EXHIBIT 10

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of October 21,
2005, among Granite City Food & Brewery Ltd., a Minnesota corporation (the
“Company”), and the investors identified on the signature pages hereto (each, an
“Investor” and collectively, the “Investors”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act (as defined below) and Rule 506
promulgated thereunder, the Company desires to issue and sell to each Investor,
and each Investor, severally and not jointly, desires to purchase from the
Company certain securities of the Company, as more fully described in this
Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:

 

ARTICLE I.
DEFINITIONS

 

1.1           DEFINITIONS.  IN ADDITION TO THE TERMS DEFINED ELSEWHERE IN THIS
AGREEMENT, FOR ALL PURPOSES OF THIS AGREEMENT, THE FOLLOWING TERMS SHALL HAVE
THE MEANINGS INDICATED IN THIS SECTION 1.1:

 

“Action” means any action, claim, suit, inquiry, notice of violation, proceeding
(including, without limitation, any investigation or partial proceeding such as
a deposition) or investigation pending or threatened in writing against or
affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency,
regulatory authority (federal, state, county, local or foreign), stock market,
stock exchange or trading facility.

 

“Additional Shares” has the meaning set forth in Section 4.7.

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144.

 

“Business Day” means any day except Saturday, Sunday and any day which is a
federal legal holiday or a day on which banking institutions in the State of
Minnesota are authorized or required by law or other governmental action to
close.

 

“Closing” means the closing of the purchase and sale of the Securities pursuant
to Article II.

 

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“Closing Date” means the Business Day immediately following the date on which
all of the conditions set forth in Sections 5.1 and 5.2 that are applicable to
the Closing are satisfied, or such other date as the parties may agree.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $.01 per share,
and any securities into which such common stock may hereafter be reclassified,
converted or exchanged.

 

“Common Stock Equivalents” means any securities of the Company or any Subsidiary
which entitle the holder thereof to acquire Common Stock at any time, including
without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common
Stock.

 

“Company Counsel” means Briggs and Morgan, P.A.

 

“Company Deliverables” has the meaning set forth in Section 2.2(a).

 

“Disclosure Materials” has the meaning set forth in Section 3.1(h).

 

“Effective Date” means the date that the first Registration Statement required
by Section 2(a) of the Registration Rights Agreement is first declared effective
by the Commission.

 

“Escrow Agent” means the Escrow Agent under the Escrow Agreement.

 

“Escrow Agreement” means the Escrow Agreement, dated as October 11, 2005, among
the Company, Craig-Hallum Capital Group LLC and the Escrow Agent.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“GAAP” means U.S. generally accepted accounting principles.

 

“Intellectual Property Rights” has the meaning set forth in Section 3.1(p).

 

“Investment Amount” means, with respect to each Investor, the Investment Amount
indicated on such Investor’s signature page to this Agreement.

 

“Investor Deliverables” has the meaning set forth in Section 2.2(b).

 

“Investor Party” has the meaning set forth in Section 4.9.

 

“Lien” means any lien, charge, encumbrance, security interest, right of first
refusal or other restrictions of any kind.

 

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“Material Adverse Effect” means any of (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, prospects,
business or condition (financial or otherwise) of the Company and the
Subsidiaries, or (iii) an adverse impairment to the Company’s ability to perform
on a timely basis its obligations under any Transaction Document.

 

“Minnesota Courts” means the state and federal courts sitting in the City of
Minneapolis, State of Minnesota.

 

“New Issue Securities” has the meaning set forth in Section 4.3.

 

“Notice” has the meaning set forth in Section 4.3(a).

 

“Per Unit Purchase Price” equals the lesser of (i) 92% of the 30-day average
closing bid price of one share of Common Stock, ending on the Trading Day
immediately prior to the Closing Date, as reported by Bloomberg, or (ii) 95% of
the closing price of one share of Common Stock on the Trading Day immediately
prior to the Closing Date, as reported by Bloomberg.

 

“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

 

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Investors of the Shares and the Warrant Shares, which the Investors acknowledge
may include shares underlying the warrant(s) to be issued to Craig-Hallum
Capital Group LLC and any sub-agents as specified in Schedule 3.1(u).

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the date of this Agreement, among the Company and the Investors, in the
form of Exhibit B hereto.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

“SEC Reports” has the meaning set forth in Section 3.1(h).

 

“Securities” means the Shares, the Warrants and the Warrant Shares.

 

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

 

“Shares” means the shares of Common Stock issued or issuable to the Investors
pursuant to this Agreement, including any Additional Shares.

 

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“Short Sales” has the meaning set forth in Section 3.2(g).

 

“Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of
the Regulation S-X promulgated by the Commission under the Exchange Act.

 

“Threshold Price” means the Per Unit Purchase Price (subject to equitable
adjustment for stock splits, recombinations and similar events that may occur
following the Closing Date and prior to the date in question).

 

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not
listed on a Trading Market (other than the OTC Bulletin Board), a day on which
the Common Stock is traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading
Market, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ National Market, the NASDAQ Capital Market or OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the
date in question.

 

“Transaction Documents” means this Agreement, the Warrants, the Registration
Rights Agreement, the Escrow Agreement, and any other documents or agreements
executed in connection with the transactions contemplated hereunder.

 

“Warrants” means the Common Stock purchase warrants in the form of Exhibit A,
which are issuable to the Investors at the Closing.

 

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.

 

ARTICLE II.
PURCHASE AND SALE

 

2.1           CLOSING.  THE COMPANY AGREES TO SELL, AND EACH INVESTOR AGREES TO
PURCHASE, THE SECURITIES SET FORTH IN SECTION 2.2.  THE CLOSING SHALL TAKE PLACE
AT THE OFFICES OF BRIGGS AND MORGAN, P.A., 2200 IDS CENTER, 80 SOUTH EIGHTH
STREET, MINNEAPOLIS, MN 55402 AT 4:30 P.M. (MINNEAPOLIS TIME) ON THE CLOSING
DATE OR AT SUCH OTHER LOCATION OR TIME AS THE PARTIES MAY AGREE.

 

2.2           CLOSING DELIVERIES.  (A)  AT THE CLOSING, THE COMPANY SHALL
DELIVER OR CAUSE TO BE DELIVERED TO EACH INVESTOR THE FOLLOWING (THE “COMPANY
DELIVERABLES”):

 

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(I)            A CERTIFICATE EVIDENCING THE NUMBER OF SHARES TO BE DELIVERED TO
SUCH INVESTOR AT THE CLOSING (WHICH SHALL NOT, FOR ALL INVESTORS IN THE
AGGREGATE, EXCEED 1,871,965 SHARES OF COMMON STOCK), AS SET FORTH OPPOSITE ITS
NAME ON SCHEDULE I HERETO, REGISTERED IN THE NAME OF SUCH INVESTOR (THE NUMBER
OF SHARES ISSUABLE TO EACH INVESTOR AT THE CLOSING AS SET FORTH OPPOSITE ITS
NAME ON SCHEDULE I HERETO);

 

(II)           A WARRANT, REGISTERED IN THE NAME OF SUCH INVESTOR, PURSUANT TO
WHICH SUCH INVESTOR SHALL HAVE THE RIGHT TO ACQUIRE THE NUMBER OF SHARES OF
COMMON STOCK THAT EQUALS 20% OF THE NUMBER OF SHARES ISSUABLE TO SUCH INVESTOR
PURSUANT TO SECTION 2.2(A)(I);

 

(III)          THE LEGAL OPINION OF COMPANY COUNSEL, IN AGREED FORM, ADDRESSED
TO THE INVESTORS;

 

(IV)          THE REGISTRATION RIGHTS AGREEMENT DULY EXECUTED BY THE COMPANY;
AND

 

(V)           THE ESCROW AGREEMENT, DULY EXECUTED BY THE COMPANY.

 

(B)           AT THE CLOSING, EACH INVESTOR SHALL DELIVER OR CAUSE TO BE
DELIVERED THE FOLLOWING (THE “INVESTOR DELIVERABLES”):

 

(I)            ITS INVESTMENT AMOUNT (ROUNDED UP TO THE NEAREST WHOLE DOLLAR) AS
SET FORTH OPPOSITE ITS NAME ON SCHEDULE I HERETO, WHICH SHALL HAVE BEEN
DEPOSITED IN ACCORDANCE WITH SECTION 4.13 AND WHICH WILL BE DISTRIBUTED IN
ACCORDANCE WITH JOINT WRITTEN INSTRUCTIONS PROVIDED BY THE COMPANY AND
CRAIG-HALLUM CAPITAL GROUP LLC; AND

 

(II)           THE REGISTRATION RIGHTS AGREEMENT DULY EXECUTED BY SUCH INVESTOR.

 

2.3           TERMINATION.  IF BY THE APPLICABLE DATES SET FORTH IN SECTIONS 5.1
AND 5.2 THE CONDITIONS SET FORTH THEREIN THAT APPLY TO THE CLOSING SHALL NOT
HAVE BEEN FULFILLED BY THE COMPANY, THEN EACH INVESTOR SHALL, AT ITS ELECTION,
BE RELIEVED OF ALL OF ITS OBLIGATIONS UNDER THIS AGREEMENT WITHOUT THEREBY
WAIVING ANY OTHER RIGHT IT MAY HAVE BY REASON OF SUCH FAILURE OR SUCH
NON-FULFILLMENT.  IF BY THE APPLICABLE DATE AS SET FORTH IN SECTIONS 5.1 AND
5.2, ANY OF THE CONDITIONS SET FORTH IN ARTICLE 5 OF THIS AGREEMENT SHALL NOT
HAVE BEEN FULFILLED BY ANY INVESTOR, THE COMPANY SHALL, AT ITS ELECTION, BE
RELIEVED OF ALL OBLIGATIONS TO SUCH INVESTOR UNDER THIS AGREEMENT WITHOUT
THEREBY WAIVING ANY OTHER RIGHT IT MAY HAVE BY REASON OF SUCH FAILURE OR SUCH
NON-FULFILLMENT; PROVIDED, THAT SUCH INVESTOR WILL BE ENTITLED TO THE RETURN OF
THE FUNDS IF IT HAS DELIVERED THEM TO THE COMPANY.

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

3.1           REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  THE COMPANY HEREBY
MAKES THE FOLLOWING REPRESENTATIONS AND WARRANTIES TO EACH INVESTOR:

 

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(A)           SUBSIDIARIES.  THE COMPANY HAS NO DIRECT OR INDIRECT SUBSIDIARIES
OTHER THAN AS SPECIFIED IN THE SEC REPORTS OR IN SCHEDULE 3.1(A).  THE COMPANY
OWNS, DIRECTLY OR INDIRECTLY, ALL OF THE CAPITAL STOCK OF EACH SUBSIDIARY FREE
AND CLEAR OF ANY AND ALL LIENS, AND ALL THE ISSUED AND OUTSTANDING SHARES OF
CAPITAL STOCK OF EACH SUBSIDIARY ARE VALIDLY ISSUED AND ARE FULLY PAID,
NON-ASSESSABLE AND FREE OF PREEMPTIVE AND SIMILAR RIGHTS.

 

(B)           ORGANIZATION AND QUALIFICATION.  THE COMPANY AND EACH SUBSIDIARY
ARE DULY INCORPORATED OR OTHERWISE ORGANIZED, VALIDLY EXISTING AND IN GOOD
STANDING UNDER THE LAWS OF THE JURISDICTION OF ITS INCORPORATION OR ORGANIZATION
(AS APPLICABLE), WITH THE REQUISITE POWER AND AUTHORITY TO OWN AND USE ITS
PROPERTIES AND ASSETS AND TO CARRY ON ITS BUSINESS AS CURRENTLY CONDUCTED. 
NEITHER THE COMPANY NOR ANY SUBSIDIARY IS IN VIOLATION OF ANY OF THE PROVISIONS
OF ITS RESPECTIVE CERTIFICATE OR ARTICLES OF INCORPORATION, BYLAWS OR OTHER
ORGANIZATIONAL OR CHARTER DOCUMENTS.  THE COMPANY AND EACH SUBSIDIARY ARE DULY
QUALIFIED TO CONDUCT ITS RESPECTIVE BUSINESSES AND ARE IN GOOD STANDING AS A
FOREIGN CORPORATION OR OTHER ENTITY IN EACH JURISDICTION IN WHICH THE NATURE OF
THE BUSINESS CONDUCTED OR PROPERTY OWNED BY IT MAKES SUCH QUALIFICATION
NECESSARY, EXCEPT WHERE THE FAILURE TO BE SO QUALIFIED OR IN GOOD STANDING, AS
THE CASE MAY BE, COULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR REASONABLY
BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT.

 

(C)           AUTHORIZATION; ENFORCEMENT.  THE COMPANY HAS THE REQUISITE
CORPORATE POWER AND AUTHORITY TO ENTER INTO AND TO CONSUMMATE THE TRANSACTIONS
CONTEMPLATED BY EACH OF THE TRANSACTION DOCUMENTS AND OTHERWISE TO CARRY OUT ITS
OBLIGATIONS THEREUNDER.  THE EXECUTION AND DELIVERY OF EACH OF THE TRANSACTION
DOCUMENTS BY THE COMPANY AND THE CONSUMMATION BY IT OF THE TRANSACTIONS
CONTEMPLATED THEREBY HAVE BEEN DULY AUTHORIZED BY ALL NECESSARY ACTION ON THE
PART OF THE COMPANY AND NO FURTHER ACTION IS REQUIRED BY THE COMPANY IN
CONNECTION THEREWITH.  EACH TRANSACTION DOCUMENT HAS BEEN (OR UPON DELIVERY WILL
HAVE BEEN) DULY EXECUTED BY THE COMPANY AND, WHEN DELIVERED IN ACCORDANCE WITH
THE TERMS HEREOF, WILL CONSTITUTE THE VALID AND BINDING OBLIGATION OF THE
COMPANY ENFORCEABLE AGAINST THE COMPANY IN ACCORDANCE WITH ITS TERMS, EXCEPT AS
SUCH ENFORCEABILITY MAY BE LIMITED BY APPLICABLE BANKRUPTCY, INSOLVENCY,
REORGANIZATION, MORATORIUM, LIQUIDATION OR SIMILAR LAWS RELATING TO, OR
AFFECTING GENERALLY THE ENFORCEMENT OF, CREDITORS’ RIGHTS AND REMEDIES OR BY
OTHER EQUITABLE PRINCIPLES OF GENERAL APPLICATION.

