SUPPLY, DISTRIBUTION AND LICENSING AGREEMENT

 

                                                                    EXHIBIT 10.4

 

 

                  SUPPLY, DISTRIBUTION, AND LICENSING AGREEMENT

 

 

 

                                 BY AND BETWEEN

 

 

 

                            CRAFT BRANDS ALLIANCE LLC

 

 

 

                                       AND

 

 

 

                        REDHOOK ALE BREWERY, INCORPORATED

 

 

 

 

 

                                  JULY 1, 2004

 

 

 

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REDHOOK SUPPLY, DISTRIBUTION, AND

LICENSING AGREEMENT

                  SUPPLY, DISTRIBUTION, AND LICENSING AGREEMENT

 

 

By:                CRAFT BRANDS ALLIANCE LLC, an Oregon limited liability company

                  ("Company")

                  929 N. Russell

                  Portland, Oregon   97227

 

and:               REDHOOK ALE BREWERY, INCORPORATED, a Washington  

                  corporation ("Redhook")

                  14300 NE 145th

                  Woodinville, Washington 98072

 

Date:              July 1, 2004

 

 

                  This    Supply,     Distribution,     and    Licensing    Agreement

("Agreement") is entered into by and between Redhook and Company effective as of

the date first set forth above.

 

                                   BACKGROUND

 

                           A.   Widmer   Brothers   Brewing    Company,    an   Oregon

corporation   ("Widmer")   and   Redhook   are   both   manufacturers   of   craft   malt

beverages.   Widmer and Redhook previously each had a distribution agreement with

Anheuser-Busch   Inc. ("ABI") pursuant to which ABI distributed the malt beverage

products    of   Widmer    (collectively,    "Widmer    Products")    and   of   Redhook

(collectively "Redhook Products").

 

                           B.    Widmer     Products     and     Redhook     Products

(collectively,   "Products") have been distributed in the following common states

pursuant to distribution   agreements between ABI and each of Widmer and Redhook:

Alaska,   Arizona,   California,   Colorado,   Hawaii,   Idaho,   Montana, New Mexico,

Nevada,   Oregon,    Washington,   and   Wyoming.   ABI,   Widmer,   and   Redhook   have

determined   that it would create certain   efficiencies   and synergies for Widmer

and Redhook to consolidate certain marketing,   advertising, sales, distribution,

and related   operations and to jointly   distribute their respective   products in

the "Territory" (as defined in Section 2 below).

 

                           C. Widmer,   Redhook,   and Company   have   executed and

delivered or are   negotiating   the   following   documents:   a Restated   Operating

Agreement (the "Operating   Agreement") of Company, and other documents described

in the Operating Agreement (collectively, the "Related Agreements"). Pursuant to

the   Operating   Agreement   and   certain of the   Related   Agreements,   Widmer and

Redhook will consolidate their advertising,   marketing,   sales, and distribution

operations for the purpose of allowing Company to advertise,   market,   sell, and

distribute Products in the Territory. One of the Related Agreements is a Supply,

Distribution,   and Licensing   Agreement   between   Company and Widmer pursuant to

which Company advertises, markets, sells, and distributes Widmer Products in the

Territory (the "Widmer Distribution Agreement").

 

REDHOOK SUPPLY, DISTRIBUTION, AND

LICENSING AGREEMENT

 

 

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                            D.    Redhook   and   Company    desire   for   Redhook   to

manufacture   and sell   Redhook   Products   to Company   and for Company to market,

advertise,   sell, and distribute the Redhook Products in the Territory under the

terms   of   the   Distribution    Agreement   between   ABI   and   Company   (the   "ABI

Distribution Agreement").

 

                           E. Pursuant to a Licensing   Agreement between Redhook

and Widmer dated February 1, 2003 (the "Eastern Distribution Agreement"), Widmer

licensed   Redhook   the   right   to   manufacture,   advertise,   market,   sell,   and

distribute Redhook Products and Widmer Products in the states of Maine, Vermont,

New Hampshire, Massachusetts, Rhode Island, Connecticut, New York, Pennsylvania,

Ohio, Maryland, New Jersey,   Delaware, West Virginia,   Virginia, North Carolina,

South Carolina, Kentucky,   Tennessee,   Georgia, Alabama,   Mississippi,   Florida,

Wisconsin,   Michigan,   Indiana, Illinois, and Washington D.C. The parties do not

intend for the parties   rights and   obligations   under the Eastern   Distribution

Agreement to be modified by the terms of this Agreement.

