LOAN AGREEMENT

LOAN AGREEMENT

Between

JONES SODA CO.

and

KEYBANK NATIONAL ASSOCIATION

1

Dated as of August 21, 2007

LOAN AGREEMENT

THIS LOAN AGREEMENT (“Agreement”) is made between Jones Soda Co. (“Borrower”), and KeyBank National Association (“Lender”). The parties agree as follows:

ARTICLE 1
Definitions

All terms defined below shall have the meaning indicated. All references in this Agreement to:

(a) “dollars” or “$” shall mean U.S. dollars;

(b) “Article,” “Section,” or “Subsection” shall mean articles, sections, and subsections of this Agreement, unless otherwise indicated; and

(c) an accounting term not otherwise defined in this Agreement shall have the meaning assigned to it under GAAP.

1.1 Advances or Advance shall mean the disbursement of loan proceeds under the Revolving Loan.

1.2 Available Amounts shall mean at any time the amount of the Borrowing Limit minus the unpaid balance of the Revolving Note.

1.3 Borrowing Limit shall mean the sum of $15,000,000.00.

1.4 Business Day shall mean any day other than a Saturday, Sunday, or other day on which commercial banks in Seattle, Washington, are authorized or required by law to close.

1.5 Commencement Date shall mean the first day of any LIBOR Interest Period as requested by Borrower.

1.6 Default shall be as defined in Section 9.1 hereof.

1.7 ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended.

1.8 Expiration Date shall mean August 21, 2009, unless the Revolving Loan is sooner terminated in accordance with Subsection 9.3.2.

1.9 GAAP shall mean generally accepted accounting principles as in effect from time to time in the United States and as consistently applied by Borrower.

1.10 Interest Payment Dates shall mean the 1st day of each month as to each Prime Rate Loan and LIBOR Rate Loan.

1.11 LIBOR Borrowing Rate shall mean the sum of (i) the LIBOR Rate; and (ii) the LIBOR Margin.

1.12 LIBOR Business Day shall mean a Business Day on which dealings are carried on in the London interbank Eurodollar market.

1.13 LIBOR Interest Period shall mean the period commencing on the date of any Advance at, or conversion to, a LIBOR Rate and ending thirty (30), sixty (60) or ninety (90) days thereafter as selected by Borrower, subject to the restrictions of Article 3; provided that (A) any LIBOR Interest Period which would otherwise expire on a day which is not a Business Day, shall be extended to the next succeeding Business Day, unless the result of such extension would be to extend such LIBOR Interest Period into another calendar month, in which event the LIBOR Interest Period shall end on the immediately preceding Business Day; and (B) any LIBOR Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Interest Period) shall end on the last Business Day of a calendar month.

1.14 LIBOR Margin shall mean 100 basis points (1.00% per annum).

1.15 LIBOR Rate shall mean, for any LIBOR Interest Period, a rate per annum calculated by Lender in good faith, which Lender determines with reference to the rate per annum (rounded upwards to the next higher whole multiple of 1/16 % if such rate is not such multiple) at which deposits in United States dollars are offered by prime banks in the London Interbank Eurodollar market on the Business day occurring two (2) London Banking Days prior to the applicable Commencement Date for a LIBOR Rate Loan, in an amount comparable to the applicable Advance and with a maturity equal to the applicable LIBOR Interest Period.

1.16 LIBOR Rate Loans or Loan shall mean those portions or portion of the Revolving Note accruing interest at the LIBOR Borrowing Rate.

1.17 LIBOR Reserve Requirements means, for any Advance bearing interest at the LIBOR Borrowing Rate, the maximum reserves (whether basic, supplemental, marginal, emergency, or otherwise) prescribed by the Board of Governors of the Federal Reserve System (or any successor) with respect to liabilities or assets consisting of or including “Eurocurrency liabilities” (as defined in Regulation D of the Board of Governors of the Federal Reserve System) having a term equal to the term of such Advance.

1.18 Loan Documents shall mean collectively this Agreement, the Revolving Note, the Security Agreement, financing statements and all other documents, instruments, and agreements now or later executed in connection with this Agreement. Such documents shall be referred to collectively as the “Loan Documents” and individually as a “Loan Document.”