 

(D)           NO CONFLICTS.  THE EXECUTION, DELIVERY AND PERFORMANCE OF THE
TRANSACTION DOCUMENTS BY THE COMPANY AND THE CONSUMMATION BY THE COMPANY OF THE
TRANSACTIONS CONTEMPLATED THEREBY DO NOT AND WILL NOT (I) CONFLICT WITH OR
VIOLATE ANY PROVISION OF THE COMPANY’S OR ANY SUBSIDIARY’S CERTIFICATE OR
ARTICLES OF INCORPORATION, BYLAWS OR OTHER ORGANIZATIONAL OR CHARTER DOCUMENTS,
OR (II) CONFLICT WITH, OR CONSTITUTE A DEFAULT (OR AN EVENT THAT WITH NOTICE OR
LAPSE OF TIME OR BOTH WOULD BECOME A DEFAULT) UNDER, OR GIVE TO OTHERS ANY
RIGHTS OF TERMINATION, AMENDMENT, ACCELERATION OR CANCELLATION (WITH OR WITHOUT
NOTICE, LAPSE OF TIME OR BOTH) OF, ANY AGREEMENT, CREDIT FACILITY, DEBT OR OTHER
INSTRUMENT (EVIDENCING A COMPANY OR SUBSIDIARY DEBT OR OTHERWISE) OR OTHER
UNDERSTANDING TO WHICH THE COMPANY OR ANY SUBSIDIARY IS A PARTY OR BY WHICH ANY
PROPERTY OR ASSET OF THE COMPANY OR ANY SUBSIDIARY IS BOUND OR AFFECTED, OR
(III) RESULT IN A VIOLATION OF ANY LAW, RULE, REGULATION, ORDER, JUDGMENT,
INJUNCTION, DECREE OR

 

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other restriction of any court or governmental authority to which the Company or
a Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect.

 

(E)           FILINGS, CONSENTS AND APPROVALS.  THE COMPANY IS NOT REQUIRED TO
OBTAIN ANY CONSENT, WAIVER, AUTHORIZATION OR ORDER OF, GIVE ANY NOTICE TO, OR
MAKE ANY FILING OR REGISTRATION WITH, ANY COURT OR OTHER FEDERAL, STATE, LOCAL
OR OTHER GOVERNMENTAL AUTHORITY OR OTHER PERSON IN CONNECTION WITH THE
EXECUTION, DELIVERY AND PERFORMANCE BY THE COMPANY OF THE TRANSACTION DOCUMENTS,
OTHER THAN (I) THE FILING WITH THE COMMISSION OF ONE OR MORE REGISTRATION
STATEMENTS IN ACCORDANCE WITH THE REQUIREMENTS REGISTRATION RIGHTS AGREEMENT,
(II) FILINGS REQUIRED BY STATE SECURITIES LAWS, (III) THE FILING OF A NOTICE OF
SALE OF SECURITIES ON FORM D WITH THE COMMISSION UNDER REGULATION D OF THE
SECURITIES ACT, (IV) THE FILINGS REQUIRED IN ACCORDANCE WITH SECTION 4.6 AND
4.11, (V) THE FILING OF A NOTIFICATION OF LISTING OF ADDITIONAL SHARES WITH THE
NASDAQ STOCK MARKET, AND (VI) THOSE THAT HAVE BEEN MADE OR OBTAINED PRIOR TO THE
DATE OF THIS AGREEMENT.

 

(F)            ISSUANCE OF THE SECURITIES.  ON OR PRIOR TO THE CLOSING DATE, THE
SECURITIES ISSUABLE ON THE CLOSING DATE SHALL HAVE BEEN DULY AUTHORIZED AND,
WHEN ISSUED AND PAID FOR IN ACCORDANCE WITH THE TRANSACTION DOCUMENTS, WILL BE
DULY AND VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE, FREE AND CLEAR OF ALL
LIENS.  ON OR PRIOR TO THE CLOSING DATE, THE COMPANY SHALL HAVE RESERVED FROM
ITS DULY AUTHORIZED CAPITAL STOCK THE SHARES OF COMMON STOCK ISSUABLE ON THE
CLOSING DATE PURSUANT TO THIS AGREEMENT AND THE WARRANTS IN ORDER TO ISSUE THE
SHARES AND THE WARRANT SHARES.

 

(G)           CAPITALIZATION.  THE NUMBER OF SHARES AND TYPE OF ALL AUTHORIZED,
ISSUED AND OUTSTANDING CAPITAL STOCK OF THE COMPANY, AND ALL SHARES OF COMMON
STOCK RESERVED FOR ISSUANCE UNDER THE COMPANY’S VARIOUS OPTION AND INCENTIVE
PLANS, IS SPECIFIED IN THE SEC REPORTS AND ON SCHEDULE 3.1(G).  EXCEPT AS
SPECIFIED IN THE SEC REPORTS OR ON SCHEDULE 3.1(G), NO SECURITIES OF THE COMPANY
ARE ENTITLED TO PREEMPTIVE OR SIMILAR RIGHTS, AND NO PERSON HAS ANY RIGHT OF
FIRST REFUSAL, PREEMPTIVE RIGHT, RIGHT OF PARTICIPATION, OR ANY SIMILAR RIGHT TO
PARTICIPATE IN THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS. 
EXCEPT AS SPECIFIED IN THE SEC REPORTS OR ON SCHEDULE 3.1(G), THERE ARE NO
OUTSTANDING OPTIONS, WARRANTS, SCRIP RIGHTS TO SUBSCRIBE TO, CALLS OR
COMMITMENTS OF ANY CHARACTER WHATSOEVER RELATING TO, OR SECURITIES, RIGHTS OR
OBLIGATIONS CONVERTIBLE INTO OR EXCHANGEABLE FOR, OR GIVING ANY PERSON ANY RIGHT
TO SUBSCRIBE FOR OR ACQUIRE, ANY SHARES OF CAPITAL STOCK OF THE COMPANY, OR
CONTRACTS, COMMITMENTS, UNDERSTANDINGS OR ARRANGEMENTS BY WHICH THE COMPANY OR
ANY SUBSIDIARY IS OR MAY BECOME BOUND TO ISSUE ADDITIONAL SHARES OF CAPITAL
STOCK OF THE COMPANY, OR SECURITIES OR RIGHTS CONVERTIBLE OR EXCHANGEABLE INTO
SHARES OF CAPITAL STOCK OF THE COMPANY.  THE ISSUE AND SALE OF THE SECURITIES
WILL NOT, IMMEDIATELY OR WITH THE PASSAGE OF TIME, OBLIGATE THE COMPANY TO ISSUE
SHARES OF CAPITAL STOCK OF THE COMPANY OR OTHER SECURITIES TO ANY PERSON (OTHER
THAN THE INVESTORS UNDER THE TRANSACTION DOCUMENTS) AND WILL NOT RESULT IN A
RIGHT OF ANY HOLDER OF COMPANY SECURITIES TO ADJUST THE EXERCISE, CONVERSION,
EXCHANGE OR RESET PRICE UNDER SUCH SECURITIES.

 

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(H)           SEC REPORTS; FINANCIAL STATEMENTS.  THE COMPANY HAS FILED ALL
REPORTS, FORMS OR OTHER INFORMATION REQUIRED TO BE FILED BY IT UNDER THE
SECURITIES ACT AND THE EXCHANGE ACT, INCLUDING PURSUANT TO SECTION 13(A) OR
15(D) THEREOF, FOR THE TWELVE MONTHS PRECEDING THE DATE HEREOF (OR SUCH SHORTER
PERIOD AS THE COMPANY WAS REQUIRED BY LAW TO FILE SUCH REPORTS) (THE FOREGOING
MATERIALS BEING COLLECTIVELY REFERRED TO HEREIN AS THE “SEC REPORTS” AND,
TOGETHER WITH THE SCHEDULES TO THIS AGREEMENT (IF ANY), THE “DISCLOSURE
MATERIALS”) ON A TIMELY BASIS OR HAS TIMELY FILED A VALID EXTENSION OF SUCH TIME
OF FILING AND HAS FILED ANY SUCH SEC REPORTS PRIOR TO THE EXPIRATION OF ANY SUCH
EXTENSION.  AS OF THEIR RESPECTIVE DATES, THE SEC REPORTS COMPLIED IN ALL
MATERIAL RESPECTS WITH THE REQUIREMENTS OF THE SECURITIES ACT AND THE EXCHANGE
ACT AND THE RULES AND REGULATIONS OF THE COMMISSION PROMULGATED THEREUNDER, AND
NONE OF THE SEC REPORTS, WHEN FILED, CONTAINED ANY UNTRUE STATEMENT OF A
MATERIAL FACT OR OMITTED TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN
OR NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.  THE FINANCIAL
STATEMENTS OF THE COMPANY INCLUDED IN THE SEC REPORTS COMPLY IN ALL MATERIAL
RESPECTS WITH APPLICABLE ACCOUNTING REQUIREMENTS AND THE RULES AND REGULATIONS
OF THE COMMISSION WITH RESPECT THERETO AS IN EFFECT AT THE TIME OF FILING.  SUCH
FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH GAAP APPLIED ON A
CONSISTENT BASIS DURING THE PERIODS INVOLVED, EXCEPT AS MAY BE OTHERWISE
SPECIFIED IN SUCH FINANCIAL STATEMENTS OR THE NOTES THERETO, AND FAIRLY PRESENT
IN ALL MATERIAL RESPECTS THE FINANCIAL POSITION OF THE COMPANY AND ITS
CONSOLIDATED SUBSIDIARIES AS OF AND FOR THE DATES THEREOF AND THE RESULTS OF
OPERATIONS AND CASH FLOWS FOR THE PERIODS THEN ENDED, SUBJECT, IN THE CASE OF
UNAUDITED STATEMENTS, TO NORMAL, IMMATERIAL, YEAR-END AUDIT ADJUSTMENTS.  FOR
PURPOSES OF THIS AGREEMENT, ANY REPORTS, FORMS OR OTHER INFORMATION PROVIDED TO
THE COMMISSION, WHETHER BY FILING, FURNISHING OR OTHERWISE PROVIDING, IS
INCLUDED IN THE TERM “FILED” (OR ANY DERIVATIONS THEREOF).

 

(I)            PRESS RELEASES.  THE PRESS RELEASES DISSEMINATED BY THE COMPANY
DURING THE TWELVE MONTHS PRECEDING THE DATE OF THIS AGREEMENT TAKEN AS A WHOLE
DO NOT CONTAIN ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE A
MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY IN ORDER TO MAKE THE
STATEMENTS THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE AND
WHEN MADE, NOT MISLEADING.

 

(J)            MATERIAL CHANGES.  SINCE THE DATE OF THE LATEST AUDITED FINANCIAL
STATEMENTS INCLUDED WITHIN THE SEC REPORTS, EXCEPT AS SPECIFICALLY DISCLOSED IN
THE SEC REPORTS, (I) THERE HAS BEEN NO EVENT, OCCURRENCE OR DEVELOPMENT THAT HAS
HAD OR THAT COULD REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT,
(II) THE COMPANY HAS NOT INCURRED ANY LIABILITIES (CONTINGENT OR OTHERWISE)
OTHER THAN (A) TRADE PAYABLES, ACCRUED EXPENSES AND OTHER LIABILITIES INCURRED
IN THE ORDINARY COURSE OF BUSINESS CONSISTENT WITH PAST PRACTICE AND
(B) LIABILITIES (NOT TO EXCEED $250,000) NOT REQUIRED TO BE REFLECTED IN THE
COMPANY’S FINANCIAL STATEMENTS PURSUANT TO GAAP OR REQUIRED TO BE DISCLOSED IN
FILINGS MADE WITH THE COMMISSION, (III) THE COMPANY HAS NOT ALTERED ITS METHOD
OF ACCOUNTING OR THE IDENTITY OF ITS AUDITORS, (IV) THE COMPANY HAS NOT DECLARED
OR MADE ANY DIVIDEND OR DISTRIBUTION OF CASH OR OTHER PROPERTY TO ITS
SHAREHOLDERS OR PURCHASED, REDEEMED OR MADE ANY AGREEMENTS TO PURCHASE OR REDEEM
ANY SHARES OF ITS CAPITAL STOCK, AND (V) THE COMPANY HAS NOT ISSUED ANY EQUITY
SECURITIES, EXCEPT PURSUANT TO EXISTING

 

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Company stock option plans and consistent with past practice. The Company does
not have pending before the Commission any request for confidential treatment of
information.

