members’ equity and cash flows and notes to financial statements (together with any supplementary information thereto) of the Company as of and for the years ended December 31, 2008 and December 31, 2009, as audited by Clifton Gunderson LLP.

“ FSB Operating Agreement ” means the Second Amended and Restated Operating Agreement for Fulton Street Brewery, LLC dated as of July 1, 2008, as amended, modified or supplemented.

“ Fundamental Representations and Warranties ” means the representations and warranties set forth in Sections 3.3(a) (Organization), 3.3(c) (Power and Authority), 3.3(i) (Capitalization), 3.3(m) (Taxes) and 3.3(z) (Brokers) and Section 3.4 (Individual Representations and Warranties) except for Section 3.4(h) (Solvency).

“ GAAP ” means United States generally accepted accounting principles as in effect on the date hereof, applied on a basis consistent with the preparation of the Financial Statements.

“ GHI ” has the meaning set forth in the Introductory Paragraph.

“ GHI Guaranty ” means that certain guaranty by the Company guaranteeing the obligations of GHI under the Loan and Security Agreement dated as of August 10, 2004 (as amended, modified or supplemented) between GHI and MB Financial Bank, N.A.

“ Hazardous Substances ” means any chemicals, materials or substances which are currently defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances” or “toxic pollutants” under any Environmental Law.

“ Income Taxes ” means (a) any Tax based upon, measured by, or calculated with respect to net income or profits (including, but not limited to, any capital gains, minimum Tax and any Tax on items of Tax preference, but not including sales, use, real or personal property, gross or net receipts, transfer or similar Taxes) or (b) any reformed Texas Franchise Tax, any Ohio Commercial Activity Tax, any Michigan Business Tax, and any similar U.S. state or local franchise Tax.

“ Indebtedness ” means, without duplication, to the extent not included in Working Capital, the sum of the following items of the Company as of the Closing: (a) all indebtedness for borrowed money (including the principal amount thereof and the amount of accrued and unpaid interest thereon) of the Company, whether or not represented by bonds, debentures, notes or other securities, for the repayment of money borrowed, whether owing to banks, financial institutions or otherwise, (b) all obligations of the Company to pay amounts under capitalized leases, (c) all guaranties of the Company in respect of indebtedness for borrowed money of Persons (other than the GHI Guaranty), (d) indebtedness representing the deferred and unpaid balance of the purchase price of any property, including any earnouts payable (but excluding trade accounts payable incurred in the ordinary course of business, compensation for employment and similar obligations), and (e) all premiums, fees, penalties, change of control payments or other consideration in respect of any of the foregoing as a result of the consummation of the transactions contemplated by this Agreement.

“ Indemnifiable Claim ” means any Damages arising out of or pertaining to any action or omission by the Indemnified Employees occurring prior to the Closing Date (including any which arise out of or relate to the transactions contemplated by this Agreement).

“ Indemnification Cap ” means fifteen percent (15%) of the Purchase Price.

“ Indemnified Employees ” means all present and former directors, managers, officers, employees and agents of the Company and all present or former directors, managers, officers, employees, agents or trustees of any Benefit Plan, and the term “ Indemnified Employee ” means any one of the foregoing Indemnified Employees.

“ Indemnified Party ” means, with respect to a particular matter, a Person who is entitled to indemnification from another party hereto pursuant to ARTICLE VIII .

“ Indemnifying Party ” means, with respect to a particular matter, a party hereto who is required to provide indemnification under ARTICLE VIII to another Person.

“ Individual Portion ” means, with respect to either Seller, an amount equal to the product of such Seller’s Ownership Percentage multiplied by the actual Damages awarded or otherwise agreed by the Sellers’ Committee to be paid by Sellers.

“ Individual Cap ” means, with respect to any Seller, an amount equal to the product of such Seller’s Ownership Percentage multiplied by the Indemnification Cap.

“ Intellectual Property ” means (a) inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) trademarks, service marks, trade dress, logos, trade names, and corporate names, and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) mask works and all applications, registrations, and renewals in connection therewith, (e) trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) Software (including data and related documentation), (g) other proprietary rights, and (h) copies and tangible embodiments thereof (in whatever form or medium).

“ Intellectual Property Licenses ” means all licenses, sub-licenses, or agreements (other than agreements with respect to Software that can be purchased “off the shelf”) between the Company, on the one hand, and any Person, on the other hand, granting any right to use or practice any rights under any Intellectual Property owned by the Company or owned by any other Person.

“ Interim Financial Statements ” means the unaudited balance sheet and statement of income of the Company as of and for the twelve (12) month period ended December 31, 2010.

“ IRS ” means the Internal Revenue Service.

“ Leased Real Estate ” means all real property leased or subleased by the Company.

“ License Agreement ” has the meaning set forth in Section 6.2 .

“ Law ” means any statute, law, treaty, ordinance, order of general applicability, rule or regulation of any governmental authority.

“ Liens ” means all options, proxies, voting trusts, voting agreements, judgments, pledges, charges, escrows, rights of first refusal or first offer, mortgages, indentures, claims, transfer restrictions, liens, equities, security interests and other encumbrances of every kind and nature whatsoever, whether arising by agreement, operation of law or otherwise.

“ Material Adverse Effect ” means a material adverse effect on the business or financial condition of the Business, taken as a whole, provided that the foregoing shall not include any event, circumstance, change, occurrence, fact or effect resulting from or relating to (A) changes in United States economic conditions generally, (B) changes in United States or global financial markets in general, (C) changes, occurrences or developments in or related to the business of brewing alcoholic malt beverages, (D) changes in Law, GAAP or any authoritative interpretations thereof, (E) any action taken or failed to be taken by the Company or Sellers or any of their Affiliates or representatives at the request of Purchaser or that is required or contemplated by this Agreement, (F) a failure to meet the projections of the Business, or any changes in the prices or availability of raw materials used in the Business, (G) the identity of, or any action taken by, Purchaser or any of its Affiliates or representatives, (H) the announcement and performance of this Agreement and the other transactions contemplated by this Agreement, including termination of, reduction in or similar negative impact on relationships, contractual or otherwise, with any customers, suppliers, distributors, partners, officers, employees or Affiliates of the Business resulting from such announcement or performance, (I) any actions required under this Agreement to obtain any approval or authorization required under applicable Laws for the consummation of the transactions contemplated by this Agreement, (J) acts of war (whether or not declared), armed hostilities, sabotage or terrorism occurring after the date of this Agreement or the continuation, escalation or worsening of any such acts of war, armed hostilities, sabotage or terrorism threatened or underway as of the date of this Agreement, or (K) earthquakes, hurricanes, floods, or other natural disasters.

“ Material Consents ” has the meaning set forth in Section 4.2(c) .

“ Member ” means a Member of the Company, as such term is defined in the FSB Operating Agreement.

“ Membership Interests ” means the issued and outstanding membership interests of the Company, which (a) represent 100% of the total Sharing Ratios of all Members and (b) are represented by a total of 1,000 Units (as defined in the FSB Operating Agreement).

“ Mergerco ” has the meaning set forth in Section 2.9 .

“ Multiemployer Plan ” means any multiemployer plan as defined in Section 3(37) of ERISA.

“ Offsite Facility ” shall mean any Facility which is not now, and never has been, owned, leased or occupied by the Company.

“ Other Benefit Plan ” means any bonus, deferred compensation, stock purchase, stock option, stock appreciation rights, phantom stock rights, severance, salary continuation, vacation, sick leave, fringe benefit, incentive, insurance, welfare or similar plan or arrangement other than a Plan, Multiemployer Plan and Welfare Plan.

“ Owned Real Estate ” means all real estate owned by the Company.

“ Ownership Percentage ” means, with respect to each Seller, such Seller’s fully diluted ownership of the Company as set forth on Exhibit A attached hereto.

“ PBGC ” means the Pension Benefit Guaranty Corporation.

“ Permits ” means all licenses, permits, registrations and government approvals other than the Environmental Permits.

“ Permitted Liens ” means: (a) statutory Liens for current Taxes, assessments and other charges by governmental authorities that are not yet due and payable or that, although due and payable, are being contested in good faith by proper proceedings, but only to the extent appropriate reserves have been accrued as a current liability on the Closing Balance Sheet; (b) statutory liens of landlords, carriers, warehousemen, mechanics and materialmen incurred in the ordinary course of business for sums not yet due; (c) liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return of money bonds and similar obligations; (d) minor irregularities of title which do not in the aggregate materially detract from the value or use of the assets of the Business; (e) such covenants, conditions, restrictions, easements, encroachments or encumbrances of record and any other conditions, restrictions, easements, encroachments and other encumbrances that would be shown by a current, accurate survey or physical inspection of the Owned Real Estate; (f) zoning, building codes and other land use Laws regulating the use or occupancy of real property or the activities conducted thereon which are imposed by any governmental authority having jurisdiction over real property; (g) a lessor’s interest in, and any mortgage, pledge, security interest, encumbrance, lien (statutory or other) or conditional sale agreement on or affecting a lessor’s interest in, any of the Leased Real Estate; or (h) Liens or encumbrances or matters caused by, or resulting from, the actions of Purchaser or any of its agents, employees or Affiliates.

“ Person ” means any individual, corporation, partnership, limited liability company, joint venture, association, bank, trust company, trust or other entity, whether or not legal entities, or any governmental entity, agency or political subdivision.

“ Plan ” means any employee pension benefit plan as defined in Section 3(2) of ERISA.

“ Pre-Closing Period ” has the meaning set forth in Section 7.7 .

“ Pre-Closing Straddle Period ” has the meaning set forth in Section 7.7 .

“ Proprietary Software ” means Software which is owned by the Company.

“ Purchase Price ” has the meaning set forth in Section 2.2 .

“ Purchaser ” has the meaning set forth in the Introductory Paragraph.

“ Purchaser Indemnitees ” means Purchaser and its directors, managers, officers, members, shareholders, partners, successors and assigns, and the term “ Purchaser Indemnitee ” means any one of the foregoing Purchaser Indemnitees.

“ Purchaser Tax Act ” means (a) any (1) Tax election, (2) change in Tax accounting method, or (3) change in the Tax reporting treatment of any item, in each case that (A) is made by Purchaser or the Company (or either of their affiliates, successors or assigns) after the Closing, (B) is not required by Law or any Taxing authority, and (C) is the cause of any increase in income or a decrease in deductions or other allowances or credits for any taxable period ending on or before the Closing Date or for a Pre-Closing Straddle Period that results in an increase in Taxes for any such period; and (b) any action outside the ordinary course of business taken by or on behalf of the Company on the Closing Date after the Closing.

“ Real Estate ” means, collectively, the Owned Real Estate and the Leased Real Estate.

“ Release ” means any release, spill, emission, emptying, leaking, injection, deposit, disposal, discharge, dispersal, leaching, pumping, pouring, or migration into the atmosphere, soil, surface water, groundwater or property.

“ Returns ” means all returns (including any information return), declarations, reports, claims for refunds, statements and other documents required to be filed in respect of Taxes, including any schedule or attachment thereto, and any amendment thereof, and the term “ Return ” means any one of the foregoing Returns.

“ Securities Act ” means the Securities Act of 1933, as amended.

“ Seller(s) ” has the meaning set forth in the Introductory Paragraph.

“ Seller Indemnitees ” means the Sellers and their respective directors, managers, officers, members, shareholders, partners, successors and assigns, and the term “ Seller Indemnitee ” means any one of the foregoing Seller Indemnitees.

“ Sellers’ Committee ” means the Sellers’ attorneys-in-fact and agents in connection with the execution and performance of this Agreement.

“ Sharing Ratio ” has the meaning set forth in the FSB Operating Agreement.

“ Software ” means any and all: (a) computer programs, including any and all software implementation of algorithms, models and methodologies whether in source code or object code; (b) databases and computations, including any and all data and collections of data; (c) all documentation, including user manuals and training materials, relating to any of the foregoing; and (d) the content and information contained in any web site.

“ Straddle Period ” has the meaning set forth in Section 7.7 .

“ Survival Date ” means the following: (a) for claims made based on an alleged breach of one or more of the Fundamental Representations and Warranties and claims for indemnification pursuant to Section 7.7(h) , the date on which the applicable statute of limitations would bar such claim; (b) for claims based on an alleged breach of the representations and warranties set forth in Section 3.3(v) (Environmental), the date that is three (3) years after the Closing Date; and (c) for all other claims, the date that is eighteen (18) months after the Closing Date.

“ Tax Claim ” means a claim by any taxing authority, whether pursuant to an examination, audit, investigation, assessment, notice of deficiency or other notice or proceeding against any Indemnified Party or to which any Indemnified Party is subject.

“ Taxes ” means all taxes, charges, fees, levies, or other like assessments, including without limitation, all federal, possession, state, city, county and non-U.S. (or governmental unit, agency, or political subdivision of any of the foregoing) income, profits, employment (including Social Security, unemployment insurance and employee income tax withholding), franchise, gross receipts, sales, use, transfer, stamp, occupation, property, any governmental rights to unclaimed property, capital, severance, premium, windfall profits, customs, duties, ad valorem, value added and excise taxes; PBGC premiums and any other governmental charges of the same or similar nature; including any interest, penalty, or addition thereto, whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the Tax liability of any other Person, including, but not limited to, by reason of transferee liability or application of Treasury Regulation 1.1502-6, and the term “ Tax ” means any one of the foregoing Taxes.

“ Termination Date ” has the meaning set forth in Section 9.2.

“ Third Party Claim ” means any action, lawsuit, proceeding, investigation, hearing, or like matter which is asserted or overtly threatened by a Person other than the parties hereto, their successors and permitted assigns, against any Indemnified Party or to which any Indemnified Party is subject. For the avoidance of doubt, a Tax Claim constitutes a Third Party Claim.

“ Welfare Plan ” means any employee welfare benefit plan as defined in Section 3(1) of ERISA.

“ Working Capital ” means the excess of the assets of the Company which are treated under GAAP as current assets (including Cash Equivalents), minus the liabilities of the Company which are treated under GAAP as current liabilities (exclusive of Indebtedness), determined in accordance with GAAP and otherwise in the manner set forth in Section 2.4 (it being understood that current assets shall take into account reserves determined in the manner set forth in Section 2.4 ).

“ Working Capital Adjustment ” has the meaning set forth in Section 2.3 .

ARTICLE II

Purchase and Sale of Membership Interests; Closing and Manner of Payment

2.1 Agreement to Purchase and Sell Membership Interests . On the terms and subject to the conditions contained in this Agreement, at the Closing, Purchaser shall purchase from each Seller, and each Seller shall sell and transfer to Purchaser, all of the issued and outstanding Membership Interests of the Company owned by such Seller; provided , however , that Purchaser shall not be obligated to purchase less than 100% of the issued and outstanding Membership Interests of the Company.

2.2 Purchase Price; Allocation . The aggregate purchase price for all of the issued and outstanding Membership Interests of the Company (the “ Purchase Price ”) shall be equal to (1) U.S. Thirty-Eight Million Eight Hundred Thousand Dollars (US $38,800,000), minus (2) the Indebtedness, plus or minus (3) the amount of the Working Capital Adjustment. The Purchase Price shall be allocated among Sellers in accordance with their respective Ownership Percentages.

2.3 Working Capital Adjustment . The Purchase Price will be increased or decreased, as the case may be, as follows (the “ Working Capital Adjustment ”): (a) the Purchase Price will be increased by the amount by which the Working Capital of the Company set forth in the Closing Balance Sheet is greater than One Million Five Hundred Thousand Dollars ($1,500,000); or (b) the Purchase Price will be decreased by the amount by which the Working Capital of the Company set forth in the Closing Balance Sheet is less than One Million Five Hundred Thousand Dollars ($1,500,000).

2.4 Determination of Indebtedness and Working Capital . The amounts of Indebtedness and Working Capital shall each be determined from the Closing Balance Sheet. The Closing Balance Sheet shall be prepared by or at the direction of Purchaser. The Closing Balance Sheet shall be prepared in accordance with GAAP. Purchaser shall use commercially reasonable efforts to cause the Closing Balance Sheet to be delivered to the Sellers’ Committee not more than ninety (90) days following the Closing Date (the date on which the Closing Balance Sheet is delivered, the “ Delivery Date ”). From the date of this Agreement until the Closing Balance Sheet is finalized, Purchaser shall make available and without cost to the Sellers’ Committee, the books, records and personnel of the Company which the Sellers’ Committee reasonably requires in order to review, discuss and understand the matters to be set forth on, and the preparation of, the Closing Balance Sheet and the processes employed by Purchaser in connection therewith. Purchaser and the Sellers’ Committee shall, throughout the entire period from the date of this Agreement to the Delivery Date, meet and discuss any and all financial and business matters relating to such process and the preparation of the Closing Balance Sheet.

2.5 Disputes Regarding Closing Balance Sheet . Disputes with respect to the Closing Balance Sheet shall be resolved as follows:

(a) During the Dispute Period, the Sellers’ Committee may bring a Dispute, but only on the basis that the amounts reflected on the Closing Balance Sheet were not presented in accordance with Section 2.4 or were inaccurate or incomplete. If the Sellers’ Committee does not deliver a Dispute Notice within the Dispute Period, the Closing Balance Sheet shall be deemed to have been accepted and agreed to by the Sellers’ Committee in the form in which it was delivered to the Sellers’ Committee, and shall be final and binding upon the parties hereto. If the Sellers’ Committee has a Dispute, the Sellers’ Committee shall give Purchaser a Dispute Notice within the Dispute Period, setting forth in reasonable detail the elements and amounts with which it disagrees. Within thirty (30) days after delivery of such Dispute Notice, the parties hereto shall attempt to resolve such Dispute and agree in writing upon the final content of the disputed Closing Balance Sheet.

(b) If Purchaser and the Sellers’ Committee are unable to resolve any Dispute within the thirty (30) day period after Purchaser’s receipt of a Dispute Notice, the Sellers’ Committee and Purchaser shall jointly engage the Arbitrating Accountant as arbitrator. In connection with the resolution of any Dispute, the Arbitrating Accountant shall have access to all documents, records, work papers, facilities and personnel necessary to perform its function as arbitrator. The Arbitrating Accountant’s function shall be to conform the Closing Balance Sheet to the requirements of Section 2.4 and in accordance with GAAP. The Arbitrating Accountant shall allow Purchaser and the Sellers’ Committee to present their respective positions regarding the Dispute. The Arbitrating Accountant may, at its discretion, conduct a conference concerning the Dispute, at which conference each party shall have the right to present additional documents, materials and other information and to have present its advisors, counsel and accountants. In connection with such process, there shall be no other hearings or any oral examinations, testimony, depositions, discovery or other similar proceedings. The Arbitrating Accountant shall promptly, and in any event within sixty (60) days after the date of its appointment, render its decision on the Dispute in writing and finalize the Closing Balance Sheet. Such written determination shall be final and binding upon the parties hereto, and judgment may be entered on the award. Upon the resolution of all Disputes, the Closing Balance Sheet shall be revised to reflect such resolution. The Arbitrating Accountant shall determine the proportion of its fees and expenses to be paid by each of the Sellers’ Committee and Purchaser, based primarily on the degree to which the Arbitrating Accountant has accepted the positions of the respective parties.

2.6 Payment of Purchase Price; Delivery of Membership Interests .

(a) For purposes of, and not later than two Business Days prior to the Closing, Purchaser and the Sellers’ Committee shall make a good faith estimate of the Purchase Price (the “ Estimated Closing Payment ”) based upon the most recent ascertainable financial information of the Company. At the Closing, Purchaser shall pay, by wire transfer of immediately available funds, the following:

(1) to such accounts as each Seller shall designate by written notice delivered to Purchaser at least two Business Days prior to the Closing Date, an aggregate amount equal to the Estimated Closing Payment, less the Escrow Amount (allocated among the Sellers pro rata based on their respective Ownership Percentages); and

(2) to the Escrow Agent, the Escrow Amount, to be held in escrow (the “ Escrow Account ”) pursuant to the terms of an escrow agreement (the “ Escrow Agreement ”), in form and substance satisfactory to the parties.

(b) At the Closing, each Seller shall deliver to Purchaser, the certificate or certificates evidencing the Membership Interests owned by such Seller, duly endorsed in blank or accompanied by valid stock powers duly executed in blank, in proper form for transfer. If any such certificates are not available, such Seller shall deliver to Purchaser lost certificate affidavits for such Membership Interests, satisfactory in form and substance to the Purchaser and its counsel.

2.7 Time and Manner of Payment of Working Capital Adjustment . Following the Closing, Purchaser and the Sellers’ Committee shall determine the actual Purchase Price, pursuant to Sections 2.4 and 2.5 hereof and taking into account the adjustments required pursuant to Section 2.3 . If, based on the Purchase Price as finally determined:

(a) the Purchase Price exceeds the Estimated Closing Payment, Purchaser shall forthwith (but in any event within five (5) Business Days of the final determination of the Purchase Price) pay the excess to Sellers (allocated among the Sellers pro rata based on their respective Ownership Percentages) by wire transfer of immediately available funds (as directed by each Seller); or

(b) the Estimated Closing Payment exceeds the Purchase Price, Sellers (pro rata based on their respective Ownership Percentages) shall promptly (but in any event within five (5) Business Days of the final determination of the Purchase Price) pay the excess to Purchaser by wire transfer of immediately available funds (as directed by Purchaser).

2.8 Time and Place of Closing . The transaction contemplated by this Agreement shall be consummated (the “ Closing ”) at 10:00 a.m., at the offices of Greenberg Traurig, LLP, 77 W. Wacker Drive, Suite 3100, Chicago, Illinois 60601 on (a) the first to occur, following satisfaction or waiver of all of the conditions set forth in Sections 5.1 and 5.2 hereof, of (1) April 1, 2011 or (2) the first day of the first calendar month that is at least three (3) Business Days after the date on which all such conditions shall have been satisfied or (to the extent permissible) waived (other than those conditions which, by their nature, are to be satisfied or waived at Closing but subject to their satisfaction or waiver at Closing), or (b) on such other date, or at such other time or place, as shall be mutually agreed upon by the Sellers’ Committee and Purchaser; subject in both cases to the provisions of Section 9.2 . The date on which the Closing occurs in accordance with the preceding sentence is referred to in this Agreement as the “ Closing Date ”.

2.9 Merger . At GHI’s election, exercisable by written notice to Purchaser and CBA not later than three (3) Business Days prior to the Closing Date, and upon written consent of Purchaser, this Agreement shall be converted, with only such modifications as are necessary to give effect to the change in form of the transaction, into an agreement for the acquisition of the Membership Interests of the Company by means of a reverse merger whereby Purchaser or a direct or indirect wholly owned subsidiary or other affiliate of Purchaser, as Purchaser shall choose (“ Mergerco ”), shall be merged into the Company with the Company as the surviving entity. Upon such election: (a) all rights and obligations of Purchaser hereunder shall instead be rights and obligations of Mergerco (and not Purchaser, unless Purchaser is Mergerco) and shall upon the merger become rights and obligations of the Company; (b) all references herein to the purchase of Membership Interests, the Purchase Price, and other matters pertaining to the equity purchase shall instead be references to, respectively, the merger, the merger price, and corresponding other matters pertaining to the merger; and (c) the parties shall each take all steps and do all acts and things, including the execution and delivery of documents, as are or may be necessary or appropriate to implement the conversion of this Agreement, as provided in this Section 2.9 ; provided that Purchaser shall not be obligated to agree to the conversion of the transaction to a merger transaction unless Purchaser has determined that the transaction documents with respect thereto will not adversely affect Purchaser’s interests.

2.10 Allocation of Purchase Price . On or before the Closing Date (or, if all parties agree, as soon thereafter as shall be practicable), Purchaser and Sellers’ Committee will prepare an allocation of the Purchase Price in a manner consistent with Section 1060 of the Code and the treasury regulations promulgated thereunder. The Company, the Sellers and Purchaser each covenant and agree to provide the other promptly with any information required to complete and update the allocation, which shall constitute Schedule 2.10 . Such allocation shall be binding on the Company, the Sellers and Purchaser for all Tax purposes. To the extent required, each of the parties hereto shall report and file Returns, including, but not limited to Internal Revenue Service Form 8594, for all Tax purposes in a manner consistent with such allocation and shall take no position inconsistent therewith or contrary thereto as it relates to the Company or its assets at Closing. To the extent that Purchaser or the Sellers report positions on their respective Returns consistent with the allocations as set forth on Schedule 2.10 , such party shall not be liable to the other party for any indemnification obligation in respect of such reporting and filing, even if, despite reporting positions consistent with such allocations, adjustments are made thereto by any taxing authority.

ARTICLE III

Representations and Warranties

3.1 General Statement . The parties make the representations and warranties to each other which are set forth in this ARTICLE III . All such representations and warranties shall survive the Closing, subject to the limitations set forth herein, and none shall merge into any instrument of conveyance.

3.2 Representations and Warranties of Purchaser . Purchaser represents and warrants to Sellers as follows:

(a) Organization, Existence and Good Standing . Purchaser is a corporation duly organized, existing and in good standing, under the Laws of its state of incorporation.

(b) Power and Authority . Purchaser has full corporate power and authority to enter into and perform this Agreement. The execution, delivery and performance of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby have been duly and validly approved by the board of directors of Purchaser. No other corporate proceedings are necessary on the part of Purchaser to authorize the execution, delivery and performance of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby.

(c) Enforceability . This Agreement has been duly executed and delivered by Purchaser and constitutes a legal, valid and binding agreement of Purchaser, enforceable against Purchaser in accordance with its terms, except to the extent that enforcement may be affected by Laws relating to bankruptcy, reorganization, insolvency and creditors’ rights and by the availability of injunctive relief, specific performance and other equitable remedies.

(d) Consents . No consent, authorization, order or approval of, or filing or registration with, any governmental authority is required for or in connection with the consummation by Purchaser of the transactions contemplated hereby, except for any which have been obtained or will be obtained prior to the Closing.

(e) Conflicts Under Constituent Documents or Laws . Neither the execution and delivery of this Agreement by Purchaser, nor the consummation by Purchaser of the transactions contemplated hereby, will conflict with or result in a breach of any of the terms, conditions or provisions of its Certificate of Incorporation or by-laws, or of any statute or administrative regulation, or of any order, writ, injunction, judgment or decree of any court or governmental authority or of any arbitration award applicable to Purchaser.

(f) Conflicts Under Contracts . Purchaser is not a party to any unexpired, undischarged or unsatisfied written or oral contract, agreement, indenture, mortgage, debenture, note or other instrument under the terms of which performance by Purchaser according to the terms of this Agreement will be a default or an event of acceleration, or grounds for termination, modification or cancellation, or whereby timely performance by Purchaser according to the terms of this Agreement may be prohibited, prevented or delayed.

(g) Brokers . Neither Purchaser nor any of its Affiliates has dealt with any Person who is entitled to a broker’s commission, finder’s fee, investment banker’s fee or similar payment from the Sellers, the Company or Purchaser for arranging the transactions contemplated hereby or introducing the parties to each other.

(h) Solvency . Immediately after giving effect to the transactions contemplated hereby and the incurrence of any indebtedness therewith, the assets of Purchaser and the Company will exceed their respective liabilities. In connection with the consummation of the transactions contemplated hereby and the incurrence of any indebtedness in connection therewith, Purchaser does not intend to incur or cause the Company to incur, and does not believe that Purchaser or the Company will incur, debts that would be beyond the Company’s ability to pay as such debts mature.

(i) Independent Investigation . Purchaser has conducted an independent investigation of the Business, the Company and its business operations, assets, liabilities, results of operations, condition (including, operating, environmental and financial condition) and prospects in making its determination as to the propriety of the transactions contemplated by this Agreement and is satisfied with the results thereof. In entering into this Agreement, Purchaser has relied solely on the results of its investigation and on the representations and warranties of the Sellers expressly contained in Sections 3.3 and 3.4 of this Agreement.

(j) Investment . Purchaser is acquiring the Membership Interests of the Company for its own account for investment and with no present intention of distributing or reselling such Membership Interests or any part thereof in any transaction which would constitute a “distribution” within the meaning of the Securities Act. Purchaser understands that the Membership Interests of the Company have not been registered under the Securities Act or any state securities Laws and are being transferred to Purchaser, in part, in reliance on the foregoing representation.

3.3 Representations and Warranties of the Sellers . The Sellers make the following representations and warranties set forth in Sections 3.3 and 3.4 below. All representations and warranties of the Sellers are made subject to the exceptions noted in the schedule delivered by Sellers to Purchaser concurrently herewith and identified by the parties as the “Disclosure Schedule” (whether or not a particular representation or warranty is specifically modified by the phrase “except as set forth in the Disclosure Schedule” or words of similar import). Any disclosure set forth on any particular section of the Disclosure Schedule shall be treated as disclosed with respect to all other sections of the Disclosure Schedule and all other sections of this Agreement to the extent that the applicability of such item to such other schedules and such other sections of this Agreement is reasonably apparent. The inclusion of any item or fact in the Disclosure Schedule shall not be deemed an admission that such item or fact is material for the purposes of this Agreement.

(a) Organization, Existence and Good Standing . The Company is a limited liability company duly organized, existing and in good standing under the Laws of the State of Illinois.

(b) Foreign Good Standing . The Company has qualified as a foreign entity, and is in good standing, under the Laws of all jurisdictions where the nature of its business or the nature or location of its assets requires such qualification and where the failure to so qualify would have a Material Adverse Effect. Section 3.3(b) of the Disclosure Schedule sets forth a list of all jurisdictions in which the Company is qualified to conduct business as a foreign entity.

(c) Power and Authority . The Company has all necessary limited liability company power and authority to carry on its business as such business is now being conducted, including the power and authority to carry on the Business.

(d) Consents . No consent, authorization, order or approval of, or filing or registration with, any governmental authority is required for or in connection with the consummation by the Sellers of the transactions contemplated hereby.

(e) Conflicts Under Constituent Documents or Laws . Neither the execution and delivery of this Agreement by Sellers, nor the consummation by Sellers of the transactions contemplated hereby, will conflict with or result in a breach of any of the terms, conditions or provisions of the Company’s organizational documents (subject to the rights and obligations of Sellers under the FSB Operating Agreement), or of any statute or administrative regulation, or of any order, writ, injunction, judgment or decree of any court or governmental authority or of any arbitration award to which the Company is a party or by which the Company is bound.

(f) Conflicts Under Contracts . The Company is not a party to, or bound by, any unexpired, undischarged or unsatisfied material Contract under the terms of which performance by Sellers of the transactions contemplated by this Agreement will be a default or an event of acceleration, or grounds for termination, modification or cancellation, or would prohibit, prevent or delay timely performance by Sellers of the transactions contemplated by this Agreement, except for the rights and obligations of Sellers under the FSB Operating Agreement.