1.19 London Banking Day shall mean any day other than a Saturday, Sunday, or other day on which commercial banks in Seattle, Washington, or London, England, are authorized or required by law to close.

1.20 Obligations shall mean the amounts owing under the Revolving Note, and all fees, costs, expenses and indemnifications due to Lender under this Agreement.

1.21 Person shall mean any individual, trust, partnership, corporation, limited liability company, business trust, unincorporated organization, joint venture or other entity, or any governmental entity, department, agency, or political subdivision.

1.22 Plan shall mean any employee benefit plan or other plan maintained for Borrower’s employees and covered by Title IV of ERISA, excluding any plan created or operated by or for any labor union.

1.23 Prime Borrowing Rate means the (i) the Prime Rate; minus (ii) 150 basis points (1.50% per annum).

1.24 Prime Rate shall mean the floating commercial loan reference rate of Lender, publicly announced from time to time as its “prime rate” or “reference rate” (calculated on the basis of actual number of days elapsed over a year of 360 days), with any change in the Prime Rate to be effective on the date the “reference rate” or “prime rate” changes. The Prime Rate is not necessarily the lowest rate which Lender charges any borrower or class of borrowers. Lender’s internal records of applicable interest rates shall be determinative in the absence of manifest error with respect to the calculation of the Prime Rate.

1.25 Prime Rate Loans or Loan shall mean those portions or portion of the principal of the Revolving Note accruing interest at the Prime Borrowing Rate.

1.26 Revolving Loan shall mean the Revolving Loan described in Section 2.1 below.

1.27 Revolving Note shall mean that promissory note evidencing the Revolving Loan.

ARTICLE 2

Revolving Loans

2.1 Revolving Loan Facility . Subject to the terms and conditions of this Agreement, Lender shall make Advances to Borrower from time to time, until the Expiration Date, with the aggregate principal amount at any one time outstanding not to exceed the Borrowing Limit. Such loan shall be referred to herein as the “Revolving Loan.” Borrower may use the Revolving Loan by borrowing, prepaying, and reborrowing the Available Amounts, in whole or in part.

2.2 Procedure for Advances . Borrower may request Advances under the Revolving Loan on any Business Day but no later than the Expiration Date, provided that (i) as a result of the Advance, the Borrowing Limit is not exceeded, and (ii) with regard to an Advance regarding a LIBOR Rate Loan only, the amount of the requested LIBOR Advance shall be no less than $1,000,000.00, and any additional LIBOR Advances must be in increments of $250,000.00, and (iii) the conditions to borrowing set forth in Article 4 are met as of the time of the request. Borrower shall give Lender irrevocable notice either orally or in writing, but Lender may require that all oral requests be confirmed in writing, and the notice shall specify the amount to be borrowed and the requested borrowing date. Lender must receive such notice on or before 2:00 p.m., Seattle time, on the day borrowing is requested. All Advances shall be discretionary to the extent notification by Borrower is given subsequent to that time. The following persons (each authorized to do so without consent or authorization of any of the others) are authorized to request Advances under the Revolving Loans until Lender receives from Borrower written notice of the revocation of their authority:

Peter Van Stolk

Hassan Natha

Additional authorized persons may be added upon receipt by Lender of evidence satisfying Lender of their appointment. Borrower agrees to be liable to Lender for all sums either (i) advanced, or (ii) credited to any of Borrower’s accounts with Lender, in either case in accordance with instructions by an authorized person.

2.3 Revolving Loan Fee . The Revolving Loan fee (the “Revolving Loan Fee”) shall be $15,000.00, payable by Borrower on or before the closing of the Revolving Loan.