 

(K)           LITIGATION.  THERE IS NO ACTION WHICH (I) ADVERSELY AFFECTS OR
CHALLENGES THE LEGALITY, VALIDITY OR ENFORCEABILITY OF ANY OF THE TRANSACTION
DOCUMENTS OR THE SECURITIES OR (II) EXCEPT AS SPECIFICALLY DISCLOSED IN THE SEC
REPORTS, COULD, IF THERE WERE AN UNFAVORABLE DECISION, INDIVIDUALLY OR IN THE
AGGREGATE, HAVE OR REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE
EFFECT.  NEITHER THE COMPANY NOR ANY SUBSIDIARY, NOR ANY DIRECTOR OR OFFICER
THEREOF (IN HIS OR HER CAPACITY AS SUCH), IS OR HAS BEEN THE SUBJECT OF ANY
ACTION INVOLVING A CLAIM OF VIOLATION OF OR LIABILITY UNDER FEDERAL OR STATE
SECURITIES LAWS OR A CLAIM OF BREACH OF FIDUCIARY DUTY.  THERE HAS NOT BEEN, AND
TO THE KNOWLEDGE OF THE COMPANY, THERE IS NOT PENDING ANY INVESTIGATION BY THE
COMMISSION INVOLVING THE COMPANY OR ANY CURRENT OR FORMER DIRECTOR OR OFFICER OF
THE COMPANY (IN HIS OR HER CAPACITY AS SUCH).  THE COMMISSION HAS NOT ISSUED ANY
STOP ORDER OR OTHER ORDER SUSPENDING THE EFFECTIVENESS OF ANY REGISTRATION
STATEMENT FILED BY THE COMPANY OR ANY SUBSIDIARY UNDER THE EXCHANGE ACT OR THE
SECURITIES ACT.

 

(L)            LABOR RELATIONS.  NO MATERIAL LABOR DISPUTE EXISTS OR, TO THE
KNOWLEDGE OF THE COMPANY, IS IMMINENT WITH RESPECT TO ANY OF THE EMPLOYEES OF
THE COMPANY.

 

(M)          COMPLIANCE.  NEITHER THE COMPANY NOR ANY SUBSIDIARY (I) IS IN
DEFAULT UNDER OR IN VIOLATION OF (AND NO EVENT HAS OCCURRED THAT HAS NOT BEEN
WAIVED THAT, WITH NOTICE OR LAPSE OF TIME OR BOTH, WOULD RESULT IN A DEFAULT BY
THE COMPANY OR ANY SUBSIDIARY UNDER), NOR HAS THE COMPANY OR ANY SUBSIDIARY
RECEIVED NOTICE OF A CLAIM THAT IT IS IN DEFAULT UNDER OR THAT IT IS IN
VIOLATION OF, ANY INDENTURE, LOAN OR CREDIT AGREEMENT OR ANY OTHER AGREEMENT OR
INSTRUMENT TO WHICH IT IS A PARTY OR BY WHICH IT OR ANY OF ITS PROPERTIES IS
BOUND (WHETHER OR NOT SUCH DEFAULT OR VIOLATION HAS BEEN WAIVED), (II) IS IN
VIOLATION OF ANY ORDER OF ANY COURT, ARBITRATOR OR GOVERNMENTAL BODY, OR
(III) IS OR HAS BEEN IN VIOLATION OF ANY STATUTE, RULE OR REGULATION OF ANY
GOVERNMENTAL AUTHORITY, INCLUDING WITHOUT LIMITATION ALL FOREIGN, FEDERAL, STATE
AND LOCAL LAWS RELATING TO TAXES, ENVIRONMENTAL PROTECTION, OCCUPATIONAL HEALTH
AND SAFETY, PRODUCT QUALITY AND SAFETY AND EMPLOYMENT AND LABOR MATTERS, EXCEPT
IN EACH CASE AS COULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR REASONABLY
BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT. THE COMPANY IS IN COMPLIANCE
WITH ALL EFFECTIVE REQUIREMENTS OF THE SARBANES-OXLEY ACT OF 2002, AS AMENDED,
AND THE RULES AND REGULATIONS THEREUNDER, THAT ARE APPLICABLE TO IT, EXCEPT
WHERE SUCH NONCOMPLIANCE COULD NOT HAVE OR REASONABLY BE EXPECTED TO RESULT IN A
MATERIAL ADVERSE EFFECT.

 

(N)           REGULATORY PERMITS.  THE COMPANY AND THE SUBSIDIARIES POSSESS ALL
CERTIFICATES, AUTHORIZATIONS AND PERMITS ISSUED BY THE APPROPRIATE FEDERAL,
STATE, LOCAL OR FOREIGN REGULATORY AUTHORITIES NECESSARY TO CONDUCT THEIR
RESPECTIVE BUSINESSES AS DESCRIBED IN THE SEC REPORTS, EXCEPT WHERE THE FAILURE
TO POSSESS SUCH PERMITS COULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR
REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT, AND NEITHER THE
COMPANY NOR ANY SUBSIDIARY HAS RECEIVED ANY NOTICE OF PROCEEDINGS RELATING TO
THE REVOCATION OR MODIFICATION OF ANY SUCH PERMITS.

 

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(O)           TITLE TO ASSETS.  THE COMPANY AND THE SUBSIDIARIES HAVE GOOD AND
MARKETABLE TITLE IN FEE SIMPLE TO ALL REAL PROPERTY OWNED BY THEM THAT IS
MATERIAL TO THEIR RESPECTIVE BUSINESSES AND GOOD AND MARKETABLE TITLE IN ALL
PERSONAL PROPERTY OWNED BY THEM THAT IS MATERIAL TO THEIR RESPECTIVE BUSINESSES,
IN EACH CASE FREE AND CLEAR OF ALL LIENS, EXCEPT FOR LIENS AS DO NOT MATERIALLY
AFFECT THE VALUE OF SUCH PROPERTY AND DO NOT MATERIALLY INTERFERE WITH THE USE
MADE AND PROPOSED TO BE MADE OF SUCH PROPERTY BY THE COMPANY AND THE
SUBSIDIARIES. ANY REAL PROPERTY AND FACILITIES HELD UNDER LEASE BY THE COMPANY
AND THE SUBSIDIARIES ARE HELD BY THEM UNDER VALID, SUBSISTING AND ENFORCEABLE
LEASES OF WHICH THE COMPANY AND THE SUBSIDIARIES ARE IN COMPLIANCE, EXCEPT AS
COULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR REASONABLY BE EXPECTED TO
RESULT IN A MATERIAL ADVERSE EFFECT.

 

(P)           PATENTS AND TRADEMARKS.  THE COMPANY AND THE SUBSIDIARIES HAVE, OR
HAVE RIGHTS TO USE, ALL PATENTS, PATENT APPLICATIONS, TRADEMARKS, TRADEMARK
APPLICATIONS, SERVICE MARKS, TRADE NAMES, COPYRIGHTS, LICENSES AND OTHER SIMILAR
RIGHTS THAT ARE NECESSARY OR MATERIAL FOR USE IN CONNECTION WITH THEIR
RESPECTIVE BUSINESSES AS DESCRIBED IN THE SEC REPORTS AND WHICH THE FAILURE TO
SO HAVE COULD, INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR REASONABLY BE EXPECTED
TO RESULT IN A MATERIAL ADVERSE EFFECT (COLLECTIVELY, THE “INTELLECTUAL PROPERTY
RIGHTS”).  NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS RECEIVED A WRITTEN NOTICE
THAT THE INTELLECTUAL PROPERTY RIGHTS USED BY THE COMPANY OR ANY SUBSIDIARY
VIOLATE OR INFRINGE UPON THE RIGHTS OF ANY PERSON.  EXCEPT AS SET FORTH IN THE
SEC REPORTS, TO THE KNOWLEDGE OF THE COMPANY, ALL SUCH INTELLECTUAL PROPERTY
RIGHTS ARE ENFORCEABLE (EXCEPT FOR PENDING PATENT APPLICATIONS AND TRADEMARK
APPLICATIONS) AND THERE IS NO EXISTING INFRINGEMENT BY ANOTHER PERSON OF ANY OF
THE INTELLECTUAL PROPERTY RIGHTS.

 

(Q)           INSURANCE.  THE COMPANY AND THE SUBSIDIARIES ARE INSURED BY
INSURERS OF RECOGNIZED FINANCIAL RESPONSIBILITY AGAINST SUCH LOSSES AND RISKS
AND IN SUCH AMOUNTS AS ARE PRUDENT AND CUSTOMARY IN THE BUSINESSES IN WHICH THE
COMPANY AND THE SUBSIDIARIES ARE ENGAGED.  THE COMPANY HAS NO REASON TO BELIEVE
THAT IT WILL NOT BE ABLE TO RENEW ITS AND THE SUBSIDIARIES’ EXISTING INSURANCE
COVERAGE AS AND WHEN SUCH COVERAGE EXPIRES OR TO OBTAIN SIMILAR COVERAGE FROM
SIMILAR INSURERS AS MAY BE NECESSARY TO CONTINUE ITS BUSINESS ON TERMS
CONSISTENT WITH MARKET FOR THE COMPANY’S AND SUCH SUBSIDIARIES’ RESPECTIVE LINES
OF BUSINESS.

 

(R)            TRANSACTIONS WITH AFFILIATES AND EMPLOYEES.  EXCEPT AS SET FORTH
IN THE SEC REPORTS, NONE OF THE OFFICERS OR DIRECTORS OF THE COMPANY AND, TO THE
KNOWLEDGE OF THE COMPANY, NONE OF THE EMPLOYEES OF THE COMPANY IS PRESENTLY A
PARTY TO ANY TRANSACTION WITH THE COMPANY OR ANY SUBSIDIARY (OTHER THAN FOR
SERVICES AS EMPLOYEES, OFFICERS AND DIRECTORS), INCLUDING ANY CONTRACT,
AGREEMENT OR OTHER ARRANGEMENT PROVIDING FOR THE FURNISHING OF SERVICES TO OR
BY, PROVIDING FOR RENTAL OF REAL OR PERSONAL PROPERTY TO OR FROM, OR OTHERWISE
REQUIRING PAYMENTS TO OR FROM ANY OFFICER, DIRECTOR OR SUCH EMPLOYEE OR, TO THE
KNOWLEDGE OF THE COMPANY, ANY ENTITY IN WHICH ANY OFFICER, DIRECTOR, OR ANY SUCH
EMPLOYEE HAS A SUBSTANTIAL INTEREST OR IS AN OFFICER, DIRECTOR, TRUSTEE OR
PARTNER, OF THE NATURE OR AMOUNT THAT WOULD REQUIRE DISCLOSURE IN THE SEC
REPORTS.

 

(S)           INTERNAL ACCOUNTING CONTROLS.  THE COMPANY AND THE SUBSIDIARIES
MAINTAIN A SYSTEM OF INTERNAL ACCOUNTING CONTROLS SUFFICIENT TO PROVIDE
REASONABLE ASSURANCE THAT

 

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(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.  The
Company has established disclosure controls and procedures (as defined in
Exchange Act rules 13a-15(e) and 15d-15(e) for the Company and designed such
disclosure controls and procedures to ensure that material information relating
to the Company, including its Subsidiaries, is made known to the certifying
officers by others within those entities, particularly during the period in
which the Company’s Form 10-KSB or 10-QSB, as the case may be, is being
prepared.  The Company’s certifying officers have evaluated the effectiveness of
the Company’s controls and procedures as of the last day of the period covered
by the Company’s most recently filed Form 10-QSB for the Company’s most recently
ended fiscal quarter (such date, the “Evaluation Date”).  The Company presented
in its most recently filed Form 10-KSB or Form 10-QSB the conclusions of the
certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date.  Since the
Evaluation Date, there have been no significant changes in the Company’s
internal controls (as described in Item 308(c) of Regulation S-K under the
Exchange Act) or, to the Company’s knowledge, without inquiry, in other factors
that could significantly and adversely affect the Company’s internal controls.

 

(T)            SOLVENCY.  BASED ON THE FINANCIAL CONDITION OF THE COMPANY AS OF
THE CLOSING DATE (AND ASSUMING THAT THE CLOSING SHALL HAVE OCCURRED), (I) THE
COMPANY’S FAIR SALEABLE VALUE OF ITS ASSETS EXCEEDS THE AMOUNT THAT WILL BE
REQUIRED TO BE PAID ON OR IN RESPECT OF THE COMPANY’S EXISTING DEBTS AND OTHER
LIABILITIES (INCLUDING KNOWN CONTINGENT LIABILITIES) AS THEY MATURE; (II) THE
COMPANY’S ASSETS DO NOT CONSTITUTE UNREASONABLY SMALL CAPITAL TO CARRY ON ITS
BUSINESS FOR THE CURRENT FISCAL YEAR AS NOW CONDUCTED AND AS PROPOSED TO BE
CONDUCTED INCLUDING ITS CAPITAL NEEDS TAKING INTO ACCOUNT THE PARTICULAR CAPITAL
REQUIREMENTS OF THE BUSINESS CONDUCTED BY THE COMPANY, AND PROJECTED CAPITAL
REQUIREMENTS AND CAPITAL AVAILABILITY THEREOF; AND (III) THE CURRENT CASH FLOW
OF THE COMPANY, TOGETHER WITH THE PROCEEDS THE COMPANY WOULD RECEIVE, WERE IT TO
LIQUIDATE ALL OF ITS ASSETS, AFTER TAKING INTO ACCOUNT ALL ANTICIPATED USES OF
THE CASH, WOULD BE SUFFICIENT TO PAY ALL AMOUNTS ON OR IN RESPECT OF ITS DEBT
WHEN SUCH AMOUNTS ARE REQUIRED TO BE PAID.  THE COMPANY DOES NOT INTEND TO INCUR
DEBTS BEYOND ITS ABILITY TO PAY SUCH DEBTS AS THEY MATURE (TAKING INTO ACCOUNT
THE TIMING AND AMOUNTS OF CASH TO BE PAYABLE ON OR IN RESPECT OF ITS DEBT).