(g) Subsidiaries . The Company does not hold or beneficially own any direct or indirect interest (whether it be common or preferred stock or any comparable ownership interest in any Person that is not a corporation), or any subscriptions, options, warrants, rights, calls, convertible securities or other agreements or commitments for any interest in any Person.

(h) Constituent Documents . True and complete copies of all organizational documents of the Company and all amendments thereto and currently in force, all equity issuance and transfer records and minute books and records of the Company have been made available for inspection by Purchaser. Such equity records accurately reflect all equity issuance and transfer transactions and the current equity ownership of the Company. The minute books and records of the Company contain true and complete copies of all resolutions adopted by the equity holders or board of managers of the Company.

(i) Capitalization . Section 3.3(i) of the Disclosure Schedule sets forth the total number of issued and outstanding Membership Interests of the Company. All of the issued and outstanding Membership Interests of the Company have been validly issued, are fully paid and nonassessable, and are owned of record as set forth in Section 3.3(i) of the Disclosure Schedule. There are no outstanding subscriptions, options, warrants, rights (including preemptive rights), calls, convertible securities or other agreements or commitments of any character relating to the issued or unissued membership interests or other securities of the Company obligating the Company to issue securities of any kind.

(j) Financial Statements . Copies of the Financial Statements are contained in the Disclosure Schedule. Copies of the Interim Financial Statements are also contained in the Disclosure Schedule. The Financial Statements and the Interim Financial Statements present fairly, in all material respects, the financial position of the Company as of the dates thereof and the results of operations and cash flows of the Company for the periods covered by such statements, in accordance with GAAP consistently applied through the periods covered thereby, except as disclosed therein, and, in the case of the Interim Financial Statements, except for (1) normal immaterial year-end adjustments and (2) the omission of footnote disclosures required by GAAP.

(k) Assets . The Company has good title to its assets, free and clear of any Liens, except for Permitted Liens. The Company’s assets constitute all of the assets used or held for use in the conduct of the Business as it is presently being conducted, and such assets are, in all material respects, adequate to conduct the Business as it is presently being conducted. The foregoing representations and warranties set forth in this Section 3.3(k) shall not apply to the Owned Real Estate or the Leased Real Estate, which is dealt with exclusively in Section 3.3(w) , or the Intellectual Property, which is dealt with exclusively in Section 3.3(x) .

(l) Insurance . Section 3.3(l) of the Disclosure Schedule contains a true and correct list of all insurance policies which are owned by the Company or which name the Company as an insured (or loss payee), including without limitation those which pertain to the Company’s assets, employees, operations or Business. All such insurance policies are in full force and effect. In the three (3) year period ending on the date hereof, the Company has not received any written notice from any insurance carrier issuing such insurance policies to the effect that insurance rates will thereafter be substantially increased, that there will thereafter be no renewal of an existing policy, or that material alteration of any owned or leased personal or real property, purchase of additional equipment, or material modification of the Company’s methods of doing business, will be required or is suggested. To Sellers’ knowledge, in the three (3) year period ending on the date hereof, there has been no denial or reservation of rights by an insurance carrier in respect of any claim made by the Company under and such insurance policy.

(m) Taxes .

(1) All Returns required to be filed by or on behalf of the Company, or any combined, affiliated or unitary group of which the Company is or has ever been a member, have been timely filed with the appropriate tax authorities, and each such Return was true, complete, and correct in all material respects. Without limiting the foregoing, none of the Returns contains any position that is, or would be, subject to penalties under Code Section 6662 (or any corresponding provisions of state, local or non-U.S. Tax Law). The Company has not entered into any “listed transactions” as defined in Treasury regulation 1.6011-4(b)(2), and the Company has properly disclosed all reportable transactions, if any, as required by Treasury regulation 1.6011-4.

(2) The Company is not currently a beneficiary of any extension of time within which to file any Return.

(3) All Taxes due and owing by the Company (whether or not reflected on any Tax Return) have been timely and fully paid.

(4) The Company has timely withheld proper and accurate amounts from any employee, customer, shareholder, member, partner or other third party from whom it is or was required to withhold Taxes in compliance with all applicable Laws and has timely paid such withheld amounts to the appropriate taxing authorities.

(5) All Taxes due with respect to any completed and settled audit, examination or deficiency with any taxing authority for which the Company is or might otherwise be liable have been paid in full.

(6) There is no audit, examination, deficiency or refund claim pending with respect to any Taxes for which the Company is or might otherwise be liable and no taxing authority has given written notice of the commencement of any audit, examination or deficiency with respect to any such Taxes. No issue has arisen in any examination of the Company by any taxing authority that, if raised with respect to the same or substantially similar facts arising in any other Tax period not so examined, would result in a deficiency for such other period, if upheld.

(7) There are no outstanding waivers extending the statutory period of limitations applicable to any claim for, or the period for the collection or assessment of, Taxes of the Company due for any taxable period.

(8) No Liens for Taxes exist with respect to any of the assets or properties of the Company, except for Permitted Liens, and no such Liens are anticipated.

(9) The Company is not a party to or bound by any Tax indemnity, Tax sharing or Tax allocation agreement or arrangement.

(10) The Company does not have any liability for the Taxes of any Person other than the Company under Treasury regulation Section 1.1502-6 (or similar provision of state, local or non-U.S. Law), as a transferee or successor, by contract or otherwise.

(11) No claim has ever been made by a taxing authority in a jurisdiction where the Company does not file Returns that it is or may be subject to taxation by that jurisdiction.

(12) None of the assets of the Company (A) is tax-exempt use property within the meaning of Code Section 168(h), (B) directly or indirectly secures any debt the interest on which is exempt under Code Section 103(a) or (C) is property that is required to be treated as being a “safe harbor lease” pursuant to the provisions of Code Section 168(f)(8), as in effect prior to the amendment by the Tax Equity and Fiscal Responsibility Act of 1982. The Company is not a borrower or guarantor of any outstanding industrial revenue bonds.

(13) The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (A) change in method of accounting for a taxable period ending on or prior to the Closing Date; (B) “closing agreement” as described in Section 7121 of the Code executed on or prior to the Closing Date; (C) open transaction disposition made on or prior to the Closing Date; or (D) prepaid amount received on or prior to the Closing Date.

(14) The Company is not a partner or a member of any partnership or joint venture, or any other arrangement or contract that could be classified as a partnership for federal income tax purposes.

(n) Conduct of Business . Since October 31, 2010, the Company has not:

(1) sold or transferred any material assets or property, except for sales of its inventory and transfers of cash in payment of trade payables, all in the usual and ordinary course of business, and except as permitted by this Agreement;

(2) suffered any material loss, or any material interruption in use, of any assets or property (whether or not covered by insurance), on account of fire, flood, riot, strike or other hazard or act of god;

(3) suffered any material and adverse change to its Business;

(4) waived any material right other than in the ordinary course of business;

(5) paid or declared any dividends or other distributions, purchased, redeemed or issued any of its securities of any class, whether directly or indirectly, or otherwise engaged in any transactions regarding its securities of any class;

(6) changed any Tax elections, amended any Return relating to the Company, entered into any settlement or compromise with respect to any Tax controversy, Tax claim, audit or assessment or any right to claim a Tax refund, offset or other reduction in Tax liability of the Company, entered into a closing agreement with respect to any Tax, or consented to any extension or waiver of the limitations period applicable to any Tax claim or assessment;

(7) entered into, terminated or materially modified any material Contracts;

(8) entered into any material agreement with any officer, director, employee, equity holders or other related Person, including without limitation loans from such Persons;

(9) borrowed or incurred any additional Indebtedness (other than the creation of accounts or trade payables in the ordinary course of business, and other than borrowings under the Company’s credit facility with MB Financial Bank, N.A.

(10) modified or terminated, or suffered any modification or termination of, any government license, permit or other authorization issued to the Company;

(11) acquired or invested in (by merger, exchange, consolidation, purchase or otherwise) any corporation, partnership, joint venture or interest in any business organization or entity;

(12) materially changed the manner in which its books of account and records are kept; or

(13) entered into any other material transaction (other than purchases and sales of inventory in the ordinary course of business).

The foregoing representation and warranty shall not be deemed to be breached by virtue of the entry by Sellers into this Agreement or their consummation of the transactions contemplated hereby.

(o) Contracts . Section 3.3(o) of the Disclosure Schedule contains a complete list of the following undischarged written contracts, agreements, leases and other instruments to which the Company is a party (each, a “ Contract ” and collectively, “ Contracts ”):

(1) employment agreements;

(2) consulting agreements;

(3) collective bargaining agreements;

(4) agreements for the payment of severance benefits, retention bonuses or sale bonuses to any employee;

(5) contracts for the purchase of equipment, inventory, or other personal property or intangibles having a purchase price under any such contract in excess of $100,000;

(6) contracts for the sale of any equipment, inventory or other personal property or intangibles, except for sales of inventory in the ordinary course of business;

(7) leases or subleases, either as lessee or sublessee, lessor or sublessor, of personal property or intangibles, where the lease or sublease provides for an annual rent in excess of $25,000 or has an unexpired term as of the Closing Date in excess of one (1) year;

(8) agreements restricting in any manner the Company’s right to compete with any other Person, restricting the Company’s right to sell to or purchase from any other Person, restricting the right of any other party to compete with the Company or the ability of such Person to employ any of the Company’s employees;

(9) agreements between (A) the Company and any of its Affiliates, (B) the Company and any Seller or Affiliate of such Seller or (C) the Sellers;

(10) agreements of agency, representation, distribution, or franchise which cannot be canceled by the Company without payment or penalty upon notice of sixty (60) days or less;

(11) service agreements relating to the Business or any of the Company’s assets under which the annual amounts payable by the Company exceeds $25,000 or which have an unexpired term as of the Closing Date in excess of one (1) year;

(12) loan or credit agreements, pledge agreements, notes, security agreements, mortgages, debentures, indentures, factoring agreements or letters of credit;

(13) guaranties, performance, bid or completion bonds, or surety or indemnification agreements;

(14) foreign exchange, commodity, interest rate, derivative, hedging or similar agreements;

(15) settlement agreements or similar compromises relating to outstanding obligations;

(16) partnership agreements or joint venture agreements or other contracts (however named) involving a sharing of profits, losses, costs, or liabilities by the Company and another Person;

(17) any other agreements which provide for the receipt or expenditure of more than $50,000 on an annual basis, except agreements for the purchase or sale of goods or rendering of services in the ordinary course of business; or

(18) any commitment to enter into any of the foregoing.

All Contracts are binding upon the Company, and, to Sellers’ knowledge, the other parties thereto. No material default by the Company has occurred thereunder and, to Sellers’ knowledge, no material default by the other contracting parties has occurred thereunder. Each Contract is in full force and effect (it being understood that this sentence shall not limit the knowledge qualifiers set forth in the two immediately preceding sentences).

(p) Permits . The Company possesses all material Permits (other than Environmental Permits) which are required in order for the Company to conduct the Business as presently conducted.

(q) Employee Benefit Plans . With respect to the Benefit Plans of the Company:

(1) Neither the Company nor any ERISA Affiliate maintains, administers or contributes to any Benefit Plan other than those Plans, Multiemployer Plans, Welfare Plans and Other Benefit Plans listed in the Disclosure Schedule.

(2) Each Benefit Plan complies, in form and operation, in all material respects, with all applicable Laws, including ERISA and the Code.

(3) Any Benefit Plan intended to qualify under section 401(a) of the Code meets in all material respects all requirements for qualification under section 401(a) of the Code and the regulations thereunder. A favorable determination as to the qualification under the Code of each of the Benefit Plans intended to comply with section 401(a) of the Code has been made by the IRS. The Company has made available to Purchaser a copy of the most recent favorable determination letter issued by the IRS concerning each such Benefit Plan’s qualification and any outstanding request for a determination letter. Each such Benefit Plan has been administered in all material respects in accordance with its terms and the applicable provisions of ERISA and the Code and the regulations thereunder, and no matter exists which would adversely affect the qualified tax-exempt status of such Benefit Plan and any related trust.

(4) With respect to each Benefit Plan there has been made available to Purchaser the following: a copy of the annual report (if required under ERISA) with respect to each such Benefit Plan for the last three years (including all schedules and attachments); a copy of the summary plan description, together with each summary of material modifications, required under ERISA with respect to such Benefit Plan; a true, correct and complete copy of such Benefit Plan; all trust agreements, insurance contracts, accounts or other documents which establish the funding vehicle for any Benefit Plan and the latest financial statements thereof; any actuarial valuations of such Benefit Plan; and any investment management agreements, administrative services contracts, or other agreements and documents relating to the ongoing administration and investment of any Benefit Plan.

(5) There are no actions, suits, proceedings, investigations or hearings pending (other than routine claims for benefits) or, to Sellers’ knowledge, overtly threatened with respect to any Benefit Plan or any fiduciary or assets thereof. To Seller’ knowledge, with respect to each Benefit Plan, no prohibited transactions (as defined in ERISA Section 406 or Code Section 4975) and no violations of ERISA Section 407 for which an applicable statutory or administrative exemption does not exist have occurred for which the Company or an Affiliate has any material liability.

(6) No Benefit Plan is a Multiemployer Plan or single-employer plan (as defined in Section 4001 of ERISA) which is subject to Title IV of ERISA, and neither the Company nor an ERISA Affiliate of the Company has ever contributed or been obligated to contribute to any such plan within the 6-year period preceding the date hereof.

(7) Neither the Company nor any ERISA Affiliate of the Company has terminated a Benefit Plan which is an employee pension benefit plan as defined in Section 3(2) of ERISA within the 6-year period preceding the date hereof.

(8) Neither the Company nor an ERISA Affiliate has any liability or obligation to provide life, medical or other welfare benefits to former or retired employees, other than pursuant COBRA or similar state Laws which require limited continuation of coverage for such benefits.

(9) The consummation of the transaction contemplated by this Agreement, other than by reason of actions taken by Purchaser following the Closing, will not (A) entitle any current or former employee of the Company to severance pay, unemployment compensation or any other payment, or (B) accelerate the time of payment or vesting, or increase the amount of any compensation due to any current or former employee of the Company.

(r) Employees . With respect to the employees of the Company, except as set forth in Section 3.3(r) of the Disclosure Schedule:

(1) The Company is in material compliance with all applicable federal, state, and local laws respecting employment and employment practices, terms and conditions of employment, compensation and wages and hours.

(2) To Sellers’ knowledge, the Company is employing individuals who are lawfully permitted to work in the United States. The Company is in material compliance with all applicable laws and regulations of the United States regarding immigration and/or employment of non-citizen workers. The Company has not been notified in writing of any pending or threatened investigation by any branch or department of ICE, or other federal agency charged with administration and enforcement of federal immigration laws concerning the Company, and the Company has not received any “no match” notices from ICE, the Social Security Administration or the Internal Revenue Service within the previous 12 months of the date of this Agreement.

(3) The Company is not a party to or otherwise bound by any collective bargaining agreement, project labor agreement, memorandum of understanding, letter agreement, side agreement, contract or any other agreement or understanding with a labor union or labor organization.

(4) The Company is not subject to any charge, demand, union organizational activity, request for recognition, application for certification of a collective bargaining agent, petition or representation proceeding seeking to compel, require or demand it to recognize and/or bargain with any labor union or labor organization.

(5) There is no pending or, to the knowledge of Sellers, threatened strike, dispute, walkout, work stoppage, picketing, or slow-down involving the Company, nor are there any employee grievances pending under a previously-established grievance procedure. There is no lockout of any employees of the Company, no such action is contemplated by the Company as of the date of this Agreement, and no event has occurred or circumstances exist that the Company reasonably believes could provide the basis for any work stoppage or other labor dispute with respect to employees of the Company.

(6) The Company is not engaged in any material unfair labor practices. The Company does not have any unfair labor practice charges or complaints before the National Labor Relations Board pending, nor to Sellers’ knowledge, are any such charges or complaints threatened against it.

(7) Section 3.3(r) of the Disclosure Schedule sets forth the Company’s policies prohibiting workplace harassment and discrimination, and its policies and procedures for the reporting of allegations of harassment and discrimination.

(8) The Company maintains and files, to the extent required by law, a Form EEO-1 with the federal Equal Employment Opportunity Commission.

(9) There is no formal claim pending or, to Sellers’ knowledge, threatened against the Company, arising out of any: (A) federal, state or local law relating to fair employment practices, employment discrimination or workplace harassment; (B) federal, state or local law relating to the payment of wages, prevailing wages, overtime, vacation or other compensation or pay; (C) claim for workers’ compensation benefits or any similar type of benefits in connection with a workplace injury, illness or disease; or (D) claim for benefits under any employee benefit or employee welfare plan, including, but not limited to claims under ERISA, other than routine claims for benefits by covered persons.

(10) The Company is not a party to any employment agreement or employment contract of a duration longer than one year.

(11) Sellers have provided Purchaser with a true, correct and complete list of all employees of the Company as of the date of this Agreement, together with their respective base salaries for 2010. Section 3.3(r) of the Disclosure Schedule contains a true, correct and complete list of all employees of the Company as of the date of this Agreement whose annual compensation exceeds $100,000, together with their respective base salaries, base bonus opportunities, and positions. Section 3.3(r) of the Disclosure Schedule correctly states the number of employees laid off by the Company in the 90 days preceding the date of this Agreement (if any).

(12) The employment of each of the Company’s employees is terminable at will without cost to the Company except for payments required under the Benefit Plans and the payment of accrued salaries or wages and vacation pay. No employee or former employee has any right to be rehired by the Company prior to their hiring a Person not previously employed by the Company.

(13) The Company has not taken any action which was calculated to dissuade any present employees, representatives or agents of the Company from continuing their employment with the Company following the Closing.

(s) Litigation and Claims . Except as set forth in Section 3.3(s) of the Disclosure Schedule, there is no, and there has not been in the last three (3) years, any suit, claim, litigation, proceeding (administrative, judicial or in arbitration, mediation or alternative dispute resolution), government or grand jury investigation, pending or to Sellers’ knowledge, overtly threatened against the Company or its Affiliates (with respect to or affecting the Company’s operations, Business or assets, or any of its officers, managers or employees).

(t) Decrees, Orders or Arbitration Awards . Except as set forth in Section 3.3(t) of the Disclosure Schedule, neither the Company nor any of its Affiliates (with respect to or affecting the Company’s operations, Business or assets, or any of its officers, managers or employees) is, or in the last three (3) years has been, a party to, or bound by, any decree, order, arbitration award or similar mandate or agreement (including, without limitation, any agreement entered into in any administrative, judicial or arbitration proceeding with any governmental authority).

(u) Compliance with Laws . Except for Laws, rules and regulations relating to the environment (the representations and warranties with respect to which are exclusively provided for in Section 3.3(v) ), the Company is not, in any material respect in violation of, or delinquent in respect to, any decree, order or arbitration award or Law, statute, or regulation of or agreement with, or any Permit from, any Federal, state or local governmental authority to which the property, assets, personnel or Business activities of the Company are subject, including Federal, state or local Laws, statutes and regulations relating to equal employment opportunities, fair employment practices, occupational health and safety, wages and hours, and discrimination. During the previous three (3) years, the Company has not received from any governmental authority any written notification with respect to noncompliance of any decree, order, writ, judgment or arbitration award or Law, statute, or regulation.

(v) Environmental Matters . Except as disclosed in Section 3.3(v) , of the Disclosure Schedule:

(1) The Company is, and since October 1, 2006 has been, in compliance, in all material respects, with applicable Environmental Laws and Environmental Permits, and the Company is not subject to any material liability under Environmental Law.

(2) The Company possesses all material Environmental Permits which are required for the operation of the Business. Section 3.3(v) of the Disclosure Schedule contains a true, correct and complete list of the Environmental Permits, and Sellers have delivered true, correct and complete copies of the Environmental Permits to Purchaser.

(3) The Company has not received any written communication alleging that the Company currently is not or was not since October 1, 2006, in compliance with applicable Environmental Laws or Environmental Permits.

(4) There is no Environmental Claim pending or, to the Sellers’ knowledge, threatened, against the Company.

(5) No Facility is currently listed on the National Priorities List or the Comprehensive Environmental Response, Compensation and Liability Information System, both promulgated under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“ CERCLA ”) or any comparable state list.

(6) The Company has not received any written notice from any Person with respect to any Off-Site Facility, of potential or actual liability or a written request for information from any Person under or relating to CERCLA or any comparable state or local Law.

(7) To Sellers’ knowledge, there are no and have not been any Hazardous Substances Released, used, generated, treated, stored, transported or disposed of by the Company, or handled or otherwise existing on, under or about any Facility owned, leased, operated or used by the Company in violation of Environmental Laws.

(8) There are no underground or above-ground storage tanks containing Hazardous Substances located on any of the Owned Real Estate, and the Company has not used any underground or above-ground storage tanks located on any of the Leased Real Estate or any property previously owned, leased, operated or used by the Company.

(9) The Company has delivered to Purchaser true and complete copies and results of any material final written reports, studies, analyses, tests and monitoring results possessed or initiated by the Company and any material written correspondence with any governmental authority related to Environmental Law, Environmental Permits and Hazardous Substances in connection with the Business, the Real Estate, and any properties previously owned, leased or operated by the Company.

(w) Real Estate .

(1) Section 3.3(w) of the Disclosure Schedule contains a true, correct and complete list of all street addresses and legal descriptions of the Owned Real Estate. The Company holds fee simple title to the Owned Real Estate, subject only to Permitted Liens. The Owned Real Estate is not subject to any leases or tenancies of any kind. The Owned Real Estate constitutes all real property and improvements owned by the Company and used in the conduct of the Business. Upon the Closing, the Company will be vested with valid title to the Owned Real Estate.

(2) Section 3.3(w) of the Disclosure Schedule contains a true and complete list of all street addresses of the Leased Real Estate. All Leased Real Estate is leased to the Company pursuant to written leases, complete and accurate copies of which have been previously delivered to Purchaser, and all of which are in full force and effect without modification (written or oral) except as set forth on Section 3.3(w) of the Disclosure Schedule. The Company has a valid leasehold interest in the Leased Real Estate, free and clear of all Liens, except for Permitted Liens. Upon the Closing, the Company will be vested with a valid leasehold interest in the Leased Real Estate. To the Sellers’ knowledge, the Leased Real Estate is not subject to any leases or tenancies of any kind, except for the Company’s leases. All options in favor of the Company to purchase any of the Leased Real Estate, if any, are set forth in Section 3.3(w) of the Disclosure Schedule and are in full force and effect. The Leased Real Estate constitutes all real property and improvements leased by the Company and used in the conduct of the Business. Neither the Company nor, to Sellers’ knowledge, the applicable lessor, is in material default in the performance, observance or fulfillment of any obligation, covenant or condition contained in any Leased Real Estate lease.

(3) The Real Estate is, in all material respects, used in a manner which is consistent with and permitted by applicable zoning ordinances and other laws or regulations without special use approvals or permits, and is served by all water, sewer, electrical, telephone, drainage and other utilities required for normal operations of the Business as it is presently conducted. Except as set forth on Section 3.3(w) of the Disclosure Schedule, (A) to the knowledge of Sellers, the Real Estate is not located within any flood plain, flood area, wetlands or conservation area or subject to any similar type of restriction for which any permits or licenses necessary to the use thereof by the Company have not been obtained, (B) the Company has not entered into any leases or subleases granting any Person the right to use or occupy any portion of the Real Estate, (C) the Company is not a party to any agreements pursuant to which it has granted rights of first refusal, purchase options, rights of first offer and the like with respect to any portion of the Owned Real Estate, (D) all water, gas, electrical, steam, compressed air, telecommunication, sanitary and storm sewage lines and other utilities and systems serving the Owned Real Estate are sufficient for the operation of the Business as currently conducted thereon, (E) all Real Estate has reasonable access to public roads and utilities and (F) the Company possesses all material Permits which are required in order for the Company to conduct the present operations conduct by the Company at the Real Estate.

(4) There are no challenges or appeals pending regarding the amount of the real estate Taxes on, or the assessed valuation of, the Owned Real Estate or to Sellers’ knowledge, the Leased Real Estate, and no special arrangements or agreements exist with any governmental authority with respect thereto with respect to the Owned Real Estate or to Sellers’ knowledge, the Leased Real Estate. There are no condemnation proceedings pending, or to Sellers’ knowledge, threatened with respect to any portion of the Owned Real Estate or to Sellers’ knowledge, the Leased Real Estate. There is no tax assessment (other than the normal, annual general real estate tax assessment) pending, or to Sellers’ knowledge, threatened with respect to any portion of the Owned Real Estate or to Sellers’ knowledge, the Leased Real Estate.

(x) Intellectual Property .

(1) Section 3.3(x) of the Disclosure Schedule sets forth a true, correct and complete list of all: (A) patented or registered and applications to patent or register Company Intellectual Property; (B) Proprietary Software and Software licensed, leased or otherwise used by the Company (other than “off-the-shelf” Software), identifying which Software is owned, licensed, leased or otherwise used, as the case may be; and (C) Intellectual Property Licenses.

(2) The Company owns and possesses or has the right to use and as of the Closing Date shall own and possess all right, title and interest to, or have the right to use pursuant to a valid and enforceable license, in each case in all material respects, all Intellectual Property rights necessary for the operation of the Business as presently conducted.

(3) The Company Intellectual Property is valid, enforceable and in good standing and the Company owns all Company Intellectual Property, free and clear of any Liens other than Permitted Liens. All other Intellectual Property licensed, or used by Company is, to Sellers’ knowledge, valid, enforceable and in good standing.

(4) All annuity, maintenance, renewal and other fees required to maintain the patents, patent applications, trademark registrations, trademark applications, domain names registrations included within the Company Intellectual Property, are current.

(5) Except as set forth on Section 3.3(x) of the Disclosure Schedule, no action, suit, hearing, claim, or demand is pending or, to the knowledge of Sellers, threatened, that challenges the legality, validity, enforceability, use, or ownership of the Company Intellectual Property.

(6) The Company is not infringing and has not infringed any Intellectual Property of any Person in the operation of the Business. There are no pending, or to Sellers’ knowledge, threatened claims by any third party against Company alleging that the Company’s use of any Company Intellectual Property infringes the Intellectual Property of such third party.

(7) To Sellers’ knowledge there is no unauthorized use, disclosure, infringement or misappropriation of any Company Intellectual Property by any third party, including any employee or former employee of the Company. The Company has not agreed to indemnify any third party for any infringement of any Company Intellectual Property as it relates to the Business as conducted by Company as of Closing.

(8) Except as set forth in Section 3.3(x) of the Disclosure Schedule, (A) the Company has not granted any license or made any assignment of any of the Company Intellectual Property, (B) the Company has not granted any third party any right to use any of the Company Intellectual Property, and (C) in the conduct of the Business, the Company does not pay any royalties or other consideration for the right to use any Company Intellectual Property.

(9) The Company has taken commercially reasonable measures to maintain the confidentiality of all material trade secrets included within the Company Intellectual Property to the extent appropriate to maintain all proprietary rights therein.

(10) The consummation of the transactions contemplated herein will not, in and of itself, alter or impair any of the Company Intellectual Property.

(11) To Sellers’ knowledge, no current or former employee, consultant or independent contractor of the Company who holds or held a position within the Company that by its nature involves the creation of Intellectual Property, or who by virtue of the nature of their position within the Company has access to Company confidential information: (A) is in violation of any term or covenant of any employment contract, patent disclosure agreement, invention assignment agreement, nondisclosure agreement, noncompetition agreement or any other contract with any third party by virtue of such employee, consultant or independent contractor being employed by, or performing services for, the Company or using without permission, confidential information or other third party Intellectual Property right as it relates to the Business; (B) has developed any technology or patentable or otherwise proprietary work for the Company that is subject to any contract under which such employee, consultant or independent contractor has assigned or otherwise granted to any third party any Intellectual Property right or other right in or to such technology or patentable or otherwise proprietary work; or (C) has failed to execute or deliver an enforceable written contract assigning the rights to such employee’s, consultant’s or independent contractor’s contributions to the Company Intellectual Property that may be owned by such persons, which contributions the Company does not otherwise own by operation of law.

(y) Inventory . The inventory held by the Company in respect of the Business consists of a quantity and quality historically usable and saleable in the ordinary course of business, is not physically damaged, previously used, obsolete, discontinued, “old” or “excess”, is merchantable and fit for its intended use, is in compliance with applicable product registrations and specifications, in each case, subject to the reserves set forth in the Company’s book and records calculated in a manner consistent with the historic practices of the Company.

(z) Brokers . With the exception of Livingstone Partners LLC, neither the Sellers, any of their Affiliates, nor the Company have dealt with any Person who is entitled to a broker’s commission, finder’s fee, investment banker’s fee or similar payment from Purchaser or the Company for arranging the transactions contemplated hereby or introducing the parties to each other.

3.4 Individual Representations and Warranties of the Sellers . Each Seller, individually and not jointly and severally, represents and warrants to Purchaser with respect to such Seller (and only such Seller) as follows:

(a) Organization, Existence and Good Standing . Such Seller is duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation or formation.

(b) Power and Authority . Such Seller has full corporate power and authority to execute and perform this Agreement. The execution and delivery of this Agreement by such Seller and the performance by it of all of its obligations under this Agreement have been duly approved prior to the date of this Agreement by all requisite action of its board of directors. The approval of such Seller’s shareholders for Seller to execute this Agreement or consummate the transactions contemplated hereby is either not required or has been duly given.

(c) Enforceability . This Agreement has been duly executed and delivered by such Seller and constitutes a legal, valid and binding agreement of such Seller, enforceable against such Seller in accordance with its terms.

(d) Consents . No consent, authorization, order or approval of, or filing or registration with, any governmental authority is required for or in connection with the consummation by such Seller of the transactions contemplated hereby.

(e) Conflicts Under Constituent Documents or Laws . Neither the execution and delivery of this Agreement by such Seller, nor the consummation by it of the transactions contemplated hereby will conflict with or constitute a breach of any of the terms, conditions or provisions of its articles of incorporation or by-laws. Neither the execution and delivery of this Agreement by such Seller, nor the consummation by such Seller of the transactions contemplated hereby, will conflict with or constitute a breach of any of the terms, conditions or provisions of any statute or administrative regulation, or of any order, writ, injunction, judgment or decree of any court or governmental authority or of any arbitration award, to which such Seller is a party or by which such Seller is bound.

(f) Conflicts Under Contracts . Such Seller is not a party to, or bound by, any unexpired, undischarged or unsatisfied written or oral contract, agreement, indenture, mortgage, debenture, note or other instruments under the terms of which the execution, delivery and performance by such Seller of this Agreement and the consummation of the transactions contemplated hereby by such Seller will require a consent, approval, or notice or result in a Lien on the Membership Interests owned by such Seller, other than agreements between the Sellers.