2.4 Repayment of Revolving Loan . The Revolving Loan shall be repaid by Borrower in accordance with the terms of and shall be evidenced by a promissory note in the form attached hereto as Exhibit A and incorporated herein by this reference (the “Revolving Note”). Interest on the amounts outstanding on the Revolving Loan from time to time shall accrue and be payable at (i) the Prime Borrowing Rate as defined in Section 1.23; or (ii) the LIBOR Borrowing Rate, as defined in Section 1.11 if elected by Borrower, subject to the fulfillment of the conditions set forth in Article 4 and the terms in the Revolving Note, and so long as the amount outstanding under any Revolving Loan does not exceed the Borrowing Limit, Borrower may borrow and reborrow sums under the Revolving Loan through the Expiration Date. Subject to Subsection 3.4.3, the individual Advances made under the Revolving Note may be repaid by Borrower at any time in whole without penalty, provided, that no partial payments of Advances shall be allowed hereunder. Advances under the Revolving Note shall bear interest at the Prime Borrowing Rate or a fixed rate of interest equal to the LIBOR Borrowing Rate for the duration of the LIBOR Interest Period, at Borrower’s election, but subject to Sections 3.4 and 3.5. Interest shall be payable on the Interest Payment Dates.

ARTICLE 3

Interest Rate Options

3.1 Interest Rate . The Revolving Note shall bear interest at the Prime Borrowing Rate unless a LIBOR Borrowing Rate is specifically selected by Borrower in the manner provided herein and as additionally provided in Section 3.3.

3.2 Procedure For Selecting a LIBOR Rate . Borrower may, before 11:00 a.m. Seattle time on any Business Day occurring two London Banking Days before a Commencement Date, request Lender to give a LIBOR Rate quote for a specified loan amount and LIBOR Interest Period. Lender will then quote to Borrower the available LIBOR Rate. Borrower shall have two hours from the time of the quote to elect a LIBOR Rate by giving Lender irrevocable notice of such election, in which case the Advance requested by Borrower shall accrue interest at the LIBOR Rate quoted by Lender plus the LIBOR Margin from the Commencement Date through and including the last day of the LIBOR Interest Period. Lender reserves the right to reject such election, and offer an updated quote, in the case of a significant move in the Eurodollar market occurring after the Lender makes its initial quote.

3.3 Selection of Interest Rates. Advances under the Revolving Loans shall bear interest at the LIBOR Borrowing Rate for the duration of a LIBOR Interest Period, at Borrower’s election; provided that (i) the LIBOR Borrowing Rate may only be selected for a minimum principal amount of no less than $1,000,000.00 and thereafter in integral multiples of $250,000; (ii) no more than three (3) LIBOR Borrowing Rates may be outstanding at any one time on the Revolving Loan, and each LIBOR Interest Period for a LIBOR Rate Loan shall be for 30, 60 or 90 days; and (iii) no LIBOR Interest Period on a Revolving Loan may extend beyond the Expiration Date. Before the expiration of a LIBOR Interest Period, Borrower may elect a new LIBOR Borrowing Rate to be applied to an Advance in the manner described in Section 3.2, or Borrower may notify Lender (in writing, if required by Lender), on or before the time and date Borrower is required to request a LIBOR Rate quote from Lender as described in Section 3.2, that Borrower elects to convert an Advance to a Prime Rate Loan after the termination of the LIBOR Interest Period (in which case the Advance shall commence accruing interest at the Prime Borrowing Rate after the expiration of the LIBOR Interest Period). If Borrower fails to make a timely LIBOR Borrowing Rate or Prime Borrowing Rate election, Advances that previously bore interest at a LIBOR Borrowing Rate will bear interest at the LIBOR Borrowing Rate for consecutive, identical LIBOR Interest Periods until a further election is made, with the LIBOR Borrowing Rate to be determined by Lender for each LIBOR Interest Period in the manner described in Section 3.2 above; provided that if the LIBOR Interest Period relating to any such Advance would end later than the Expiration Date, such Advance will bear interest at the LIBOR Borrowing Rate for the period ending most closely on or before such Expiration Date.

3.4 Increased Costs, Illegality and Prepayment. The following shall apply in the event any Advances are made herein at the LIBOR Borrowing Rate.

3.4.1 Increased Costs. If, because of the introduction of or any change in, or because of a judicial, administrative, or other governmental interpretation of, any law or regulation, there shall be an increase in the cost to Lender of making, funding, maintaining or allocating capital to any Advance bearing interest at the LIBOR Borrowing Rate, including a change in LIBOR Reserve Requirements, then Borrower shall, from time to time upon demand by Lender, pay to Lender additional amounts sufficient to compensate Lender for such increased cost.