 

(U)           CERTAIN FEES.  EXCEPT AS DESCRIBED IN SCHEDULE 3.1(U), NO
BROKERAGE OR FINDER’S FEES OR COMMISSIONS ARE OR WILL BE PAYABLE BY THE COMPANY
TO ANY BROKER, FINANCIAL ADVISOR OR CONSULTANT, FINDER, PLACEMENT AGENT,
INVESTMENT BANKER, BANK OR OTHER PERSON WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.  THE INVESTORS SHALL HAVE NO OBLIGATION WITH
RESPECT TO ANY FEES OR WITH RESPECT TO ANY CLAIMS (OTHER THAN SUCH FEES OR
COMMISSIONS OWED BY AN INVESTOR PURSUANT TO WRITTEN AGREEMENTS EXECUTED BY SUCH
INVESTOR WHICH FEES OR COMMISSIONS SHALL BE THE SOLE RESPONSIBILITY OF SUCH
INVESTOR) MADE BY OR ON BEHALF

 

11

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of other Persons for fees of a type contemplated in this Section that may be due
in connection with the transactions contemplated by this Agreement.

 

(V)           CERTAIN REGISTRATION MATTERS.  ASSUMING THE ACCURACY OF THE
INVESTORS’ REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 3.2(B)-(E), NO
REGISTRATION UNDER THE SECURITIES ACT IS REQUIRED FOR THE OFFER AND SALE OF THE
SHARES AND WARRANT SHARES BY THE COMPANY TO THE INVESTORS UNDER THE TRANSACTION
DOCUMENTS.  THE COMPANY IS ELIGIBLE TO REGISTER THE RESALE OF ITS COMMON STOCK
BY THE INVESTORS ON FORM S-3 PROMULGATED UNDER THE SECURITIES ACT.  EXCEPT AS
SPECIFIED IN SCHEDULE 3.1(V), THE COMPANY HAS NOT GRANTED OR AGREED TO GRANT TO
ANY PERSON ANY RIGHTS (INCLUDING “PIGGY-BACK” REGISTRATION RIGHTS) TO HAVE ANY
SECURITIES OF THE COMPANY REGISTERED WITH THE COMMISSION OR ANY OTHER
GOVERNMENTAL AUTHORITY THAT HAVE NOT BEEN SATISFIED OR EXERCISED.

 

(W)          LISTING AND MAINTENANCE REQUIREMENTS.  EXCEPT AS SPECIFIED IN THE
SEC REPORTS, THE COMPANY HAS NOT, IN THE TWO YEARS PRECEDING THE DATE HEREOF,
RECEIVED NOTICE FROM ANY TRADING MARKET TO THE EFFECT THAT THE COMPANY IS NOT IN
COMPLIANCE WITH THE LISTING OR MAINTENANCE REQUIREMENTS THEREOF.  THE COMPANY
IS, AND HAS NO REASON TO BELIEVE THAT IT WILL NOT IN THE FORESEEABLE FUTURE
CONTINUE TO BE, IN COMPLIANCE WITH THE LISTING AND MAINTENANCE REQUIREMENTS FOR
CONTINUED LISTING OF THE COMMON STOCK ON THE TRADING MARKET ON WHICH THE COMMON
STOCK IS CURRENTLY LISTED OR QUOTED.  NO APPROVAL OF THE SHAREHOLDERS OF THE
COMPANY IS REQUIRED FOR THE COMPANY TO ISSUE AND DELIVER TO THE INVESTORS THE
SECURITIES CONTEMPLATED BY THE TRANSACTION DOCUMENTS AT THE CLOSING.

 

(X)            INVESTMENT COMPANY.  THE COMPANY IS NOT, AND IS NOT AN AFFILIATE
OF, AND IMMEDIATELY FOLLOWING THE CLOSING WILL NOT HAVE BECOME, AN “INVESTMENT
COMPANY” WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.

 

(Y)           APPLICATION OF TAKEOVER PROTECTIONS.  THE CONTROL SHARE
ACQUISITION PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION ACT ARE
INAPPLICABLE TO THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT.  THE COMPANY HAS
NOT ADOPTED ANY POISON PILL (INCLUDING ANY DISTRIBUTION UNDER A RIGHTS
AGREEMENT) OR OTHER SIMILAR ANTI-TAKEOVER PROVISION UNDER THE COMPANY’S
CERTIFICATE OF INCORPORATION (OR SIMILAR CHARTER DOCUMENTS) OR THE LAWS OF ITS
STATE OF INCORPORATION THAT IS OR COULD BECOME APPLICABLE TO THE INVESTORS OR
SHAREHOLDERS OF THE COMPANY PRIOR TO THE CLOSING DATE AS A RESULT OF THE
INVESTORS AND THE COMPANY FULFILLING THEIR OBLIGATIONS OR EXERCISING THEIR
RIGHTS UNDER THE TRANSACTION DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE
COMPANY’S ISSUANCE OF THE SECURITIES AND THE INVESTORS’ OWNERSHIP OF THE
SECURITIES.  SECTION 673 OF THE MINNESOTA BUSINESS CORPORATION ACT PERTAINING TO
BUSINESS COMBINATIONS IS APPLICABLE TO THE COMPANY; HOWEVER, THE TRANSACTION
CONTEMPLATED BY THIS AGREEMENT DOES NOT CONSTITUTE A BUSINESS COMBINATION.

 

(Z)            NO ADDITIONAL AGREEMENTS.  THE COMPANY DOES NOT HAVE ANY
AGREEMENT OR UNDERSTANDING WITH ANY INVESTOR WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED BY THE TRANSACTION DOCUMENTS OTHER THAN AS SPECIFIED IN THE
TRANSACTION DOCUMENTS.

 

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(AA)         DISCLOSURE.  THE COMPANY CONFIRMS THAT NEITHER IT NOR ANY PERSON
ACTING ON ITS BEHALF HAS PROVIDED ANY INVESTOR OR ITS RESPECTIVE AGENTS OR
COUNSEL WITH ANY INFORMATION THAT THE COMPANY BELIEVES CONSTITUTES MATERIAL,
NON-PUBLIC INFORMATION EXCEPT INSOFAR AS THE EXISTENCE AND TERMS OF THE PROPOSED
TRANSACTIONS HEREUNDER MAY CONSTITUTE SUCH INFORMATION.  THE COMPANY UNDERSTANDS
AND CONFIRMS THAT THE INVESTORS WILL RELY ON THE FOREGOING REPRESENTATIONS AND
COVENANTS IN EFFECTING TRANSACTIONS IN SECURITIES OF THE COMPANY.  ALL
DISCLOSURE PROVIDED TO THE INVESTORS REGARDING THE COMPANY, ITS BUSINESS AND THE
TRANSACTIONS CONTEMPLATED HEREBY, FURNISHED BY OR ON BEHALF OF THE COMPANY
(INCLUDING THE COMPANY’S REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS
AGREEMENT) ARE TRUE AND CORRECT AND DO NOT CONTAIN ANY UNTRUE STATEMENT OF A
MATERIAL FACT OR OMIT TO STATE ANY MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS MADE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE
MADE, NOT MISLEADING.

 

3.2           REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.  EACH INVESTOR
HEREBY, FOR ITSELF AND FOR NO OTHER INVESTOR, REPRESENTS AND WARRANTS TO THE
COMPANY AS FOLLOWS:

 

(A)           ORGANIZATION; AUTHORITY.  IF APPLICABLE, SUCH INVESTOR IS AN
ENTITY DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF
THE JURISDICTION OF ITS ORGANIZATION WITH THE REQUISITE CORPORATE OR PARTNERSHIP
POWER AND AUTHORITY TO ENTER INTO AND TO CONSUMMATE THE TRANSACTIONS
CONTEMPLATED BY THE APPLICABLE TRANSACTION DOCUMENTS AND OTHERWISE TO CARRY OUT
ITS OBLIGATIONS THEREUNDER.  THE EXECUTION, DELIVERY AND PERFORMANCE BY SUCH
INVESTOR OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT HAS BEEN DULY
AUTHORIZED BY ALL NECESSARY CORPORATE OR, IF SUCH INVESTOR IS NOT A CORPORATION,
SUCH PARTNERSHIP, LIMITED LIABILITY COMPANY OR OTHER APPLICABLE LIKE ACTION, ON
THE PART OF SUCH INVESTOR.  EACH OF THIS AGREEMENT AND THE REGISTRATION RIGHTS
AGREEMENT HAS BEEN DULY EXECUTED BY SUCH INVESTOR, AND WHEN DELIVERED BY SUCH
INVESTOR IN ACCORDANCE WITH TERMS HEREOF, WILL CONSTITUTE THE VALID AND LEGALLY
BINDING OBLIGATION OF SUCH INVESTOR, ENFORCEABLE AGAINST IT IN ACCORDANCE WITH
ITS TERMS, EXCEPT AS SUCH ENFORCEABILITY MAY BE LIMITED BY APPLICABLE
BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM, LIQUIDATION OR SIMILAR LAWS
RELATING TO, OR AFFECTING GENERALLY THE ENFORCEMENT OF, CREDITORS’ RIGHTS AND
REMEDIES OR BY OTHER EQUITABLE PRINCIPLES OF GENERAL APPLICATION.

 

(B)           INVESTMENT INTENT.  SUCH INVESTOR IS ACQUIRING THE SECURITIES AS
PRINCIPAL FOR ITS OWN ACCOUNT FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW
TO OR FOR DISTRIBUTING OR RESELLING SUCH SECURITIES OR ANY PART THEREOF, WITHOUT
PREJUDICE, HOWEVER, TO SUCH INVESTOR’S RIGHT AT ALL TIMES TO SELL OR OTHERWISE
DISPOSE OF ALL OR ANY PART OF SUCH SECURITIES IN COMPLIANCE WITH APPLICABLE
FEDERAL AND STATE SECURITIES LAWS.  SUBJECT TO THE IMMEDIATELY PRECEDING
SENTENCE, NOTHING CONTAINED HEREIN SHALL BE DEEMED A REPRESENTATION OR WARRANTY
BY SUCH INVESTOR TO HOLD THE SECURITIES FOR ANY PERIOD OF TIME.  SUCH INVESTOR
IS ACQUIRING THE SECURITIES HEREUNDER IN THE ORDINARY COURSE OF ITS BUSINESS. 
SUCH INVESTOR DOES NOT HAVE ANY AGREEMENT OR UNDERSTANDING, DIRECTLY OR
INDIRECTLY, WITH ANY PERSON TO DISTRIBUTE ANY OF THE SECURITIES.

 

(C)           INVESTOR STATUS.  AT THE TIME SUCH INVESTOR WAS OFFERED THE
SECURITIES, IT WAS, AND AT THE DATE HEREOF IT IS, AN “ACCREDITED INVESTOR” AS
DEFINED IN RULE 501(A) UNDER THE

 

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Securities Act.  Such Investor is not a registered broker-dealer under
Section 15 of the Exchange Act.

 

(D)           GENERAL SOLICITATION.  SUCH INVESTOR IS NOT PURCHASING THE
SECURITIES AS A RESULT OF ANY ADVERTISEMENT, ARTICLE, NOTICE OR OTHER
COMMUNICATION REGARDING THE SECURITIES PUBLISHED IN ANY NEWSPAPER, MAGAZINE OR
SIMILAR MEDIA OR BROADCAST OVER TELEVISION OR RADIO OR PRESENTED AT ANY SEMINAR
OR ANY OTHER GENERAL SOLICITATION OR GENERAL ADVERTISEMENT.

 

(E)           ACCESS TO INFORMATION.  SUCH INVESTOR ACKNOWLEDGES THAT IT HAS
REVIEWED THE DISCLOSURE MATERIALS AND HAS BEEN AFFORDED (I) THE OPPORTUNITY TO
ASK SUCH QUESTIONS AS IT HAS DEEMED NECESSARY OF, AND TO RECEIVE ANSWERS FROM,
REPRESENTATIVES OF THE COMPANY CONCERNING THE TERMS AND CONDITIONS OF THE
OFFERING OF THE SHARES AND THE MERITS AND RISKS OF INVESTING IN THE SECURITIES;
(II) ACCESS TO INFORMATION ABOUT THE COMPANY AND THE SUBSIDIARIES AND THEIR
RESPECTIVE FINANCIAL CONDITION, RESULTS OF OPERATIONS, BUSINESS, PROPERTIES,
MANAGEMENT AND PROSPECTS SUFFICIENT TO ENABLE IT TO EVALUATE ITS INVESTMENT; AND
(III) THE OPPORTUNITY TO OBTAIN SUCH ADDITIONAL INFORMATION THAT THE COMPANY
POSSESSES OR CAN ACQUIRE WITHOUT UNREASONABLE EFFORT OR EXPENSE THAT IS
NECESSARY TO MAKE AN INFORMED INVESTMENT DECISION WITH RESPECT TO THE
INVESTMENT.  NEITHER SUCH INQUIRIES NOR ANY OTHER INVESTIGATION CONDUCTED BY OR
ON BEHALF OF SUCH INVESTOR OR ITS REPRESENTATIVES OR COUNSEL SHALL MODIFY, AMEND
OR AFFECT SUCH INVESTOR’S RIGHT TO RELY ON THE TRUTH, ACCURACY AND COMPLETENESS
OF THE DISCLOSURE MATERIALS AND THE COMPANY’S REPRESENTATIONS AND WARRANTIES
CONTAINED IN THE TRANSACTION DOCUMENTS.

 

(F)            INDEPENDENT INVESTMENT DECISION.  SUCH INVESTOR HAS INDEPENDENTLY
EVALUATED THE MERITS OF ITS DECISION TO PURCHASE SECURITIES PURSUANT TO THIS
AGREEMENT, AND SUCH INVESTOR CONFIRMS THAT IT HAS NOT RELIED ON THE ADVICE OF
ANY OTHER INVESTOR’S BUSINESS AND/OR LEGAL COUNSEL IN MAKING SUCH DECISION.