(g) Title to Membership Interests . Such Seller owns Membership Interests representing the Sharing Ratio listed opposite such Seller’s name on Exhibit A , free and clear of all Liens, other than agreements between the Sellers. At Closing, such Seller will convey to Purchaser good title to all of such Membership Interests, free and clear of all Liens (other than those arising from or resulting from actions or omissions of Purchaser or its Affiliates and assuming that each Seller enters into this Agreement and delivers the documents required hereunder).

(h) Solvency . Immediately after giving effect to the transactions contemplated hereby, the assets of such Seller will exceed its liabilities. Such Seller does not intend to incur debts, or take any other actions, that would adversely affect such Seller’s ability to satisfy its obligations as they mature, including any obligations to the Purchaser or any Purchaser Indemnitees hereunder..

3.5 Limitation on Warranties . The representations and warranties of the Sellers in Sections 3.3 and 3.4 hereof constitute the sole and exclusive representations and warranties to Purchaser in connection with the transactions contemplated hereby. Except as expressly set forth in Sections 3.3 and 3.4 of this Agreement, Sellers make no express or implied representation or warranty of any kind whatsoever (including, without limitation, any representation or warranty as to the physical condition or value of any of the assets of the Company or the Business, the future profitability or future earnings performance of the Business), and Sellers disclaim all liability and responsibility for any representation, warranty, covenant, agreement, or statement made or information communicated (orally or in writing) to Purchaser (including any opinion, information, or advice which may have been provided to Purchaser or any of its Affiliates, directors, managers, officers, employees, accounting firms, legal counsel or other agents, consultants or representatives by any stockholder, partner, director, officer, employee, accounting firm, legal counsel, or other agent, consultant, or representative of the Company or any Seller). Purchaser acknowledges that any estimates, forecasts, or projections furnished or made available to it concerning the Company or its properties, business, assets or liabilities have not been prepared in accordance with GAAP or standards applicable under the Securities Act, and such estimates, forecasts and projections, including any reflected in the Financial Statements and/or the Interim Financial Statements, reflect numerous assumptions, and are subject to material risks and uncertainties. Purchaser acknowledges that actual results may vary, perhaps materially, and Purchaser is not relying on any such estimates, forecasts or projections. ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED. ANY AND ALL PRIOR REPRESENTATIONS AND WARRANTIES MADE BY ANY PARTY OR ITS REPRESENTATIVES, WHETHER VERBALLY OR IN WRITING, ARE DEEMED TO HAVE BEEN MERGED INTO THIS AGREEMENT, IT BEING INTENDED THAT NO SUCH PRIOR REPRESENTATIONS OR WARRANTIES SHALL SURVIVE THE EXECUTION AND DELIVERY OF THIS AGREEMENT .

3.6 Definition of Knowledge . For the purposes of this Agreement, Sellers’ knowledge (and words of similar import) shall be deemed to be limited to the actual knowledge, as of the date hereof, of John Hall, Greg Hall, Anthony Bowker and Michael Sands, after review of the representations and warranties set forth in this Agreement that are qualified by knowledge, but without giving effect to imputed or constructive knowledge or giving rise to any duty to investigate (other than review of the representations and warranties as described above).

ARTICLE IV

Conduct Prior to the Closing

4.1 General . Sellers and Purchaser have the rights and obligations with respect to the period between the date hereof and the Closing Date which are set forth in the remainder of this ARTICLE IV .

4.2 Sellers’ Obligations . The following are Sellers’ obligations:

(a) Promptly following the execution of this Agreement, GHI shall provide to CBA such notices and other communications as are required pursuant to Section 7.4 of the FSB Operating Agreement.

(b) Sellers shall cause the Company to give to Purchaser’s officers, employees, agents, attorneys, consultants, accountants and lenders reasonable access during normal business hours to all of the properties, books, contracts, documents, insurance policies, records and personnel of or with respect to the Company and shall cause the Company to furnish to Purchaser and such Persons as Purchaser shall designate to Sellers such information as Purchaser or such Persons may at any time and from time to time reasonably request.

(c) Sellers shall use their commercially reasonable efforts (and Purchaser shall reasonably cooperate with Sellers) to cause the Company to obtain the consents to the consummation of the transactions contemplated hereby under or with respect to each Contract, Permit, Environmental Permit and other instruments identified on Schedule 4.2(c) attached hereto (the “ Material Consents ”).

(d) Sellers shall cause the Company, to the extent within its control, to carry on the Business in the usual and ordinary course of business, consistent with past practices, except as permitted by this Agreement. Notwithstanding the foregoing, nothing contained in this Agreement shall prohibit the Company, whether or not in the usual and ordinary course of business and whether or not consistent with past practice, from making payments or distributions to the Sellers, substantially all of the proceeds of which are applied to payment of Taxes, repayment of indebtedness for borrowed money or for payment of expenses (so long as the Company maintains sufficient cash to conduct the Business in the ordinary course consistent with past practice).

(e) Sellers shall cause the Company, to the extent within its control, (1) to continue to operate and maintain the Owned Real Estate in a manner consistent with the present business and operations thereof and (2) to maintain the buildings, improvements, utilities, and systems that comprise or that are upon the Owned Real Estate in good condition and repair, it being the intention of the parties hereto that the general operations of the Owned Real Estate shall not be changed between the date hereof and the date of Closing.

(f) Sellers shall not permit the Company to create or cause to exist any Liens on its assets securing indebtedness for borrowed money (other than those existing on the date hereof and reflected in the Financial Statements or described in the Disclosure Schedule).

(g) Sellers shall cause the Company, to the extent within its control, to comply, in all material respects, with the terms and conditions of the leases relating to the Leased Real Property.

(h) Sellers shall provide to the Purchaser, as soon as practicable, the audited financial statements of the Company as of and for the fiscal year ended December 31, 2010.

(i) Without the prior written consent of Purchaser, and without limiting the generality of any other provision of this Agreement, Sellers shall cause the Company not to:

(1) amend the Company’s articles of organization or the FSB Operating Agreement;

(2) make any change in the Company’s Membership Interests or other equity ownership interests or issue any equity ownership interests of any class or issue or become a party to any subscriptions, warrants, rights, options, convertible securities or other agreements or commitments of any character relating to the issued or unissued equity ownership interests of the Company, or grant any equity appreciation or similar rights;

(3) materially increase the compensation payable to any employee, except for changes in compensation of non-management employees in the ordinary course of business consistent with past practices;

(4) incur or commit to incur any capital expenditures not contemplated by this Agreement in excess of $100,000 in the aggregate;

(5) sell, transfer or otherwise dispose of any asset or property (other than as expressly permitted in Section 4.2(d) ), except for sales of inventory and for transfers of cash in payment of the Company’s liabilities, all in the usual and ordinary course of business in accordance with past practices;

(6) pay or declare any dividend or make any distribution on its securities of any class or purchase or redeem any of its securities of any class, other that payments expressly permitted in Section 4.2(d) ;

(7) modify or amend any material Contract in any material respect; or

(8) change any Tax elections, amend any Return relating to the Company, enter into any settlement or compromise with respect to any Tax controversy, Tax claim, audit or assessment or any right to claim a Tax refund, offset or other reduction in Tax liability of the Company, enter into any closing agreement with respect to any Tax, or consent to any extension or waiver of the limitations period applicable to any Tax claim or assessment.

(j) Sellers shall not transfer any of the Membership Interests, create or permit to be created any Lien on any of the Membership Interests or grant any rights to any Person in respect of the Membership Interests, except the rights granted to the Purchaser hereunder.

(k) Notwithstanding anything expressed or implied herein to the contrary, either or both of the Sellers may independently and separately elect, exercisable by written notice to Purchaser at least three (3) Business Days prior to the Closing Date, to sell its Membership Interests to Purchaser indirectly through a sale (whether by merger, consolidation, sale, transfer, reorganization, recapitalization or otherwise) of all issued and outstanding equity interests of any entity (including such Seller) that owns such Membership Interests (the “ Parent ”). The terms of such sale shall be set forth in a separate agreement between Purchaser and Parent, which agreement shall not be deemed an amendment or modification of this Agreement, and which shall (1) not require Purchaser to pay consideration greater than the allocable portion of Purchase Price payable hereunder, (2) incur any liabilities other than as provided herein, (3) provide representations, warranties and indemnities to Purchaser with respect to Parent (including indemnification agreements from the equity holders of Parent) on terms and subject to conditions and limitations substantially similar to, and no broader than, those set forth herein (except that Tax representations, Tax covenants and Tax indemnities set forth herein shall be appropriately modified to reflect the modified structure of the transaction) and (4) require that Parent divest all assets other than its Membership Interests in the Company and fully satisfy all of its financial and other obligations. If one or both Sellers elects under this Section 4.2(k) , necessary and conforming modifications shall be made to the provisions of this Agreement, including by way of example and not limitation, the tax covenants set forth herein.

(l) Each Seller shall provide Purchaser with prompt written notice if such Seller becomes aware of the breach of any representation, warranty or covenant of Sellers that has rendered, or that would, in Sellers’ good faith judgment, reasonably be expected to render impossible, the satisfaction of any condition to the obligations of Purchaser set forth in Section 5.2 . No such notification shall be deemed to modify any part of the Disclosure Schedule or to limit or otherwise affect the liability, if any, of the Sellers resulting from the matters referred to in such notice.

(m) Notwithstanding anything expressed or implied herein to the contrary, nothing in this Agreement shall require GHI to institute or prosecute litigation against CBA or pay any consideration to CBA, and until the execution of joinder hereto by CBA, nothing in this Agreement shall preclude or restrict GHI from taking action required of it under Section 7.4 of the FSB Operating Agreement, or otherwise negotiating, entering into or consummating a transaction with CBA with respect to a sale of its Membership Interests to CBA in connection therewith.

(n) Sellers shall allow Purchaser to have the sole right to negotiate with CBA concerning CBA’s interest in selling its Membership Interests as described herein, and concerning its willingness to enter into a joinder agreement relating hereto, and to determine the terms of any arrangements to be entered into between Purchaser and CBA in connection therewith, subject to the limitations of Section 4.3(e) below. Except for actions expressly required under Section 7.4 or any other provisions of the FSB Operating Agreement and other actions reasonably required to carry out such provisions, except with the prior written consent of Purchaser, GHI shall not communicate with CBA or any of its representatives relating to any proposed transaction with GHI or any Affiliate or other related party, or as to Purchaser’s proposed acquisition of the Membership Interests of the Company. If CBA shall submit any proposal to GHI relating to the Company, or shall attempt to initiate any discussions with CBA relating thereto, GHI shall promptly inform Purchaser and shall deliver to Purchaser copies of any documents or other information provided to GHI or its advisors or Affiliates or related parties by or on behalf of CBA, in each case, to the extent GHI, its advisors and/or Affiliates are not prohibited from providing such documents and information to Purchaser pursuant to that certain confidentiality agreement dated on or about November 1, 2010 between the Company and CBA or otherwise pursuant to the terms of the FSB Operating Agreement. Purchaser shall, in its sole discretion, decide the terms of any agreement or arrangement it may enter into with CBA with respect to such matters.

4.3 Purchaser’s Obligations . Purchaser’s obligations are as follows:

(a) Purchaser agrees to be bound by and comply with the terms and provisions of the Confidentiality Agreement as if Purchaser was an original party to such agreement. The Confidentiality Agreement is hereby incorporated into this Agreement by reference and made a part of this Agreement and shall survive the execution of this Agreement notwithstanding the terms thereof. If a conflict arises between the provisions of this Agreement and the provisions of the Confidentiality Agreement, the provisions of the Confidentiality Agreement shall control. The provisions of this Section 4.3 shall terminate upon (1) the Closing or (2) if this Agreement is terminated pursuant to ARTICLE IX , the date two (2) years after the termination of this Agreement.

(b) In the event that any Permit or Environmental Permit which is to be assigned to Purchaser is not assignable and Purchaser needs such Permit or Environmental Permit in order to operate the Business, Purchaser shall use its best efforts and make every good faith attempt (and the Company shall reasonable cooperate with Purchaser) to obtain such Permit or Environmental Permit.

(c) Purchaser shall, at its cost and expense, make all filings with, and provide all notices to, governmental authorities as are necessary in connection with the transactions contemplated by this Agreement, including, without limitation, all filings with, and all notices to, the U.S. Alcohol and Tobacco Tax and Trade Bureau and all similar state and local governmental agencies.

(d) Purchaser shall provide Sellers with prompt written notice if Purchaser becomes aware of the breach of any representation, warranty or covenant of Purchaser that has rendered, or that would, in Purchaser’s good faith judgment, reasonably be expected to render impossible, the satisfaction of any condition to the obligations of Sellers set forth in Section 5.1 .

(e) Without the prior written consent of GHI, Purchaser shall not (1) purchase additional shares in CBA or (2) otherwise provide financing to CBA, the proceeds of which in each case are intended to be used by CBA to exercise any rights it may have under FSB Operating Agreement to acquire the Ownership Percentage of GHI.

4.4 Joint Obligations . The following shall apply with equal force to each Seller, on the one hand, and Purchaser, on the other hand:

(a) Except to the extent this Agreement specifically imposes a different duty or standard on a party with respect to a particular action or obligation, each party hereto shall use its reasonable efforts (exercised in good faith) to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to (1) cause the fulfillment of all conditions to such party’s obligations to close the transaction contemplated hereby and (2) consummate the transaction contemplated hereby as soon as practicable; provided that the provisions of this paragraph shall not be deemed to require any party to waive any material right, and shall not limit the rights of Purchaser to enter into arrangements with CBA (so long as such arrangements do not conflict with the terms hereof or the obligations of the parties herein).

(b) No party shall intentionally perform any act which, if performed, or omit to perform any act which, if omitted to be performed, would prevent or excuse the performance of this Agreement by any party hereto or which would result in any representation or warranty herein contained of said party being untrue in any material respect as if originally made on and as of the Closing Date.

ARTICLE V

Conditions to Closing

5.1 Conditions to Sellers’ Obligations . The obligation of Sellers to consummate the transactions contemplated hereby is subject to the fulfillment of each of the following conditions on or prior to the Closing Date:

(a) The representations and warranties made by Purchaser shall be true and correct in all material respects as if originally made on and as of the Closing Date (or, if made as of a specific date in the text of such representations and warranties, at and as of such date), except as affected by the transactions contemplated by this Agreement and except for such failures of representations or warranties to be true and correct (without regard to any materiality or Material Adverse Effect qualifiers therein) which, individually or in the aggregate, would not have a Material Adverse Effect.

(b) All obligations of Purchaser to be performed hereunder through, and including on, the Closing Date (including all obligations which Purchaser would be required to perform at the Closing if the transaction contemplated hereby was consummated) shall have been performed in all material respects.

(c) CBA shall have executed a joinder hereto (or shall be deemed to have done so by a court order) or otherwise agreed to sell its Membership Interests in the Company to Purchaser on terms materially similar to those set forth herein or on such other terms as are satisfactory to Purchaser.

(d) No lawsuit, proceeding or investigation shall have been commenced by any governmental authority on any grounds to restrain, enjoin or hinder the consummation of the transactions contemplated hereby.

5.2 Conditions to Purchaser’s Obligations . The obligation of Purchaser to consummate the transactions contemplated hereby is subject to the fulfillment of each of the following conditions on or prior to the Closing Date:

(a) The representations and warranties made by the Sellers shall be true and correct in all material respects as if originally made on and as of the Closing Date (or, if made as of a specific date in the text of such representations and warranties, at and as of such date), except as affected by the transactions contemplated by this Agreement and except for such failures of representations or warranties to be true and correct (without regard to any materiality or Material Adverse Effect qualifiers therein) which, individually or in the aggregate, would not have a Material Adverse Effect; provided , however , the representations and warranties made by the Sellers in Sections 3.3(c) (Power and Authority), 3.3(i) (Capitalization), 3.4(b) (Power and Authority), 3.4(c) (Enforceability) and 3.4(g) (Ownership of Membership Interests) shall be true and correct in all respects as if originally made on and as of the Closing Date.

(b) All obligations of Sellers to be performed hereunder through, and including on, the Closing Date (including all obligations which Sellers would be required to perform at the Closing if the transaction contemplated hereby was consummated) shall have been performed in all material respects.

(d) All of the Material Consents shall have been obtained.

(e) During the period from the date of this Agreement to the Closing Date, there shall not have occurred any event which has resulted in a Material Adverse Effect.

(f) The Illinois Liquor Control Commission shall not have issued a written statement that it will not approve the change in ownership of the Company which would result from the transactions contemplated hereby, or if issued, such statement shall have been withdrawn.

(g) No lawsuit, proceeding or investigation shall have been commenced by any governmental authority on any grounds to restrain, enjoin or hinder the consummation of the transactions contemplated hereby.

ARTICLE VI

Closing

6.1 Form of Documents . At the Closing, the parties shall deliver the documents, and shall perform the acts, which are set forth in this ARTICLE VI . All documents which Sellers shall deliver shall be in form and substance reasonably satisfactory to Purchaser and Purchaser’s counsel. All documents which Purchaser shall deliver shall be in form and substance reasonably satisfactory to Sellers and to counsel for each of the Sellers.

6.2 Purchaser’s Deliveries . Subject to the fulfillment or waiver of the conditions set forth in Section 5.2 , Purchaser shall execute and/or deliver to the Sellers each of the following:

(a) the Estimated Closing Payment;

(b) a certified copy of Purchaser’s governing documents issued by the secretary of state of Purchaser’s state of organization;

(c) a certificate of good standing of Purchaser, issued not earlier than ten (10) days prior to the Closing Date by the secretary of state of Purchaser’s state of organization;

(d) a certificate of the secretary of Purchaser certifying as true and correct the following: (1) the incumbency and specimen signature (or facsimile thereof) of each officer of Purchaser executing this Agreement and any other document delivered hereunder on behalf of Purchaser; (2) a copy of Purchaser’s by-laws or other governing documents; and (3) a copy of the resolutions of Purchaser’s governing body authorizing the transactions contemplated by this Agreement and the execution, delivery and performance of this Agreement and any other documents delivered by Purchaser hereunder;

(e) a closing certificate executed by an officer of Purchaser to the effect that the conditions set forth in Sections 5.1(a) and 5.1(b) have been satisfied, and that all documents to be executed and delivered by Purchaser at the Closing have been executed by duly authorized persons;

(f) the Escrow Agreement, duly executed on behalf of Purchaser;

(g) amendments to the current employment agreements between the Company and each of John Hall and Anthony Bowker, with compensation terms as set forth in Exhibit B attached hereto, and otherwise in form and substance reasonably satisfactory to the parties (each, an “ Employment Agreement Amendment ” and collectively, the “ Employment Agreement Amendments ”), each executed on behalf of the Company;

(h) a consulting agreement between the Company and Greg Hall (or if Purchaser shall so elect, between Purchaser and Greg Hall), in form and substance satisfactory to the parties thereto, duly executed by the Company (the “ Consulting Agreement ”);

(i) a license agreement permitting certain Affiliates of GHI to use certain intellectual property of the Company, in form and substance satisfactory to GHI and Purchaser (the “ License Agreement ”), duly executed on behalf of the Company; and

(j) without limitation by specific enumeration of the foregoing, all other documents reasonably required from Purchaser to consummate the transactions contemplated hereby.

6.3 Sellers’ Deliveries . Subject to the fulfillment or waiver of the conditions set forth in Section 5.1 , the Sellers (as applicable) shall execute or deliver to Purchaser each of the following:

(a) certificates representing all outstanding Membership Interests of the Company, duly endorsed in blank or with duly executed stock powers attached;

(b) lost certificate affidavits for all Membership Interests for which certificates cannot be obtained, all in form and substance satisfactory to the Purchaser and its counsel;

(c) physical possession of all records, tangible assets, licenses, policies, Contracts, plans, leases or other instruments owned by or pertaining to the Company;

(d) the minute books and stock (or other applicable ownership interest) records of the Company;

(e) copies of the Material Consents;

(f) the Escrow Agreement duly executed by the Seller’s Committee;

(g) each of the Employment Agreement Amendments, duly executed by the respective employees;

(h) the Consulting Agreement, duly executed by Greg Hall;

(i) the License Agreement Amendment, duly executed by GHI or its applicable Affiliates;

(j) a release, in form and substance reasonably satisfactory to Purchaser, evidencing payment in full of the obligations of GHI under the Loan and Security Agreement dated as of August 10, 2004 (as amended, modified or supplemented) between GHI and MB Financial Bank, N.A. and release of the GHI Guaranty, which release shall be obtained by, and shall be the responsibility of, GHI;

(k) confirmation, in form and substance reasonably satisfactory to the parties, of the release of all Liens on the Membership Interests;

(l) the written resignations effective as of the Closing Date of such managers and officers of the Company as requested by Purchaser to resign;

(m) a release executed by each Seller releasing Liens related to the Business and claims against the Company and certain other related parties;

(n) a certified copy of the Company’s articles of organization issued by the Secretary of State of Illinois;

(o) a certificate of good standing of the Company issued by the Secretary of State of Illinois;

(p) a closing certificate executed by each Seller to the effect that the conditions set forth in Sections 5.2(a) and 5.2(b) have been satisfied, and that all documents to be executed and delivered by Sellers at the Closing have been executed by duly authorized persons;

(q) a properly executed IRS Form W-9 from each Seller;

(r) an affidavit, as provided in Section 1445(b)(2) of the Code, from each Seller stating under penalties of perjury that the Seller is not a foreign person within the meaning of Section 1445(f)(3) of the Code; and

(s) without limitation by specific enumeration of the foregoing, all other documents reasonably required from Sellers to consummate the transactions contemplated hereby.

ARTICLE VII

Post-Closing Agreements

7.1 Post-Closing Agreements . From and after the Closing, the parties shall have the respective rights and obligations which are set forth in the remainder of this ARTICLE VII .

7.2 Inspection of Records . Purchaser shall make the books and records (including work papers in the possession of its accountants) with respect to the Company available for inspection by the Sellers, or by their duly accredited representatives, upon reasonable advance notice during normal business hours, for a seven (7) year period after the Closing Date, to the extent reasonably required by the Sellers for Tax purposes with respect to all transactions of the Company occurring prior to and relating to the Closing. As used in this Section 7.2 , the right of inspection includes the right to make extracts or copies. The representatives of Sellers inspecting such records shall be reasonably satisfactory to the Purchaser.

7.3 Use of Trademarks . Except as is otherwise permitted in a separate written agreement between the Company and a Seller, Sellers shall not use and shall not license or permit any third party to use, any name, slogan, logo or trademark which is confusingly similar to any of the names or trademarks used in connection with the Business of the Company, or take any action which would reasonably be expected to violate or impair any rights of the Company or the Purchaser to the Company Intellectual Property.

7.4 Third Party Claims . The parties shall cooperate with each other with respect to the defense of any Third Party Claims subsequent to the Closing Date which are not subject to the indemnification provisions contained in ARTICLE VIII , provided that the party requesting cooperation shall reimburse the other party for the other party’s reasonable out-of-pocket costs and expenses of furnishing such cooperation.

7.5 Agreement to Defend and Indemnify . For seven (7) years after the Closing Date, Purchaser shall cause the Company to provide officers’ and directors’ liability insurance and to provide indemnification protection (including with respect to contribution, advancement of expenses and the like) to Indemnified Employees against any Indemnifiable Claim, whether asserted or commenced prior to or after the Closing Date, to the full extent required by the Company’s respective governing documents in effect as of the date hereof and/or the Illinois Limited Liability Company Act.

7.6 Governmental Filings . On and following the Closing Date, Purchaser shall, at its cost and expense, make all filings with, and provide all notices to, governmental authorities as are necessary to be made by the Company or Purchaser in connection with the transactions contemplated by this Agreement, including, without limitation, all filings with, and all notices to, the U.S. Alcohol and Tobacco Tax and Trade Bureau and all similar state and local governmental agencies. Sellers shall provide all cooperation and assistance reasonably requested by the Purchaser with respect to such matters.

7.7 Tax Matters .

(a) Preparation and Filing of Returns . If one or both of the Sellers elects to sell its Membership Interests in the manner set forth in Section 4.2(k) , the Sellers shall prepare, or cause to be prepared, a good faith estimate of the federal and state taxable income of the Company, as if the current taxable year of the Company ended on the close of business on the Closing Date, which good faith estimate shall be reviewed by and consented to by Purchaser, such consent not to be unreasonably withheld, conditioned or delayed. Such good faith estimate of federal and state taxable income of the Company shall serve as the basis for determining the amount of federal and state taxable income allocable to each Seller for the period ending on the Closing Date. Sellers shall prepare and timely file or shall cause to be prepared and timely filed all federal, state, local and foreign Returns in respect of the Company, its assets, or its activities that (1) are required to be filed on or before the Closing Date or (2) are required to be filed after the Closing Date and which are with respect to Income Taxes for any tax period ending on or before the Closing Date (a “ Pre-Closing Period ”). Purchaser shall prepare or cause to be prepared and shall file or cause to be filed all other Returns required to be filed by the Company for any tax period ending on or before the Closing Date and for any Straddle Period. Any such Returns that include periods ending on or before the Closing Date or that include the activities of the Company prior to the Closing Date shall, insofar as they relate to the Company, be on a basis consistent with the last previous such Returns filed in respect of the Company, unless Sellers or the Purchaser, as the case may be, concludes that there is no substantial authority for such position. Any dispute regarding the content of any Return filed pursuant to this Section 7.7 shall be resolved by the Arbitrating Accountant substantially in the manner set forth in Section 2.5 hereof. Without the prior written consent of both Sellers, neither Purchaser nor the Company shall file any amended Returns or extend the statute of limitations on assessment or collection of Tax for any periods for or in respect of the Company with respect to which Purchaser is not obligated to prepare or cause to be prepared the original such Returns pursuant to this Section 7.7(a) .

(b) Payment of Taxes . The Sellers shall pay or cause to be paid on or before the due date thereof all Taxes of the Company, to the extent such Taxes exceed the amount accrued for such Taxes in the Closing Balance Sheet, due (1) for all tax periods ending on or before the Closing Date and (2) for that portion of any Straddle Period that ends on the Closing Date. Purchaser or the Company shall be responsible for all Taxes of the Company for (x) all tax periods beginning after the Closing Date and (y) for that portion of any Straddle Period that begins after the Closing Date.

(c) Tax Sharing Agreements . On the Closing Date, all Tax sharing agreements and arrangements between (1) the Company, on the one side and (2) Sellers or any of their Affiliates (other than the Company), on the other side, shall be terminated and have no further effect for any taxable year or period (whether a past, present or future year or period).

(d) Transfer Taxes . All transfer, documentary, sales, use, stamp, registration and other such Taxes and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred by the Company directly or indirectly in connection with consummation of the transactions contemplated by this Agreement shall be paid 50% by Purchaser and 50% by Sellers when due, regardless of the party upon which such Taxes are imposed. The party upon which such Tax is imposed will, at its own expense, file all necessary Returns and other documentation with respect to all such Taxes, fees and charges, and if required by applicable Law, the other party will join in the execution of any such Returns and other documentation.

(e) Refunds . Sellers shall be entitled to retain, or receive immediate payment from Purchaser or any of its affiliates (including the Company) of, any refund or credit with respect to Taxes (including, without limitation, refunds and credits arising by reason of amended Returns filed by the Sellers after the Closing Date or otherwise) with respect to any Tax period ending on or before the Closing Date (including the portion of any Straddle Period ending on the Closing Date) relating to the Company. Purchaser and the Company shall be entitled to retain, or receive immediate payment from Sellers of, any refund or credit with respect to Taxes with respect to any taxable period beginning after the Closing Date (including any portion of any Straddle Period beginning after the Closing Date) relating to the Company. Purchaser and Sellers shall equitably apportion any refund or credit with respect to Taxes with respect to any taxable period that includes (but does not end on) the Closing Date (a “ Straddle Period ”).

(f) Allocation of Taxes .

(1) If neither of the Sellers elects to sell its Membership Interests in the manner set forth in Section 4.2(k) , the taxable year of the Company shall end on the close of business on the Closing Date and the Company’s final Income Tax Returns shall be prepared and filed in accordance with Section 7.7(a) , and with reference to the good faith estimates prepared pursuant to Section 7.7(a) . If one or both of the Sellers elects to sell its Membership Interests in the manner set forth in Section 4.2(k) , the allocation of the Company’s items of income, gain, loss and deduction to such Seller for the period ending on the Closing Date shall be determined under a closing-of-the-books method. For the avoidance of doubt, the parties agree that, to the extent such items are properly deductible, all of the Company’s and the Sellers’ expenses incurred in connection with the preparation, execution and consummation of this Agreement, including attorneys’, accountants’ and other advisors’ fees and expenses payable by the Company or the Sellers, will be allocable to the Pre-Closing Period and deducted on the Returns prepared by the Sellers.

(2) In the case of a Straddle Period, (A) the periodic Taxes of the Company that are not based on income or receipts (e.g., property Taxes) for the portion of any Straddle Period ending on the Closing Date (the “ Pre-Closing Straddle Period ”) shall be computed based upon the ratio of the number of days in the Pre-Closing Straddle Period to the number of days in the entire Tax period, and (B) all other Taxes (e.g., excise Taxes) of the Company for the Pre-Closing Straddle Period shall be computed as if such taxable period ended as of the close of business on the Closing Date.

(g) Tax Cooperation . Each of Purchaser and the Sellers shall provide the other party with such information and records, make such of its officers, directors, employees and agents available and sign such Returns as may reasonably be requested by such other party in connection with the preparation of any Return or any audit or other proceeding that relates to the Company. Purchaser and Sellers agree to retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Purchaser or the Sellers, any extensions thereof) of the respective taxable periods.

(h) Tax Indemnification .

(1) Subject to the provisions of Section 8.3 , Sellers shall (severally and not jointly, based on their respective Ownership Percentages) indemnify, defend and hold each Purchaser Indemnitee harmless from and against (A) all liability for Taxes of the Company but only to the extent such Taxes exceed the amount accrued for such Taxes in the Closing Balance Sheet, for any taxable period that ends on or before the Closing Date and the portion of any Straddle Period ending on the Closing Date or as a result of the transactions contemplated hereby, (B) all liability for any breach of Sellers’ representations and warranties contained in Section 3.3(m) and (C) all liability (as a result of Treasury Regulation Section 1.1502-6 or otherwise) for Income Taxes of the Company or any other person (other than the Company) which is or has ever been affiliated with the Company, or with whom the Company joins or has ever joined (or is or has ever been required to join) in filing any consolidated, combined or unitary Return, prior to the Closing. Notwithstanding anything expressed or implied herein to the contrary, Sellers shall not be responsible to indemnify, defend or hold harmless any Purchaser Indemnitee from any liability for Taxes attributable to a Purchaser Tax Act, or any increase in Taxes or loss of Tax benefits in any tax period that begins after the Closing Date, including any portion of a Straddle Period that begins after the Closing Date, resulting from the Purchaser’s direct or indirect ownership of the Company.