 

                                    AGREEMENT

 

                  Based on the mutual   promises   set forth   below and other good

and   valuable   consideration,   the   receipt and   sufficiency   of which is hereby

acknowledged, Redhook and Company hereby agree as follows:

 

1. GRANT OF LICENSE.

 

         1.1 GRANT.

 

            1.1.1 Upon the terms and conditions   hereinafter set forth,   Redhook

hereby grants to Company,   and Company   hereby   accepts (a) a license to use the

trademarks,    logos,   trade   dress,    copyrights,    promotional   slogans,   color

combinations,   product shapes, and distinctive features in the Redhook Products,

or other   intellectual   property   related   to the   Redhook   Products,   including

(without limitation) the intellectual   property described on EXHIBIT A, attached

hereto (collectively,   the "Intellectual Property"), (b) a non-exclusive license

to   use   the   Intellectual    Property   in   connection   with   the   manufacturing,

packaging,   promotion, sale, and distribution of "Merchandise" in the Territory,

and (c) the right to sublicense the Intellectual Property to others as necessary

or convenient to permit Company to perform its obligations under this Agreement.

The   Intellectual   Property   shall include any   derivative   works related to any

existing   Intellectual Property and any Intellectual Property related to any new

Redhook   Products,   including those Redhook Products added pursuant to Section 3

below.

 

            1.1.2   Company   shall   not   acquire   any   other   right in any of the

Intellectual   Property   other than as set forth in Section 1.1.1 above.   Redhook

shall have the right to require Company and any sublicensee of Company to submit

representative   samples of any use of such Intellectual   Property to Redhook for

approval,   which   approval   shall be deemed   given if Redhook   does not   provide

Company with written notice of reasonable objection within 10 days of receipt of

such   samples.   Any and all   rights   that may be   acquired   in the   Intellectual

Property by the use of the   Intellectual   Property by Company or any sublicensee

of Company will inure to the sole benefit of Redhook. At the request of Redhook,

Company will execute an instrument,   in a form   agreeable to Redhook,   to effect

further   registration,   maintenance,   and renewal of the Intellectual   Property,

and,   where   applicable,    to   record   Redhook   as   a   registered   user   of   the

Intellectual   Property.   Company shall   promptly   notify   Redhook of any and all

infringements of the Intellectual   Property   pertaining to the Products that may

come to   Company's   attention   and shall   assist   Redhook in taking   such action

against said infringements as Redhook, in its sole discretion, may decide.

 

 

REDHOOK SUPPLY, DISTRIBUTION, AND

LICENSING AGREEMENT

 

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            1.1.3   "Merchandise"   means all   non-beverage   products that (a) are

currently   manufactured   or sold by   Redhook,   (b) are   manufactured   or sold by

Redhook in   connection   with its   beverage   business in the   future,   and (c)are

proposed   by   Company   and not   rejected   by   Redhook   within 30 days   following

Company's submission to Redhook;   provided that Redhook may reject such proposed

Merchandise   only if Redhook would be permitted to reject such usage pursuant to

Section 1.3 below.

 

         1.2 EXCLUSIVITY.

 

            1.2.1 Except as   specifically   set forth   below,   during the term of

this   Agreement,   Redhook   shall not directly or indirectly in the Territory (as

expanded   as   provided   herein)    manufacture,    advertise,    market,   sell,   or

distribute,   whether for itself or for others,   any Redhook Product or any other

malt   beverage or   alcoholic   beverage   product,   whether now   existing or later

developed (each, a "Restricted   Product").   In the event of a default under this

Section, Company shall be entitled (without limiting any of its other rights and

remedies) to a temporary restraining order,   preliminary   injunction,   and other

injunctive relief, in addition to other available remedies, including damages.