 

(G)           CERTAIN TRADING ACTIVITIES.  SUCH INVESTOR HAS NOT DIRECTLY OR
INDIRECTLY, NOR HAS ANY PERSON ACTING ON BEHALF OF OR PURSUANT TO ANY
UNDERSTANDING WITH SUCH INVESTOR, ENGAGED IN ANY SALES OF ANY SECURITIES OF THE
COMPANY (INCLUDING, WITHOUT LIMITATIONS, ANY SHORT SALES (DEFINED BELOW)
INVOLVING THE COMPANY’S SECURITIES) DURING THE 20 TRADING DAYS PRIOR TO THE TIME
THAT THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ARE PUBLICLY DISCLOSED BY
THE COMPANY.  FOR PURPOSES OF THIS SECTION, “SHORT SALES” INCLUDE, WITHOUT
LIMITATION, ALL “SHORT SALES” AS DEFINED IN RULE 200 OF REGULATION SHO AND
INCLUDE ALL TYPES OF DIRECT AND INDIRECT STOCK PLEDGES, FORWARD SALE CONTRACTS,
OPTIONS, PUTS, CALLS, SHORT SALES, SWAPS AND SIMILAR ARRANGEMENTS (INCLUDING ON
A TOTAL RETURN BASIS), AND SALES AND OTHER TRANSACTIONS THROUGH NON-US BROKER
DEALERS OR FOREIGN REGULATED BROKERS HAVING THE EFFECT OF HEDGING THE SECURITIES
OR INVESTMENT MADE UNDER THIS AGREEMENT.  AS OF THE DATE OF THIS AGREEMENT, SUCH
INVESTOR HAS NO OPEN SHORT POSITION IN THE COMMON STOCK, AND COVENANTS THAT
NEITHER IT NOR ANY PERSON ACTING ON ITS BEHALF OR PURSUANT TO ANY UNDERSTANDING
WITH IT WILL ENGAGE IN ANY SHORT SALES PRIOR TO THE PUBLIC DISCLOSURE OF THE
MATERIAL TERMS OF THIS TRANSACTION BY THE COMPANY.

 

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THE COMPANY ACKNOWLEDGES AND AGREES THAT NO INVESTOR HAS MADE OR MAKES ANY
REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED
HEREBY OTHER THAN THOSE SPECIFICALLY SET FORTH IN THIS SECTION 3.2.

 

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

4.1           (A)           SECURITIES MAY ONLY BE DISPOSED OF IN COMPLIANCE
WITH STATE AND FEDERAL SECURITIES LAWS.  IN CONNECTION WITH ANY TRANSFER OF THE
SECURITIES OTHER THAN PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, TO THE
COMPANY, TO AN AFFILIATE OF AN INVESTOR OR IN CONNECTION WITH A PLEDGE AS
CONTEMPLATED IN SECTION 4.1(B), THE COMPANY MAY REQUIRE THE TRANSFEROR THEREOF
TO PROVIDE TO THE COMPANY AN OPINION OF COUNSEL SELECTED BY THE TRANSFEROR, THE
FORM AND SUBSTANCE OF WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY, TO THE EFFECT THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION OF SUCH
TRANSFERRED SECURITIES UNDER THE SECURITIES ACT.

 

(B)           CERTIFICATES EVIDENCING THE SECURITIES WILL CONTAIN THE FOLLOWING
LEGEND, UNTIL SUCH TIME AS THEY ARE NOT REQUIRED UNDER SECTION 4.1(C):

 

[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE BEEN REGISTERED]  [THESE SECURITIES HAVE NOT BEEN REGISTERED] 
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION
OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY.

 

THE COMPANY ACKNOWLEDGES AND AGREES THAT AN INVESTOR MAY FROM TIME TO TIME
PLEDGE, AND/OR GRANT A SECURITY INTEREST IN SOME OR ALL OF THE SECURITIES
PURSUANT TO A BONA FIDE MARGIN AGREEMENT IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT AND, IF REQUIRED UNDER THE TERMS OF SUCH AGREEMENT OR ACCOUNT, SUCH
INVESTOR MAY TRANSFER PLEDGED OR SECURED SECURITIES TO THE PLEDGEES OR SECURED
PARTIES, SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT.  SUCH A PLEDGE
OR TRANSFER WOULD NOT BE SUBJECT TO APPROVAL OR CONSENT OF THE COMPANY AND NO
LEGAL OPINION OF LEGAL COUNSEL TO THE PLEDGEE, SECURED PARTY OR PLEDGOR SHALL BE
REQUIRED IN CONNECTION WITH THE PLEDGE, BUT SUCH LEGAL OPINION MAY BE REQUIRED
IN CONNECTION WITH A SUBSEQUENT TRANSFER FOLLOWING DEFAULT BY THE INVESTOR
TRANSFEREE OF THE PLEDGE.  NO NOTICE SHALL BE REQUIRED OF SUCH

 

15

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pledge.  At the appropriate Investor’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of selling
shareholders thereunder.

 

(C)           CERTIFICATES EVIDENCING THE SHARES AND WARRANT SHARES SHALL NOT
CONTAIN ANY LEGEND (INCLUDING THE LEGEND SET FORTH IN SECTION 4.1(B)):
(I) FOLLOWING A SALE OF SUCH SECURITIES PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT (INCLUDING THE REGISTRATION STATEMENT), OR (II) FOLLOWING A SALE OF
SUCH SHARES OR WARRANT SHARES PURSUANT TO RULE 144 (ASSUMING THE TRANSFEROR IS
NOT AN AFFILIATE OF THE COMPANY), OR (III) WHILE SUCH SHARES OR WARRANT SHARES
ARE ELIGIBLE FOR SALE UNDER RULE 144(K).  FOLLOWING SUCH TIME AS RESTRICTIVE
LEGENDS ARE NOT REQUIRED TO BE PLACED ON CERTIFICATES REPRESENTING SHARES OR
WARRANT SHARES PURSUANT TO THE PRECEDING SENTENCE, THE COMPANY WILL, NO LATER
THAN THREE TRADING DAYS FOLLOWING THE DELIVERY BY AN INVESTOR TO THE COMPANY OR
THE COMPANY’S TRANSFER AGENT OF A CERTIFICATE REPRESENTING SHARES OR WARRANT
SHARES CONTAINING A RESTRICTIVE LEGEND, DELIVER OR CAUSE TO BE DELIVERED TO SUCH
INVESTOR A CERTIFICATE REPRESENTING SUCH SHARES OR WARRANT SHARES THAT IS FREE
FROM ALL RESTRICTIVE AND OTHER LEGENDS.  THE COMPANY MAY NOT MAKE ANY NOTATION
ON ITS RECORDS OR GIVE INSTRUCTIONS TO ANY TRANSFER AGENT OF THE COMPANY THAT
ENLARGE THE RESTRICTIONS ON TRANSFER SET FORTH IN THIS SECTION.

 

4.2           FURNISHING OF INFORMATION.  AS LONG AS ANY INVESTOR OWNS THE
SECURITIES, THE COMPANY COVENANTS TO TIMELY FILE (OR OBTAIN EXTENSIONS IN
RESPECT THEREOF AND FILE WITHIN THE APPLICABLE GRACE PERIOD) ALL REPORTS
REQUIRED TO BE FILED BY THE COMPANY AFTER THE DATE HEREOF PURSUANT TO THE
EXCHANGE ACT.  AS LONG AS ANY INVESTOR OWNS SECURITIES, IF THE COMPANY IS NOT
REQUIRED TO FILE REPORTS PURSUANT TO SUCH LAWS, IT WILL PREPARE AND FURNISH TO
THE INVESTORS AND MAKE PUBLICLY AVAILABLE IN ACCORDANCE WITH RULE 144(C) SUCH
INFORMATION AS IS REQUIRED FOR THE INVESTORS TO SELL THE SHARES AND WARRANT
SHARES UNDER RULE 144.  THE COMPANY FURTHER COVENANTS THAT IT WILL TAKE SUCH
FURTHER ACTION AS ANY HOLDER OF SECURITIES MAY REASONABLY REQUEST, ALL TO THE
EXTENT REQUIRED FROM TIME TO TIME TO ENABLE SUCH PERSON TO SELL THE SHARES AND
WARRANT SHARES WITHOUT REGISTRATION UNDER THE SECURITIES ACT WITHIN THE
LIMITATION OF THE EXEMPTIONS PROVIDED BY RULE 144.

 

4.3           PARTICIPATION RIGHTS.  IF AT ANY TIME PRIOR TO THE TWO-YEAR
ANNIVERSARY OF THE CLOSING DATE, THE COMPANY PROPOSES TO ISSUE ANY EQUITY COMMON
STOCK OR COMMON STOCK EQUIVALENTS (COLLECTIVELY, “NEW ISSUE SECURITIES”), THE
COMPANY SHALL FIRST OFFER THE NEW ISSUE SECURITIES TO THE INVESTORS IN
ACCORDANCE WITH THE FOLLOWING PROVISIONS:

 

(A)           THE COMPANY SHALL GIVE WRITTEN NOTICE, WHICH MAY BE ON A
CONFIDENTIAL BASIS, TO EACH INVESTOR (THE “NOTICE”) STATING (I) ITS INTENTION TO
ISSUE THE NEW ISSUE SECURITIES, (II) THE NUMBER AND DESCRIPTION OF THE NEW ISSUE
SECURITIES PROPOSED TO BE ISSUED AND (III) THE PURCHASE PRICE (CALCULATED AS OF
THE PROPOSED ISSUANCE DATE) AND THE OTHER TERMS AND CONDITIONS UPON WHICH THE
COMPANY IS OFFERING THE NEW ISSUE SECURITIES; PROVIDED, HOWEVER, THAT THE
PURCHASE PRICE OF NEW ISSUE SECURITIES IN AN UNDERWRITTEN PUBLIC OFFERING WILL
BE COMMUNICATED TO THE INVESTORS ON THE DATE OF PRICING.

 

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(B)           TRANSMITTAL OF THE NOTICE TO THE INVESTORS BY THE COMPANY SHALL
CONSTITUTE AN OFFER BY THE COMPANY TO SELL TO EACH INVESTOR A NUMBER OF NEW
ISSUE SECURITIES EQUAL TO THE PRODUCT OF (X) THE NUMBER OF NEW ISSUE SECURITIES
BEING OFFERED AND (Y) THE QUOTIENT OBTAINED BY DIVIDING (I) THE SUM OF NUMBER OF
SHARES PURCHASED BY SUCH INVESTOR HEREUNDER AND THE NUMBER OF WARRANT SHARES
ISSUABLE UPON EXERCISE OF THE WARRANT PURCHASED BY SUCH INVESTOR HEREUNDER BY
(II) THE FULLY DILUTED NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF THE
DATE HEREOF (THE “BASIC AMOUNT”) FOR THE PRICE AND UPON THE TERMS AND CONDITIONS
SET FORTH IN THE NOTICE.  FOR A PERIOD OF FIVE (5) BUSINESS DAYS AFTER RECEIPT
OF THE NOTICE (OR, IN THE CASE OF AN UNDERWRITTEN PUBLIC OFFERING, SUCH SHORTER
PERIOD OF TIME (FOLLOWING NOTICE OF THE PURCHASE PRICE) THAT THE UNDERWRITER MAY
REQUIRE), EACH INVESTOR SHALL HAVE THE OPTION, EXERCISABLE BY WRITTEN NOTICE TO
THE COMPANY, TO ACCEPT THE COMPANY’S OFFER AS TO ALL OR ANY PART OF SUCH
INVESTOR’S BASIC AMOUNT (THE “NOTICE OF ACCEPTANCE”).  IF TWO OR MORE TYPES OF
NEW ISSUE SECURITIES ARE TO BE ISSUED OR NEW ISSUE SECURITIES ARE TO BE ISSUED
TOGETHER WITH OTHER TYPES OF SECURITIES, INCLUDING, WITHOUT LIMITATION, DEBT
SECURITIES, IN A SINGLE TRANSACTION OR RELATED TRANSACTIONS, THE RIGHTS TO
PURCHASE NEW ISSUE SECURITIES GRANTED TO THE INVESTORS UNDER THIS SECTION MUST
BE EXERCISED TO PURCHASE ALL TYPES OF NEW ISSUE SECURITIES AND SUCH OTHER
SECURITIES IN THE SAME PROPORTION AS SUCH NEW ISSUE SECURITIES AND OTHER
SECURITIES ARE TO BE ISSUED BY THE COMPANY.

 

(C)           THE COMPANY SHALL HAVE SIXTY (60) TRADING DAYS FROM THE EXPIRATION
OF THE PERIOD SET FORTH IN SECTION 4.3(B) ABOVE TO ISSUE, SELL OR EXCHANGE ALL
OR ANY PART OF SUCH NEW ISSUE SECURITIES AS TO WHICH A NOTICE OF ACCEPTANCE HAS
NOT BEEN GIVEN BY THE INVESTORS (THE “REFUSED SECURITIES”), BUT ONLY UPON TERMS
AND CONDITIONS (INCLUDING, WITHOUT LIMITATION, UNIT PRICES AND INTEREST RATES)
THAT ARE NOT MORE FAVORABLE TO THE ACQUIRING PERSON OR PERSONS THAN THOSE SET
FORTH IN THE NOTICE.

 

(D)           THE PURCHASE BY THE INVESTORS OF ANY NEW ISSUE SECURITIES IS
SUBJECT IN ALL CASES TO THE PREPARATION, EXECUTION AND DELIVERY BY THE COMPANY
AND THE INVESTORS OF A PURCHASE AGREEMENT RELATING TO SUCH NEW ISSUE SECURITIES
REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE INVESTORS AND THE COMPANY
AND THEIR RESPECTIVE COUNSEL.