3.4.2 Illegality. If, because of the introduction of or any change in, or because of any judicial, administrative, or other governmental interpretation of, any law or regulation, it becomes unlawful for any Lender to make, fund, or maintain any advance at the LIBOR Borrowing Rate, then Lender’s obligation to make, fund, or maintain any such Advance shall terminate and each affected outstanding Advance shall be converted to the Prime Borrowing Rate on the earlier of the termination date for each LIBOR Interest Period or the date the making, funding, or maintaining of each such Advance becomes unlawful.

3.4.3 Reimbursement of Costs. If Borrower repays any Advance bearing interest at the LIBOR Borrowing Rate prior to the end of the applicable LIBOR Interest Period, including, without limitation, a prepayment under Subsections 3.4.1 or 3.4.2 above, Borrower shall reimburse Lender on demand for any resulting loss or expense incurred by Lender, including, without limitation, any loss or expense incurred in obtaining, liquidating or re-employing deposits from third parties. A statement as to the amount of such loss or expense, prepared in good faith and in reasonable detail by Lender and submitted by Lender to Borrower, shall be conclusive and binding for all purposes absent manifest error in computation. Calculation of all amounts payable to Lender under this Subsection shall be made as though Lender shall have actually funded the relevant Advance through deposits or other funds acquired from third parties for such purpose, provided, however, that Lender may fund any Advance bearing interest at the LIBOR Borrowing Rate in any manner it sees fit and the foregoing assumption shall be utilized only for purposes of calculation of amounts payable under this Subsection. Lender will be entitled to receive the reimbursement provided for herein regardless of whether the prepayment is voluntary (including demand or acceleration of the Revolving Loans upon Borrower’s default).

3.5 Inability to Participate in Market . If Lender in good faith cannot participate in the Eurodollar market for legal or practical reasons, the LIBOR Borrowing Rate shall cease to be an option hereunder. Lender shall notify Borrower if and when it again becomes legal or practical to participate in the Eurodollar market, at which time the LIBOR Borrowing Rate shall resume being an option.

ARTICLE 4

Conditions of Lending

Lender’s obligations to make the Revolving Loan and make each Advance are subject to the following conditions precedent, unless waived by Lender in writing:

4.1 Authorization . Borrower shall have delivered to Lender (i) a certified copy of the resolution of Borrower’s board of directors authorizing the transactions contemplated by this Agreement and the execution, delivery, and performance of all the Loan Documents; (ii) a Certificate of Existence or similar certificate from the Washington Secretary of State certifying that Borrower is in existence and in good standing under the laws of the state of Washington, dated at least thirty (30) or less days before the date of Borrower’s execution of this Agreement; (iii) a copy of the current Articles of Incorporation of Borrower; and (iv) if requested by Lender, an opinion of Borrower’s legal counsel in a form satisfactory to Lender and Lender’s counsel opining that, among other things, Borrower has the proper authority to enter into this Agreement and consummate the transaction described herein.

4.2 Representations and Warranties . The representations and warranties made by Borrower in the Loan Documents and in any certificate, document, or financial statement furnished at any time shall continue to be true and correct, except to the extent that such representations and warranties expressly relate to an earlier date.

4.3 Compliance . No Default or other event which, upon notice or lapse of time or both would constitute a Default, shall have occurred and be continuing.

4.4 Documentation . Borrower shall have executed and delivered to Lender all documents to reflect the existence of the Obligations, including, without limitation, the Loan Documents.

4.5 Proof of Insurance . Proof of insurance as required by Section 7.11 has been provided to Lender.

4.6 Payment of Fees . Borrower shall have paid Lender all fees and costs required to be paid to Lender by Borrower before any Advance pursuant to this Agreement, including, without limitation, the Revolving Loan Fee.