 

            1.2.2 If the   Restricted   Products are   distributed by Company under

this Agreement, the following shall apply:

 

                (a) The   restrictions set forth in Section 1.2.1 shall not apply

to Restricted   Products to the extent that (i) the Restricted   Products are sold

directly to consumers,   including (without limitation)   Restricted Products sold

on or from the   premises   of a Redhook   brew-pub   restaurant   (each,   a "Redhook

Brew-Pub")   or (ii) on or from   the   premises   of a   Redhook   facility   at which

Products are manufactured (each, a "Redhook Plant").

 

            1.2.3 If the   Restricted   Products   are not   distributed   by Company

under this Agreement (each, a "Non-Distributed   Product"),   the restrictions set

forth in Section 1.2.1 shall not apply to the extent that:

 

                (a) (i) The   Non-Distributed   Products   are (A)   sold   only   for

consumption in or from the premises of a Redhook   Brew-Pub or a Redhook Plant or

(B) sold or distributed in beer competitions,   beer festivals, and similar types

of temporary sales events and (ii) The quantity of such Non-Distributed Products

does not exceed   70,000   Product Case   Equivalents   per calendar year in each of

Redhook's Brew-Pubs and Redhook Plants;

 

                (b)   As   used   in   this   Agreement,    the   terms   "Product   Case

Equivalents"   or "PCEs"   mean (i) the number of full cases of   Products   sold in

bottles   plus (ii) the number of   barrels   of   Products   purchased   by   Company,

divided by 13.78.

 

            1.2.4 The parties   acknowledge that in the state of Washington,   (a)

Company will   receive   orders for Redhook   Products   from ABI   Wholesalers,   (b)

Company will assign the orders to Redhook,   and (c) the Redhook Products will be

sold   and   distributed   directly   by   Redhook   to   ABI   Wholesalers   located   in

Washington.   The restrictions set forth in Section 1.2.1 do not apply to Redhook

Products sold to   distributors   authorized to sell Redhook   Products only in the

state of Washington (each, a "Washington Distributor").   Redhook will deliver to

Company   each week (on the   business   day of the week   requested   by   Company) a

written report of each the types and quantities of Redhook   Products sold to and

ordered   by the   Washington   Distributors   as of the   date   of such   report.   As

compensation for the marketing,   advertising,   and related services   provided by

Company with respect to sales made in   Washington,   Redhook   shall pay within 10

days following the end of each calendar   month a marketing fee calculated   using

the formula set forth on Schedule 1.2.4, attached hereto. At Company's election,

Company   may   off-set   such   amount   from any   amount   due   Redhook   under   this

Agreement.

 

REDHOOK SUPPLY, DISTRIBUTION, AND

LICENSING AGREEMENT

 

 

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            1.2.5 Redhook and Company   acknowledge that Redhook will continue to

operate its business   outside the   Territory and such   operations   may result in

Redhook   Products being   incidentally   advertised in the Territory.   The parties

agree that such   operations   do not violate   Redhook's   exclusivity   obligations

under this Agreement.   Such permitted   activities include   maintaining a website

advertising   Redhook's   Products   (fulfilling its obligations   under the Eastern

Distribution   Agreement) and buying radio and print   advertisements that are not

targeted in the Territory, but may be seen or heard in the Territory.

 

        1.3 QUALITY CONTROL.   The nature and quality of all of Company's uses of

the   Intellectual   Property   shall   conform to   reasonable   standards set out by

Redhook from time to time.   Such standards   shall be consistent   with the nature

and quality of the current   Redhook   Products.   Without   limiting the foregoing,

Redhook may reject any new   Intellectual   Property   proposed by Company   only if

such   proposal   would have a materially   detrimental   effect on the value of the

marks or be wholly   inconsistent   with the   current   nature   and   quality of the

existing Intellectual Property.

 

        1.4 RIGHT TO PURCHASE MERCHANDISE. Redhook has an option to purchase any

quantity of Merchandise (utilizing Redhook's Intellectual Property) manufactured

by or for Company at a price equal to   Company's   direct   out-of-pocket   cost to

manufacture the Merchandise, plus shipping costs.

 

2. TERRITORY.

 

        2.1 INITIAL   TERRITORY.   The "Territory"   means the geographic   areas in

which   Company is authorized to take the actions set forth in Section 1.2 above.