 

(E)           THE PARTICIPATION RIGHTS CONTAINED IN THIS SECTION SHALL NOT APPLY
TO THE ISSUANCE AND SALE BY THE COMPANY OF (I) SHARES OF COMMON STOCK OR COMMON
STOCK EQUIVALENTS TO EMPLOYEES, OFFICERS, OR DIRECTORS OF OR CONSULTANTS TO THE
COMPANY PURSUANT TO ANY STOCK OPTION PLAN, EMPLOYEE STOCK PURCHASE PLAN OR
SIMILAR PLAN OR INCENTIVE OR CONSULTING ARRANGEMENT APPROVED BY THE COMPANY’S
BOARD OF DIRECTORS; (II) ANY RESTRICTED STOCK AWARDS APPROVED BY THE COMPANY’S
BOARD OF DIRECTORS; (III) SECURITIES PURSUANT TO THE TRANSACTION DOCUMENTS,
(IV) SHARES OF COMMON STOCK ISSUED AS CONSIDERATION FOR THE ACQUISITION OF
ANOTHER COMPANY OR BUSINESS IN WHICH THE SHAREHOLDERS OF THE COMPANY DO NOT HAVE
AN OWNERSHIP INTEREST, WHICH ACQUISITION HAS BEEN APPROVED BY THE BOARD OF
DIRECTORS OF THE COMPANY, OR (V) THE ISSUANCE OF SECURITIES PURSUANT TO THE
EXERCISE OF CONVERSION OR PURCHASE RIGHTS PURSUANT TO ISSUED AND OUTSTANDING
CONVERTIBLE SECURITIES, OPTIONS OR WARRANTS, INCLUDING THE WARRANTS TO BE ISSUED
TO THE AGENT AND ANY SUB-AGENTS IN CONNECTION WITH THIS TRANSACTION.

 

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4.4           INTEGRATION.  THE COMPANY SHALL NOT, AND SHALL USE ITS BEST
EFFORTS TO ENSURE THAT NO AFFILIATE OF THE COMPANY SHALL, SELL, OFFER FOR SALE
OR SOLICIT OFFERS TO BUY OR OTHERWISE NEGOTIATE IN RESPECT OF ANY SECURITY (AS
DEFINED IN SECTION 2 OF THE SECURITIES ACT) THAT WOULD BE INTEGRATED WITH THE
OFFER OR SALE OF THE SECURITIES IN A MANNER THAT WOULD REQUIRE THE REGISTRATION
UNDER THE SECURITIES ACT OF THE SALE OF THE SECURITIES TO THE INVESTORS, OR THAT
WOULD BE INTEGRATED WITH THE OFFER OR SALE OF THE SECURITIES FOR PURPOSES OF THE
RULES AND REGULATIONS OF ANY TRADING MARKET IN A MANNER THAT WOULD REQUIRE
SHAREHOLDER APPROVAL OF THE SALE OF THE SECURITIES TO THE INVESTORS.

 

4.5           SUBSEQUENT REGISTRATIONS.  OTHER THAN PURSUANT TO THE REGISTRATION
STATEMENT, PRIOR TO THE EFFECTIVE DATE, THE COMPANY MAY NOT FILE ANY
REGISTRATION STATEMENT (OTHER THAN ON FORM S-8 OR FORM S-4) WITH THE COMMISSION
WITH RESPECT TO ANY SECURITIES OF THE COMPANY.

 

4.6           SECURITIES LAWS DISCLOSURE; PUBLICITY.  BY 8:30 A.M. (MINNEAPOLIS
TIME) ON THE TRADING DAY FOLLOWING THE EXECUTION OF THIS AGREEMENT, THE COMPANY
SHALL ISSUE A PRESS RELEASE IN A FORM APPROVED BY THE INVESTORS DISCLOSING THE
TRANSACTIONS CONTEMPLATED HEREBY.  UNLESS DISCLOSURE OF THE CLOSING IS CONTAINED
IN THE PRESS RELEASE CONTEMPLATED BY THE IMMEDIATELY PRECEDING SENTENCE, BY
8:30 A.M. (MINNEAPOLIS TIME) ON THE TRADING DAY FOLLOWING THE CLOSING DATE, THE
COMPANY SHALL ISSUE AN ADDITIONAL PRESS RELEASE IN A FORM APPROVED BY THE
INVESTORS DISCLOSING THE CLOSING.  WITHIN FOUR TRADING DAYS FOLLOWING THE
EXECUTION OF THIS AGREEMENT, THE COMPANY WILL FILE A CURRENT REPORT ON FORM 8-K
DISCLOSING THE MATERIAL TERMS OF THE TRANSACTION DOCUMENTS (AND ATTACH AS
EXHIBITS THERETO THE TRANSACTION DOCUMENTS).  UNLESS DISCLOSURE OF THE CLOSING
IS CONTAINED IN THE CURRENT REPORT ON FORM 8-K CONTEMPLATED BY THE IMMEDIATELY
PRECEDING SENTENCE, WITHIN FOUR TRADING DAYS OF THE CLOSING DATE THE COMPANY
WILL FILE AN ADDITIONAL CURRENT REPORT ON FORM 8-K TO DISCLOSE THE CLOSING.  IN
ADDITION, THE COMPANY WILL MAKE SUCH OTHER FILINGS AND NOTICES IN THE MANNER AND
TIME REQUIRED BY THE COMMISSION AND THE TRADING MARKET ON WHICH THE COMMON STOCK
IS LISTED.  NOTWITHSTANDING THE FOREGOING, THE COMPANY SHALL NOT PUBLICLY
DISCLOSE THE NAME OF ANY INVESTOR, OR INCLUDE THE NAME OF ANY INVESTOR IN ANY
FILING WITH THE COMMISSION (OTHER THAN THE REGISTRATION STATEMENT AND ANY
EXHIBITS TO FILINGS MADE IN RESPECT OF THIS TRANSACTION IN ACCORDANCE WITH
PERIODIC FILING REQUIREMENTS UNDER THE EXCHANGE ACT) OR ANY REGULATORY AGENCY OR
TRADING MARKET, WITHOUT THE PRIOR WRITTEN CONSENT OF SUCH INVESTOR, EXCEPT TO
THE EXTENT SUCH DISCLOSURE IS REQUIRED BY LAW OR TRADING MARKET REGULATIONS.

 

4.7           ADDITIONAL SHARES.  IF, PRIOR TO THE FIRST YEAR ANNIVERSARY OF THE
CLOSING DATE, THE COMPANY ISSUES ANY SHARES OF COMMON STOCK OR IF THE COMPANY OR
ANY SUBSIDIARY ISSUES ANY COMMON STOCK EQUIVALENTS ENTITLING ANY PERSON TO
ACQUIRE SHARES OF COMMON STOCK AT A PRICE PER SHARE LESS THAN THE THRESHOLD
PRICE (IF THE HOLDER OF THE COMMON STOCK OR COMMON STOCK EQUIVALENT SO ISSUED
SHALL AT ANY TIME, WHETHER BY OPERATION OF PURCHASE PRICE ADJUSTMENTS, RESET
PROVISIONS, FLOATING CONVERSION, EXERCISE OR EXCHANGE PRICES OR OTHERWISE, OR
DUE TO WARRANTS, OPTIONS OR RIGHTS ISSUED IN CONNECTION WITH SUCH ISSUANCE, BE
ENTITLED TO RECEIVE SHARES OF COMMON STOCK AT A PRICE LESS THAN THE THRESHOLD
PRICE, SUCH ISSUANCE SHALL BE DEEMED TO HAVE OCCURRED FOR LESS THAN THE
THRESHOLD PRICE), THEN, IN CONNECTION WITH EACH SUCH ISSUANCE OF COMMON STOCK OR
COMMON STOCK EQUIVALENTS FOR A PURCHASE PRICE THAT IS LESS THAN THE THRESHOLD
PRICE, THE COMPANY SHALL IMMEDIATELY ISSUE ADDITIONAL SHARES OF COMMON STOCK
(THE

 

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“Additional Shares”) to each Investor for no additional consideration.  Subject
to the limitations set forth below, the number of Additional Shares issuable to
each Investor will equal: (a) the Threshold Price minus the lowest price per
share of the Common Stock or Common Stock Equivalents offered or sold that
trigger an obligation under this Section divided by (b) the Threshold Price,
multiplied by (c) the total number of Shares issued or issuable to such Investor
pursuant to Section 2.2(a)(i).  The Company shall notify the Investors in
writing, no later than the third Trading Day following the issuance of any
Common Stock or Common Stock Equivalent subject to this section, indicating
therein the applicable issuance price.  The Additional Shares shall be entitled
to the registration and other rights set forth in the Registration Rights
Agreement and any Additional Shares not registered for resale shall also be
afforded general piggyback registration rights such that such Additional Shares
may be included in any registration statement (other than on Form S-8 or
Form S-4) filed by the Company.  Notwithstanding the foregoing, no issuances of
Additional Shares will be made under this Section as a result of the issuance
and sale by the Company of (i) shares of Common Stock or Common Stock
Equivalents to employees, officers, or directors of the Company, as compensation
for their services to the Company or any of its direct or indirect Subsidiaries
pursuant to arrangements approved by the Board of Directors of the Company and
consistent with past practice, (ii) any restricted stock awards approved by the
Company’s Board of Directors, (iii) Securities pursuant to the Transaction
Documents, (iv) shares of Common Stock issued as consideration for the
acquisition of another company or business in which the shareholders of the
Company do not have an ownership interest, which acquisition has been approved
by the Board of Directors of the Company, or (v) Securities pursuant to the
exercise of conversion or purchase rights pursuant to issued and outstanding
convertible securities, options or warrants, including the warrants to be issued
to the agent and any sub-agents in connection with this transaction. 
Notwithstanding the foregoing, the number of Additional Shares that may be
issued pursuant to this Section 4.7, when combined with the number of Shares
issued, the number of Warrant Shares issuable (inclusive of all anti-dilution
adjustments applicable to such securities) and the number of shares of Common
Stock issuable upon exercise of the warrant specified in Schedule 3.1(u)
(inclusive of all anti-dilution adjustments applicable to such securities), may
not, in the absence of approval by the Company’s shareholders, equal or exceed
19.9% of the number of shares of Common Stock issued and outstanding immediately
prior to the issuance of Securities contemplated by this Agreement (with all
affected parties being treated on a pari passu basis).  If any Additional Shares
become issuable to the Investors pursuant to this Section 4.7 in excess of the
limitation set forth in the immediately preceding sentence (the “Excess
Shares”), the Company will use reasonable best efforts to prepare and file a
preliminary proxy statement and use reasonable best efforts to hold a meeting of
its shareholders for the purpose, among others, of seeking approval of the
issuance of the Excess Shares (the “Proposal”).  In furtherance of its
obligations under this Section 4.7, the Company’s Board of Directors shall,
using a definitive proxy statement, recommend to the Company’s shareholders (and
not revoke or amend such recommendation) that the shareholders vote in favor of
and approve the Proposal, shall cause the Company to use its best efforts to
solicit proxies from the shareholders in favor of the Proposal, and cause the
shareholders to vote on such Proposal.  If the Company’s shareholders approve
the Proposal, the Company will issue the Excess Shares to the Investors.  If the
Company’s shareholders do not approve the Proposal, the Investors hereby

 

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acknowledge that the Company will not issue the Excess Shares and that the
Company may not otherwise compensate the Investors for the failure to issue the
Excess Shares.

 

4.8           LIMITATION ON ISSUANCE OF FUTURE PRICED SECURITIES.  DURING THE
SIX MONTHS FOLLOWING THE CLOSING DATE, THE COMPANY SHALL NOT ISSUE ANY “FUTURE
PRICED SECURITIES” AS SUCH TERM IS DESCRIBED BY NASD IM-4350-1.

 

4.9           INDEMNIFICATION OF INVESTORS.  IN ADDITION TO THE INDEMNITY
PROVIDED IN THE REGISTRATION RIGHTS AGREEMENT, THE COMPANY WILL INDEMNIFY AND
HOLD THE INVESTORS AND THEIR DIRECTORS, OFFICERS, SHAREHOLDERS, PARTNERS,
EMPLOYEES AND AGENTS (EACH, AN “INVESTOR PARTY”) HARMLESS FROM ANY AND ALL
LOSSES, LIABILITIES, OBLIGATIONS, CLAIMS, CONTINGENCIES, DAMAGES, COSTS AND
EXPENSES, INCLUDING ALL JUDGMENTS, AMOUNTS PAID IN SETTLEMENTS, COURT COSTS AND
REASONABLE ATTORNEYS’ FEES AND COSTS OF INVESTIGATION (COLLECTIVELY, “LOSSES”)
THAT ANY SUCH INVESTOR PARTY MAY SUFFER OR INCUR AS A RESULT OF OR RELATING TO
ANY MISREPRESENTATION, BREACH OR INACCURACY OF ANY REPRESENTATION, WARRANTY,
COVENANT OR AGREEMENT MADE BY THE COMPANY IN ANY TRANSACTION DOCUMENT.  IN
ADDITION TO THE INDEMNITY CONTAINED HEREIN, THE COMPANY WILL REIMBURSE EACH
INVESTOR PARTY FOR ITS REASONABLE LEGAL AND OTHER EXPENSES (INCLUDING THE COST
OF ANY INVESTIGATION, PREPARATION AND TRAVEL IN CONNECTION THEREWITH) INCURRED
IN CONNECTION THEREWITH, AS SUCH EXPENSES ARE INCURRED.