ARTICLE 5
Collateral

5.1 Collateral. To secure payment of the Revolving Loan and performance of all other obligations and duties owed by Borrower to Lender, Borrower (and others, if required) shall grant to Lender first priority security interests in all of Borrower’s property and assets (collectively the “Collateral”), including, without limitation, all of Borrower’s present and future tangible and intangible property, including, without limitation, all accounts, inventory, equipment, general intangibles, patents, trademarks, trade names, copyrights and intellectual property and the other property which shall be described in the Security Agreement referenced in this section below. Borrower shall execute a commercial security agreement (the “Security Agreement”) in favor of Lender, which Security Agreement shall be in form and substance acceptable to Lender, and pursuant to which Borrower shall grant Lender a security interest in the Collateral. Lender’s security interest in the Collateral shall be a continuing lien and shall include the proceeds and products of the Collateral, including without limitation, the proceeds of any insurance. With respect to the Collateral, Borrower agrees and represents and warrants to Lender and shall comply with the provision of Sections 5.2 and 5.3 below.

5.2 Perfection of Security Interest. Borrower grants Lender the authority to file financing statements with the appropriate filing offices to perfect Lender’s security interests in the Collateral. At Lender’s request, Borrower agrees to take whatever other actions are requested by Lender to perfect and continue Lender’s security interest in the Collateral. Upon request of Lender, Borrower will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Borrower will note Lender’s interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Contemporaneous with the execution of this Agreement, Borrower will file one or more UCC financing statements and any and all similar statements in the appropriate location or locations as may be required by applicable law. Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing or filing any documents necessary to perfect or to continue any security interest. Lender may at any time, and without further authorization from Borrower, file a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement. Borrower will reimburse Lender for all expenses for the perfection, termination, and the continuation of the perfection of Lender’s security interest in the Collateral. Borrower will promptly notify Lender of any change in Borrower’s name including any change to the assumed business names of Borrower. Borrower also will promptly notify Lender of any change in Borrower’s Employer Identification Number. Borrower further agrees to notify Lender in writing prior to any change in address or location of Borrower’s state of incorporation and/or principal governance office or should Borrower merge or consolidate with any other entity.

5.3 Collateral Records. Borrower does now, and at all times hereafter shall, keep correct and accurate records of the Collateral, all of which records shall be available to Lender or Lender’s representative upon demand for inspection and copying at any reasonable time. With respect to Borrower’s accounts, Borrower agrees to keep and maintain such records as Lender may require regarding the Collateral, including, without limitation, information concerning Borrower’s accounts, including account balances and agings.

ARTICLE 6

Representations and Warranties

To induce Lender to enter into this Agreement, Borrower represents, warrants, and covenants to Lender as follows:

6.1 Corporate Existence . Borrower is in good standing as a corporation under the laws of the state of Washington, has the corporate power, authority, and legal right to own and operate its property or lease the property it operates and to conduct its current business; and is qualified to do business and is in good standing in all other jurisdictions where the ownership, lease, or operation of its property or the conduct of its business requires such qualification.

6.2 Enforceability . The Loan Documents, when executed and delivered by Borrower, shall be enforceable against Borrower in accordance with their respective terms.

6.3 No Legal Bar . The execution, delivery, and performance by Borrower of the Loan Documents, and the use of the loan proceeds, shall not violate any existing law or regulation applicable to Borrower; any ruling applicable to Borrower of any court, arbitrator, or governmental agency or body of any kind, Borrower’s articles of incorporation or bylaws, any security issued by Borrower, or any mortgage, indenture, lease, contract, undertaking, or other agreement to which Borrower is a party or by which Borrower or any of its property may be bound.

6.4 Financial Information . By submitting each of the financial statements required by Subsection 7.2, Borrower is deemed to represent and warrant that: (a) such statement is complete and correct and fairly presents its financial condition as of the date of such statement; (b) such statement discloses all liabilities that are required to be reflected or reserved against under GAAP, whether liquidated or unliquidated, fixed or contingent; and (c) such statement has been prepared in accordance with GAAP. As of the date submitted, there has been no adverse change in Borrower’s financial condition, since the date of preparation of such financial statements which would materially impair Borrower’s ability to repay the obligations.

6.5 Liens and Encumbrances . As of this date, Borrower has good and marketable title to its property free and clear of all security interests, liens, encumbrances, or rights of others, except as disclosed in writing to Lender, and except for taxes which are not yet delinquent and conditions, restrictions, easements, and rights of way of record which do not materially affect the use of any of Borrower’s property.

6.6 Litigation . Except as disclosed in writing to Lender, there is no threatened (to Borrower’s knowledge) or pending litigation, investigation, arbitration, or administrative action which may material