The   initial   Territory   shall be the   states of   Alaska,   Arizona,   California,

Colorado,   Hawaii, Idaho, Montana, New Mexico, Nevada, Oregon,   Washington,   and

Wyoming.

 

        2.2   EXPANSION OF TERRITORY.   Upon notice to Redhook,   Company may, from

time to time at its election and without paying any amount to Redhook or Widmer,

expand the Territory to include one or more of the following   states:   Arkansas,

Iowa, Kansas, Louisiana,   Minnesota, Missouri, Nebraska, North Dakota, Oklahoma,

South Dakota, and Texas. If Company elects to expand the Territory,   Redhook and

Company will promptly take all actions necessary to complete such inclusion.

 

 

REDHOOK SUPPLY, DISTRIBUTION, AND

LICENSING AGREEMENT

 

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3. REDHOOK PRODUCTS.

 

        3.1 INITIAL REDHOOK PRODUCTS.   The initial Redhook Products that will be

distributed   by   Company   under this   Agreement   are set forth on   SCHEDULE   3.1

attached hereto.

 

        3.2 ADDITIONAL REDHOOK PRODUCTS.

 

            3.2.1 Company may add additional   Redhook   Products if it determines

that it is in the best interests of Company to add a new Redhook Product that is

developed by Company or Redhook.

 

            3.2.2 If Company elects to add a new Redhook Product,   Company shall

at its   expense   develop   all   Intellectual   Property   related   to such   Redhook

Product.   All such   Intellectual   Property   shall   be the   property   of   Redhook

pursuant   to Section 7.2 of this   Agreement   and   licensed to Company   under the

terms of this Agreement.

 

        3.3 REMOVAL OF REDHOOK PRODUCTS.   Company may, in accordance with a then

current   Budget and Business Plan (as defined   under the   Operating   Agreement),

elect to discontinue   distributing   one or more of the Redhook Products (each, a

"Discontinued   Redhook   Product") upon notice to Redhook if (a) the total volume

of the Discontinued   Redhook Product in the immediately   preceding calendar year

is less than twenty   percent   (20%) of the total volume of all Redhook   Products

sold in the same calendar   year,   (b) the volume of Redhook   Product sold in the

immediately   preceding calendar year is at least ten percent (10%) less than the

sales for the calendar   year two years   preceding   such calendar   year;   and (c)

Company   determines in good faith that it is in the best long-term   interests of

Company for a Discontinued Redhook Product to be discontinued.   If the volume of

any Discontinued Redhook Product sold in the immediately preceding calendar year

is less than twenty percent (20%), but more than five percent (5%), of the total

volume of all Redhook Products sold in the same calendar year (the "Discontinued

Redhook Product Percentage"),   then Redhook may submit the matter to arbitration

as set forth below:

 

            3.3.1   If   Redhook    disagrees   with   any   decision   by   Company   to

discontinue a Redhook Product with a Discontinued Product Percentage of at least

five percent (5%),   Redhook shall notify   Company within thirty (30) days of the

date Company notifies   Redhook of its decision to discontinue such   Discontinued

Redhook Product.   If Redhook and Company do not resolve the matter within twenty

(20) days following the written notice by a party to the other party referencing

this Section   3.3,   the parties   will submit the Dispute to binding   arbitration

pursuant to arbitration as provided below:

 

             3.3.2 The arbitration   shall be conducted before a single arbitrator

located in Portland,   Oregon using a "baseball arbitration" format in accordance

with the rules of the Arbitration Service of Portland,   Inc. and judgment on the

award   rendered   by   the   arbitrator(s)   may be   entered   in   any   court   having

jurisdiction thereof. The arbitrator shall be acceptable to both parties. If the

parties do not agree within 20 days on an arbitrator,   the   arbitrator   shall be

selected   by the   Presiding   Judge of the   Circuit   Court of   Multnomah   County,

Oregon.   The arbitrator must determine whether or not the Company is required to

continue to advertise,   market,   sell, and   distribute the subject   Discontinued

Redhook Product within 15 days following the date the arbitrator is selected. In

making his or her determination, the arbitrator must select the choice which the

arbitrator   determines   to be in the best   long-term   interests of Company.   The

arbitrator may not formulate his or her resolution for the Dispute.