 

4.10         NON-PUBLIC INFORMATION.  THE COMPANY COVENANTS AND AGREES THAT
NEITHER IT NOR ANY OTHER PERSON ACTING ON ITS BEHALF HAS PROVIDED ANY INVESTOR
OR ITS AGENTS OR COUNSEL WITH ANY INFORMATION THAT THE COMPANY BELIEVES
CONSTITUTES MATERIAL NON-PUBLIC INFORMATION.  THE COMPANY UNDERSTANDS AND
CONFIRMS THAT EACH INVESTOR SHALL BE RELYING ON THE FOREGOING REPRESENTATIONS IN
EFFECTING TRANSACTIONS IN SECURITIES OF THE COMPANY.  IN THE EVENT THAT IN ORDER
TO COMPLY WITH ITS OBLIGATIONS UNDER SECTION 4.3, THE COMPANY IN WRITING
REQUESTS AN INVESTOR TO ENTER INTO A WRITTEN CONFIDENTIALITY AGREEMENT REGARDING
INFORMATION WHICH THE COMPANY DESIRES TO DISCLOSE TO SUCH INVESTOR AND WHICH THE
COMPANY BELIEVES IS MATERIAL AND NON-PUBLIC AND SUCH INVESTOR INFORMS THE
COMPANY THAT IT WOULD NOT BE WILLING TO ENTER INTO SUCH CONFIDENTIALITY
AGREEMENT, THEN SUCH INVESTOR SHALL BE DEEMED TO HAVE WAIVED ITS PARTICIPATION
RIGHTS UNDER SECTION 4.3 AS TO THE NOTICE IN QUESTION.

 

4.11         LISTING OF SECURITIES.  THE COMPANY AGREES, (I) IF THE COMPANY
APPLIES TO HAVE THE COMMON STOCK TRADED ON ANY OTHER TRADING MARKET, IT WILL
INCLUDE IN SUCH APPLICATION THE SHARES AND WARRANT SHARES, AND WILL TAKE SUCH
OTHER ACTION AS IS NECESSARY OR DESIRABLE TO CAUSE THE SHARES AND WARRANT SHARES
TO BE LISTED ON SUCH OTHER TRADING MARKET AS PROMPTLY AS POSSIBLE, AND (II) IT
WILL TAKE ALL ACTION REASONABLY NECESSARY TO CONTINUE THE LISTING AND TRADING OF
ITS COMMON STOCK ON A TRADING MARKET AND WILL COMPLY IN ALL MATERIAL RESPECTS
WITH THE COMPANY’S REPORTING, FILING AND OTHER OBLIGATIONS UNDER THE BYLAWS OR
RULES OF THE TRADING MARKET.

 

4.12         USE OF PROCEEDS.  THE COMPANY WILL USE THE NET PROCEEDS FROM THE
SALE OF THE SECURITIES HEREUNDER FOR WORKING CAPITAL PURPOSES AND FOR CAPITAL
EXPENDITURES, AND NOT TO REDEEM ANY COMMON STOCK OR COMMON STOCK EQUIVALENTS.

 

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4.13         DELIVERY OF INVESTMENT AMOUNT.  AT THE CLOSING, EACH INVESTOR SHALL
DELIVER TO THE ESCROW ACCOUNT SPECIFIED IN THE ESCROW AGREEMENT, FOR DEPOSIT AND
DISTRIBUTION IN ACCORDANCE WITH THE TERMS OF THE ESCROW AGREEMENT, SUCH
INVESTOR’S INVESTMENT AMOUNT, IN UNITED STATES DOLLARS AND IN IMMEDIATELY
AVAILABLE FUNDS.

 

ARTICLE V.

CONDITIONS PRECEDENT TO CLOSINGS

 

5.1           CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE INVESTORS TO
PURCHASE SECURITIES.  THE OBLIGATION OF EACH INVESTOR TO ACQUIRE SECURITIES AT
THE CLOSING IS SUBJECT TO THE SATISFACTION OR WAIVER BY SUCH INVESTOR, AT OR
BEFORE THE CLOSING, OF EACH OF THE FOLLOWING CONDITIONS:

 

(A)           REPRESENTATIONS AND WARRANTIES.  THE REPRESENTATIONS AND
WARRANTIES OF THE COMPANY CONTAINED HEREIN SHALL BE TRUE AND CORRECT IN ALL
MATERIAL RESPECTS AS OF THE DATE WHEN MADE AND AS OF THE CLOSING AS THOUGH MADE
ON AND AS OF SUCH DATE;

 

(B)           PERFORMANCE.  THE COMPANY SHALL HAVE PERFORMED, SATISFIED AND
COMPLIED IN ALL MATERIAL RESPECTS WITH ALL COVENANTS, AGREEMENTS AND CONDITIONS
REQUIRED BY THE TRANSACTION DOCUMENTS TO BE PERFORMED, SATISFIED OR COMPLIED
WITH BY IT AT OR PRIOR TO THE CLOSING;

 

(C)           NO INJUNCTION.  NO STATUTE, RULE, REGULATION, EXECUTIVE ORDER,
DECREE, RULING OR INJUNCTION SHALL HAVE BEEN ENACTED, ENTERED, PROMULGATED OR
ENDORSED BY ANY COURT OR GOVERNMENTAL AUTHORITY OF COMPETENT JURISDICTION THAT
PROHIBITS THE CONSUMMATION OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION DOCUMENTS;

 

(D)           ADVERSE CHANGES.  SINCE THE DATE OF EXECUTION OF THIS AGREEMENT,
NO EVENT OR SERIES OF EVENTS SHALL HAVE OCCURRED THAT REASONABLY COULD HAVE OR
RESULT IN A MATERIAL ADVERSE EFFECT;

 

(E)           NO SUSPENSIONS OF TRADING IN COMMON STOCK; LISTING.  TRADING IN
THE COMMON STOCK SHALL NOT HAVE BEEN SUSPENDED BY THE COMMISSION OR ANY TRADING
MARKET (EXCEPT FOR ANY SUSPENSIONS OF TRADING OF NOT MORE THAN ONE TRADING DAY
SOLELY TO PERMIT DISSEMINATION OF MATERIAL INFORMATION REGARDING THE COMPANY) AT
ANY TIME SINCE THE DATE OF EXECUTION OF THIS AGREEMENT, AND THE COMMON STOCK
SHALL HAVE BEEN AT ALL TIMES SINCE SUCH DATE LISTED FOR TRADING ON A TRADING
MARKET;

 

(F)            COMPANY DELIVERABLES.  THE COMPANY SHALL HAVE DELIVERED THE
COMPANY DELIVERABLES IN ACCORDANCE WITH SECTION 2.2(A);

 

(G)           CLOSING OFFICER’S CERTIFICATE.  AT THE CLOSING, THE COMPANY SHALL
HAVE DELIVERED TO EACH INVESTOR AN OFFICER’S CERTIFICATE TO THE EFFECT THAT EACH
OF THE CONDITIONS SPECIFIED IN SECTIONS 5.1(A) - 5.1(E) IS SATISFIED IN ALL
RESPECTS;

 

(H)           TIMING.  THE CLOSING SHALL HAVE OCCURRED NO LATER THAN THREE
BUSINESS DAYS AFTER THE COMPANY’S RECEIPT OF THE FINAL LIST OF INVESTORS FOR THE
CLOSING; AND

 

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(I)            NASDAQ LISTING.  THE NASDAQ STOCK MARKET SHALL HAVE APPROVED THE
COMPANY’S APPLICATION FOR THE LISTING OF THE SHARES AND SHALL NOT HAVE OBJECTED
TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

5.2           CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO SELL
SECURITIES.  THE OBLIGATION OF THE COMPANY TO SELL SECURITIES AT THE CLOSING IS
SUBJECT TO THE SATISFACTION OR WAIVER BY THE COMPANY, AT OR BEFORE THE CLOSING,
OF EACH OF THE FOLLOWING CONDITIONS:

 

(A)           REPRESENTATIONS AND WARRANTIES.  THE REPRESENTATIONS AND
WARRANTIES OF EACH INVESTOR CONTAINED HEREIN SHALL BE TRUE AND CORRECT IN ALL
MATERIAL RESPECTS AS OF THE DATE WHEN MADE AND AS OF THE CLOSING AS THOUGH MADE
ON AND AS OF SUCH DATE;

 

(B)           PERFORMANCE.  EACH INVESTOR SHALL HAVE PERFORMED, SATISFIED AND
COMPLIED IN ALL MATERIAL RESPECTS WITH ALL COVENANTS, AGREEMENTS AND CONDITIONS
REQUIRED BY THE TRANSACTION DOCUMENTS TO BE PERFORMED, SATISFIED OR COMPLIED
WITH BY SUCH INVESTOR AT OR PRIOR TO THE CLOSING;

 

(C)           NO INJUNCTION.  NO STATUTE, RULE, REGULATION, EXECUTIVE ORDER,
DECREE, RULING OR INJUNCTION SHALL HAVE BEEN ENACTED, ENTERED, PROMULGATED OR
ENDORSED BY ANY COURT OR GOVERNMENTAL AUTHORITY OF COMPETENT JURISDICTION THAT
PROHIBITS THE CONSUMMATION OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION DOCUMENTS;

 

(D)           INVESTORS DELIVERABLES.  EACH INVESTOR SHALL HAVE DELIVERED ITS
INVESTORS DELIVERABLES IN ACCORDANCE WITH SECTION 2.2(B);

 

(E)           TIMING.  THE CLOSING SHALL HAVE OCCURRED NO LATER THAN THREE
BUSINESS DAYS AFTER THE COMPANY’S RECEIPT OF THE FINAL LIST OF INVESTORS FOR THE
CLOSING; AND

 

(F)            NASDAQ LISTING.  THE NASDAQ STOCK MARKET SHALL HAVE APPROVED THE
COMPANY’S APPLICATION FOR THE LISTING OF THE SHARES AND SHALL NOT HAVE OBJECTED
TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

ARTICLE VI.
MISCELLANEOUS

 

6.1           FEES AND EXPENSES.  AT THE CLOSING, THE COMPANY SHALL REIMBURSE
SOLSTICE INVESTMENT PARTNERS LP $25,000 IN CONNECTION WITH ITS LEGAL FEES AND
EXPENSES CONCERNING THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS
(SOLSTICE INVESTMENT PARTNERS LP MAY DEDUCT SUCH AMOUNT FROM THE PORTION OF ITS
INVESTMENT AMOUNT DELIVERABLE TO THE COMPANY AT THE CLOSING).  EXCEPT AS
SPECIFIED IN THE IMMEDIATELY PRECEDING SENTENCE AND IN THE REGISTRATION RIGHTS
AGREEMENT, EACH PARTY SHALL PAY THE FEES AND EXPENSES OF ITS ADVISERS, COUNSEL,
ACCOUNTANTS AND OTHER EXPERTS, IF ANY, AND ALL OTHER EXPENSES INCURRED BY SUCH
PARTY INCIDENT TO THE NEGOTIATION, PREPARATION, EXECUTION, DELIVERY AND
PERFORMANCE OF THE TRANSACTION DOCUMENTS.  THE COMPANY SHALL PAY ALL STAMP AND
OTHER TAXES AND DUTIES LEVIED IN CONNECTION WITH THE SALE OF THE SECURITIES.

 

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6.2           ENTIRE AGREEMENT.  THE TRANSACTION DOCUMENTS, TOGETHER WITH THE
SCHEDULES THERETO, CONTAIN THE ENTIRE UNDERSTANDING OF THE PARTIES WITH RESPECT
TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS, UNDERSTANDINGS,
DISCUSSIONS AND REPRESENTATIONS, ORAL OR WRITTEN, WITH RESPECT TO SUCH MATTERS,
WHICH THE PARTIES ACKNOWLEDGE HAVE BEEN MERGED INTO SUCH DOCUMENTS, EXHIBITS AND
SCHEDULES.

 

6.3           NOTICES.  ANY AND ALL NOTICES OR OTHER COMMUNICATIONS OR
DELIVERIES REQUIRED OR PERMITTED TO BE PROVIDED HEREUNDER SHALL BE IN WRITING
AND SHALL BE DEEMED GIVEN AND EFFECTIVE ON THE EARLIEST OF (A) THE DATE OF
TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA FACSIMILE
(PROVIDED THE SENDER RECEIVES A MACHINE-GENERATED CONFIRMATION OF SUCCESSFUL
TRANSMISSION) AT THE FACSIMILE NUMBER SPECIFIED IN THIS SECTION PRIOR TO
5:30 P.M. (MINNEAPOLIS TIME) ON A TRADING DAY, (B) THE NEXT TRADING DAY AFTER
THE DATE OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA
FACSIMILE AT THE FACSIMILE NUMBER SPECIFIED IN THIS SECTION ON A DAY THAT IS NOT
A TRADING DAY OR LATER THAN 5:30 P.M. (MINNEAPOLIS TIME) ON ANY TRADING DAY,
(C) THE TRADING DAY FOLLOWING THE DATE OF MAILING, IF SENT BY U.S. NATIONALLY
RECOGNIZED OVERNIGHT COURIER SERVICE, OR (D) UPON ACTUAL RECEIPT BY THE PARTY TO
WHOM SUCH NOTICE IS REQUIRED TO BE GIVEN.  THE ADDRESS FOR SUCH NOTICES AND
COMMUNICATIONS SHALL BE AS FOLLOWS:

 

If to the Company:

 

Granite City Food & Brewery Ltd.

 

 

5402 Parkdale Drive, Suite 101

 

 

Minneapolis, MN 55416

 

 

Facsimile: (952) 215-0661

 

 

Attn.: Chief Financial Officer

 

 

 

With a copy to:

 

Briggs and Morgan, P.A.

 

 

2200 IDS Center

 

 

80 South Eighth Street

 

 

Minneapolis, MN 55402

 

 

Facsimile: (612) 977-8650

 

 

Attn.: Avron L. Gordon, Esq.

 

 

 

If to an Investor:

 

To the address set forth under such Investor’s name

 

 

on the signature pages hereof; or such other address as may be designated in
writing hereafter, in the same manner, by such Person.