(2) Purchaser shall, and shall cause the Company to, indemnify, defend and hold each Seller Indemnitee harmless from and against all liability for Taxes attributable to a Purchaser Tax Act.

(3) Any indemnity payment required to be made pursuant to this Section 7.7 shall be paid within 30 days after the indemnified party makes written demand upon the indemnifying party, but in no case earlier than five business days prior to the date on which the relevant Taxes are required to be paid to the relevant taxing authority (including estimated Tax payments).

(i) Timing Adjustments . If a final determination (which shall include the execution of a Form 870-AD or successor form) results (1) in a timing difference (e.g., an acceleration of income or delay of deductions) that would increase a Seller’s liability for Taxes in a Pre-Closing Period but would provide a Tax deduction or otherwise decrease Purchaser’s or the Company’s liability for Taxes in the same or a subsequent Tax period or results (2) in a timing difference (e.g., an acceleration of deductions or delay of income) that would increase Purchaser’s liability for Taxes but would reduce the Company’s income or otherwise decrease Sellers’ liability for Taxes in a Pre-Closing Period, then the party (Purchaser or the Sellers’ Committee) which will obtain a future Tax benefit (the “ Benefitted Party ”) shall promptly pay to the other an amount equal to the foreign, federal, state and/or local Income Tax benefits inuring to the Benefitted Party. For purposes of this section, the amount of any Income Tax benefits shall be computed on a present value basis using a discount rate equal to the mid-term applicable federal rate in effect on the date the final determination occurs and shall assume a Tax rate equal to the maximum combined statutory federal and applicable state and local Income Tax rate applicable to the Benefitted Party in the year in which the final determination occurs.

(j) Tax Contests . Purchaser, the Company and each of their respective Affiliates, on the one hand, and Sellers on the other, shall cooperate in contesting any Tax Claim, which cooperation shall include the retention and (upon request) the provision to the requesting party of records and information which are reasonably relevant to such Tax Claim, and making employees available on a mutually convenient basis to provide additional information or explanation of any material provided hereunder or to testify at proceedings relating to such Tax Claim. Each party shall execute and deliver such powers of attorney and other documents as are necessary to carry out the intent of Section 8.6 and this Section 7.7(j) . All Tax Claims shall be subject to the third party claims procedures set forth in Section 8.6 .

7.8 Additional Capital Expenditures . Purchaser shall provide at least $1,000,000 to the Company to acquire additional brewing assets for installation at the Company’s Chicago brewery as soon as practicable following the Closing.

7.9 Further Assurances . The parties shall execute such further documents, and perform such further acts, as may be necessary to transfer and convey all Membership Interests of the Company to Purchaser, on the terms herein contained, and to otherwise comply with the terms of this Agreement and consummate the transactions contemplated hereby.

ARTICLE VIII

Indemnification

8.1 General . From and after the Closing, the parties shall indemnify each other as provided in this ARTICLE VIII .

8.2 Sellers’ Indemnification Obligations . Subject to the provisions hereof and the limitations set forth herein, the Sellers shall (severally and not jointly, on a pro rata basis in accordance with their respective Ownership Percentages) indemnify, save and keep each Purchaser Indemnitee harmless against and from all Damages sustained or incurred by any Purchaser Indemnitee, as a result of, or arising out of, or by virtue of:

(a) any inaccuracy in or breach of any representation and warranty made by Sellers to Purchaser herein or in any closing document delivered to Purchaser in connection herewith; and

(b) the breach by any Seller of, or failure of any Seller to comply with any of the covenants or obligations under this Agreement to be performed by Sellers, including their obligations under this ARTICLE VIII (but excluding any covenants or obligations of Sellers under ARTICLE IV ).

8.3 Limitation on the Sellers’ Indemnification Obligations . The Sellers’ obligations pursuant to the provisions of Sections 7.7 and 8.2 are subject to the following limitations:

(a) The Purchaser Indemnitees shall not be entitled to recover under Section 8.2 until the total amount which the Purchaser Indemnitees would recover under Section 8.2 , but for this Section 8.3(a) , exceeds the Deductible, and then the Purchaser Indemnitees shall be entitled to recover only for the excess over the Deductible; provided, however, that (1) no Purchaser Indemnitee shall be entitled to make a claim for indemnification, or to aggregate any Damages against the Deductible, for any single claim involving Damages that do not exceed $25,000; (2) for purposes of this paragraph, the amount of any claim shall be determined without regard to any materiality or Material Adverse Effect limitations set forth herein; (3) none of the foregoing limitations shall apply to recovery under Section 8.2 for breaches of one or more of the Fundamental Representations and Warranties or claims made under Section 7.7 .

(b) The Purchaser Indemnitees shall not be entitled to recover under Sections 7.7 or 8.2 unless a claim has been asserted by written notice, specifying the details of the alleged misrepresentation or breach of warranty or covenant with reasonable particularity, the sections of this Agreement alleged to have been breached, a good faith estimate of the Damages claimed, and all the relevant facts, delivered to the Sellers on or prior to the applicable Survival Date.

(c) The Purchaser Indemnitees shall not be entitled to recover under Section 8.2 to the extent the aggregate claims of the Purchaser Indemnitees under Section 8.2 exceed the Indemnification Cap; provided, however, claims under Section 8.2 for breaches of one or more of the Fundamental Representations and Warranties shall not be subject to the Indemnification Cap but such claims, together with any other claims recoverable by a Purchaser Indemnitee hereunder, shall not exceed the aggregate Purchase Price received by Sellers pursuant to the transactions contemplated hereunder.

(d) No Seller shall be liable for Damages with respect to the representations and warranties contained in Section 3.4 to the extent that such representations and warranties relate to another Seller, nor shall any Seller have any liability for the failure of another Seller to perform any of the obligations, covenants or agreements to be performed or complied with by such other Seller, it being agreed and understood that all of such representations, warranties, obligations, covenants and agreements are being made individually by each Seller, and not jointly and severally by all Sellers.

(e) The aggregate liability of any Seller for Damages with respect to any indemnification claim of the Purchaser Indemnitees under Sections 7.7 and 8.2 shall not exceed such Seller’s Individual Portion, and the liability of any Seller for Damages with respect to all indemnification claims of the Purchaser Indemnitees hereunder shall not exceed such Seller’s Individual Cap. Notwithstanding the foregoing, a Seller shall, subject to Section 8.3(c) , be responsible for 100% of the Damages incurred by the Purchaser Indemnitee in respect of a breach by such Seller of any of its representations and warranties set forth in Section 3.4 or the covenants of such Seller set forth herein, without regard to such Seller’s Individual Portion or Individual Cap; provided that such claims shall not, together with all other claims for indemnification against such Seller hereunder, exceed the portion of the Purchase Price received by such Seller hereunder.

(f) The Purchaser Indemnitees shall not be entitled to recover under Sections 7.7 or 8.2 :

(1) with respect to consequential damages of any kind, indirect, special, exemplary or punitive damages;

(2) with respect to the failure to obtain any consent, or to satisfy any conditions imposed incident to the giving of any consent, required in connection with, or as a consequence of, the transactions contemplated by this Agreement (provided that this limitation shall not prohibit Purchaser from recovering against Sellers for any breach of a representation and warranty provided herein);

(3) to the extent the Damages are reimbursed or covered by insurance (including title insurance) held by Purchaser or its Affiliates or the Company or any indemnification agreement or the like to which Purchaser or the Company is a beneficiary (it being understood that Purchaser will seek full recovery under all such insurance policies and indemnification agreements to the same extent as it would if such Damages were not subject to indemnification under this Agreement; upon making any payment to a Purchaser Indemnitee for any indemnification claim under this Agreement, and if Purchaser receives full indemnity, the Sellers shall be subrogated, to the extent of such payment, to any rights which the Purchaser Indemnitees may have against any other parties (whether under insurance policies, indemnification agreements or otherwise) with respect to the subject matter underlying such indemnification claim, and the Purchaser Indemnitees shall cooperate with Sellers in the pursuit of such rights and shall promptly turn over to Sellers any payments (up to the amount of the indemnification payment made by Sellers) received in respect of such rights);

(4) to the extent the claim for indemnification is based upon circumstances which resulted in a reduction of the Purchase Price pursuant to ARTICLE II hereof;

(5) for any Damages to the extent reflected in the Closing Balance Sheet; or

(6) without limiting the generality of anything contained in ARTICLE VIII hereof, with respect to any claim by, or liability to, any employee employed by the Company arising as the result of the termination of such employee’s employment with the Company after the Closing Date, or any action by Purchaser or the Company subsequent to the Closing Date.

(g) The amount of any recovery by the Purchaser Indemnitees pursuant to Sections 7.7 or 8.2 shall be net of any Tax benefit actually recognized by reason of a Tax deduction, increase in tax basis, credit, and/or deductions (“ Tax Benefit ”) by the Purchaser Indemnitees with respect to the items giving rise to such claim for indemnification. For purposes of this Section 8.3(g) , (1) if the Income Tax Benefits occur in any year or years subsequent to the year in which the claim arose, the amount of any Income Tax Benefits shall be computed on a present value basis using a discount rate equal to the mid-term applicable federal rate in effect on the date of the claim for indemnity and (2) the amount of Income Tax Benefits shall assume a Tax rate equal to the maximum combined statutory federal and applicable state and local income Tax rate applicable to Purchaser for the year in which the claim arose and any subsequent year in which tax benefits occur. Such Tax Benefits shall be reduced by the effect of any increase in income and/or loss of Tax deduction or credit actually recognized by the Purchaser Indemnitees on account of the receipt of such indemnity payment, taking into account (x) such detriments on a present value basis using a discount rate equal to the mid-term applicable federal rate in effect on the date of the claim for indemnity and (y) the ability of the Purchaser Indemnitees to reduce actual Tax payable by them in the year the lost deduction or credit.

(h) The Purchaser Indemnitees shall not be entitled to recover under Sections 7.7 or 8.2(a) with respect to a breach of Section 3.3(m) to the extent the Tax matter for which a claim has been asserted is reflected in the Working Capital calculation.

(i) Any indemnity payment made pursuant to this Agreement will be treated as an adjustment to the Purchase Price for Tax purposes.

8.4 Purchaser’s Indemnification Covenants . Purchaser shall indemnify, save and keep each Seller Indemnitee harmless against and from all Damages sustained or incurred by any Seller Indemnitee, as a result of or arising out of or by virtue of:

(a) any inaccuracy in or breach of any representation and warranty made by Purchaser to Sellers herein or in any closing document delivered to Sellers in connection herewith; or

(b) any breach by Purchaser of, or failure by Purchaser to comply with, any of the covenants or obligations under this Agreement to be performed by Purchaser (including without limitation its obligations under this ARTICLE VIII ).

8.5 Cooperation . Subject to the provisions of Sections 8.6 and 8.7 , the Indemnifying Party shall have the right, at its own expense, to participate in the defense of any Third Party Claim, and if such right is exercised, the parties shall cooperate in the investigation and defense of said Third Party Claim.

8.6 Third Party Claims .

(a) General Provisions . Except as otherwise provided in Section 8.7 , the procedures set forth in this Section 8.6 shall apply with respect to Third Party Claims. Following the receipt of notice of a Third Party Claim, the party receiving the notice of the Third Party Claim shall notify the other party of its existence setting forth with reasonable specificity the facts and circumstances of which such party has received notice, and if the party giving such notice is an Indemnified Party, specifying the basis hereunder upon which the Indemnified Party’s claim for indemnification is asserted. The Indemnified Party may, upon reasonable notice, tender the defense of a Third Party Claim to the Indemnifying Party. If

(1) the defense of a Third Party Claim is so tendered and within thirty (30) days thereafter such tender is accepted by the Indemnifying Party, or

(2) within thirty (30) days after the date on which written notice of a Third Party Claim has been given pursuant to this Section 8.6 , the Indemnifying Party shall acknowledge its indemnification obligations (including its obligations to pay Damages with respect thereto) as provided in this ARTICLE VIII in writing to the Indemnified Party and accept the defense thereof;

then, except as herein provided, the Indemnified Party shall not, and the Indemnifying Party shall, have the right to contest, defend, litigate or settle such Third Party Claim. The Indemnified Party shall have the right to be represented by counsel at its own expense in any such contest, defense, litigation or settlement conducted by the Indemnifying Party, provided that the Indemnified Party shall be entitled to reimbursement therefor if the Indemnifying Party shall lose its right to contest, defend, litigate and settle the Third Party Claim as herein provided. The Indemnifying Party shall lose its right to contest, defend, litigate and settle the Third Party Claim if it shall fail to diligently contest the Third Party Claim. So long as the Indemnifying Party has not lost its right and/or obligation to contest, defend, litigate and settle as herein provided, the Indemnifying Party shall have the exclusive right to contest, defend and litigate the Third Party Claim, but the Indemnifying Party shall not, except as provided in Section 8.6(b) , without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld) settle the Third Party Claim if such settlement includes any non-monetary obligation of the Indemnified Party. All expenses (including without limitation attorneys’ fees) incurred by the Indemnifying Party in connection with the foregoing shall be paid by the Indemnifying Party. No failure by an Indemnifying Party to acknowledge in writing its indemnification obligations under this ARTICLE VIII shall relieve it of such obligations to the extent they exist. If an Indemnified Party is entitled to indemnification against a Third Party Claim, and the Indemnifying Party fails to accept a tender of, or assume, the defense of a Third Party Claim pursuant to this Section 8.6 , or if, in accordance with the foregoing, the Indemnifying Party shall lose its right to contest, defend, litigate and settle such a Third Party Claim, the Indemnified Party shall have the right, without prejudice to its right of indemnification hereunder, in its discretion exercised in good faith and upon the advice of counsel, to contest, defend and litigate such Third Party Claim, but, except as provided in Section 8.6(b) , the Indemnified Party shall not settle the Third Party Claim without the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld). If, pursuant to this Section 8.6 , the Indemnified Party so contests, defends, litigates or settles a Third Party Claim for which it is entitled to indemnification hereunder, the Indemnified Party shall be reimbursed by the Indemnifying Party for the reasonable attorneys’ fees and other expenses of contesting, defending, litigating and/or settling the Third Party Claim which are incurred from time to time, forthwith following the presentation to the Indemnifying Party of itemized bills for said attorneys’ fees and other expenses.

(b) Additional Provisions For Tax Claims .

(1) Notwithstanding anything herein to the contrary, so long as the Sellers have not lost their right and/or obligation to contest, defend, litigate and settle a Tax Claim as provided in paragraph (a) above, the Sellers shall not have the obligation to obtain the consent of the Purchaser (and the Purchaser shall not have any consent rights) to the settlement of the Tax Claim; provided, however, the Sellers shall have the obligation to obtain the consent of the Purchaser to any such settlement if and to the extent that the resolution of the Tax Claim materially affects the Purchaser’s Tax liabilities or indemnification obligations hereunder for any taxable period that begins after the Closing Date (but only with respect to the items that impact the Purchaser).

(2) Notwithstanding anything herein to the contrary, the Sellers’ Committee and Purchaser shall jointly control and participate in all proceedings taken in connection with any Tax Claim relating to Taxes of the Company for any Straddle Period. Neither the Sellers nor Purchaser shall settle any such Tax Claim without the prior written consent of the other, which consent will not be unreasonably withheld, delayed or conditioned.

(3) If a Tax Claim with respect to Taxes for any taxable period beginning after the Closing Date could increase the Sellers’ liability for Taxes in a Pre-Closing Period, the Sellers’ Committee shall have the same right to participate in the conduct of such proceedings as an Indemnified Party would have in the proceedings described in Section 8.6(a) . Before taking any action with respect to the conduct of such Tax Claim (including, but not limited to, the submission of any protest, petitions or responses to information document requests), the Purchaser shall first consult with the Sellers’ Committee in good faith about such action. The Purchaser shall not settle any such Tax Claim without the prior written consent of the Sellers’ Committee, which consent shall not be unreasonably withheld, delayed or conditioned.

8.7 Environmental Indemnities . With respect to any Environmental Indemnification Claim:

(a) Purchaser shall, with respect to each potential or actual Environmental Indemnification Claim, give written notice to the Sellers’ Committee (setting forth in reasonable detail the basis for such an Environmental Indemnification Claim) promptly following Purchaser’s knowledge of the occurrence of any event or the existence of any condition or alleged state of facts in respect thereof;

(b) Purchaser shall promptly deliver to the Sellers’ Committee copies of all material final reports, studies, investigations, surveys, test data, assessments, cost estimates and all other material information and documentation available to it relating to or supporting such potential or actual Environmental Indemnification Claim;

(c) Purchaser shall permit representatives of the Sellers’ Committee (including advisors and consultants) to visit, from time to time, and inspect, from time to time, any of the properties and operations, if any, to which a potential or actual Environmental Indemnification Claim relates, and to enter on such properties for the purpose of conducting such tests, inspections, or other investigations, all as the Sellers’ Committee may reasonably desire with respect to such potential or actual Environmental Indemnification Claim, all during normal business hours and at Sellers’ expense;

(d) Purchaser shall provide advance written notice to the Sellers’ Committee prior to undertaking, arranging to undertake or permitting any environmental test, inspection or investigation of any Owned Real Estate or Leased Real Estate or retaining any consultant relating to a potential or actual Environmental Indemnification Claim;

(e) Purchaser shall not give notice to any governmental authority of any event or of the existence of any condition or alleged state of facts that may give rise to a potential or actual Environmental Indemnification Claim without the prior notification to the Sellers’ Committee; if Purchaser (or any representative or advisor thereof) shall have any discussion or other communication with, to, or from any governmental authority relating to such potential or actual Environmental Indemnification Claim, Purchaser shall provide reasonable prior written notice to the Sellers’ Committee;

(f) Purchaser shall cause to be furnished to the Sellers’ Committee drafts of any and all proposed remediation or corrective action plans with respect to any potential or actual Environmental Indemnification Claims not less than twenty (20) Business Days prior to the date on which such plans are submitted to any applicable governmental authorities or otherwise implemented, and Purchaser shall use reasonable commercial efforts to adopt any changes or modifications to such plans as may be proposed by the Sellers’ Committee or its representatives which will not adversely affect the use of the Owned Real Estate or the operation of the Business in a manner consistent with its current operations;

(g) Purchaser shall use its commercially reasonable efforts to manage the Owned Real Estate in accordance with its standard practices, and not with intention of seeking indemnification claims or maximizing indemnification rights hereunder; and

(h) Purchaser agrees to use its best efforts to minimize remediation costs with respect to Environmental Indemnity Claims, and, in deciding among various alternative courses of remedial action, due consideration shall be given to minimization of costs. In no event shall Purchaser be entitled to indemnity for any remediation that exceeds applicable clean-up levels established by or under Environmental Laws as in effect as of the Closing Date that are consistent with the current use of the Owned Real Estate. Purchaser shall allow the following institutional controls to be placed on the Owned Real Estate: commercial and industrial use deed restrictions, deed restrictions prohibiting the use of groundwater and engineered barriers; unless such controls or barriers are reasonably expected to materially and adversely interfere with the continued use of the Owned Real Estate in substantially the same manner as it is used on the Closing Date.

8.8 Use of Escrow Amount . Any Damages to be paid by Sellers to or on behalf of a Purchaser Indemnitee in accordance with this ARTICLE VIII shall first be paid from the Escrow Amount, pursuant to the Escrow Agreement. Any such Damages over and above the Escrow Amount shall be paid by the Sellers, pro rata based on their respective Individual Portions. On the six (6) month anniversary of the Closing Date, one-third of the Escrow Amount (less any amounts paid to any Purchaser Indemnitee and less the amounts required to satisfy any claims then pending) shall be distributed to the Sellers’ Committee, on the twelve (12) month anniversary of the Closing Date, one-third of the Escrow Amount (less any amounts paid to any Purchaser Indemnitee and less the amounts required to satisfy any claims then pending) shall be distributed to the Sellers’ Committee, and on the eighteen month (18) anniversary of the Closing Date, any funds remaining in the Escrow Account shall be distributed to the Sellers’ Committee (less the amounts required to satisfy any claims then pending), in each case, subject to any applicable restrictions in the Escrow Agreement. Unless otherwise determined by Purchaser, the Escrow Amount shall not be applied to the payment of any amounts due to Seller in respect of the Working Capital Adjustment.

8.9 Indemnification Exclusive Remedy . Except as provided in Sections 9.4(c) and 9.5 and except in the case of actual fraud, indemnification pursuant to the provisions of Section 7.7(h) and this ARTICLE VIII shall be the sole and exclusive remedy of the parties with respect to any matters arising under or relating to this Agreement, any closing document executed and delivered pursuant to the provisions hereof and the transactions contemplated hereby. Without limiting the generality of the preceding sentence, (1) no legal action sounding in contribution, tort or strict liability may be maintained by any party hereto (or a Purchaser Indemnitee or Seller Indemnitee not a party hereto) against any other party hereto with respect to any matter that is the subject of Section 7.7(h) or this ARTICLE VIII , (2) Purchaser, for itself and the other Purchaser Indemnitees, hereby waives any and all statutory rights of contribution or indemnification that any of them might otherwise be entitled to under any federal, state or local Law, including legal action pursuant to CERCLA or any analogous state or local Law, regulation or ordinance or any similar rules of Law embodied in the common law and (3) the only action which may be asserted by any Purchaser Indemnitee under this Agreement, including, without limitation, with respect to any Environmental Claim, shall be a contract action to enforce, or to recover Damages pursuant to, Section 7.7(h) or this ARTICLE VIII .

ARTICLE IX

Termination

9.1 General . The parties shall have the rights and remedies with respect to the termination and/or enforcement of this Agreement which are set forth in this ARTICLE IX .

9.2 Right to Terminate . Anything to the contrary herein notwithstanding, this Agreement and the transactions contemplated hereby may be terminated at any time prior to the Closing:

(a) by the mutual written consent of Purchaser and the Sellers’ Committee;

(b) by GHI or Purchaser upon consummation of a transaction involving the direct or indirect sale by GHI of its Membership Interests to CBA pursuant to an exercise by CBA to purchase such Membership Interests under Section 7.4.1 of the FSB Operating Agreement (or otherwise);

(c) by GHI or Purchaser if the conditions set forth in Sections 5.1(c) , 5.2(c) or 5.2(f) shall not have been satisfied on or before the Termination Date; or

(d) by prompt notice given in accordance with Section 11.3 , by Purchaser or the Sellers’ Committee if the Closing shall not have occurred at or before 11:59 p.m. (Chicago time) on June 15, 2011 (the “ Termination Date ”); provided , however , that the right to terminate this Agreement under this Section 9.2(d) shall not be available to any party whose failure to fulfill any of its obligations under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or prior to the aforesaid date; provided, that any termination based on a failure to satisfy any of the conditions set forth in Sections 5.1(c) , 5.2(c) or 5.2(f) may only be effected under Section 9.2(c) above.

9.3 Certain Effects of Termination . In the event of the termination of this Agreement as provided in Section 9.2 : (a) each party, if so requested by the other party or parties, will promptly return or destroy (at the option of the disclosing party) every document furnished to it by the other party (or the Company, division, associate or Affiliate of such other party) in connection with the transactions contemplated hereby, whether so obtained before or after the execution of this Agreement, and any copies thereof (except for copies of documents publicly available and, in the case of Purchaser, documents received in its capacity as a shareholder of CBA or by its representatives in their capacity as directors of CBA) which may have been made, and will use reasonable efforts to cause its representatives and any representatives of financial institutions and investors and others to whom such documents were furnished promptly to return such documents and any copies thereof any of them may have made; and (b) the receiving party shall certify in writing to the disclosing party such return or destruction, as the case may be, within fifteen (15) days of the disclosing party’s request; and (c) the Confidentiality Agreement shall remain in effect. This Section 9.3 shall survive any termination of this Agreement.

9.4 Remedies . Notwithstanding any termination right granted in Section 9.2 , in the event of the non-fulfillment of any condition to a party’s closing obligations, in the alternative, such party may elect to do one of the following:

(a) proceed to close despite the non-fulfillment of any closing condition, it being understood that consummation of the Closing shall be deemed a waiver of a breach of any representation or warranty and of such party’s rights and remedies with respect thereto to the extent that Sellers shall have provided written notice of such breach to Purchaser (specifying the details of the breach with reasonable particularity) and the Closing shall nonetheless occur;

(b) decline to close, terminate this Agreement as provided in Section 9.2 , and thereafter seek damages to the extent permitted in Section 9.5 ; or

(c) seek specific performance by the other party hereto of such other party’s obligations hereunder which it has failed to perform so that Closing may proceed (it being acknowledged and agreed that the non-breaching party would be damaged irreparably, the remedies available at law to the non-breaching party would be inadequate, and the performance of such other party’s obligations under this Agreement may be specifically enforced).

9.5 Right to Damages .

(a) If this Agreement is terminated pursuant to Section 9.2 , neither party hereto shall have any claim for monetary damages against the other, except (1) if the circumstances giving rise to such termination were caused by the other party’s willful failure to comply with a material covenant set forth herein, in which event termination pursuant to Section 9.2 shall not be deemed or construed as limiting or denying any legal or equitable right or remedy of such party, and such party shall also be entitled to recover its costs and expenses which are incurred in pursuing its rights and remedies (including reasonable attorneys’ fees) and (2) as provided in Section 9.5(b) below.

(b) If (1) this Agreement is terminated by GHI or Purchaser pursuant to Section 9.2(c) and (2) GHI shall not have transferred its Membership Interests (directly or indirectly) to CBA or its Affiliates and shall not have otherwise agreed in writing to enter into such a transaction, then Purchaser shall pay to GHI a termination fee of One Million Five Hundred Thousand Dollars ($1,500,000), which shall be paid (by wire transfer of immediately available funds to an account designated by GHI) within ten (10) days following such termination (the date on which such payment is due, the “ Payment Date ”); provided that if GHI shall enter into any transaction described above in this Section 9.5(b) or agree in writing to enter into any such transaction within 180 days after the Payment Date, then, so long as such payment was paid to GHI in full in accordance with terms hereof, GHI shall return the full amount of such payment to Purchaser (by wire transfer of immediately available funds to an account designated by Purchaser) within ten (10) days following the date of the consummation of such transaction with CBA or its Affiliates. GHI and Purchaser acknowledge and agree that the agreement to pay the amounts described in this Section 9.5(b) is an integral part of the transactions contemplated by this Agreement, and that without such agreement, GHI would not have entered into this Agreement.

ARTICLE X

Sellers’ Committee

10.1 Appointment of Sellers’ Committee . Each Seller party hereto shall have the right to designate one (1) individual to serve on the Sellers’ Committee. Each Seller hereby irrevocably constitutes and appoints the individuals identified on Schedule 10.1 hereto as the Sellers’ Committee. This power is irrevocable and coupled with an interest, and shall not be affected by the death, incapacity, illness, dissolution or other inability to act of any of the Sellers.

10.2 Authority . Each of the Sellers hereby irrevocably grants the Sellers’ Committee full power and authority:

(a) to execute and deliver, on behalf of such Seller, and to accept delivery of, on behalf of such Seller, such documents as may be deemed by the Sellers’ Committee, in their sole discretion, to be appropriate to consummate this Agreement;

(b) to deliver on behalf of such Seller, certificates representing the Membership Interests to be sold by such Seller at the Closing;

(c) to acknowledge receipt at the Closing of the Purchase Price for each Membership Interest sold by such Seller at the Closing, as payment in full for such Membership Interests, to designate the manner of payment of such Purchase Price, and to certify, on behalf of such Seller, as to the accuracy of the representations and warranties of such Seller under, or pursuant to the terms of, this Agreement;

(d) to (1) dispute or refrain from disputing, on behalf of such Seller, any claim made by Purchaser under this Agreement; (2) negotiate and compromise, on behalf of such Seller, any dispute that may arise under, and to exercise or refrain from exercising any remedies available under, this Agreement; and (3) execute, on behalf of such Seller, any settlement agreement, release or other document with respect to such dispute or remedy;

(e) to waive, on behalf of such Seller, any closing condition contained in ARTICLE V of this Agreement and to give or agree to, on behalf of such Seller, any and all consents, waivers, amendments or modifications, deemed by the Sellers’ Committee, in their sole discretion, to be necessary or appropriate, under this Agreement, and, in each case, to execute and deliver any documents that may be necessary or appropriate in connection therewith;

(f) to enforce, on behalf of such Seller, any claim against Purchaser arising under this Agreement;

(g) to engage attorneys, accountants and agents at the expense of Sellers;

(h) to retain a portion of the Purchase Price as a fund for the payment of expenses payable by Sellers pursuant to the provisions hereof, adjustments to the Purchase Price, and potential claims for indemnification by Purchaser, and to invest such retained portion for the benefit of Sellers;

(i) to amend this Agreement (other than this ARTICLE X ) or any of the instruments to be delivered to Purchaser by such Seller pursuant to this Agreement; and

(j) to give such instructions and to take such action or refrain from taking such action, on behalf of such Seller, as the Sellers’ Committee deems, in their sole discretion, necessary or appropriate to carry out the provisions of this Agreement and any agreements or other documents contemplated herein, the authority for which may be relied upon by Purchaser without further inquiry.

Notwithstanding anything expressed or implied herein to the contrary, the Sellers’ Committee is not authorized or permitted to act on behalf of a Seller hereunder with respect to any matter pursuant to which this Agreement grants rights to a particular Seller by name or if the context indicates that one particular Seller or each Seller individually has the right or obligation to take such action.

10.3 Reliance . Each Seller hereby agrees that:

(a) in all matters in which action by the Sellers’ Committee is required or permitted, the Sellers’ Committee (by joint consent of the members of the Sellers’ Committee, or in the event of a dispute or disagreement between the members of the Sellers’ Committee, then by the consent of the member(s) of the Sellers’ Committee designated by the Seller(s) holding a majority of the Ownership Percentages held by all Sellers) is authorized to act on behalf of such Seller, and Purchaser shall be entitled to rely on any and all action taken by the Sellers’ Committee under this Agreement without any liability to, or obligation to inquire of, any of the Sellers, notwithstanding any knowledge on the part of Purchaser of any such dispute or disagreement;

(b) any notice to the Sellers’ Committee must be given to both members of the Sellers’ Committee in the manner provided in Section 11.3 , and such notice shall be deemed to be notice to all the Sellers for the purposes of this Agreement;

(c) the power and authority of the Sellers’ Committee, as described in this Agreement, shall continue in force until all rights and obligations of the Sellers under this Agreement shall have terminated, expired or been fully performed;

(d) each Seller shall have the right, exercisable from time to time upon written notice delivered to the Sellers’ Committee and Purchaser: (1) to remove the member the Sellers’ Committee designated by such Seller, with or without cause; and (2) to appoint an individual to fill a vacancy caused by the death, resignation or removal of the member of the Sellers’ Committee designated by such Seller.