 

 

REDHOOK SUPPLY, DISTRIBUTION, AND

LICENSING AGREEMENT

 

 

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            3.3.3 The party   whose   proposed   resolution   of the   Dispute is not

selected by the arbitrator shall be responsible for the payment of costs,   fees,

and expenses incurred in connection with such arbitration,   including reasonable

attorneys'   fees and   experts'   fees of both of the parties in   accordance   with

Section 16.11 below.

 

        3.4   NON-DISTRIBUTED   REDHOOK   PRODUCTS.   If any   Redhook   Products   are

discontinued   pursuant   to Section   3.3   above,   or are   proposed   to Company by

Redhook and not accepted,   pursuant to Section 3.2 above,   for   distribution   by

Company   (collectively,   the   "Non-Distributed   Redhook   Products")   Redhook may

manufacture the   Non-Distributed   Redhook Products and may sell   Non-Distributed

Redhook   Products   in the   Territory   subject to the   restrictions   set forth in

Sections   1.2   and   1.3   above.   From   time   to   time,    Company   may   test   any

Non-Distributed   Product   to   determine   if it is equal to or greater in quality

than the Redhook Products Company then distributes. If Company determines that a

Non-Distributed    Product   is   not   of   such    quality,    Redhook    shall   cease

manufacturing and selling such Non-Distributed   Product until Company reasonably

determines   that such quality   standards   have been met.   Company has determined

that the Redhook Products identified on SCHEDULE 3.4, attached hereto, currently

meet such quality standards.

 

4. MANUFACTURING RIGHTS OF REDHOOK PRODUCTS AND WIDMER PRODUCTS.

 

        4.1 EXISTING REDHOOK PRODUCTS.

 

            4.1.1   Except   as   set   forth   herein,   Redhook   has   the   right   to

manufacture all existing Redhook Products.

 

            4.1.2 At least   thirty   (30)   days   prior to the   beginning   of each

calendar   quarter,   Company will   provide   Redhook   with a   three-month   rolling

forecast   (each,   a   "Three-Month   Forecast")   of the   quantity of each   Redhook

Product   Company   expects to purchase   during such   three-month   period   (each a

"3-Month Forecasted Quantity"). Within ten (10) days following Redhook's receipt

of each Three-Month Forecast, Redhook will notify Company (i) if it is unwilling

or unable to manufacture at least 110% of the 3-Month   Forecasted   Quantity (the

"Required   Redhook   Quantity")   and (ii) the quantity of Redhook   Products it is

willing   and able to   manufacture   (the   "Promised   Redhook   Quantity")   if such

quantity is less than the   Required   Redhook   Quantity.   If Redhook   does not so

notify   Company,   it will be   presumed   that   Redhook   is   willing   and   able to

manufacture at least the Required Redhook Quantity.   If Redhook notifies Company

that it is unwilling or unable to   manufacture   the Required   Redhook   Quantity,

Company may engage Widmer (pursuant to the Widmer Distribution   Agreement) or if

Widmer is unable or unwilling to manufacture the difference,   may engage another

contract   brewer to   manufacture   the   difference   between the Required   Redhook

Quantity and the Promised Redhook Quantity.

 

       4.2 EXISTING WIDMER PRODUCTS.

 

            4.2.1 If,   pursuant   to the Widmer   Distribution   Agreement,   Widmer

notifies   Company   that it is   unwilling   or   unable to   manufacture   all of the

Required   Widmer   Quantity   (as defined in the Widmer   Distribution   Agreement),

Company shall notify Redhook of Company's desire to purchase the difference (the

"Widmer   Quantity   Difference")   between the   Required   Widmer   Quantity and the

Promised Redhook Quantity (as defined in the Widmer Distribution Agreement). For

a period of five business days following the date Redhook   receives such notice,

Redhook shall have the option to accept the obligation to manufacture the Widmer

Quantity   Difference by notifying   Company within such five business day period.

If Redhook   fails to exercise such option,   Company may have any other   contract

brewer manufacture the Widmer Quantity Difference.

 

 

REDHOOK SUPPLY, DISTRIBUTION, AND

LICENSING AGREEMENT

 

 

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            4.2.2 Under the terms and   conditions   set forth in SCHEDULE   4.2.2,

attached hereto,   Redhook will have an option to manufacture Widmer Products, or

Widmer will have an option to manufacture Redhook Products.

 

        4.3 NEW REDHOOK   PRODUCTS AND NEW WIDMER   PRODUCTS.   Redhook and Company

acknowledge that (a) under the Widmer Distribution Agreement,   new Widmer Brands

may be added upon terms similar to those in Section 3.2 above, (b) the volume of

Redhook   Products and Widmer Products derived from such new brands (each, a "New

Brand") that will be distributed and sold by Company is speculative, and (c) the

parties under this Agreement and the Widmer   Distribution   Agreement   intend for

the number of New Brands to be apportioned equitably between Redhook and Widmer.

Redhook and Company   agree that with respect to the New Brands to which   Section

4.4 does not   apply,   (x) the first   New Brand   will be   offered   to the   brewer

(Redhook or Widmer) that sold the lower quantity of Products in the   immediately

preceding   calendar year, and (y) each   additional New Brand will   thereafter be

apportioned   alternatively   to each   brewer.   If a New Brand is   apportioned   to

Redhook,   (i) Redhook   shall have the   obligation   to   manufacture   all Products

ordered by Company as provided under this Agreement, (ii) Redhook shall have the

right during this   Agreement   to   manufacture   the Products   even though the New

Brand may be a Widmer brand, and (iii) all Products using such New Brand will be

subject   to the terms   under this   Agreement   as if it were an   original   Brand.

Within ten (10) days following   written notice to Redhook of the assignment of a

New Brand,   Redhook may elect not to accept such New Brand by notifying   Company

within such ten (10) day period. If Redhook elects not to accept such New Brand,

Company may assign the New Brand to Widmer.

 

        4.4   REINTRODUCED   DISCONTINUED   PRODUCTS.   Redhook   will have the first

opportunity   to   manufacture a New Brand that Company elects to introduce if (a)

such New Brand is in the same "Beer Style" as a Discontinued   Redhook Brand that

Company   discontinued,   pursuant   to   Section   3.3   of   this   Agreement,   in the

immediately   preceding 12-month period and (b) such New Brand is not in the same

Beer Style as a Discontinued Widmer Brand (as defined in the Widmer Distribution

Agreement)   that   Company   discontinued,   pursuant   to Section 3.3 of the Widmer

Distribution Agreement, in the immediately preceding 12-month period. As used in

this Section, a "Beer Style" is one of the following:   porter,   amber, pale ale,

blonde,   fruit beer,   hefeweizen,   lager, and stout, as those terms are commonly

used in the beer industry. In order to exercise its option,   Redhook must notify

Company within ten (10) days following written notice from Company of its intent

to have such New Brand manufactured.

 

        4.5 AGREEMENT WITH THIRD PARTY CONTRACT BREWERS.   If pursuant to Section

4.1.2 or Section   4.2.1 above (or   pursuant to the   parallel   provisions   in the

Widmer   Distribution   Agreement)   Company   engages a third party contract brewer

(each a "Contract Brewer") to manufacture any Product,   Company may enter into a

contract brewing   agreement (each, a "Brewing   Contract") with a Contract Brewer

on terms and conditions   Company deems   reasonable,   which may include   (without

limitation)   the following:   (a) the term during which Company will be obligated

to purchase   Products from the Contract   Brewer and (b) the minimum   quantity of

Products   that Company will be obligated to purchase   from the Contract   Brewer.

Redhook   agrees that   Company   shall have no liability to Redhook for failure to

purchase any Products from Redhook in order to comply with its obligations under

the Brewing Contract.