10.4 Actions by the Sellers . Each Seller agrees that, notwithstanding the foregoing, at the request of Purchaser, such Seller shall take all actions necessary or appropriate to consummate the transactions contemplated hereby individually on such Seller’s own behalf, and delivery of any other documents required of the Sellers pursuant to the terms hereof.

10.5 Indemnification of Purchaser and Its Affiliates . The Sellers, jointly and severally, shall indemnify the Purchaser Indemnitees against, and agree to hold the Purchaser Indemnitees harmless from, any and all Damages incurred or suffered by any Purchaser Indemnitee arising out of, with respect to or incident to the operation of, or any breach of any covenant or agreement pursuant to, this ARTICLE X or the designation, appointment and actions of the Sellers’ Committee pursuant to the provisions hereof, including without limitation, with respect to (a) actions taken by the Sellers’ Committee or any member thereof; and (b) reliance by any Purchaser Indemnitee on, and actions taken by any Purchaser Indemnitee in response to or in reliance on, the instructions of, notice given by or any other action taken by the Sellers’ Committee.

10.6 Indemnification of Sellers’ Committee . Each Seller shall severally indemnify each member of the Sellers’ Committee against any Damages (except such Damages as result from such member’s gross negligence or willful misconduct) that such member may suffer or incur in connection with any action or omission of such member as a member of the Sellers’ Committee. Each Seller shall bear its pro-rata portion of such Damages. No member of the Sellers’ Committee shall be liable to any Seller with respect to any action or omission taken or omitted to be taken by the Sellers’ Committee pursuant to this ARTICLE X , except for such member’s gross negligence or willful misconduct.

ARTICLE XI

Miscellaneous

11.1 Broker’s Fees . Neither Purchaser nor the Company shall be responsible for payment of broker’s commissions, finder’s fees, investment banker’s fees or similar payments due to brokers or investment bankers retained by or on behalf of the Company or any Seller with respect to the transactions contemplated herein.

11.2 Publicity . Except as otherwise required by Law (including, without limitation, disclosures which the Purchaser determines, in good faith, are required or advisable under Regulation 13D of the Securities Exchange Act of 1934) or applicable stock exchange rules, press releases and other publicity concerning this transaction shall be made only with the prior agreement of the Sellers’ Committee and Purchaser (and in any event, the parties shall use all reasonable efforts to consult and agree with each other with respect to the content of any such required press release or other publicity). Except as otherwise required by Law or applicable stock exchange rules, no such press releases or other publicity shall state the Purchase Price.

11.3 Notices . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given: (a) on the day of service if served personally on the party to whom notice is to be given; (b) on the day of transmission if sent via email during regular business hours on a Business Day, and if not, then on the following Business Day; or (c) on the day of delivery (if a Business Day, and if not a Business Day, on the next Business Day) if sent by Federal Express or similar overnight courier or United States mail. All notices shall be addressed as follows (or as set forth on a party’s signature page or joinder to this Agreement):

If to GHI or the Sellers’ Committee:

Goose Holdings, Inc.

1800 W. Fulton St.

Chicago, Illinois 60612

Attention: John R. Hall

Email: johnrhall@gooseisland.com

with a copy to:

Greenberg Traurig, LLP

77 W. Wacker Drive, Suite 3100

Chicago, Illinois 60601

Attention: Chad D. Striker

Email: strikerc@gtlaw.com

If to Purchaser:

Anheuser-Busch, Incorporated

One Busch Place

St. Louis, Missouri 63118

Attention: Michael Taylor, VP M&A

Email: michael.r.taylor@anheuser-busch.com

with copies to:

Anheuser-Busch, Incorporated

One Busch Place

St. Louis, Missouri 63118

Attention: Gary Rutledge, General Counsel

Email: gary.rutledge@anheuser-busch.com

and

Bryan Cave LLP

One Metropolitan Square

211 North Broadway, Suite 3600

St. Louis, Missouri 63102

Attention: Denis P. McCusker

Email: dpmccusker@bryancave.com

Any party may change its address for the purpose of this Section 11.3 by giving the other party written notice of its new address in the manner set forth above.

11.4 Expenses . Except as otherwise expressly set forth herein or in other written agreements between any of the parties hereto, each party hereto shall bear all fees and expenses incurred by such party in connection with, relating to or arising out of the negotiation, preparation, execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including financial advisors’, attorneys’, accountants’ and other professional fees and expenses; provided, that the Company shall not be responsible for payment of any such obligations of either Seller.

11.5 Entire Agreement . This Agreement, the instruments to be delivered by the parties pursuant to the provisions hereof, and the Confidentiality Agreement constitute the entire agreement between the parties and shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. Upon execution of this Agreement, each Seller hereby irrevocably approves and consents to the terms and conditions of this Agreement and the transactions contemplated hereby, and waives and releases all rights of first refusal and other rights to acquire or restrict the transfer of, and all Liens and rights to impose Liens on, the Membership Interests, capital stock or other securities held or issued by another Seller, and all rights to object to, restrict, prohibit or delay in any manner whatsoever any of the transactions contemplated by this Agreement and/or any of the terms and conditions hereof. Each Exhibit, schedule and the Disclosure Schedule, shall be considered incorporated into this Agreement.

11.6 Non-Waiver . The failure in any one or more instances of a party to insist upon performance of any of the terms, covenants or conditions of this Agreement, to exercise any right or privilege in this Agreement conferred, or the waiver by said party of any breach of any of the terms, covenants or conditions of this Agreement, shall not be construed as a subsequent waiver of any such terms, covenants, conditions, rights or privileges, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred. Except as provided in Section 9.4(a) , no waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

11.7 Counterparts . This Agreement may be executed in multiple counterparts and joinders, each of which shall be deemed an original and all of which together shall constitute one instrument. This Agreement may be executed through the exchange of facsimile or pdf e-mail signature pages, which shall have the same legal effect as original signatures.

11.8 Severability . Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, and, for purposes of such jurisdiction, such provision or portion thereof shall be struck from the remainder of this Agreement, which shall remain in full force and effect. This Agreement shall be reformed, construed and enforced in such jurisdiction so as to best give effect to the intent of the parties under this Agreement.

11.9 Applicable Law . This Agreement shall be governed and controlled as to validity, enforcement, interpretation, construction, effect and in all other respects by the internal Laws of the State of Illinois applicable to contracts made in that state, without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the Laws of any jurisdiction other than the State of Illinois.

11.10 Binding Effect; Benefit . This Agreement shall inure to the benefit of and be binding upon the parties hereto, and their successors and permitted assigns. Nothing in this Agreement, express or implied, shall confer on any Person other than the parties hereto, and their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, including third party beneficiary rights, except that the Indemnified Employees shall be third party beneficiaries of Section 7.5 and the Sellers’ Committee shall be a third party beneficiary of this Agreement.

11.11 Assignability . This Agreement shall not be assignable by any Seller without the prior written consent of Purchaser, or by Purchaser without the prior written consent of the Sellers’ Committee.

11.12 Rule of Construction . The parties acknowledge and agree that each has negotiated and reviewed the terms of this Agreement, assisted by such legal and tax counsel as they desired, and has contributed to its revisions. The parties further agree that the rule of construction that any ambiguities are resolved against the drafting party will be subordinated to the principle that the terms and provisions of this Agreement will be construed fairly as to all parties and not in favor of or against any party. The terms “including”, “includes”, “include” and words of like import shall be construed broadly as if followed by the words “without limitation” or “but not limited to.” The terms “herein”, “hereunder”, “hereof” and words of like import refer to this entire Agreement instead of just the provision in which they are found. The term “pending” shall mean pending (but shall not be construed as referring to any action, suit or proceeding against the Company that has been filed but not yet served on the Company), and “threatened” means threatened (and shall be construed as referring, without limitation, to any action, suit or proceeding against the Company that has been filed but not yet served on the Company).

11.13 Governmental Reporting . Anything to the contrary in this Agreement notwithstanding, nothing in this Agreement shall be construed to mean that a party hereto or other Person must make or file, or cooperate in the making or filing of, any return or report to any governmental authority in any manner that such Person or such party reasonably believes or reasonably is advised is not in accordance with Law.

11.14 WAIVER OF TRIAL BY JURY . EACH OF THE PARTIES HERETO WAIVES THE RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY LAWSUIT, ACTION OR PROCEEDING SEEKING ENFORCEMENT OF SUCH PARTY’S RIGHTS UNDER THIS AGREEMENT

11.15 Consent to Jurisdiction ; Agent for Service of Process . This Agreement has been executed and delivered in and shall be deemed to have been made in Illinois. The parties each agree to the exclusive jurisdiction of any state or Federal court within the city of Chicago, Illinois, with respect to all actions, suits and proceedings to enforce the arbitration requirements of, and any arbitration decision issued pursuant to Section 11.16 , and any claim or cause of action arising under or relating to this Agreement not subject to the arbitration provisions of Section 11.16 , and waives personal service of any and all process upon it, and consents that all services of process be made by registered or certified mail, return receipt requested, directed to it at its address as set forth in Section 11.3 , and service so made shall be deemed to be completed when received. The parties each waive any objection based on forum non conveniens and waive any objection to venue of any action instituted hereunder. Nothing in this paragraph shall affect the right of the parties to serve legal process in any other manner permitted by Law. Each of the Sellers hereby irrevocably appoints the members of the Sellers’ Committee as the agent for such Sellers to receive service of legal process in respect of any action, suit or proceeding referred to herein, and agrees that service of process on such members shall be deemed adequate service of legal process on such Seller.

11.16 Dispute Resolution . Except for the resolution of disputes under ARTICLE II , the following shall constitute the exclusive procedures and remedies for all disputes arising out of or relating to this Agreement.

(a) The parties shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by negotiation between executives who have authority to settle the controversy. Purchaser or the Sellers’ Committee may give the other written notice of any dispute not resolved in the normal course of business. Within thirty (30) days after delivery of such notice, the receiving party shall submit to the other a written response. The notice and the response shall include (1) a statement of each party’s position, (2) a summary of arguments supporting that position, and (3) the name, title, and contact information of the executive who will represent that party. Within thirty (30) days after delivery of the disputing party’s notice, the executives of both parties shall meet at a mutually agreeable time and place in Chicago, Illinois, and thereafter in Chicago, Illinois as often as they reasonably deem necessary to attempt to resolve the dispute. All reasonable requests for information made by one party to the other shall be honored. All negotiations pursuant to this Section 11.16 are confidential and shall be treated as compromise and settlement negotiations for purposes of the applicable rules of evidence. If the dispute cannot be settled through negotiation within thirty (30) days of the initial meeting of the executives provided for above, dispute shall be submitted to binding arbitration pursuant to this Section 11.16 , unless otherwise agreed upon between the parties.

(b) Any dispute arising out of or relating to this Agreement that has not been resolved pursuant to Section 11.16(a) shall be resolved by binding arbitration in Chicago, Illinois before a single arbitrator based in Chicago, Illinois. The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules & Procedures. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16. The arbitrator shall be mutually agreed between the parties or if the parties do not agree, selected pursuant to the JAMS Comprehensive Arbitration Rules & Procedures.. The arbitrator is not empowered to award damages in excess of compensatory damages and attorney’s fees (and specifically shall not award consequential, indirect, special, exemplary or punitive damages), and shall be empowered to award specific performance, injunctions or other equitable remedies. Notwithstanding the foregoing, the arbitrator is empowered to award the termination fee described in Section 9.5(b) . The arbitrator shall have no authority to relieve the parties of their agreement hereunder to arbitrate or otherwise to amend or disregard any provision of this Agreement, including the provisions in this Section 11.16 . The award of the arbitrator shall be the sole and exclusive remedy of the parties and shall be enforceable in any court of competent jurisdiction.

(c) Unless the parties otherwise agree or the arbitrator determines it would be impracticable, a hearing before the arbitrator so appointed shall be held within ninety (90) days after the appointment of the arbitrator. The arbitrator shall render an award no later than thirty (30) days after the close of the hearing. Disputes about arbitration procedure shall be resolved by the arbitrator. Discovery shall be limited to the mutual exchange of information by the parties unless otherwise ordered by the arbitrator. The claimant shall submit to JAMS and serve on the other party a notice of its claim and remedies sought within fourteen (14) days after the appointment of the arbitrator. Within fourteen (14) days of service of the notice of claim, the respondent must submit to JAMS and serve on the claimant its response, any affirmative defenses, or counterclaims it may have. Within ten (10) days of service of a counterclaim, the claimant must submit to JAMS and serve on the respondent its response to such counterclaim and any affirmative defenses. The parties shall complete an initial exchange of all documents, including copies of documents in their possession or control on which they may rely in support of their positions (and all other documents relevant to the matter) and individuals they may call as witnesses at the hearing within twenty-one (21) days after all pleadings have been received. Depositions shall be limited to three (3) per party and not be longer than five (5) hours unless otherwise ordered by the arbitrator or stipulated by the parties. The arbitrator shall be authorized to grant interim relief, including to prevent the destruction of goods or documents involved in the dispute.

(d) The statute of limitations of the State of Illinois applicable to the commencement of actions shall apply to the commencement of an arbitration hereunder, except that no defenses shall be available based upon the passage of time during any negotiation called for by Section 11.16(a) .

11.17 Amendments . This Agreement shall not be modified or amended except pursuant to an instrument in writing executed and delivered on behalf of each of the parties hereto.

11.18 Headings . The headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties have executed this Equity Purchase Agreement as of the date first above written.

	PURCHASER :

	ANHEUSER-BUSCH, INCORPORATED

	By:	/s/ David T. West
	Name:	David T. West
	Title:	Senior Director, Global Mergers and Acquisitions

	GHI:

	GOOSE HOLDINGS, INC.

	By:	/s/ John Hall
	Name:	John Hall
	Title:	President

EXHIBIT A

SELLERS AND MEMBERSHIP INTERESTS

Name of Seller	Membership Interest
Name of Seller	Sharing Ratio	Number of Units	Ownership Percentage
Goose Holdings, Inc.	58%	580 Units	58%
Craft Brewers Alliance, Inc.	42%	420 Units	42%
Total	100%	1000 Units	100%

Exhibit 3.2

AMENDED AND RESTATED

BYLAWS

CRAFT BREWERS ALLIANCE, INC.

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)
	April 7, 2004	(Section 2.2)
	November, 30, 2007	(Section 5.2)
	July 1, 2008	(Name change, Section 3.3)
	December 1, 2010	(Section 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		9
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

TABLE OF CONTENTS (continued)

			Page

	3.3.1	Chairman of the Board.	13
	3.3.2	Chief Executive Officer or Co-Chief Executive Officer.	14
	3.3.3	President.	14
	3.3.4	Vice Presidents.	14
	3.3.5	Secretary.	14
	3.3.6	Treasurer	15
3.4	Delegation		16
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		17
4.1	Contracts		17
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		19
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		22
10.5	Severability		22
ARTICLE XI	AMENDMENT OF BYLAWS		22
ARTICLE XII	AUTHENTICATION		22

AMENDED AND RESTATED

BYLAWS OF

CRAFT BREWERS ALLIANCE, INC.

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.

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 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.

(c) 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.

(d) 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.

(e) 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.

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

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 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) 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

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 eight (8) directors. 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 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.

(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

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

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 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;

(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 Board at which he is present. The Chairman may sign deeds, mortgages, bonds, contracts, and other instruments on behalf of the corporation, 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.

3.3.2 Chief Executive Officer or Co-Chief Executive Officer . The Chief Executive Officer shall, together with the President, if any, and subject to the control of the Board, shall supervise and control all of the assets, business, and affairs of the corporation and shall see that all orders and resolutions of the Board are carried into effect. The Chief Executive Officer may sign certificates for shares of the corporation, deeds, mortgages, bonds, contracts, and other instruments on behalf of the corporation, 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 Chief Executive Officer 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 Chief Executive Officer shall perform all duties incident to the office of Chief Executive Officer and such other duties as may be prescribed by the Board from time to time. The Chief Executive Officer shall have the authority to appoint one or more Assistant Secretaries and Assistant Treasurers, as he or she deems necessary. In the event that more than one individual holds the office of Chief Executive Officer at any given time, all individuals holding such office shall be entitled to the same privileges and benefits under these Bylaws.

3.3.3 President . The President, if any, shall, together with the Chief Executive Officer(s) and subject to the control of the Board, supervise and control all of the assets, business, and affairs of the corporation and shall see that all orders and resolutions of the Board are carried into effect. The President shall perform all duties incident to the office of President and all such other duties as may from time to time be assigned to him or her by the Board or these Bylaws. If the Board has not elected a Chief Executive Officer, the President shall also be the Chief Executive Officer. If the Board has elected a Chief Executive Officer and that officer is absent, disqualified from acting, unable to act or refuses to act, then the President shall have the powers of, and shall perform the duties of, the Chief Executive Officer.

3.3.4 Vice Presidents . The Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or in any other order determined by the Board, shall generally assist the Chief Executive Officer(s) and the President, and 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 Chief Executive Officer(s), the President, or the Chairman of the Board (if one be appointed). In the absence or disability of all persons holding the title of Chief Executive Officer or President, the Vice Presidents shall, in order of their rank as fixed by the Board of Directors or in any other order determined by the Board, perform all the duties and exercise the powers of the Chief Executive Officer or the President, as the case may be.

3.3.5 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;

(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 Chief Executive Officer, or other officer authorized by the Chief Executive Officer 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 Chief Executive Officer, the President or the Board of Directors.

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

3.3.6 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 Chief Executive Officer, 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

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 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 . The shares of the corporation may but need not be represented by certificates but all written certificates shall be in such form 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;

(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 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:

(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.

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

(b) receive votes, ballots, or consents;

(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.

(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 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 are the approved Amended and Restated Bylaws of Craft Brewers Alliance, Inc. as adopted by the Board of Directors and last amended by the Board on the 1 st day of December, 2010, and the Secretary of the corporation is empowered to authenticate such Bylaws by her signature below.

	/s/ Mary Ann Frantz
	Mary Ann Frantz, Secretary

Exhibit 10.11

NONSTATUTORY

STOCK OPTION AGREEMENT

THIS NONSTATUTORY STOCK OPTION AGREEMENT (this "Agreement") is entered into effective as of ____________, 20__ (the "Grant Date"), by CRAFT BREWERS ALLIANCE, INC. , a Washington corporation (the "Company"), and _______________ (the "Optionholder").

RECITALS

A. The Company has adopted the 2010 Stock Incentive Plan (the "Plan"). Capitalized terms that are used but not defined in this Agreement will have the meanings given those terms in the Plan.

B. The Committee has designated the Optionholder to receive a stock option under the Plan.

NOW, THEREFORE, the Company and the Optionholder agree as follows:

1. Grant of the Option. The Company grants to the Optionholder a Nonstatutory Stock Option (the "Option") to acquire from the Company _______ shares of Common Stock (the "Shares") at the price of $____.__ per share (the "Purchase Price"). The Option is subject to all of the provisions of the Plan and the terms and conditions specified in this Agreement.

2. Term of the Option. Unless earlier terminated pursuant to the Plan, the Option will terminate on the earliest to occur of the following: (a) the expiration of three (3) months following the date of termination of the Optionholder's Continuous Service for any reason other than death, Disability or Cause; (b) the expiration of one year following the date of termination of the Optionholder's Continuous Service by reason of death or Disability; (c) the date of termination of the Optionholder's Continuous Service for Cause; and (d) the tenth anniversary of the Grant Date (________________, 20__).

3. Exercisability. Except as specified below and in Section 10.3 of the Plan, the Option will become exercisable (a) as to twenty percent (20%) of the Shares on the first anniversary of the Grant Date, and (b) as to an additional twenty percent (20%) of the Shares on each of the next four anniversaries of the Grant Date. If the Optionholder's Continuous Service terminates by reason of death or Disability, the Option will immediately become exercisable in full. If the Optionholder’s Continuous Service terminates by reason of Cause, all outstanding Options shall be forfeited (whether vested or not vested) and expire on the date of termination. Except as provided in Section 10.3 of the Plan, if the Optionholder's Continuous Service terminates for any reason other than death, Disability or Cause, the Option thereafter will be exercisable only for the Shares as to which it was exercisable on the date of termination.

4. Exercise of the Option. In order to exercise the Option, the Optionholder must do the following:

(a) deliver to the Company a written notice, in substantially the form of the attached Exhibit A, specifying the number of Shares for which the Option is being exercised;

(b) tender payment to the Company of the aggregate Purchase Price for the Shares for which the Option is being exercised, which amount may be paid –

(i) by check;

(ii) by delivery to the Company of shares of Common Stock already owned by the Optionholder that have a Fair Market Value, as of the date of exercise, equal to the aggregate Purchase Price payable;

(iii) delivery (in a form approved by the Committee) of an irrevocable direction to a securities broker acceptable to the Committee:

(A) To sell Shares subject to the Option and to deliver all or a part of the sales proceeds to the Company in payment of all or a part of the Purchase Price and withholding taxes due; or

(B) To pledge Shares subject to the Option to the broker as security for a loan and to deliver all or a part of the loan proceeds to the Company in payment of all or a part of the Purchase Price and withholding taxes due; or

(iv) by such other means as the Committee, in its sole discretion, may permit at the time of exercise;

(c) pay, or make arrangements satisfactory to the Committee for payment to the Company of, all taxes required to be withheld by the Company in connection with the exercise of the Option; and

(d) execute and deliver to the Company any other documents required from time to time by the Committee in order to promote compliance with applicable laws, rules and regulations.

5. Tax Withholding and Reimbursement. The Company is authorized to withhold from the Optionholder's other compensation any withholding and payroll taxes imposed on the Company in connection with or with respect to the exercise or other settlement of the Option (the "Payroll Taxes"). In the event the Optionholder is no longer an employee of the Company at the time of exercise or there is insufficient other income from which to withhold Payroll Taxes, the Optionholder agrees to pay the Company an amount sufficient to provide for payment of all Payroll Taxes.

6. Acceptance of Option; Further Assurances. By executing this Agreement, the Optionholder accepts the Option, acknowledges receipt of a copy of the Plan, and agrees to comply with and be bound by all of the provisions of the Plan and this Agreement. The Optionholder agrees to execute from time to time such additional documents as the Company may reasonably require in order to effectuate the purposes of the Plan and this Agreement.

7. Entire Agreement; Amendments; Binding Effect. This Agreement, together with the Plan, constitutes the entire agreement and understanding between the Company and the Optionholder regarding the subject matter hereof. Except as permitted by the Plan, no amendment of the Option or this Agreement, or waiver of any provision of this Agreement or the Plan, shall be valid unless in writing and duly executed by the Company and the Optionholder. The failure of any party to enforce any of that party's rights against the other party for breach of any of the terms of this Agreement or the Plan shall not be construed as a waiver of such rights as to any continued or subsequent breach. This Agreement shall be binding upon the Optionholder and his or her heirs, successors and assigns.

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

"Company"	CRAFT BREWERS ALLIANCE, INC.

	By
		[Name]
		[Title]

"Optionholder"
		[Name]

EXHIBIT A

NOTICE OF STOCK OPTION EXERCISE

CRAFT BREWERS ALLIANCE, INC.

2010 STOCK INCENTIVE PLAN

To:	Craft Brewers Alliance, Inc.

929 North Russell Street

Portland, Oregon 97227

Attention: ___________________

Optionholder:

____________________________

Print Name

Mailing Address:

____________________________

Telephone Number:

____________________________

Option:

The option evidenced by an Option Agreement dated ___________, 20__.

OPTION EXERCISE

I hereby elect to exercise the Option to purchase shares ("Shares") of common stock of Craft Brewers Alliance, Inc. ("CBAI"), covered by the Option as follows:

Number of Shares Purchased (a)

___________________

Per-Share Option Price (b)

$___________________

Aggregate Purchase Price (a times b)

$___________________

Closing Date of Purchase

___________________

Form of Payment [Check One]:

My check in the full amount of the Aggregate Purchase Price (as well as a check for any withholding taxes, if this box ¨ is checked). See "Instructions" below.

Delivery of previously owned shares of CBAI common stock with a fair market value equal to the Aggregate Purchase Price. See "Instructions" below. Note that restricted shares acquired from CBAI under one of its stock plans may be used for this purpose only if such shares have become vested.

A-1

My irrevocable direction to my securities broker (see below) to sell Shares subject to the Option and deliver a portion of the sales proceeds to Craft Brewers Alliance, Inc., in full payment of the Aggregate Purchase Price (as well as any withholding taxes, if this box ¨ is checked). See "Instructions" below. I hereby confirm that any sale of Shares will be in compliance with CBAI's policies on insider trading and Rule 144, if applicable. I HEREBY IRREVOCABLY AUTHORIZE

______________________ to transfer funds to Craft Brewers Alliance,

( name of broker )

Inc., from my account in payment of the Aggregate Purchase Price (and withdolding taxes, if applicable) and Craft Brewers Alliance, Inc., is hereby directed to issue the Shares for my account with such broker and to transmit the Shares to the broker indicated above.

Instructions:

(1) If payment is to be by check, a check for the amount of the Aggregate Purchase Price payable to Craft Brewers Alliance, Inc., should be submitted with this Notice.

(2) If payment is to be by surrender of previously owned shares or by attestation of ownership (see Attestation Form below), either a certificate for the shares accompanied by a stock power endorsed in blank or the completed Attestation Form should be submitted with this Notice. If applicable, a certificate for any shares in excess of those needed to satisfy the Aggregate Purchase Price will be returned to you with the certificate for your option shares. Any change in registration between the payment shares and the new shares will require a properly executed stock power that is guaranteed by an institution participating in a recognized medallion signature guarantee program.

(3) No withholding tax is due upon exercise of an incentive stock option. Withholding tax is due immediately upon exercise of a nonstatutory stock option by an employee. If withholding tax is due at the time of exercise, you will be notified of the amount and satisfactory arrangements must be made for payment before a stock certificate for your option shares will be delivered to you (or your broker, if applicable). Among other alternatives, amounts necessary to satisfy withholding obligations may be deducted from compensation otherwise payable to you.

ISSUANCE INSTRUCTIONS FOR STOCK CERTIFICATES

Please register the stock certificate(s) in the following name(s):

______________________________

If applicable, please check one: ¨ JT TEN ¨ TEN COM ¨ Other

A-2

Please deliver the stock certificate(s) to (check one):

¨ My brokerage account

______________________________

Attn: _________________________

Account No.:____________________; or

¨ My mailing address set forth above.


Date		Signature of Participant

ATTESTATION FORM

As indicated above, I have elected to use shares of CBAI common stock that I already own to pay the Aggregate Purchase Price of the Option.

I attest to the ownership of the shares represented by the certificate(s) listed below or to the beneficial ownership of the shares held in the name of my broker, as indicated in the attached copy of my brokerage statement. I will be deemed to have delivered such shares to CBAI in connection with the exercise of my Option.

I understand that, because I (and any joint owner) will retain ownership of the shares (the "Payment Shares") deemed delivered to pay the Aggregate Purchase Price, the number of shares to be issued to me upon exercise of my Option will be reduced by the number of Payment Shares. I represent that I have full power to deliver and convey certificates representing the Payment Shares to CBAI and by such delivery and conveyance could have caused CBAI to become sole owner of the Payment Shares. The joint owner of the Payment Shares, if any, by signing this Form, consents to these representations and to the exercise of the Option by this attestation.

I certify that any Payment Shares originally issued to me as restricted shares are now fully vested.

A-3

List certificate(s) and number of shares covered, or attach a copy of your brokerage statement:

Common Stock Certificate Number	Number of Shares Covered

Date: __________________

Print Name of Optionholder:

Signature of Optionholder:

Print Name of Joint Owner:

Signature of Joint Owner:

If you are attaching a copy of your brokerage statement, you must have your securities broker complete the following:

The undersigned hereby certifies that the foregoing attestation is correct.


	Name of Brokerage Firm

Date:	By:
Telephone No.:_________________________________

		Print Name of Signing Broker

A-4

EXHIBIT 10.25

SUMMARY OF ANNUAL CASH INCENTIVE

BONUS PLAN FOR EXECUTIVE OFFICERS

Pursuant to their employment letter agreements, executive officers of Craft Brewers Alliance, Inc. (the "Company"), are eligible for annual cash incentive bonus opportunities subject to attainment of corporate level goals and individual performance objectives.

Bonus opportunities related to corporate level goals:

The annual incentive bonus opportunities related to corporate level goals for the Company’s executive officers are set by the Compensation Committee (the "Committee") of the Company's Board of Directors (the "Board") each year as a percentage of the executive’s annual base salary. For 2011, the percentages range from 32 percent to 56 percent of base salary. The corporate level goals are generally defined by objectively measureable financial metrics, including, achieving specified target levels of earnings before interest, taxes, depreciation and amortization (“EBITDA”), sales revenues, either for the Company as a whole or for certain key regions or brands, market share, depletion growth, and similar measures. For 2011, the corporate component of the target bonuses is tied 50 percent to achievement of a specified EBITDA target and 50 percent to achievement of a specified sales revenue target for the Company.

Achievement above or below the specified target levels for the financial metrics may result in an upward or downward adjustment in the bonus amount payable. Typically, the adjustment is calculated as the product of a defined factor (2.5% for 2011) and the percentage by which the actual achievement of a given financial metric is above or below the target level. If the Company fails to achieve a specified financial target at the 80 percent level or above, no part of the bonus opportunity associated with that target is earned.

Bonus opportunities related to individual performance objectives:

The annual incentive bonus opportunities related to individual performance objectives for the Company’s executive officers are also set by the Compensation Committee each year and, for 2011, range from 8 percent to 14 percent of the executive’s respective annual base salary. The individual performance objectives are generally based on achieving financial, strategic, operational and other goals in functional areas for which the executive has responsibility. Individual performance objectives are tied to the officer's role in achieving the Company's strategic and operating goals.

Payout of Bonuses:

The Committee determines the extent to which corporate level objectives and individual performance goals have been satisfied following the end of each fiscal year. Any annual cash incentive bonus award approved by the Committee for the Company’s Chief Executive Officer is subject to review and ratification by the Board. Payment of bonuses, if any, is made promptly following the Committee's determination. An executive will not be entitled to receive a bonus unless he or she remains employed by the Company through the date of the Committee's determination.

Exhibit 10.33

AMENDMENT TO

MASTER DISTRIBUTOR AGREEMENT

This Amendment to Master Distributor Agreement (the “Agreement”) is made effective as of July 25, 2008, by and between Craft Brewers Alliance, Inc. (“CBA”) and Anheuser-Busch, Incorporated (“ABI”).

WHEREAS, CBA and ABI entered into a certain Master Distributor Agreement dated July 1, 2004, as amended (the “Agreement”); and

WHEREAS, CBA and ABI desire to amend the Agreement on the terms and conditions as set forth herein.

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

1. All references to the “Territory” as defined in the Agreement shall mean the United States of America, the District of Colombia and all states, territories and possessions of the United States of America; provided, however, that except for Products brewed by Kona or bearing the trademark of Kona, Territory shall also include all United States military, diplomatic and governmental institutions, whether or not located in the territories or possessions of the United States.

2. All capitalized terms herein shall have the same meaning give them in the Agreement. Except as hereby amended, all other terms and conditions of the Agreement remain in full force and effect.

IN WITNESS WHEREOF, the Agreement has been duly executed as of the date first above written.

	CRAFT BREWERS ALLIANCE, INC.

	By:	/s/ Terry E. Michaelson
	Printed Name:	Terry E. Michaelson
	Title:	Co-CEO


	ANHEUSER-BUSCH, INCORPORATED

	By:	/s/ Anthony J. Short
	Printed Name:	Anthony J. Short
	Title:	Vice President-Business and
		Wholesaler Development

Exhibit 10.41

SUBLEASE

Lessor: MANINI HOLDINGS, LLC

Lessee: KONA BREWING CO., INC

THIS SUBLEASE (" lease ") is made this ______ day of ___________, 20110 , by and between MANINI HOLDINGS, LLC , a Hawaii limited liability company, whose post office address is 75-5629 Kuakini Highway, Kailua-Kona, Hawaii 96740, hereinafter called the " Lessor ," and KONA BREWING CO., INC ., a Hawaii corporation , whose post office address is 75-5629 Kuakini Highway, Kailua-Kona, Hawaii 96740, hereinafter called the " Lessee ", who agree as follows:

ARTICLE I

GRANT

1.1 Premises . The Lessor leases to the Lessee, and the Lessee hires from the Lessor, those certain premises, and all improvements thereon and therein, more particularly shown and cross-hatched in red on Exhibit A attached hereto (hereinafter the " premises ") located on that certain parcel of real property commonly known as Lot 13 of the Kona Industrial Subdivision, Unit I, in the District of North Kona, County and State of Hawaii, Tax Map Key (3) 7-4-010:001 (Lot 13 and the improvements thereon shall hereafter be called the " Property "). The area of the premises is set forth in Exhibit B attached hereto. In addition to the premises, Lessee shall, as an appurtenance thereto, have full right of access to the premises over and across any common entrances, sidewalks, halls, corridors, parking areas and stairways on the Property (the " common areas "), which common areas are generally shown and shaded in green on Exhibit A attached hereto. All common areas shall at all times be subject to the exclusive control and management of Lessor, and shall be subject to such rules and regulations as Lessor may adopt and promulgate from time to time. Lessee will not use the common areas in such a way as to impede or interfere with the operation of the Property, or with Lessor or any tenant therein or thereon. Lessor shall have the right, in its sole discretion, to increase or reduce the common areas, to rearrange the parking spaces and improvements in the common areas and to make any other changes therein from time to time. There shall be no reduction of Lessee's monthly base rent or any other charges hereunder for any change to the common areas.

1.2 Acceptance of Premises . The Lessee accepts possession of the premises in "as is" condition.

1.3 Quiet Enjoyment . Upon payment of the rent and observance and performance of the conditions and agreements on the part of the Lessee to be observed and performed, the Lessee shall peaceably hold and enjoy the premises for the term of the lease without hindrance or interruption by the Lessor or any other person lawfully claiming by, through or under the Lessor except as expressly provided herein.

ARTICLE II

TERM

2.1 Term . The term of this lease shall commence on September 1, 2010 (the " commencement date ") and shall expire on August 31, 2020. If Lessor, for any reason other than the negligence or willful misconduct of Lessee, cannot deliver access to the premises to Lessee on or before the commencement date, this lease shall not be void or voidable, and Lessor shall not be liable to Lessee for any loss or damage resulting from Lessor's failure to deliver the premises to Lessee. However, during such period of non-delivery, the rent (i.e., monthly base rent and additional rent) payable under this lease shall be abated until Lessor offers occupancy of the premises to Lessee.

2.2 Option to Extend the Term . Lessee shall have two (2) options to extend the term of this lease for five (5) years each by giving Lessor written notice of such extension on or before one hundred eighty (180) days prior to the expiration of the term of this lease. Such extensions shall be upon the same terms and conditions of this lease, excepting for this option and the monthly base rent. Monthly base rent for each extension of the term shall be as provided in Section 3.1(b) below.

ARTICLE III

RENT; SECURITY DEPOSIT

3.1 Monthly Base Rent .

(a) Commencing on the commencement date and for each and every calendar month during the term, Lessee shall pay to the Lessor, on or before the first (1st) day of each month, in advance, at Lessor's address, the monthly base rent set forth in Exhibit B attached hereto. The monthly base rent, additional rent, security deposit and all other sums payable under this lease to Lessor by Lessee, which security deposit and other sums shall constitute additional rent hereunder, are collectively referred to herein as the " rent ."

(b) If Lessee exercises its right to extend the initial term of this lease, the monthly base rent for each extension period shall be an amount equal to the then-fair market rental value of the premises as the parties may agree by the end of the term of this lease or, if the parties fail to agree as to the then-fair market rental value of the premises, an amount equal to the then-fair market rental value of the premises as may be established by arbitration. If arbitration shall be required to determine the then-fair market rental value of the premises as required in this Section 3.1(b), such arbitration shall be by three (3) arbitrators who shall be recognized real estate appraisers. Each party shall name an arbitrator and notify the other in writing and, in case of the failure of either to appoint an arbitrator within ten (10) days after notification of appointment of an arbitrator, the party appointing the first arbitrator may apply to the Circuit Court of the Third Circuit, State of Hawaii, for the appointment of a second arbitrator; the two (2) arbitrators shall appoint a third arbitrator and, in case of their failure to do so within ten (10) days after the appointment of the second arbitrator, either party may have such third arbitrator appointed by the Court. The three (3) arbitrators so appointed shall proceed to determine the then-fair market rental value of the premises and the decision of a majority of them shall be final, conclusive and binding upon the parties. If such arbitration shall be required, the "then-fair market rental value of the premises" shall exclude all improvements constructed or installed in the premises by the Lessee and all trade furnishings or fixtures which Lessee has the right to remove at the end of the term, if any, and shall mean what a landlord under no compulsion to lease the premises, and a tenant under no compulsion to lease the premises, would determine as the monthly base rent (including the monthly base rent increases during the extension period) for the extension period, as of the commencement of the extension period, taking into consideration the uses permitted under this lease, the characteristics, location and quality of the Property, the quality, size, construction, design, and location of the premises, and the monthly base rent for comparable premises located in the vicinity of the Property, provided , however , that (i) the monthly base rent per month for the first month of each extension period shall not be less than one hundred three percent (103%) of the monthly base rent per month due and payable by Lessee for the calendar month immediately preceding the commencement of such extension period and (ii) the monthly base rent for each succeeding year of each extension period shall be increased by not less than three percent (3%) of the monthly base rent per month due and payable by Lessee for the calendar month immediately preceding the commencement of such succeeding year.

(c) The monthly base rent, additional rent, security deposit and all other sums payable under this lease to Lessor by Lessee, which security deposit and other sums shall constitute additional rent hereunder, are collectively referred to herein as the " rent ."

(d) Except as may otherwise be specifically provided in this lease, the amount of the monthly base rent set forth above is a negotiated figure and shall govern whether or not the actual square footage of the premises is the same as the square footage set forth in Exhibit B attached hereto. Lessee shall have no right to withhold, deduct or offset any amount from the monthly base rent or additional rent even if the actual square footage of the premises is less than the square footage set forth in Exhibit B attached hereto. In addition, the square footage figure set forth in Exhibit B attached hereto shall serve as the base figure in determining the prorata rent reduction/abatement in the event of damage, condemnation or other circumstance requiring such reduction, abatement or other adjustment of rent, notwithstanding that the square footage set forth in Exhibit B attached hereto shall be more or less than the actual square footage of the premises.

3.2 Additional Rent .

(a) In addition to the monthly base rent, commencing on the commencement date, Lessee agrees to monthly pay, as additional rent, a forty-four and 07/100 percent (44.7%) share of all Property maintenance and operating expenses as hereinafter defined. Lessee shall have no right to withhold, deduct or offset any amount from the additional rent even if the actual square footage of the premises is less than the approximate square footage of the premises set forth in Exhibit B attached hereto.

(b) Lessee's percentage share of the Property maintenance and operating expenses set forth above is based upon the Lessee's percentage of the Property's maintenance and operating expenses as of the commencement date. The maintenance and operating expenses for the Property shall be computed on an annual basis, at the beginning of each calendar year, and, to the extent such expenses are not fixed or known in advance, shall be estimated by the Lessor for the ensuing year. Lessee shall pay such expenses, as additional rent, throughout the calendar year, in advance, with the monthly base rent, subject to reconciliation and adjustment as provided below. Lessor shall notify Lessee of Lessee's share of the expenses for the coming calendar year as soon as reasonably possible after the beginning of each year. In the event Lessee's lease term shall commence or end at any other time than the beginning or end of a calendar year, the Lessee's additional rent shall be adjusted prorata for such shortened period. Lessor shall have the right, in the event of unusual or extraordinary maintenance and operating expenses, to assess and collect, as additional rent, either as a one time or continuing charge, additional sums under this Section 3.2 to pay such expenses without affecting the Lessee's liability for the monthly sums hereinabove described.

(c) "Property maintenance and operating expenses" shall include, without limitation, shall include, without limitation: (i) Lessor's overhead expenses pertaining to the Property and the common areas; (ii) costs of non-structural repairs, line painting, landscaping and irrigation, electricity, maintenance of parking areas, bulb replacement, cleaning up, sweeping and janitorial service; and cost of garbage and refuse removal, and any repairs, improvements or replacements required by law; (iii) costs of any repairs, alterations, modifications, amendments, additions and/or improvements to the Property and/or the premises, not otherwise paid for by any tenant of the Property, necessary, required or appropriate in order to bring the Property and/or the premises into compliance with the requirements, policies and/or procedures of "The Americans with Disabilities Act of 1990," 42 U.S.C. Section 12101 et. seq., and/or any rules and/or regulations promulgated with respect thereto; (iv) all billing, security, management and legal expenses incurred or paid by Lessor relating to the protection, maintenance and operation of the Property, the common areas and/or the premises not separately payable by any other tenant of the Property; (v) any utility charges for the Property, the common areas and/or the premises not separately metered to or paid for by any tenant of the Property; (vi) costs of liability, fire, other property damage, flood, loss of rent, business interruption and other insurance, including any deductibles payable by the Lessor thereunder, which Lessor shall, in its sole discretion, deem necessary and/or appropriate with respect to the premises, the Property, the common areas and/or Lessee and/or Lessee's business, fixtures, equipment, installations and/or operations in the premises, common areas and/or Property; (vii) Lessee's share of the Property's real and personal property taxes and assessments as provided in Section 4.1; (viii) Lessee's share of the Master Lease rent and any other charges or assessments charged to or payable by Lessor under the Master Lease described in Section 17.1 below; and (ix) any other costs which the Lessor shall conclude, in its sole discretion, are reasonable and necessary for maintaining and operating the common areas and/or the Property.

(d) A statement of Property maintenance and operating expenses shall be provided annually to Lessee within one hundred twenty (120) days of each calendar year end. If the maintenance and operating expenses according to such statement shall differ from the expenses estimated by Lessor as provided above, the expenses according to such statement shall be deemed correct and an appropriate adjustment shall be made in the additional rent by prompt payment by Lessee of any deficiency or, in the event of an excess, an adjustment of additional rent thereafter due to Lessor to provide Lessee with reimbursement over a period of time not to exceed twelve (12) months. Notwithstanding the preceding, however, Lessor's failure to provide Lessee with a statement of the Property maintenance and operating expenses by the date provided above shall in no way excuse Lessee from its obligation to pay its pro rata share of the Property maintenance and operating expenses or constitute a waiver of Lessor's right to bill and collect such pro rata share of the Property maintenance and operating expenses from Lessee as provided in this Section 3.2.

3.3 Place of Payment . The Lessee will pay the rent in legal tender of the United States of America to the Lessor at the address set forth above or at such other address as the Lessor may from time to time designate in writing to the Lessee at the times and in the manner previously set forth and without any deduction, notice, or demand.

3.4 Security Deposit . INTENTIONALLY LEFT BLANK.

ARTICLE IV

TAXES AND OTHER CHARGES

4.1 Property Taxes and Assessments . The Lessee will pay directly to the Lessor a prorata portion of all real and personal property taxes and assessments of every description for which the premises, or the improvements on the premises, or the Lessor or the Lessee in respect of the premises or the improvements on the premises, are now or during the term may be assessed or become liable, whether assessed to or payable by the Lessor or the Lessee. Lessee's prorata portion of such taxes and assessments shall be equal to the Lessee's percentage share of the Property maintenance and operating expenses as set forth in Section 3.2(a) above. All such taxes shall be prorated between the Lessor and the Lessee as of the commencement and expiration, respectively, of the term, and with respect to any assessment made under any betterment or improvement law which may be payable in installments, the Lessee shall be required to pay only such installments of principal, together with interest on the unpaid balance, as shall become due and payable during the term.

4.2 General Excise Tax; Conveyance Tax . The Lessee shall pay to the Lessor with each payment of rent or any other payment hereunder which is subject to the general excise tax on gross income imposed by the State of Hawaii and all similar taxes imposed from time to time on the Lessor with respect to the rent and other payments (whether actually or constructively received) in the nature of a gross receipts tax, sales tax, privilege tax or the like (excluding net income taxes), whether imposed by the United States of America, the State of Hawaii or the County of Hawaii, an amount which, when added to such rent or other payments, shall yield to the Lessor, after deduction of all such taxes payable by the Lessor with respect to all such rent or other payments, a net amount equal to that which the Lessor would have realized if no such tax had been imposed. The Lessee will also pay any conveyance taxes imposed by the State of Hawaii in respect of this lease.

4.3 Master Lease Rent . The Property maintenance and operating expenses payable under Section 3.2 above includes a portion of the rent payable by Lessor under the Master Lease ("Master Lease Rent") described in Section 17.1 below as of the commencement date of this lease . If at any time after the commencement date, the Lessor's Master Lease Rent for the Property increases over the amount of the Master Lease Rent as of the commencement date, then in such event, as of the date of such increase to Lessor , Lessee's share of the Property maintenance and operating expenses payable under Section 3.2 above shall increase by an amount derived by multiplying the amount of the increase in the Master Lease Rent by the Lessee's percentage share set forth in Section 3.2(a) above. Lessee shall pay such portion of the increased Master Lease Rent as additional rent.

4.4 Substitute Taxes and Additional Taxes . The Lessee shall not be required to pay any taxes measured by the net income or inheritance, estate or transfer taxes of the Lessor. If at any time during the term the State of Hawaii or any political subdivision or agency or the federal government levies or assesses against the Lessor a tax, fee, or excise on: (i) rents, (ii) the area of the premises, (iii) the occupancy of the Lessee, (iv) any personal property tax, or (v) any other tax, fee, or excise, however described, including, without limitation, a so-called value added tax, as a direct substitution in whole or in part for, or in addition to, any real property taxes or excise tax, the Lessee shall pay that tax, fee, or excise on rents before delinquency. The Lessee's share of any such tax, fee, or excise shall be determined by the Lessor unless separately assessed or allocated by the tax assessor.

4.5 Utilities and Other Services . The Lessee will pay directly all charges, duties, rates, and other outgoings of every description for electricity, gas, water, telephone, refuse collection, sewage disposal or any other utilities or services to the premises.

4.6 Right of Contest . The Lessee shall have the right to contest the amount, validity or application of any tax, rate, assessment, lien, attachment, judgment, encumbrance, imposition, duty, charge or other outgoing payable by Lessee under this lease by any appropriate proceedings commenced before the disputed item becomes delinquent in the name of Lessee or in the name of Lessor if required by law, provided that (i) such proceeding shall be brought in good faith and diligently prosecuted, (ii) the Lessee shall pay all expenses thereof, and (iii) Lessee shall indemnify, defend and hold the Lessor harmless from and against all claims, demands and liability based on or arising from the Lessee's noncompliance with the matter which is the subject of such contest.

ARTICLE V

USE OF THE PREMISES

5.1 Specific Use Allowed . The premises shall be occupied and used by the Lessee only for a restaurant, the manufacturing, storage and wholesale and retail sale of beer, concerts and uses related to the foregoing and for no other purposes without the prior written consent of the Lessor. The Lessee shall not use or suffer or permit the premises in whole or part to be operated or to be used for any other purpose or purposes.

5.2 Improvements Required By Law . The Lessee will at its own expense make, build, rebuild, and maintain any and all improvements which may be required by law or private agreement to be made, built, rebuilt, and maintained upon or adjoining or in connection with or for the use of the premises in whole or in part. If such improvements shall be built, maintained, or rebuilt by the Lessor, the Lessee shall reimburse the Lessor its costs upon demand.

5.3 Compliance with Law . The Lessee shall, at Lessee's expense, comply with all laws concerning the premises or the Lessee's use of the premises, including, without limitation, all requirements, policies and/or procedures of "The Americans with Disabilities Act of 1990," 42 U.S.C. Section 12101 et. seq., and/or any rules and/or regulations promulgated with respect thereto, and all applicable laws pertaining to air and water quality, hazardous materials, waste disposal, air emissions and other environmental matters, and all zoning and land use matters, and the obligation to alter, maintain or restore the premises in compliance with laws relating to the condition, use or occupancy of the premises during the term.

5.4 Waste or Nuisance . The Lessee shall not use the premises in any manner that will constitute waste, nuisance or unreasonable annoyance.

5.5 Vacation and Abandonment . The Lessee shall not vacate or abandon the premises at any time during the term.

5.6 Condition of the Premises . The Lessee has examined and accepts the premises in the existing condition and shall be solely responsible for the adequate design, construction, and repair of all improvements now or hereafter made thereon. Except as specifically provided in this lease, the Lessee shall be solely responsible for obtaining at its expense (i) all utility services and connections and any other services or facilities required for or in connection with the use of the premises, and (ii) any governmental zoning, classification, approval, or consent required by law for or in connection with the use of the premises. Lessee agrees that (i) neither Lessor nor any employee, representative or agent of Lessor, has made any representation concerning the suitability of the premises for the conduct of the Lessee's business nor has there been any other representations covering the physical condition of the premises; (ii) Lessee's acceptance of the premises evidenced by Lessee's entry and the possession thereof shall constitute unqualified proof that the premises are, as of the date of commencement of Lessee's occupancy thereof , in a tenantable and good condition; and (iii) Lessee shall be deemed to have waived any patent or latent defect in the premises except those latent defects in the premises discovered by Lessee during the period of any contractor's warranty covering such defective condition.

5.7 Hazardous Materials .

(a) As used herein, the term "hazardous material" shall mean any substance or material which has been determined by any state, federal or local governmental authority to be capable of posing a risk of injury to health, safety or property, including all of those materials and substances designated as hazardous or toxic by the County in which the premises are located, the U.S. Environmental Protection Agency, the Consumer Product Safety Commission, the U.S. Food and Drug Administration, the Hawaii Department of Health, or any other governmental agency now or hereafter authorized to regulate materials and substances in the environment.

(b) Lessee agrees not to introduce any hazardous material in, on or adjacent to the premises without (i) obtaining Lessor's prior written approval, (ii) providing Lessor with thirty (30) days prior written notice of the exact amount, nature, and manner of intended use of such hazardous materials, and (iii) complying with all applicable federal, state and local laws, rules, regulations, policies and authorities relating to the storage, use, disposal and clean-up of hazardous materials, including, but not limited to, the obtaining of all proper permits.

(c) Lessee shall immediately notify Lessor of any inquiry, test, investigation, or enforcement proceeding by, against or directed at Lessee or the premises concerning a hazardous material. Lessee acknowledges that Lessor shall have the right, at its election, in its own name or as Lessee's agent, to negotiate, defend, approve, and appeal, at Lessee's expense, any action taken or order issued with regard to a hazardous material by any applicable governmental authority.

(d) If Lessee's storage, use or disposal of any hazardous material in, on or adjacent to the premises results in any contamination of the premises, the soil, surface water, groundwater, air, or sea, above, under or around the premises (i) requiring remediation under federal, state or local statutes, ordinances, regulations or policies, or (ii) at levels which are unacceptable to Lessor, in Lessor's sole and absolute discretion, Lessee agrees to clean-up the contamination immediately, at Lessee's sole cost and expense. Lessee further agrees to indemnify, defend and hold Lessor harmless from and against any claims, suits, causes of action, costs, damages, loss and fees, including attorneys' fees and costs, arising out of or in connection with (i) any clean-up work, inquiry or enforcement proceeding relating to hazardous materials heretofore, currently or hereafter used, stored or disposed of by Lessee or its agents, employees, contractors or invitees on or about the premises, and (ii) the use, storage, disposal or release by Lessee or its agents, employees, contractors or invitees of any hazardous materials on or about the premises.

(e) Notwithstanding any other right of entry granted to Lessor under this lease, Lessor shall have the right to enter the premises or to have consultants enter the premises throughout the term of this lease at reasonable times for the purpose of determining: (1) whether the premises are in conformity with federal, state and local statutes, regulations, ordinances and policies, including those pertaining to the environmental condition of the premises; (2) whether Lessee has complied with this Section 5.7; and (3) the corrective measures, if any, required of Lessee to ensure the safe use, storage and disposal of hazardous materials. Lessee agrees to provide access and reasonable assistance for such inspections. Such inspections may include, but are not limited to, entering the premises with machinery for the purpose of obtaining laboratory samples. Lessor shall not be limited in the number of such inspections during the term of this lease. If, during such inspections, it is found that Lessee's use of hazardous materials constitutes a violation of this lease, Lessee shall reimburse Lessor for the cost of such inspections within ten (10) days of receipt of a written statement therefor. If such consultants determine that the premises are contaminated with hazardous material or in violation of any applicable environmental law, Lessee shall, in a timely manner, at its expense, remove such hazardous materials or otherwise comply with the recommendations of such consultants to the reasonable satisfaction of Lessor and any applicable governmental agencies. If Lessee fails to do so, Lessor, at its sole discretion, may, in addition to all other remedies available to Lessor under this lease and at law and in equity, cause the violation and/or contamination to be remedied at Lessee's sole cost and expense. The right granted to Lessor herein to inspect the premises shall not create a duty on Lessor's part to inspect the premises, or liability of Lessor for Lessee's use, storage or disposal of hazardous materials, it being understood that Lessee shall be solely responsible for all liability in connection therewith.

(f) Lessee shall surrender the premises to Lessor upon the expiration or earlier termination of this lease free of hazardous materials and in a condition which complies with all governmental statutes, ordinances, regulations and policies, recommendations of consultants hired by Lessor, and such other reasonable requirements as may be imposed by Lessor.

(g) Lessee will indemnify the Lessor against and hold the Lessor harmless from all reasonable expenses (including reasonable fees of legal counsel), losses, damages (including foreseeable or unforeseeable consequential damages) and liabilities incurred by the Lessor which may arise out of or may be directly or indirectly attributable to (i) Lessee's or Lessee's agents, employees, contractors or invitees use, generation, manufacture, treatment, handling, refining, production, processing, storage, release, discharge or disposal of any Hazardous Material on, within, under or about the premises, and (ii) the Lessor's investigation and handling (including the defense) of any Hazardous Materials Claims in connection with the matters described in clause (i), whether or not any lawsuit or other formal legal proceeding shall have been commenced in respect of such claims.

(h) Lessee's obligations under this Section 5.7 and all indemnification obligations of lessee under this lease shall survive the expiration, termination, assignment or cancellation of this lease.

(i) Lessor makes no representation, covenant or warranty to Lessee, its successors and assigns, regarding whether or not the premises are in full or partial compliance with any federal, state or local environmental statutes, regulations and ordinances or any other environmental requirements in any way relating to or affecting the premises or storage of hazardous materials.

5.8 Rules and Regulations . Lessor shall have the right to promulgate rules and regulations to police, regulate traffic in and control parking and common area use (including controlled access and employee parking), restrict tenant advertising and displays within the Property and otherwise regulate and control the Property, and amend the same from time to time, with respect to the use and operation of the Property which shall be binding upon Lessee on notice to Lessee. In enforcing the rules and regulations, Lessor shall have all remedies provided in this lease for a breach of a term of this lease, and all other legal and equitable remedies. Lessor shall not be liable to Lessee or any other person for any nonobservance or nonperformance of these rules and regulations nor shall Lessor be liable to Lessee or any other person on account of Lessor's enforcement or nonenforcement of the rules and regulations. Lessor shall also have the right to enact and enforce reasonable monetary fines and penalties for any violation of the rules and regulations promulgated by Lessor and Lessee shall be liable to Lessor for such fines and penalties incurred by Lessee or Lessee's employees, contractors or suppliers as additional rent under this lease.

ARTICLE VI

ALTERATIONS

6.1 Construction/Alteration . Lessee shall not make any additions or alterations to the premises, or install or cause to be installed any exterior lighting, exterior shades or awnings, colored or tinted glass, window tinting, exterior antennas, radio or satellite dishes or receivers, or make any changes to the exterior of the premises or any part of the common areas without first obtaining the written approval of the Lessor therefor. The Lessee shall present plans and specifications for such work at the time approval is sought and any construction which is performed by Lessee in the premises or on the Property shall be performed only in accordance with the plans and specifications previously approved by Lessor and using a contractor licensed in the State of Hawaii. All improvements, fixtures and equipment installed by Lessee in the premises and any common areas shall be new or completely reconditioned and acceptable in all respects to Lessor for use in the premises and the common areas. The Lessee shall pay all costs of construction done by or for it on the premises and will keep the premises, building other improvements and land of which the premises are a part free and clear of all liens of mechanics and materialmen. Notwithstanding the fact that any such alterations and improvements may become an integral part of the premises and/or the Property, such alterations and improvements shall not be deemed a rent substitute or any other payment to or for the benefit of Lessor. Lessor expressly reserves the exclusive right to the use of the roof and the exterior walls of the premises and the building in which the premises are located.

6.2 Bond Against Liens . Prior to commencing any construction or alterations to the premises having a construction cost in excess of $5,000.00, the Lessee shall furnish evidence satisfactory to the Lessor that the Lessee is financially able to pay the contractor and, if required by Lessor, Lessee shall furnish a bond in an amount, in a form and with a surety acceptable to the Lessor, naming the Lessor and the Lessee as obligees and insuring completion of the proposed work free and clear of all liens.

6.3 Removal and Restoration by Lessee . Any alterations made shall remain on and be surrendered with the premises on expiration or termination of this lease, except that the Lessee, if not in default, may remove any trade fixtures installed on the premises and shall repair any damage caused by removal.

6.4 Improvements Required by Law . During the term, the Lessee will pay all costs and expenses of making, building, maintaining and repairing any and all improvements which may be required by law to be made, built, maintained and repaired upon or adjoining or in connection with or for the use of the premises, including, without limitation, all requirements, policies and/or procedures of "The Americans with Disabilities Act of 1990," 42 U.S.C. Section 12101 et. seq., and/or any rules and/or regulations promulgated with respect thereto.

6.5 Signs . Without the prior written consent of Lessor, Lessee shall not place or permit to be placed (i) any sign, advertising material or lettering upon the exterior of the premises or (ii) any sign advertising material or lettering upon the exterior or interior surface of any door or window within the premises, or at any point inside the premises, such that the same may be visible from outside the premises. Upon request of Lessor, Lessee will immediately remove any sign, advertising material or lettering that Lessee has placed or permitted to be placed in violation of this Section 6.5 and if Lessee fails so to do, Lessor may enter the premises and remove such sign, advertising material or lettering at Lessee's expense. Subject to Lessor's and approval, Lessee shall have the right to erect signs of a size and type allowed by County Code. Lessee's signs shall be installed at Lessee's own risk and expense and Lessee agrees to maintain said signs in good state of repair and to save Lessor harmless from any loss, cost or damage which may have been caused by the erection, existence, maintenance and removal of such signs. Upon the expiration or earlier termination of this lease, Lessee shall remove all of Lessee's signs at Lessee's own expense and repair all damage resulting from the placement or removal of signs. Lessor shall have sole authority and discretion with regard to any off-premises or centralized signs or directories within the Property. Lessee shall not install any paintings, murals, sculptures, mosaics or other works of visual art in the premises that cannot be removed without destroying, damaging or modifying such art without Lessor's prior written approval and consent, which may be withheld for any reason including, without limitation, Lessee's failure to provide Lessor with written waivers under 17 U.S.C. ' 113(d) by the creators of such art of their rights thereto.

6.6 Solar Panels . Lessor acknowledges that Lessee has installed a solar panel array on a portion of the premises and agrees that if Lessee does not extend the term of this lease as provided in Section 2.2 above, such array shall be deemed a "trade fixture" for purposes of Section 6.3 above and Lessee may remove such array and repair any damage caused by such removal. Should Lessee extend the term of this lease as provided in Section 2.2 above, or should Lessor terminate this lease on account of Lessee's default under this lease, then, in either such event, Lessee agrees that such array shall be deemed an "alteration" for purposes of Section 6.3 above and such array shall remain on and be surrendered with the premises on expiration or termination of this lease.

ARTICLE VII

MAINTENANCE

7.1 Repair and Maintenance by Lessee . The Lessee shall at its cost at all times maintain the premises, including the structural portions of the premises, e.g. the foundation, columns, girders, supports, load-bearing walls and roof of the improvements within and on the premises, in good condition and repair, including, without limitation, all personal property of the Lessee, signs, windows, lighting and plumbing fixtures, interior and exterior painting, and floor covering, excepting reasonable wear and tear and destruction by unavoidable casualty not required to be insured against.

7.2 Lessee's Failure to Maintain . The Lessee will permit Lessor and its agents to enter the premises and examine the state of repair and condition at all reasonable times during the term and will correct and repair at its expense those defects required by this lease to be repaired by the Lessee. If the Lessee does not maintain and repair the premises as soon as reasonably possible after written demand, the Lessor may make such repairs without liability to the Lessee for any loss or damage to the Lessee's merchandise, fixtures or other property or to the Lessee's business. If the Lessor is required to make repairs, the Lessor may add the cost of such repairs to the next rental due, including annual interest at one percent per month on the cost from date of completion of repairs, and the Lessee shall pay the same as additional rental.