 

 

REDHOOK SUPPLY, DISTRIBUTION, AND

LICENSING AGREEMENT

 

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        4.6 PACKAGING CHANGES.   Company may, from time to time and in accordance

with the   restrictions   set forth in Section 1.3 above,   require   changes to the

Intellectual Property or packaging for existing Redhook Products and require new

Intellectual Property or packaging for new Redhook Products upon 180 days' prior

written notice to Redhook.   The direct   out-of-pocket costs for all such changes

or new   Intellectual   Property will be paid by Company.   If Company requires any

changes   to   the   Intellectual   Property   or   packaging   that   requires   capital

expenditures by Redhook,   Company shall reimburse Redhook for such expenditures;

provided   that   Company   may not require   any   changes to the   packaging   or the

Intellectual Property that requires capital improvements   exceeding $100,000.00.

If Company   requires any changes to the packaging or the   Intellectual   Property

that increases   Redhook's variable cost to manufacture and package the Products,

the price for such   Products   shall be   increased by such   estimated   additional

incremental   cost if (a) within   thirty   (30) days   following   the date   Company

requests such change Redhook notifies Company of the increased incremental cost,

providing reasonable supporting documentation, and (b) Company thereafter elects

for Redhook to manufacture   such Products.   Company may, upon notice to Redhook,

audit   Redhook's   books and   records to the   extent   necessary   to confirm   such

increased variable costs.

 

5. ABI DISTRIBUTION AGREEMENT.

 

        5.1 The parties   acknowledge   that Company is distributing   the Products

through   ABI   pursuant   to   the   ABI   Distribution   Agreement,   subject   to   the

restrictions, limitations, and conditions set forth therein.

 

        5.2   Company   shall   notify   Redhook of any   notice of   default   Company

receives   from ABI with   respect   to the ABI   Distribution   Agreement   and shall

comply with the terms and condition of the ABI Distribution Agreement.

 

        5.3 Redhook has   reviewed   the ABI   Distribution   Agreement   and, to the

extent   relating to Redhook and its Products,   (a) confirms each   representation

and warranty that Company has made under the ABI Distribution   Agreement and (b)

covenants to perform or cooperate   with Company in   performing   all of Company's

obligations under the ABI Distribution Agreement.

 

        5.4 Neither party shall take any action under this   Agreement that would

be a   violation   or cause   Company   to be in   violation   of the ABI   Distributor

Agreement.

 

6. ORDERS; PURCHASE PRICE; PAYMENT.

 

        6.1 OBLIGATION TO MANUFACTURE.   Subject to Section 4.1.2 above,   Redhook

shall   manufacture the Redhook   Products in the packages   ordered by Company and

shall cause the Redhook Products to be bottled, labeled, packaged, and delivered

by the delivery dates set forth in the order.   Company may not require   delivery

less than thirty (30) days following the date of the Order.

 

REDHOOK SUPPLY, DISTRIBUTION, AND

LICENSING AGREEMENT

 

                                      

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        6.2 REDHOOK PRODUCT SPECIFICATIONS.

 

            (a)   Each of the   Redhook   Products   manufactured   by   Redhook   will

conform   to   the   specifications,   recipes,   and   quality   control   requirements

attached as SCHEDULE 6.2.

 

            (b) For each new Redhook   Product,   the Redhook   Products   delivered

will conform to the specifications,   recipe, and quality control requirements as

reasonably determined by the Company.

 

            (c) Product   specifications   of Redhook Products may be changed only

upon mutual agreement of Redhook and Company.

 

            (d) In addition to the foregoing,   the Redhook Products shall comply

with the Product requirements as set forth in the ABI Distribution Agreement, as

modified    from   time   to   time,    and   shall   not   (in    Company's    reasonable

determination) be adulterated,   contaminated,   or otherwise of a quality that is

below the average   quality   previously   supplied by Widmer,   which may   include,

without   limitation,   (i) apparent   defects in taste or   appearance in excess of

typical   age-related   changes;   (ii)   microbiological    contamination   or   other

contamination   such   as   carryover   of   cleaning   chemicals   or   foreign   object

inclusions; and (iii) defective primary or secondary packaging.