7.3 Repair and Maintenance by Lessor . Lessor shall repair, maintain and replace the common areas, and the improvements, facilities and equipment thereon and therein, as a Property maintenance and operating expense. Lessor shall keep all structural portions of the Property not within or on the premises in good condition and repair during the term of this lease. Notwithstanding anything to the contrary herein, Lessor shall not be required to make any repairs occasioned by the act or negligence of Lessee, its agents, employees, subtenants, licensees and concessionaires. Lessee waives the provisions of any law permitting Lessee to make repairs at Lessor's expense. If Lessor is required to make alterations, improvements, additions, modifications and/or repairs to structural or nonstructural portions of the Property or the premises by reason of Lessee's negligent acts or omissions to act, or Lessee's failure to comply with or perform any covenant, condition, term or agreement contained in this lease, including Lessee's obligation to comply with the requirements and standards of "The Americans with Disabilities Act of 1990," Lessor may add the cost of such alterations, improvements, additions, modifications and/or repairs to the rent which shall thereafter become due, and Lessee shall pay the same as additional rental. The phrase "structural portions of the Property, as above used, shall not be so construed as to require Lessor to make repairs to the interior surfaces thereof unless the damage to such interior surface resulted from Lessor's acts or omissions or defects otherwise required to be kept in repair by Lessor.

ARTICLE VIII

DISCLAIMER OF LIABILITY AND INDEMNITY

8.1 Disclaimer of Liability . Lessee assumes all risk of personal injury, death or property damage occurring on the premises. The Lessee waives all claims against the Lessor for damages to persons or property arising for any reason except that the Lessor shall be liable to the Lessee for damage to the Lessee resulting from the gross negligence or willful acts of the Lessor. The Lessee will hold all goods, material, fixtures, equipment, machinery and other tangible property on the premises at its risk and hold the Lessor harmless from any loss or damage to the Lessee's property from any cause. Lessor shall not be liable to Lessee for any damage or loss, including loss or interruption to Lessee's business or services, occasioned by any service provided by Lessor under this Lease or electricity, plumbing, gas, water, air conditioning, sprinkler or other pipes and sewage systems, or the loss, interruption or stoppage thereof, or by the bursting, leaking, overflowing or running over of any tank, washstand, closet, waste or other pipes in or about the premises or the property, nor for any damage occasioned by water coming into the premises from any source whatsoever, or for any damage or injury arising from any acts or neglect of the other lessees of, or any other persons on, the Property or of any adjacent property, or of the public, unless such damage or loss shall result from a wanton and willful act or gross negligence of Lessor. All property of Lessee kept or stored on the premises or in any common area shall be kept or stored at the risk of Lessee only, and Lessee shall hold Lessor harmless from any claims arising out of damage to the same, including subrogation claims by Lessee's insurance carriers unless such damage shall be caused by the wanton and willful act or gross negligence of Lessor. In no event shall Lessor be liable to Lessee, its principals, agents or employees for lost profits or any other consequential damages suffered by Lessee, its principals, agents or employees from any cause, unless such losses or damages shall result from a wanton and willful act or gross negligence of Lessor.

8.2 Indemnity . The Lessee will indemnify the Lessor from and against all loss, costs, expenses and liability for injury or death to persons or damage to property occurring in, on or about the premises, whether the claims are made by officers, partners, employees or agents of either party and whether arising out of any accident, fire, nuisance or failure to maintain, unless such damage was caused by the wanton and willful act or gross negligence of the Lessor. The Lessor shall hold harmless the Lessee from all claims and demands for injury or death to persons or damage to property arising out of the gross negligence or willful acts or omissions of the Lessor. Each party shall also hold the other party harmless from all costs and expenses, including attorney's fees, arising in connection with such claims. The provisions of this Section 8.2 shall survive the expiration, termination, assignment or cancellation of this lease.

ARTICLE IX

INSURANCE

9.1 Public Liability and Property Damage Insurance . Lessee shall take out and keep in force during the term of this ease, at Lessee's expense, commercial general liability insurance on an "occurrence" not "claims made" basis, with coverage in the minimum amount of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) for property damage and in the amount of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) per occurrence with a TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) annual aggregate limit for personal injury or death to one or more persons or a single limit policy of not less than TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) naming Lessor and Lessor's agent, if any, as additional insureds. Lessee's liability insurance shall include a liquor liability endorsement written on an "occurrence" basis naming the Master Lessor under the Master Lease, Lessor and Lessor's agent, if any, as additional insureds, which additional insureds shall be protected as if they were separately insured under a separate policy; provided, however, that such policy shall not require the insurer to pay any amounts in excess of the maximum limits stated in this Section 9.1. The liquor liability endorsement shall be written on an ISO Liquor Liability Insurance Policy form or its equivalent and the limits for such coverage shall be not less than $2,000,000 Each Common Cause subject to $4,000,000 Aggregate Limit.

9.2 Insurance Of Premises and Improvements . The Lessee will at its expense during the entire term cause the improvements now or hereafter located on the premises to be insured under a "Special Form" policy against loss or damage by fire with extended coverage, inflation guard, vandalism and malicious mischief endorsements and demolition clause, if applicable, to the extent of the full replacement cost without deduction for depreciation. To the extent coverage is available at a commercially reasonable cost, the Lessee will provided insurance coverage for loss or damage by earthquake, hurricane, flood and tsunami. The insurance policy or policies shall be issued in the name of the Master Lessor, the Lessor, the Lessee and their mortgagees and made payable to the Lessor and the Lessee as their interests may appear for use and disposition as herein provided. Any dispute regarding the coverage required under this Section 9.2 shall be resolved by arbitration pursuant to Article XVIII below by a single arbitrator mutually agreed to by the parties or, in the absence of such agreement, by an arbitrator who is an impartial commercial insurance broker or general agent with at least ten (10) years of experience in providing insurance coverage for commercial and industrial properties in the State of Hawaii.

9.3 Insurance on Contents . During the entire term the Lessee shall, at its sole cost and expense, maintain or cause to be maintained on all of its fixtures, furnishings and equipment which may be from time to time located on the premises and on all fixtures, furnishings and equipment of others which are in Lessee's possession and which are located on the premises under a "Business Personal Property of Insured" policy or policies with extended coverage endorsement or its equivalent to the extent of their full replacement cost. The proceeds shall be payable to Lessor, but if this lease is and remains in effect, such proceeds shall be used for the repair or replacement of the furniture, fixtures, equipment and other personal property of the Lessee.

9.4 Requirements of Policies . All policies of insurance required in this lease:

(a) Shall be effected by valid and enforceable policies issued by responsible insurance companies authorized to do business in the State of Hawaii with a financial rating of "A" (Excellent) or better, and with a policyholder's rating of Class VI or better as rated in the most recent edition of Best's Insurance Reports.

(b) Shall contain an agreement by the insurer that the policy constitutes primary insurance, without contribution.

(c) Shall provide that the policies shall not be canceled or materially altered without at least thirty days' prior written notice to the Lessor.

(d) Shall, unless impracticable to obtain and waived in writing by the Lessor:

(i) Provide that the liability of the insurer shall not be affected by, and that the insurer shall not claim any right of setoff, counterclaim, apportionment, proration or contribution by reason of, any other insurance obtained by the Lessor;

(ii) Contain no provision relieving the insurer from liability for loss occurring while the hazard to any buildings is increased, whether or not within the knowledge or control of the Lessor or the Lessee or because of any breach of warranty or condition or any other act or neglect by the Lessor or the Lessee or any tenant or any other persons under either of them;

(e) Contain a standard mortgagee clause.

The insurance required by this lease may be effected by a policy or policies of blanket insurance which may cover other properties or locations not constituting a part of the premises or located thereon, provided that (i) evidence of the underlying policy satisfactory to the Lessor shall be deposited with the Lessor and (ii) upon written request of the Lessor, such blanket policy shall irrevocably allocate to the premises (both realty and personalty severally) as the first payable loss under such policy the specific amount of coverage required to be carried by the Lessee under this lease.

9.5 Payment of Premiums and Delivery Of Policies . The Lessee shall pay all premiums and all fees and expenses for the insurance required herein when due and will deliver true and correct copies of all policies or certificates of insurance together with evidence of payment of the premiums, to the Lessor within ten days after the commencement of the term and thereafter deliver replacement policies or renewals not less than twenty days prior to the expiration dates of expiring policies. If the Lessee defaults in insuring the premises or in delivering the policies (or certificates), the Lessor, at its option but without being so obligated, may effect such insurance from year to year and pay the premiums, and the Lessee will reimburse the Lessor on demand for any premiums so paid with interest from the time of payment at the rate of one percent per month. The Lessor shall not be responsible for such insurance or for the collection of any insurance proceeds or for the insolvency of any insurer or insurance underwriter.

9.6 Determination of Replacement Value And Additional Coverage . The "full replacement value" of the building and other improvements to be insured hereunder shall be determined by the company issuing the insurance policy at the time the policy is initially obtained. Not more frequently than once every three years either party shall have the right to notify the other party that it elects to have the replacement value redetermined by an insurance company. The redetermination shall be made promptly and in accordance with the rules and practices of the Board of Fire Underwriters, or a like board recognized and generally accepted by the insurance company, and each party shall be promptly notified of the results by the company. The insurance policy shall be adjusted according to the redetermination.

9.7 Review of Coverage . The adequacy of the coverage afforded by the insurance shall be subject to review such that if that a prudent businessman in Hawaii operating a business similar to that operated by the Lessee on the premises would increase the limits of liability or hazard insurance coverage or would insure the property against additional perils when such insurance is available in Hawaii, the Lessee shall forthwith increase such coverage and/or provide insurance against such additional perils.

9.8 Waiver of Recovery . Lessor shall not be liable to Lessee nor to any insurance company (by way of subrogation or otherwise) insuring the Lessee for any loss or damage to any building, structure or tangible personal property, or any resulting losses under worker's compensation laws and benefits, even though such loss or damage may have been caused by the negligence of Lessor or Lessor's authorized representatives if any such loss or damage is covered by insurance benefitting Lessor or if Lessee was required to obtain insurance by this lease to cover such loss or damage. Lessee shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against Lessor in connection with any damage covered by any policy.

ARTICLE X

DAMAGE OR DESTRUCTION

10.1 Lessor's Election . Except as may otherwise be required by any mortgage on the Property, if the premises or any portion of the Property should be damaged or destroyed during the term hereof by any uninsured casualty or should the Property be damaged to an extent of twenty-five percent (25%) or more of the then tax assessed value thereof, then the Lessor may either terminate this lease or elect to repair or restore said damage or destruction, in which latter event Lessor shall repair and/or rebuild the same as provided for below and the monthly base rent shall be abated proportionately as provided herein. Lessor shall advise Lessee in writing whether it intends to rebuild or repair within ninety (90) days after the casualty. If Lessor elects not to repair or rebuild, this Lease shall terminate without further notice, in which event all further obligations of either party shall cease, effective as of the date Lessee shall cease business in the premises. If such damage or destruction occurs and this lease is not so terminated by Lessor, this lease shall remain in full force and effect, and the parties waive the provisions of any law to the contrary. The Lessor's obligation under this Section 10.1 shall in no event exceed the scope of the work done by the Lessor in the original construction of the Property and the premises. Lessee agrees during any period of reconstruction or repair of the premises and/or of the Property to continue the operation of its business in the premises to the extent reasonably practicable from the standpoint of good business practice. Except in those cases where damage or destruction to the Premises shall have been caused by the fault of the Lessee, the base rent shall be abated proportionately during any period during which, by reason of any damage or destruction, there is a substantial interference with the operation of the business of Lessee in the premises, and such abatement shall continue for the period commencing with such destruction or damage and ending with the completion by the Lessor of such work of repair and/or reconstruction as Lessor has elected to do. Nothing in this Section 10.1 shall be construed to abate or diminish additional rent or abate base rent where interference with the operation of the Lessee's business shall have been a result of the Lessee's acts, omissions or other fault.

10.2 Lessee's Obligation . Lessee shall, in the event of any damage or destruction affecting the premises, unless this Lease shall be terminated as provided above, promptly replace or fully repair all furniture, improvements, trade fixtures, equipment, and other fixtures originally installed by Lessee. Lessor shall have no interest in the proceeds of any insurance carried by Lessee on Lessee's interest in this lease, and Lessee shall have no interest in the proceeds of and insurance carried by Lessor.

ARTICLE XI

CONDEMNATION

11.1 Definitions .

(a) "Condemnation" means (i) the exercise of any governmental power, whether by legal proceedings or otherwise, by a condemnor and (ii) a voluntary sale or transfer by the Lessor to any condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending.

(b) "Date of taking" means the date the condemnor has the right to possession of the property being condemned.

(c) "Award" means all compensation, damages, sums, or anything of value awarded, paid, or received on a total or partial condemnation.

(d) "Condemnor" means any public or quasi-public authority or private corporation or individual having power of condemnation.

11.2 Total Taking . If the premises are totally taken by condemnation, this lease shall terminate on the date of taking.

11.3 Partial Taking of Premises . If any portion of the premises is taken by condemnation, this lease shall remain in effect, except that the Lessee may elect to terminate this lease if the remaining portion of the premises or access thereto is rendered unsuitable for the Lessee's continued use of the premises. The Lessee must exercise this right to terminate pursuant to this by giving notice to the Lessor within fifteen days after the nature and the extent of the taking have been finally determined. If the Lessee does not terminate this lease within the fifteen-day period, this lease shall continue in full force and effect.

11.4 Effect on Rent . If a portion of the premises or any access thereto is taken by condemnation and this lease remains in effect, the rent shall not be reduced and all other obligations of Lessee under this lease shall remain in full force and effect.

11.5 Restoration of Premises . If after a partial taking of the premises this lease remains in effect, the Lessee at its cost shall accomplish all necessary restoration.

11.6 Award - Distribution . Except as hereinafter provided, the award received for a total or partial condemnation shall belong to and be paid to Lessor. Lessee may recover from the condemning authority such award as may be separately recovered by Lessee in its own right for its leasehold interest, and for merchandise, furniture, fixtures, equipment and other personal property of Lessee or business interruption.

ARTICLE XII

TRANSFERS

12.1 Prohibition Against Voluntary Assignment, Subletting, and Encumbering . The Lessee shall not voluntarily assign or encumber its interest in this lease or in the premises, or sublease all or any part of the premises, or allow any other person or entity (except authorized representatives) to occupy or use all or any part of the premises without the prior written consent of the Lessor, which consent the Lessor shall not unreasonably withhold. Lessor shall in all cases have the right to determine that any proposed assignee or sublessee shall be of sound financial condition and shall use the premises only for suitable purposes. A consent by Lessor to one assignment, mortgage, subletting, occupation or use by any other person, shall not be deemed to be a consent to any subsequent assignment, mortgage, subletting, occupation or use by another person. Any such assignment or subletting without Lessor's consent shall be void, and shall, at the option of Lessor, terminate this lease. The Lessor shall not have the right to impose any charge or fee on the Lessee with respect to any consent requested under this Section except a reasonable administrative fee of not more the $500.00 for actual attorney's fees incurred by Lessor with respect to such request.

12.2 Change of Ownership . If the Lessee is a partnership, a withdrawal or change, voluntary, involuntary, or by operation of law, of the partner or partners owning fifty percent or more of the partnership, or the dissolution of the partnership, shall be deemed a voluntary assignment.

If the Lessee is a corporation, any dissolution, merger, consolidation, or other reorganization of the Lessee, or the transfer of a controlling percentage of the stock, or the sale of fifty percent of the value of the assets of the Lessee, shall be deemed a voluntary assignment.

If Lessee is a limited liability company, any sale or transfer of any management interest or more than fifty percent of the ownership interest shall be deemed a voluntary assignment.

12.3 Involuntary Assignment . No interest of the Lessee in this lease shall be assignable by operation of law (including, without limitation, the transfer of this lease by testacy or intestacy). Each of the following acts shall be considered an involuntary assignment:

(a) If the Lessee is or becomes bankrupt or insolvent, makes an assignment for the benefit of creditors, or institutes a proceeding under the Bankruptcy Act in which the Lessee is the bankrupt; or, if the Lessee is a partnership or consists or more than one person or entity, if any partner of the partnership or other person or entity is or becomes bankrupt or insolvent or makes an assignment for the benefit of creditors;

(b) If a writ of attachment or execution is levied on this lease;

(c) If, in any proceeding or action to which the Lessee is a party, a receiver is appointed with authority to take possession of the premises.

12.4 Effect of Involuntary Assignment . An involuntary assignment shall constitute a default by the Lessee and the Lessor shall have the right to elect to terminate this lease, in which case this lease shall not be treated as an asset of the Lessee.

12.5 Absolute Assignment of Sublease Rents . Lessee hereby absolutely assigns and transfers to Lessor all rents and other sums due and payable to Lessee under all subleases of the Premises or any portion thereof; provided that, until the occurrence of any default as described in Section 13.1 below, Lessee may receive and hold such rents. Upon the occurrence of such default, Lessor shall have the immediate right, with or without terminating this Lease, to receive and collect all rents and profits due or accrued or to become due under said subleases, and said rents and profits are hereby assigned to Lessor, and Lessor is hereby irrevocably appointed the attorney-in-fact of Lessee with power in the name of Lessee or Lessor, to demand, sue for, collect, recover and receive all such rents and profits, to compromise and settle claims of rents or profits upon such terms and conditions as may seem proper, and to enter into, renew or terminate leases or tenancies, and to apply any rents and profits collected to the payment of all amounts due to Lessor under this Lease, and any such application shall in all respects be binding upon Lessee for all purposes. Each and every sublease of the Premises or any portion thereof shall expressly provide that the sublessee shall, upon receipt of written notice from Lessor of Lessee's default under this Lease, tender and pay to Lessor all rents and other sums then due and owing to the sublessor under such sublease and shall continue to pay such sums to Lessor as and when due as if Lessor were the sublessor under the sublease, and Lessee hereby acknowledges and agrees that a sublessee's payment of any amounts under this Section 12.5 shall discharge such sublessee's payment obligations under the sublease to the same amount, and any contractual provisions to the contrary shall be null and void as between such sublessee and Lessee. Notwithstanding the foregoing, Lessor and Lessee acknowledge and agree that any amounts collected by Lessor under this Section 12.5 in excess of amounts owed by Lessee under this Lease at the time of such collection shall be held by Lessor in trust for the benefit of Lessee and Lessor shall pay over such excess amounts to Lessee upon satisfaction of all of Lessee's then outstanding debts and obligations to Lessor under this Lease.

12.6 Restriction on Mortgages . The Lessee shall not mortgage this lease or its leasehold estate without the prior written consent of the Lessor, which consent the Lessor may arbitrarily or for no reason withhold.

12.7 Assignment by Lessor . If Lessor transfers or assigns its interest in this lease or in the Property to any person, Lessor shall thereby be released from any further obligations arising from and after the date of the assignment hereunder, and Lessee agrees to look solely to such successor-in-interest of Lessor for performance of such obligations. If any security given by Lessee to secure the performance of Lessee's obligations hereunder is assigned or transferred by Lessor to any such successor-in-interest, then Lessor shall thereby be discharged of any further obligation relating thereto. For the purposes of this Section, any holder of a mortgage that affects the premises or the Property at any time will be a successor-in-interest to Lessor as to the premises and the Property when it succeeds to the interest of the Lessor or any successor-in-interest, whether by voluntary sale, assignment or transfer or by way of foreclosure, deed in lieu of foreclosure or dispossession of Lessor. Lessee agrees to attorn to the assignee, transferee, or purchaser of Lessor's interest from and after the date of notice to Lessee of any such assignment, transfer or sale, in the same manner and with the same force and effect as though this lease were made, in the first instance, by and between Lessee and such assignee, transferee or purchaser. If any proceedings are instituted for foreclosure, or in the event of the exercise of the power of sale under any mortgage made by Lessor covering the premises or the Property, Lessee shall, upon such mortgagee's request, attorn to the transferee or successor-in-interest upon any such foreclosure, deed in lieu of foreclosure, sale or termination and recognize such transferee or successor-in-interest as the Lessor under this lease.

ARTICLE XIII

DEFAULT

13.1 Lessee's Default . The occurrence of any of the following shall constitute a default by the Lessee:

(a) Lessee's default in the due and punctual payment of rent and such default continues for five (5) days after written notice from Lessor to Lessee; provided, however, that Lessee will not be entitled to more than two (2) such written notices of default in the payment of rent during any twelve (12) consecutive month period and after such written notices, if any rent is not paid when due, Lessee will be in default without further notice to pay rent when due.

(b) Abandonment of the premises (failure to occupy and operate the premises of fifteen consecutive days shall be deemed an abandonment).

(c) Failure to perform any other provision of this lease if the failure to perform is not cured within thirty days after notice has been given to the Lessee. If the default cannot reasonably be cured within thirty days, the Lessee shall not be in default of this lease if the Lessee commences to cure the default within the thirty-day period and diligently and in good faith continues to cure the default.

13.2 Lessor's Remedies . The Lessor shall have the following remedies if the Lessee commits a default. These remedies are not exclusive; they are cumulative and in addition to any remedies allowed by law or in equity.

(a) Lessee's Right to Possession Not Terminated . The Lessor may continue this lease in full force and effect as long as the Lessor does not terminate the Lessee's right to possession, and the Lessor shall have the right to collect rent when due. During the period the Lessee is in default, Lessor may enter the premises and relet them, in whole or any part, to third persons for the Lessee's account. The Lessee shall be liable immediately to the Lessor for all costs the Lessor incurs in reletting the premises, including, without limitation, brokers' commission, expenses of remodeling the premises required by the reletting, and like costs. Reletting may be for a period shorter or longer than the remaining term of this lease. The Lessee shall pay to the Lessor the rent due under this lease on the dates the rent is due, less the rent the Lessor receives from any reletting. No act by the Lessor allowed by this shall terminate this lease unless the Lessor so notifies the Lessee.

If the Lessor elects to relet the premises as provided in this Section, rent that the Lessor receives from reletting shall be applied to the payment of: (i) first, any indebtedness from the Lessee to the Lessor other than rent due from the Lessee; (ii) second, all costs, including for maintenance, incurred by the Lessor in reletting; and (iii) third, rent due and unpaid under this lease. After deducting the payments referred to in this Section, any sum remaining from the rent the Lessor receives from reletting shall be held by the Lessor and applied in payment of future rent as rent becomes due under this lease. In no event shall the Lessee be entitled to any excess rent received by the Lessor. If, on the date rent it due under this lease, the rent received from the reletting is less than the rent due on that date, the Lessee shall pay to the Lessor, in addition to the remaining rent due, all costs, without limitation, the Lessor incurred in reletting that remain after applying the rent received from the reletting as provided in this Section.

(b) Lessee's Right to Possession is Terminated . The Lessor may terminate the Lessee's right to possession of the premises at any time. No act by the Lessor other than giving notice to the Lessee shall terminate this lease. Acts of maintenance, efforts to relet the premises, or the appointment of a receiver on the Lessor's initiative to protect the Lessor's interest under this lease shall not constitute a termination of Lessee's right to possession. On termination, the Lessor has the right to recover from the Lessee, in addition to any other remedies Lessor may have, any and all damages and losses Lessor may incur by reason of Lessee's default, including the cost of recovering the premises, attorney's fees, and the worth at the time of such termination of the excess, if any, of the amount of rent and additional rent reserved in this lease for the remainder of the stated term over the then reasonable rental value of the premises for the remainder of the stated term, all of which amounts shall be immediately due and payable from Lessee to Lessor.

13.3 Appointment of Receiver . If the Lessee is in default of this lease, the Lessor shall have the right to have a receiver appointed to collect rent and conduct the Lessee's business. Neither the filing of a petition for the appointment of a receiver nor the appointment itself shall constitute an election by Lessor to terminate this lease.

13.4 Lessor's Right To Cure Lessee's Default; Interest . The Lessor, at any time after the Lessee commits a default, can cure the default at the Lessee's cost. If the Lessor at any time, by reason of the Lessee's default or pursuant to this lease, pays any sum or does any act that requires the payment of any sum, the sum paid by the Lessor shall be due immediately from the Lessee to the Lessor at the time the sum is paid, and if paid at a later date shall bear interest at the rate of one and one-half percent (1 2 %) per month. The sum, together with interest, shall be additional rent.

13.5 Late Fee and Interest on Past Due Accounts . Lessee hereby acknowledges that late payment by the Lessee of rent and other sums due under this lease will cause the Lessor to incur costs not contemplated by this lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on the Lessor by the terms of any mortgage covering the premises. Therefore, in the event the rent hereunder shall not be received by the first (1st) of the month, a late fee computed at the rate of five percent (5%) of the rent and other sums not paid shall be automatically charged until payment is received. Any amounts owing by Lessee to Lessor under the terms of this lease shall carry interest from the date the same become due until paid at the rate of one and one-half percent (1 2 %) per month. Said interest shall be considered as a part of the rent payable under this lease.

13.6 Expenses of Lessor . The Lessee will pay to the Lessor on demand all costs and expenses, including reasonable attorney's fees, incurred by the Lessor in enforcing any covenants or conditions contained in this lease, in remedying any breach by the Lessee, in collecting any delinquent rent, taxes or other charges hereunder payable by the Lessee, in recovering possession or in connection with any litigation (other than condemnation proceedings) commenced by or against the Lessee to which the Lessor shall without fault on its part to be made a party.

ARTICLE XIV

LESSOR'S ENTRY ON PREMISES

14.1 Right of Entry . The Lessor and its authorized representatives shall have the right to enter the premises at all reasonable times upon providing the Lessee with twenty-four hours prior notice for any purpose, including, without limiting the generality of the foregoing, (a) to determine whether the premises are in good condition and whether the Lessee is complying with its obligations under this lease; (b) to do any maintenance and to make any restoration that the Lessor has the right or obligation to perform; (c) to serve, post, or keep posted any notices required or allowed under the provisions of this lease; (d) to post "for sale" signs at any time during the term, to post "for rent" or "for lease" signs during the last twelve months of the term, or during any period while Lessee is in default; (e) to show the premises to prospective brokers, agents, buyers, tenants, or persons interested in an exchange, at any time during the term; (f) to shore the foundations, footages and walls within the premises; and (g) to erect scaffolding in and protective barricades around and about the premises, but not so as to prevent entry to the premises, and to do any other act or thing necessary for the safety or preservation of the premises or the buildings and other improvements on the Property if any excavation or other construction is undertaken or is about to be undertaken on any adjacent property or nearby street; the Lessor's right under this clause (g) extends to the owner of the adjacent property on which excavation or construction is to take place and the adjacent property owner's authorized representatives.

The Lessor or its authorized representatives may enter at any time and without notice to the Lessee in circumstances when persons or property may be in imminent danger, provided, however, that notice of entry shall be given as soon as reasonably possible thereafter.

14.2 No Liability for Entry . The Lessor shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance, or other damage arising out of the Lessor's entry on the premises as provided in this Article, except damage resulting from the willful or grossly negligent acts or omissions of the Lessor or its authorized representatives. The Lessee shall not be entitled to an abatement or reduction of rent if the Lessor exercises any rights reserved in this Article in a manner that does not materially interrupt the normal operation of the Lessee's business. The Lessor shall, to the extent reasonably possible, conduct its activities on the premises as allowed in this Article in a manner that will cause the least possible inconvenience, annoyance or disturbance to the Lessee.

ARTICLE XV

WAIVER

15.1 Waiver . No delay or omission in the exercise of any right or remedy of the Lessor on any default by the Lessee shall impair such a right or remedy or be construed as a waiver. The receipt and acceptance by the Lessor of delinquent rent shall not constitute a waiver of any other default; it shall constitute only a waiver of timely payment for the particular rent payment involved. No act or conduct of the Lessor, including, without limitation, the acceptance of the keys to the premises, shall constitute an acceptance of the surrender of the premises by the Lessee before the expiration of the term. Only a notice from the Lessor to the Lessee shall constitute acceptance of the surrender of the premises and accomplish a termination of the lease. The Lessor's consent to or approval of any act by the Lessee requiring the Lessor's consent or approval shall not be deemed to waive or render unnecessary the Lessor's consent to or approval of any subsequent act by the Lessee. Any waiver by the Lessor of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this lease.

ARTICLE XVI

SURRENDER OF PREMISES; HOLDING OVER

16.1 Surrender of Premises . At the expiration of the term of this lease, the Lessee shall surrender the premises in the same condition of cleanliness, repair and sightliness as the premises were in upon the commencement date of this lease. Lessee shall surrender all keys for the premises to Lessor at the place then fixed for the payment of rent and shall inform Lessor about all combinations on locks, safes and vaults, if any, in the premises. On such day, unless the Lessor shall, in its sole discretion, require the removal thereof, all buildings, structures, alterations, additions, improvements, all hard surface bonded or adhesively affixed flooring, and all fixtures on the premises other than Lessee's trade fixtures and operating equipment, shall become the property of Lessor and shall remain upon and be surrendered with the premises as a part thereof, without disturbance, molestation or injury, and without credit to Lessee, its sublessees, concessionaires or licensees. On or before the last day of the term or the sooner termination hereof, Lessee, if not then in default, shall remove all trade fixtures, operating equipment and other personal property of Lessee. In addition, if required by the Lessor, Lessee shall remove any or all buildings, structures, alterations, additions, improvements, flooring and other fixtures as Lessor shall require, from the premises and repair any damage occasioned by any such removal. If Lessor is required to repair any damage caused to the premises by such removal, Lessee shall repay the Lessor for the cost of the same. Property not so removed shall be deemed abandoned by Lessee. If the premises are not surrendered at such time, Lessee shall indemnify Lessor against loss or liability resulting from delay by Lessee in so surrendering the premises, including without limitation, any claims made by any succeeding tenant based on such delay and/or Lessor's lost rental income. Lessee's obligation to observe or perform this covenant shall survive the expiration or other termination of the term of this lease.

The Lessor may retain or dispose of in any manner any buildings, structures, alterations, trade fixtures or personal property that the Lessee does not remove from the premises on expiration or termination of this lease by giving at least ten days' notice to the Lessee. Title to any such alterations, trade fixtures or personal property that the Lessor elects to retain or dispose of on expiration of the ten-day period shall vest in the Lessor. The Lessee waives all claims against the Lessor for any damage to the Lessee resulting from the Lessor's retention or disposition of any such alterations, trade fixtures or personal property. The Lessee shall be liable to the Lessor for the Lessor's costs for storing, removing, and disposing of any buildings, structures, alterations, trade fixtures or personal property that Lessee was required, but failed, to remove.