 

        6.3 PRICES. The initial purchase prices for the Redhook Products are set

forth on SCHEDULE 6.3,   attached   hereto.   Thereafter,   the purchase   prices for

Redhook   Products   shall be adjusted   effective   each January 1, to be an amount

equal to:

 

            (a) For draught Redhook Products, the purchase price per barrel will

be equal to (i) the Average   Draught Net Sales   Price   multiplied   times *, plus

(ii) any applicable   Excise Taxes.   "Average   Draught Net Sales Price" means the

product   of (x) the gross   amount   received   by Company   during the   immediately

preceding fiscal year of October 1 through   September 30 (the "Fiscal Year") for

sales of all draught   Redhook   Products and draught   Widmer   Products,   less any

discounting, depletion allowance, promotion, or post-off pricing, divided by (y)

the total   number of barrels of draught   Redhook   Products   and   draught   Widmer

Products   sold by Company   during such Fiscal   Year.   "Excise   Taxes"   means all

federal, state, and local excise taxes.

 

            (b) For bottled Redhook Products, the purchase price per PCE will be

equal to (i) the Average   Bottle Net Sales Price   multiplied   times *, plus (ii)

any applicable Excise Taxes.   "Average Bottle Net Sales Price" means the product

of (x) the gross amount   received by Company   during the   immediately   preceding

Fiscal   Year for   sales of all   bottled   Redhook   Products   and   bottled   Widmer

Products,   less any discounting,   depletion   allowance,   promotion,   or post-off

pricing, divided by (y) the total number of PCEs of bottled Redhook Products and

bottled Widmer Products sold by Company during such Fiscal Year.

 

* CONFIDENTIAL TREATMENT REQUESTED

 

REDHOOK SUPPLY, DISTRIBUTION, AND

LICENSING AGREEMENT

 

 

<PAGE>

 

 

        6.4 PACIFIC RIDGE.   Notwithstanding the provisions in Section 6.3 above,

the purchase   price for the Pacific Ridge brand Redhook   Products shall be equal

to the   following:   (a) the gross amount   received   (including any freight costs

incurred by Company)   by Company   for sales of all Pacific   Ridge brand   Redhook

Product, minus (b) any discounting,   depletion allowance, promotion, or post-off

pricing.

 

7. RIGHTS IN INTELLECTUAL PROPERTY.

 

        7.1   INTELLECTUAL   PROPERTY.   Company   acknowledges   that its use of the

Intellectual   Property shall not create any right,   title,   or interest in or to

the Intellectual   Property in Company.   Company may, however,   sublicense others

the   right   to use the   Intellectual   Property   for the   purpose   of   fulfilling

Company's obligations under this Agreement.   Company shall not apply at any time

anywhere   in   the   world   for   any   trademark   or   other   intellectual   property

protection in its name for any of the Intellectual Property.

 

        7.2   IMPROVEMENTS;   OWNERSHIP.   Improvements   and   modifications   to the

Intellectual   Property created by either party during the term of this Agreement

shall,   from the time of conception or development,   be the property of Redhook.

Company hereby assigns,   and agrees to take all actions   necessary as reasonably

requested by Redhook to assign all such improvements and modifications.

 

        7.3 REPRESENTATIONS AND WARRANTIES. Redhook represents and warrants that

(a) it has the right to license the Intellectual Property to Company as provided

under   this   Agreement;   (b)   the   license   of   the   Intellectual   Property   and

distribution   rights under this   Agreement do not conflict   with any   agreement,

judgment,   or   other   obligation   of   Redhook;   and   (c)   Company's   use   of the

Intellectual Property hereunder will not violate the rights of any third person.

 

8. INFRINGEMENT.

 

        8.1 CLAIMS AGAINST THIRD PARTIES.   Company shall notify Redhook promptly

in writing of any infringement or unauthorized use of the Intellectual   Property

by third   parties   that may come to its   attention   in   writing.   Redhook   shall

promptly and   diligently   act, or cooperate   with Company who may act, to enjoin

and prevent in the Territory   infringement or threatened   infringement by others

of the Intellectual   Property, and shall take, or cooperate with Company who may

take,   such legal   action as may be   required   to protect   such   rights.   Costs,

expenses and recoveries of prosecuting   infringement actions shall be handled as

follows:

 

            8.1.1 If   Redhook   at its own   expense   files and is   successful   in

infringement    litigation   or    settlement,    then   Redhook   sh