16.2 Liquidated Damages . If Lessee shall, at the expiration or other termination of this lease, fail to yield possession to Lessor, Lessor shall have the option to require Lessee to pay and Lessee shall pay, as liquidated damages, for each day possession is withheld, an amount equal to double the amount of the daily monthly base rent computed on the basis of a thirty (30)-day month, together with additional rent and any other payments required under this lease.

16.3 Holding Over . If the Lessee, with Lessor's written consent, remains in possession of the premises after expiration or termination of the term, or after the date in any notice given by the Lessor to the Lessee terminating this lease, such possession shall be deemed to be a month-to-month tenancy terminable on thirty days' written notice given at any time by either party. All provisions of this lease except those pertaining to term shall apply to the month-to-month tenancy.

ARTICLE XVII

MISCELLANEOUS PROVISIONS

17.1 Master Lease . This lease is made subject to that certain Lease dated April 22, 2004, made by and between DAVID M. PETERS, THOMAS K. KAULUKUKUI, JR., and PATRICK K.S.L. YIM , Trustees of the Lili'uokalani Trust under an unrecorded Trust Instrument made by Her Late Majesty Queen Lili'uokalani dated December 2, 1909, as amended, as Lessor, and Lessor, as Lessee, a short form of which is recorded as Document No. 2005-031085 in the Bureau of Conveyances of the State of Hawaii, as the same may hereafter be amended from time to time (" Master Lease "). If there is any conflict between the provisions of this lease and the provisions of the Master Lease, then, in every such event, the provisions of the Master Lease shall control, to the exclusion of any inconsistent provisions of this lease. Lessee covenants and agrees that it will not violate any term, covenant or condition contained in the Master Lease and on the part of Lessor to be observed and performed.

(a) Lessor's Title . Lessor covenants that it holds a valid leasehold estate for the Property, has the full right to make this lease, and that with full compliance with all of its obligations hereunder, Lessee shall have quiet and peaceful enjoyment of the Property during the term of this lease. Lessor further warrants to Lessee that the Master Lease is in full force and effect, that Lessor is not in default thereunder, and that there have been no amendments thereto. Lessor further covenants that Lessor will not voluntarily terminate the Master Lease and will not enter into any amendment or modification of the Master Lease that may interfere with the rights or expand the obligations of Lessee under this lease without first obtaining Lessee's prior written consent.

(b) Master Lease Payments . Lessor hereby covenants that it will comply with all of its obligations as lessee under the Master Lease as and when required thereunder. Lessor will pay to Master Lessor under the Master Lease, as and when due, all rents and other amounts required to be paid pursuant to the terms of the Master Lease, and that Lessor will not do any act, nor fail to do any act, which would cause the Master Lease to become in default. Lessor hereby agrees to protect, defend, and hold harmless Lessee from and against any loss, liability, or claim arising out of Lessor's breach of the Master Lease.

(c) Master Lease Default . Lessor agrees to immediately forward to Lessee a copy of any notices received by Lessor from Master Lessor. In the event Lessor fails to make any payments when due under the Master Lease, or is otherwise in default thereunder, Lessee may, but is not obligated to, make such payments on behalf of Lessor, or take such other action as may be necessary, in Lessee's estimation, to cure such default, or to prevent the Master Lease from being terminated. All amounts so paid by Lessee, and all costs of taking such actions on behalf of Lessor, together with any interest or penalty required to be paid in connection therewith, shall be payable on demand by Lessor to Lessee, and if not so paid by Lessor, may be applied by Lessee to reduce subsequent rent payments owed to Lessor under this lease.

17.2 Consent of Parties . Except as otherwise provided herein, whenever consent or approval of either party is required, that party shall not unreasonably withhold such consent or approval and no charge shall be made for consent except for reasonable attorneys fees and out of pocket costs incurred in connection with the review and preparation of the consent.

17.3 Exhibits--Incorporation in Lease . All exhibits referred to are attached to the lease and incorporated by reference.

17.4 Hawaii Law . This lease shall be construed and interpreted in accordance with Hawaii law.

17.5 Integrated Agreement; Modification . This lease contains the entire agreement between the parties, and any agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of this lease in whole or in part unless such agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. It is expressly understood and agreed that each and all of the provisions of this lease are conditions precedent to be faithfully and fully performed and observed by the Lessee to entitle Lessee to continue in possession of the premises hereunder; that said conditions are also covenants on the part of Lessee; and that time of performance of each is of the essence of this lease.

17.6 Notices . Any notice or demand which a party may or is required to give to the other party or parties to this lease shall be in writing and given to such party, or delivered by a reputable air courier service, e.g., Federal Express or UPS, which provides written evidence of delivery, addressed to it at its address set forth on the first page of this lease, or facsimile number or to such other address, facsimile number as shall be designated by one party in a written notice to the other party or parties. Each such notice or demand shall be effective (i) if given by facsimile, when such facsimile is transmitted to the facsimile number specified and the appropriate confirmation is received, (ii) if given by United States certified mail, return receipt requested with first class postage prepaid, addressed as aforesaid, upon receipt or (iii) if given by any other means, when delivered at the address specified above.

17.7 Submission to Condominium Property Regime . Lessor shall also have the right, without the consent of Lessee to submit all or a part of the Property of which the premises are a portion to a Condominium Property Regime under Chapter 514A of the Hawaii Revised Statutes or any successor statute and to execute and record a Declaration of Condominium Property Regime and any amendments thereto, as deemed appropriate or necessary by Lessor; provided, however, that any such submission to a Condominium Property Regime shall be subject to the Lessee's rights under this lease. Lessor shall have the right to add, delete, relocate, realign, reserve and grant all easements and rights of way over, under and on the common areas, the Property and the premises as may be necessary or desirable in connection with such submission of the Property; provided, however, that such easements and rights-of-way shall not materially impair the use of the premises by Lessee. To the extent that the joinder of Lessee shall be required in order to validate any Declaration of Condominium Property Regime or amendment contemplated therein, Lessee hereby agrees to join in and to execute the same, and for purposes of further securing the foregoing covenant, Lessee hereby irrevocably appoints Lessor as its attorney-in-fact, coupled with an interest, for purposes of executing, recording and acknowledging any such Declaration or amendment for and on behalf of Lessee.

17.8 Rent Payable in U.S. Money . Rent and all other sums payable under this lease must be paid in lawful money of the United States of America.

17.9 Severability . The unenforceability, invalidity, or illegality of any provision shall not render the other provisions unenforceable, invalid, or illegal.

17.10 Subordination of Lease . This lease shall automatically be subordinate to any mortgage, encumbrance or deed of trust heretofore or hereafter placed upon the premises by Lessor, to any and all advances made or to be made thereunder, to the interest on the obligations secured thereby, and to all renewals, replacements and extensions thereof; provided, however, that in the event of foreclosure of any such mortgage or deed of trust or exercise of the power of sale thereunder, Lessee shall attorn to the purchaser at such foreclosure or sale, and recognize such purchaser as Lessor under this lease if so requested by such purchaser. Within ten days after request therefor by Lessor, or, in the event that upon Lessor's sale, assignment or hypothecation of the Lessor's interest in land or improvements which comprise the premises, an estoppel or offset statement shall be required from Lessee, Lessee shall deliver in recordable form a certificate to any purchaser, mortgagee under such mortgage, or to Lessor, certifying (if such be the case) that this lease is in full force and effect and that there are no defenses or offsets thereto, or stating those claimed by Lessee, and stating such other facts and conditions as may be reasonably required of Lessee. In the event Lessor is refinancing the premises, Lessee agrees to deliver a current financial statement to the proposed lender. If any mortgagee or beneficiary elects to have this lease superior to its mortgage or deed of trust and gives notice of its election to Lessee, then this lease shall thereupon become superior to the lien of such mortgage or deed of trust, whether this lease is dated or recorded before or after the mortgage or deed or trust. Lessee shall execute promptly after demand, without charge, all forms, documents and instruments required by Lessor to carry out the terms of this Section.

17.11 Singular and Plural; Pronouns . When required by the context of this lease, the singular shall include the plural. A pronoun of one gender shall include reference to all genders as the context may require.

17.12 Binding Effect . Except as otherwise provided herein, this lease and each and every provision hereof shall be binding on and shall, subject to the required consent of Lessor, inure to the benefit of the parties hereto, their respective personal representatives, successors, heirs, and permitted assigns, and to each and every successor-in-interest of any party hereto, whether such successor acquires any such interest by way of gift, purchase, foreclosure, merger, or by any other method.

17.13 Right to Estoppel Certificates . Each party, within ten days after notice from the other party, shall execute and deliver to the other party, in recordable form, a certificate stating that this lease is unmodified and in full force and effect, or in full force and effect as modified, and stating the modifications. The certificate also shall state the amount of the base monthly rent, the dates to which the rent has been paid in advance, and the amount of any security deposit or prepaid rent. Failure to deliver the certificate within the ten days shall be conclusive upon the party failing to deliver the certificate for the benefit of the party requesting the certificate and any successor to the party requesting the certificate, that this lease is in full force and effect and has not been modified except as may be represented by the party requesting the certificate.

17.14 Attorney's, Architect's, Etc. Fees . If Lessor and/or its agent shall, without fault, be made a party to any litigation by or against Lessee arising out of Lessee's occupancy of the premises or any act of Lessee concerning the premises or this lease, or if litigation shall be brought for recovery of possession of the premises, for the recovery of rent or any other amount due under the provisions of this lease, or because of the breach of any covenant in this lease to be kept or performed by Lessee, and a breach shall be established, the Lessee shall pay to Lessor and/or its agent all expenses incurred in connection therewith, including attorney's fees. Lessee shall also pay any and all costs and fees incurred or paid by the Lessor, including attorney's fees and the fees of architects or other professionals employed by Lessor, to review, revise or prepare any document, plan or other writing of any nature presented by or on behalf of the Lessee to Lessor for review or approval in connection with Lessee or any action by Lessee under this lease, including, without limitation, requests for consents to assignments, subleases, mortgages or other similar items, or certificates, approvals, opinions, or other agreements with respect thereto, which such items in the opinion of the Lessor require the employment of an attorney or other professional on behalf of the Lessor. Any failure of the Lessee to pay such costs or fees upon demand of the Lessor shall be deemed a default under this lease and the Lessor shall be entitled to exercise its rights on account of such default as provided above. Lessor shall not be obligated to consider, review, execute or deliver any consent, approval, certificate or other item until the costs and fees herein required to be paid by the Lessee have been paid.

17.15 Additional Improvements Upon Property . Lessor reserves the right, at any time, to make alterations or additions to, and to build additional stories on the building in which the Premises are contained and to build in areas adjoining the premises. Lessor also reserves the right, from time to time, to construct other buildings or improvements on the Property and to make alterations or additions thereto and to build additional stories on any such buildings and to build adjoining the same and to construct controlled or elevated parking facilities. Lessor's exercise of these rights will not require Lessor to compensate Lessee in any way, nor will it result in any liability by Lessor to Lessee or in any way affect Lessee's obligations under this lease.

17.16 Force Majeure . In the event that either Lessor or Lessee shall be delayed or hindered in or prevented from the performance from any act required under this lease by reason of strikes, lockouts, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war, or other reason of a like nature, not the fault of the party delayed in performing the work or doing the acts required under the terms of this lease then performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. The provisions of this Section 17.16 shall not operate to excuse Lessee from the prompt payment of rent, or any other payments required by the terms of this lease.

ARTICLE XVIII

ARBITRATION

18.1 Arbitration of Disputes .

(a) Submission to Arbitration . Except as otherwise provided in Subsection (d) below, in the event of any dispute or claim arising out of this lease or the parties' performance or default hereunder (other than the nonpayment of rent or other sums expressly due and payable under this lease), such dispute or claim shall be submitted to binding arbitration by a single arbitrator, pursuant to the provisions of Hawaii Revised Statutes Chapter 658A, as amended (" Chapter 658A ") and this Article XIX.

(b) Appointment of Arbitrator . Except as otherwise provided in Subsection (d) below, the arbitrator shall be selected by the parties or if they are unable to agree upon the arbitrator, the arbitrator shall be appointed by the Circuit Judge of the Third Circuit Court, as provided in Chapter 658A.

(c) Arbitrator's Decision Final . The award of the arbitrator shall be final and binding subject only to confirmation, modification, correction or vacation as provided in Chapter 658A and judgment may be entered thereon as provided in Chapter 658A; provided, however, that no such award shall provide for an award of punitive damages or other exemplary relief. The costs and fees incurred by the parties in the arbitration, and the costs of the arbitration, shall be paid by the non-prevailing party as determined by the arbitrator; the costs and fees incurred by the parties in any judicial proceeding subsequent to an award, and the cost of such proceedings, shall be paid to the prevailing party as provided in Chapter 658A.

(d) Matters That May be Pursued in Court . Notwithstanding any provision to the contrary in this Article XVIII, the parties have reserved the right to pursue, in a court of competent jurisdiction, (i) a temporary restraining order, preliminary injunction and/or specific performance, as appropriate, where the failure to enjoin a party's breach of an obligation under this lease or the failure to enforce a party's compliance with any obligation or condition of this lease will create irreparable harm to the party seeking such relief and monetary damages would be an inadequate remedy at law, and (ii) an action for summary possession and a writ to be issued therein under Hawaii Revised Statutes Chapter 666, as amended, where Lessee has failed to pay the rent or other sums due and payable under this lease. Regardless of whether the court grants or denies the request for such equitable or summary relief, all issues relating to monetary damages or costs of any type (other than the nonpayment of rent or other sums expressly due and payable under this lease) shall continue to remain subject to arbitration as provided herein.

IN WITNESS WHEREOF, the parties hereto have executed this lease on the day and year first above written.

	MANINI HOLDINGS, LLC , a Hawaii limited liability company

	By:	/s/ Mattson C. Davis
		Name: MATTSON C. DAVIS
		Its Manager

		" LESSOR "

	KONA BREWING CO., INC. , a Hawaii corporation

	By:	/s/ Jennifer Dunn
		Jennifer Dunn
		Its: VP Finance

		" LESSEE "

EXHIBIT B

PREMISES: 20,000 square feet

MONTHLY BASE RENT:

September 1, 2010 to August 31, 2011:		$13,200.00 per month

September 1, 2011 to August 31, 2012:		$13,600.00 per month

September 1, 2012 to August 31, 2013:		$14,000.00 per month

September 1, 2013 to August 31, 2014:		$14,400.00 per month

September 1, 2014 to August 31, 2015:		$14,800.00 per month

September 1, 2015 to August 31, 2016:		$15,400.00 per month

September 1, 2016 to August 31, 2017:		$15,800.00 per month

September 1, 2017 to August 31, 2018:		$16,200.00 per month

September 1, 2018 to August 31, 2019:		$16,800.00 per month

September 1, 2019 to August 31, 2020:		$17,200.00 per month

Exhibit 21.1

Subsidiaries of Craft Brewers Alliance, Inc. (the Registrant)

As of December 31, 2010

Name of Entity	State of Incorporation	Name under which subsidiary is doing business

1) Kona Brewing Co., LLC	Hawaii	Kona Brewing Company
2) Kona Brewery LLC	Hawaii	Kona Brewing Company
3) Kona Brew Enterprises LLC	Hawaii	Kona Brewing Company

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements (Nos. 333-18945, 333-90524, 333-143158, and 333-171372) on Form S-8 of Craft Brewers Alliance, Inc. (the “Company”) of our report dated March 31, 2011, relating to the consolidated financial statements of the Company appearing in this Annual Report (Form 10-K) for the year ended December 31, 2010.

/s/ Moss Adams LLP

Seattle, Washington

March 31, 2011

EXHIBIT 24.1

POWER OF ATTORNEY

Each person below designates and appoints TERRY E. MICHAELSON and MARK D. MORELAND his true and lawful attorney-in-fact and agent, with full power of substitution, to sign the Annual Report on Form 10-K for the year ended December 31, 2010, of Craft Brewers Alliance, Inc., a Washington corporation, and any amendments thereto, and to file said report and amendments, with all exhibits thereto, in such form as they or either of them may approve with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Each of such attorneys-in-fact is appointed with full power to act without the other.

IN WITNESS WHEREOF, this power of attorney has been executed by each of the undersigned as of the 9 th day of March, 2011.

Signature		Title

/s/ Kurt R. Widmer		Chairman of the Board and Director
Kurt R. Widmer

/s/ Timothy P. Boyle		Director
Timothy P. Boyle

/s/ Marc J. Cramer		Director
Marc J. Cramer

/s/ Andrew R. Goeler		Director
Andrew R. Goeler

/s/ Kevin R. Kelly		Director
Kevin R. Kelly

/s/ David R. Lord		Director
David R. Lord

/s/ John D. Roger, Jr.		Director
John D. Rogers, Jr.

EXHIBIT 31.1

CERTIFICATIONS

I, Terry E. Michaelson, certify that:

1.	I have reviewed this report on Form 10−K of Craft Brewers Alliance, Inc. (the “Registrant”);

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and 15d−15(f)) for the Registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: March 31, 2011

	BY:	/s/ Terry E. Michaelson
		Terry E. Michaelson
		Chief Executive Officer

EXHIBIT 31.2

CERTIFICATIONS

I, Mark D. Moreland, certify that:

1.	I have reviewed this report on Form 10−K of Craft Brewers Alliance, Inc. (the “Registrant”);

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: March 31, 2011

	BY:	/s/ Mark D. Moreland
		Mark D. Moreland
		Chief Financial Officer
		and Treasurer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES−OXLEY ACT OF 2002

In connection with the Annual Report of Craft Brewers Alliance, Inc. (the “Registrant”) on Form 10-K for the fiscal year ended December 31, 2010, as filed with the Securities and Exchange Commission on March 31, 2011 (the “Report”), Terry E. Michaelson, the Chief Executive Officer of the Registrant, and Mark D. Moreland, the Chief Financial Officer and Treasurer of the Registrant, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:

March 31, 2011

	BY:	/s/ Terry E. Michaelson
		Terry E. Michaelson
		Chief Executive Officer
		(Principal Executive Officer)

	BY:	/s/ Mark D. Moreland
		Mark D. Moreland
		Chief Financial Officer
		and Treasurer
		(Principal Financial Officer)

Exhibit 99.1

FOR IMMEDIATE RELEASE

CRAFT BREWERS ALLIANCE

REPORTS FULL YEAR 2010 RESULTS

Craft Brewers reports record sales for 2010;

Doubles earnings per share from 2009

Portland, Ore. (March 31, 2011) – Craft Brewers Alliance , Inc. (CBA ) (Nasdaq: HOOK), an independent craft brewing company, reported net sales of $131.7 million and net income of $1.7 million for the year ended December 31, 2010 as compared with net sales of $124.7 million and net income of $887,000 for the year ended December 31, 2009. CBA reported earnings per share of $0.10 on a fully diluted basis for 2010 as compared with $0.05 per share one year ago. On October 1, 2010, CBA completed its merger with Kona Brewing Co., Inc. and related entities (“KBC Merger”).

Significant financial highlights for the year ended December 31, 2010 and recent highlights include:

Net revenues increased $7.0 million, or 6 percent, to $131.7 million for 2010

Earnings per share doubled from $0.05 for 2009 to $0.10 per share for 2010

Selling, general and administrative expenses increased $5.0 million to $29.9 million for 2010, reflecting increased sales and marketing efforts

Cash flow g enerated from operations increased 21 percent to $10.8 million for 2010

The KBC Merger closed on October 1, 2010

In March 2011, reached agreement with Anheuser-Busch to sell our minority interest in an affiliate for cash consideration and reduced distribution fees

“ We are committed to delivering more beer lovers a variety of fresh, authentic, handcrafted beers and beer experiences. In 2010, we made solid progress towards achieving this objective, ” said Terry Michaelson, CBA’s CEO. “We believe that a strong foundation has been established and we have developed exciting new initiatives for our brands in 2011. We will invest aggressively against these initiatives, which are vital to our long-term success. This may result in flat earnings in the short term, but we are confident that we will show both top line and profit growth for 2011.”

Operating Results

Net sales for the year ended December 31, 2010 were $131.7 million, increasing $7.0 million, or six percent, from revenues of $124.7 million for 2009. The increase resulted from a combination of factors, including price increases for the Company’s products sold to wholesalers, an increase in revenues earned from the Company’s restaurants and pubs following the KBC Merger, and an increase in contract brewing revenues, in 2010 compared with 2009. Total shipments for the year ended December 31, 2010 were 607,800 barrels, an increase of 20,300 barrels, or four percent, from 587,500 barrels for 2009, primarily reflecting growth in the Company’s contract brewing business. Depletion growth for the year was two percent.

Cost of sales as a percentage of net sales improved 340 basis points from 2009 to 2010, and improved on a per barrel basis by $4.16, or 3 percent, from $165.50 a barrel to $161.34 a barrel over the same period. These improvements reflected decreased costs for certain of the Company’s core production inputs, raw materials and packaging materials, and reduced fees for cooperage. These factors were offset by costs incurred related to disposal of a significant quantity of beer that did not meet CBA’s exacting quality standards. During the fourth quarter of 2010, all breweries were operating to their planned capacities and meeting or exceeding quality standards.

Selling, general and administrative (SG&A) expenses of $29.9 million for the year ended December 31, 2010 increased $5.0 million, or 20 percent, from $24.9 million for 2009. This increase was primarily due to an increase in direct costs associated with the Company’s sales and marketing activities, as well as SG&A costs for 2010 associated with the operations acquired in the KBC merger. The Company expects SG&A spending to continue at an elevated level for 2011 as compared with 2010 as it embarks on a significant campaign to penetrate select focus markets and deliver new and exciting beers and packages to consumers.

The Company’s operating income for 2010 of $3.2 million increased $823,000, or 35 percent, from $2.3 million a year ago due primarily to the increase in sales revenues, partially offset by an increase in SG&A expenses and an increase in merger expenses for 2010 related to the KBC Merger.

Cash Flow and Liquidity

Cash provided by operating activities improved $1.8 million, or 21 percent, to $10.8 million for the year ended December 31, 2010 compared with $9.0 million for 2009. CBA utilized the cash provided by operations for the year ended December 31, 2010, primarily to fund its capital expenditures of $4.7 million and the $6.2 million cash payment in the Kona Merger. CBA’s debt as a percentage of total capitalization (total debt and common stockholders' equity) was 22 percent and 25 percent at December 31, 2010 and 2009, respectively.

Capital expenditures for the year ended December 31, 2010 and 2009 were $4.7 million and $2.3 million, respectively. The capital expenditures for 2010 include projects designed to facilitate the Company’s contract brewing arrangement with Fulton Street Brewery, LLC (“FSB”), enhance and target the core brand offerings produced at its breweries, and improve its quality assurance and information technology systems, including initial investments towards a Company-wide demand planning and order management system. The Company expects spending on these projects to continue through the balance of 2011, and to total approximately $6 million.

Other Achievements

The Company has substantially completed its integration of the operations of Kona Brewing Co., Inc., including the brewery located on Kailua-Kona, Hawaii and the restaurant and pub operations on the islands of Oahu and Hawaii.

On March 24, 2011, CBA executed an agreement with Anheuser-Busch, Inc. (“A-B”) whereby the Company will sell its minority interest in FSB to A-B under the terms of an equity purchase agreement in which the majority owner of FSB agreed to sell its interest in FSB to A-B. Upon closing, A-B has agreed to pay CBA $16.3 million in cash for the Company's interest in FSB and $150,000 to cover a portion of its transaction costs. As part of the deal, A-B has agreed to reduce distribution fees for the remaining term of CBA’s distribution arrangement with A-B, as well as any renewal terms. A-B also agreed to provide enhanced selling support for the Company’s brands.

Craft Brewers Alliance Reports Full Year 2010 Results

Page 2 of 4

The Company estimates that, had the proposed deal been in place throughout 2010, the increase in 2010 sales revenues resulting from the reduced distribution fees would have been approximately $2.1 million. This reduction in distribution fees would be in addition to a reduction in fees already secured by the Company in its agreement with A-B reached during the third quarter of 2010. The loss of the Company’s share of earnings from FSB will partially offset any increase in sales revenues resulting from the reduced distribution fees. The Company’s share of FSB’s earnings was $696,000 for 2010.

During 2010, the Company successfully negotiated two favorable modifications with its lender, Bank of America, N.A., reflecting the lender’s recognition of significant improvement in the Company’s financial position, as well as its consent to the KBC Merger and the Company’s assumption of certain debt obligations in connection with the merger. The combined effect of these modifications was to increase total borrowing capacity under the Company’s line of credit to $22 million, extend the maturity date of the line of credit, improve the pricing associated with its loan agreement, and reduce certain fees.

“We began 2010 by successfully negotiating a favorable contract with a key packaging supplier and have improved our terms with a number of strategic partners throughout the year. These partners support our strategic mission and will continue to help us achieve our goals,” said Mark Moreland, CBA’s CFO. “We successfully aligned our operational and financial resources in 2010, and have initiated a campaign that will accelerate investment into our sales and marketing functions, which we believe will drive positive and significant growth in our market share, revenues, earnings and cash flow over the long term.”

Forward-Looking Statements

Statements made in this press release that state the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future, including the level or effect of increased SG&A expense, the amount of future capital spending and the benefits or improvements to be realized from those capital projects, the closing of the pending sale o f the Company’s interest in FSB to A-B, and the increase in sales revenues resulting from reduced distribution fees payable to A-B, are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company's SEC filings, including, but not limited to, the Company's report on Form 10-K for the year ended December 31, 2010. Copies of these documents may be found on the Company's website, www.craftbrewers.com , or obtained by contacting the Company or the SEC.

Craft Brewers Alliance Reports Full Year 2010 Results

Page 3 of 4

About Craft Brewers Alliance

CBA is an independent, publicly traded craft brewing company that was formed with the merger of leading Pacific Northwest craft brewers – Widmer Brothers Brewing and Redhook Ale Brewery – in 2008. With an eye toward preserving one-of-a-kind beers and brands by giving them an opportunity to shine and grow, CBA was joined by Kona Brewing Company in 2010. When Kurt & Rob Widmer founded Widmer Brothers Brewing in 1984, they didn’t confine their brewing exploration to strict style guidelines. To this day, Widmer Brothers continues to create craft beers with a unique and unconventional twist on traditional styles that are award winning and please a wide range of craft beer lovers. Redhook began in a Seattle transmission shop in 1981, and those colorful roots are reflected in the brand’s personality to this day. The eminently drinkable beers consistently win awards and please crowds across the United States. Kona Brewing was founded in 1995 by a father and son with dreams of crafting quality beer as ‘liquid aloha’ for the locals. As the largest craft brewery in Hawaii, Kona personifies the laid-back, passionate lifestyle and environmental respect of the Hawaiian people and culture.

Media Contact:	Investor Contact:
Ted Lane	Patrick Green
LANE PR	(503) 331-7275
(503) 546-7891	Patrick.green@craftbrewers.com
Ted@lanepr.com

###

Craft Brewers Alliance Reports Full Year 2010 Results

Page 4 of 4

Craft Brewers Alliance, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share amounts and shipments)

(Unaudited)

	Year Ended December 31,
	2010			2009

Sales	$	140,852		$	133,308
Less excise taxes		9,121			8,595
Net sales		131,731			124,713
Cost of sales		98,064			97,230
Gross profit		33,667			27,483
		25.5	%		22.1	%
Selling, general and administrative expenses		29,938			24,911
Merger-related expenses		559			225
Operating income		3,170			2,347
Interest expense		(1,497	)		(2,139	)
Income from equity investments, interest and other, net		1,113			865
Income before income taxes		2,786			1,073
Income tax provision		1,100			186
Net income	$	1,686		$	887

Earnings per share:
Basic and diluted earnings per share	$	0.10		$	0.05
Weighted average shares outstanding:
Basic		17,523			17,004
Diluted		17,568			17,041

Total Shipments (in barrels):
Core Brands		584,700			582,500
Contract Brewing		23,100			5,000
Total Shipments		607,800			587,500

Craft Brewers Alliance, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(Unaudited)

	December 31,
	2010		2009

Current assets:
Cash and cash equivalents	$	164	$	11
Accounts receivable, net		10,514		11,122
Inventories		8,729		9,487
Deferred income tax asset, net		932		970
Other current assets and income tax receivables		3,233		3,941
Total current assets		23,572		25,531
Property, equipment and leasehold improvements, net		98,778		97,339
Goodwill		12,917		—
Intangible and other non-current assets, net		22,999		18,715
Total assets	$	158,266	$	141,585

Current liabilities:
Accounts payable	$	13,825	$	14,672
Accrued salaries, wages, severance and payroll taxes		4,053		4,432
Refundable deposits		6,291		6,288
Other accrued expenses		1,378		1,185
Current portion of long-term debt and capital lease obligations		2,460		1,481
Total current liabilities		28,007		28,058
Long-term debt and capital lease obligations, net		24,675		24,685
Other long-term liabilities		11,388		8,210
Total common stockholders' equity		94,196		80,632
Total liabilities and common stockholders' equity	$	158,266	$	141,585

Craft Brewers Alliance, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Year Ended December 31,
	2010			2009

Cash Flows From Operating Activities:
Net income	$	1,686		$	887
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,044			7,313
Income from equity investments		(647	)		(513	)
Deferred income taxes		1,082			(56	)
Other, including stock-based compensation		(81	)		(63	)
Changes in operating assets and liabilities:
Accounts receivable		2,017			1,391
Inventories		1,445			(202	)
Income tax receivable and other current assets		590			791
Other assets		36			72
Accounts payable and other accrued expenses		(1,353	)		(1,162	)
Accrued salaries, wages, severance and payroll taxes		(1,230	)		802
Refundable deposits and other liabilities		209			(306	)
Net cash provided by operating activities		10,798			8,954
Cash Flows from Investing Activities:
Expenditures for property, equipment and leasehold improvements		(4,669	)		(2,303	)
Proceeds from sale of property, equipment and leasehold improvements and other		160			136
Cash paid in merger with Kona Brewing Co., Inc. and related entities, net		(6,206	)		—
Proceeds from cash grant		402			—
Net cash used in investing activities		(10,313	)		(2,167	)
Cash Flows from Financing Activities:
Principal payments on debt and capital lease obligations		(1,505	)		(1,394	)
Net borrowings (repayments) under revolving line of credit		1,100			(5,600	)
Issuance of common stock and other		73			207
Net cash used in financing activities		(332	)		(6,787	)
Increase in cash and cash equivalents		153			—
Cash and cash equivalents, beginning of period		11			11
Cash and cash equivalents, end of period	$	164		$	11