 

 

6.4           AMENDMENTS; WAIVERS; NO ADDITIONAL CONSIDERATION.  NO PROVISION OF
THIS AGREEMENT MAY BE WAIVED OR AMENDED EXCEPT IN A WRITTEN INSTRUMENT SIGNED BY
THE COMPANY AND THE INVESTORS HOLDING A MAJORITY OF THE SHARES.  NO WAIVER OF
ANY DEFAULT WITH RESPECT TO ANY PROVISION, CONDITION OR REQUIREMENT OF THIS
AGREEMENT SHALL BE DEEMED TO BE A CONTINUING WAIVER IN THE FUTURE OR A WAIVER OF
ANY SUBSEQUENT DEFAULT OR A WAIVER OF ANY OTHER PROVISION, CONDITION OR
REQUIREMENT HEREOF, NOR SHALL ANY DELAY OR OMISSION OF EITHER PARTY TO EXERCISE
ANY RIGHT HEREUNDER IN ANY MANNER IMPAIR THE EXERCISE OF ANY SUCH RIGHT.

 

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6.5           CONSTRUCTION.  THE HEADINGS HEREIN ARE FOR CONVENIENCE ONLY, DO
NOT CONSTITUTE A PART OF THIS AGREEMENT AND SHALL NOT BE DEEMED TO LIMIT OR
AFFECT ANY OF THE PROVISIONS HEREOF.  THE LANGUAGE USED IN THIS AGREEMENT WILL
BE DEEMED TO BE THE LANGUAGE CHOSEN BY THE PARTIES TO EXPRESS THEIR MUTUAL
INTENT, AND NO RULES OF STRICT CONSTRUCTION WILL BE APPLIED AGAINST ANY PARTY. 
THIS AGREEMENT SHALL BE CONSTRUED AS IF DRAFTED JOINTLY BY THE PARTIES, AND NO
PRESUMPTION OR BURDEN OF PROOF SHALL ARISE FAVORING OR DISFAVORING ANY PARTY BY
VIRTUE OF THE AUTHORSHIP OF ANY PROVISIONS OF THIS AGREEMENT OR ANY OF THE
TRANSACTION DOCUMENTS.

 

6.6           SUCCESSORS AND ASSIGNS.  THIS AGREEMENT SHALL BE BINDING UPON AND
INURE TO THE BENEFIT OF THE PARTIES AND THEIR SUCCESSORS AND PERMITTED ASSIGNS. 
THE COMPANY MAY NOT ASSIGN THIS AGREEMENT OR ANY RIGHTS OR OBLIGATIONS HEREUNDER
WITHOUT THE PRIOR WRITTEN CONSENT OF THE INVESTORS.  ANY INVESTOR MAY ASSIGN ANY
OR ALL OF ITS RIGHTS UNDER THIS AGREEMENT TO ANY PERSON TO WHOM SUCH INVESTOR
ASSIGNS OR TRANSFERS ANY SECURITIES, PROVIDED SUCH TRANSFEREE AGREES IN WRITING
TO BE BOUND, WITH RESPECT TO THE TRANSFERRED SECURITIES, BY THE PROVISIONS
HEREOF THAT APPLY TO THE “INVESTORS.”

 

6.7           NO THIRD-PARTY BENEFICIARIES.  THIS AGREEMENT IS INTENDED FOR THE
BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED
ASSIGNS AND IS NOT FOR THE BENEFIT OF, NOR MAY ANY PROVISION HEREOF BE ENFORCED
BY, ANY OTHER PERSON, EXCEPT AS OTHERWISE SET FORTH IN SECTION 4.9 (AS TO EACH
INVESTOR PARTY).

 

6.8           GOVERNING LAW.  ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
MINNESOTA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.  EACH
PARTY AGREES THAT ALL ACTIONS CONCERNING THE INTERPRETATIONS, ENFORCEMENT AND
DEFENSE OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND ANY OTHER
TRANSACTION DOCUMENTS (WHETHER BROUGHT AGAINST A PARTY HERETO OR ITS RESPECTIVE
AFFILIATES, EMPLOYEES OR AGENTS) SHALL BE COMMENCED EXCLUSIVELY IN THE MINNESOTA
COURTS.  EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE MINNESOTA COURTS FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY
OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF THE ANY OF THE
TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT
IN ANY ACTION, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION
OF ANY SUCH MINNESOTA COURT, OR THAT SUCH ACTION HAS BEEN COMMENCED IN AN
IMPROPER OR INCONVENIENT FORUM.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH
ACTION BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT
DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR
NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE
GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF.  NOTHING CONTAINED
HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.  IF EITHER PARTY SHALL COMMENCE AN ACTION TO
ENFORCE ANY PROVISIONS OF A TRANSACTION DOCUMENT, THEN THE PREVAILING PARTY IN
SUCH ACTION SHALL BE REIMBURSED BY THE OTHER PARTY FOR ITS

 

24

--------------------------------------------------------------------------------

 

reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Action.

 

6.9           SURVIVAL.  THE REPRESENTATIONS, WARRANTIES, AGREEMENTS AND
COVENANTS CONTAINED HEREIN SHALL SURVIVE THE CLOSING AND THE DELIVERY OF THE
SECURITIES.

 

6.10         EXECUTION.  THIS AGREEMENT MAY BE EXECUTED IN TWO OR MORE
COUNTERPARTS, ALL OF WHICH WHEN TAKEN TOGETHER SHALL BE CONSIDERED ONE AND THE
SAME AGREEMENT AND SHALL BECOME EFFECTIVE WHEN COUNTERPARTS HAVE BEEN SIGNED BY
EACH PARTY AND DELIVERED TO THE OTHER PARTY, IT BEING UNDERSTOOD THAT BOTH
PARTIES NEED NOT SIGN THE SAME COUNTERPART.  IN THE EVENT THAT ANY SIGNATURE IS
DELIVERED BY FACSIMILE TRANSMISSION, SUCH SIGNATURE SHALL CREATE A VALID AND
BINDING OBLIGATION OF THE PARTY EXECUTING (OR ON WHOSE BEHALF SUCH SIGNATURE IS
EXECUTED) WITH THE SAME FORCE AND EFFECT AS IF SUCH FACSIMILE SIGNATURE
PAGE WERE AN ORIGINAL THEREOF.

 

6.11         SEVERABILITY.  IF ANY PROVISION OF THIS AGREEMENT IS HELD TO BE
INVALID OR UNENFORCEABLE IN ANY RESPECT, THE VALIDITY AND ENFORCEABILITY OF THE
REMAINING TERMS AND PROVISIONS OF THIS AGREEMENT SHALL NOT IN ANY WAY BE
AFFECTED OR IMPAIRED THEREBY AND THE PARTIES WILL ATTEMPT TO AGREE UPON A VALID
AND ENFORCEABLE PROVISION THAT IS A REASONABLE SUBSTITUTE THEREFOR, AND UPON SO
AGREEING, SHALL INCORPORATE SUCH SUBSTITUTE PROVISION IN THIS AGREEMENT.

 

6.12         RESCISSION AND WITHDRAWAL RIGHT.  NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN (AND WITHOUT LIMITING ANY SIMILAR PROVISIONS OF) THE
TRANSACTION DOCUMENTS, WHENEVER ANY INVESTOR EXERCISES A RIGHT, ELECTION, DEMAND
OR OPTION UNDER A TRANSACTION DOCUMENT AND THE COMPANY DOES NOT TIMELY PERFORM
ITS RELATED OBLIGATIONS WITHIN THE PERIODS THEREIN PROVIDED, THEN SUCH INVESTOR
MAY RESCIND OR WITHDRAW, IN ITS SOLE DISCRETION FROM TIME TO TIME UPON WRITTEN
NOTICE TO THE COMPANY, ANY RELEVANT NOTICE, DEMAND OR ELECTION IN WHOLE OR IN
PART WITHOUT PREJUDICE TO ITS FUTURE ACTIONS AND RIGHTS.

 

6.13         REPLACEMENT OF SECURITIES.  IF ANY CERTIFICATE OR INSTRUMENT
EVIDENCING ANY SECURITIES IS MUTILATED, LOST, STOLEN OR DESTROYED, THE COMPANY
SHALL ISSUE OR CAUSE TO BE ISSUED IN EXCHANGE AND SUBSTITUTION FOR AND UPON
CANCELLATION THEREOF, OR IN LIEU OF AND SUBSTITUTION THEREFOR, A NEW CERTIFICATE
OR INSTRUMENT, BUT ONLY UPON RECEIPT OF EVIDENCE REASONABLY SATISFACTORY TO THE
COMPANY OF SUCH LOSS, THEFT OR DESTRUCTION AND CUSTOMARY AND REASONABLE
INDEMNITY, IF REQUESTED.  THE APPLICANTS FOR A NEW CERTIFICATE OR INSTRUMENT
UNDER SUCH CIRCUMSTANCES SHALL ALSO PAY ANY REASONABLE THIRD-PARTY COSTS
ASSOCIATED WITH THE ISSUANCE OF SUCH REPLACEMENT SECURITIES.  IF A REPLACEMENT
CERTIFICATE OR INSTRUMENT EVIDENCING ANY SECURITIES IS REQUESTED DUE TO A
MUTILATION THEREOF, THE COMPANY MAY REQUIRE DELIVERY OF SUCH MUTILATED
CERTIFICATE OR INSTRUMENT AS A CONDITION PRECEDENT TO ANY ISSUANCE OF A
REPLACEMENT.

 

6.14         REMEDIES.  IN ADDITION TO BEING ENTITLED TO EXERCISE ALL RIGHTS
PROVIDED HEREIN OR GRANTED BY LAW, INCLUDING RECOVERY OF DAMAGES, EACH OF THE
INVESTORS AND THE COMPANY WILL BE ENTITLED TO SPECIFIC PERFORMANCE UNDER THE
TRANSACTION DOCUMENTS.  THE PARTIES AGREE THAT MONETARY DAMAGES MAY NOT BE
ADEQUATE COMPENSATION FOR ANY LOSS INCURRED BY REASON OF ANY BREACH OF
OBLIGATIONS DESCRIBED IN THE FOREGOING SENTENCE AND HEREBY AGREES TO WAIVE IN
ANY

 

25

--------------------------------------------------------------------------------

 

action for specific performance of any such obligation the defense that a remedy
at law would be adequate.

 

6.15         PAYMENT SET ASIDE.  TO THE EXTENT THAT THE COMPANY MAKES A PAYMENT
OR PAYMENTS TO ANY INVESTOR PURSUANT TO ANY TRANSACTION DOCUMENT OR AN INVESTOR
ENFORCES OR EXERCISES ITS RIGHTS THEREUNDER, AND SUCH PAYMENT OR PAYMENTS OR THE
PROCEEDS OF SUCH ENFORCEMENT OR EXERCISE OR ANY PART THEREOF ARE SUBSEQUENTLY
INVALIDATED, DECLARED TO BE FRAUDULENT OR PREFERENTIAL, SET ASIDE, RECOVERED
FROM, DISGORGED BY OR ARE REQUIRED TO BE REFUNDED, REPAID OR OTHERWISE RESTORED
TO THE COMPANY, A TRUSTEE, RECEIVER OR ANY OTHER PERSON UNDER ANY LAW
(INCLUDING, WITHOUT LIMITATION, ANY BANKRUPTCY LAW, STATE OR FEDERAL LAW, COMMON
LAW OR EQUITABLE CAUSE OF ACTION), THEN TO THE EXTENT OF ANY SUCH RESTORATION
THE OBLIGATION OR PART THEREOF ORIGINALLY INTENDED TO BE SATISFIED SHALL BE
REVIVED AND CONTINUED IN FULL FORCE AND EFFECT AS IF SUCH PAYMENT HAD NOT BEEN
MADE OR SUCH ENFORCEMENT OR SETOFF HAD NOT OCCURRED.

 

6.16         INDEPENDENT NATURE OF INVESTORS’ OBLIGATIONS AND RIGHTS.  THE
OBLIGATIONS OF EACH INVESTOR UNDER ANY TRANSACTION DOCUMENT ARE SEVERAL AND NOT
JOINT WITH THE OBLIGATIONS OF ANY OTHER INVESTOR, AND NO INVESTOR SHALL BE
RESPONSIBLE IN ANY WAY FOR THE PERFORMANCE OF THE OBLIGATIONS OF ANY OTHER
INVESTOR UNDER ANY TRANSACTION DOCUMENT.  THE DECISION OF EACH INVESTOR TO
PURCHASE SECURITIES PURSUANT TO THE TRANSACTION DOCUMENTS HAS BEEN MADE BY SUCH
INVESTOR INDEPENDENTLY OF ANY OTHER INVESTOR.  NOTHING CONTAINED HEREIN OR IN
ANY TRANSACTION DOCUMENT, AND NO ACTION TAKEN BY ANY INVESTOR PURSUANT THERETO,
SHALL BE DEEMED TO CONSTITUTE THE INVESTORS AS A PARTNERSHIP, AN ASSOCIATION, A
JOINT VENTURE OR ANY OTHER KIND OF ENTITY, OR CREATE A PRESUMPTION THAT THE
INVESTORS ARE IN ANY WAY ACTING IN CONCERT OR AS A GROUP WITH RESPECT TO SUCH
OBLIGATIONS OR THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS.  EACH
INVESTOR ACKNOWLEDGES THAT NO OTHER INVESTOR HAS ACTED AS AGENT FOR SUCH
INVESTOR IN CONNECTION WITH MAKING ITS INVESTMENT HEREUNDER AND THAT NO INVESTOR
WILL BE ACTING AS AGENT OF SUCH INVESTOR IN CONNECTION WITH MONITORING ITS
INVESTMENT IN THE SECURITIES OR ENFORCING ITS RIGHTS UNDER THE TRANSACTION
DOCUMENTS.  EACH INVESTOR SHALL BE ENTITLED TO INDEPENDENTLY PROTECT AND ENFORCE
ITS RIGHTS, INCLUDING WITHOUT LIMITATION THE RIGHTS ARISING OUT OF THIS
AGREEMENT OR OUT OF THE OTHER TRANSACTION DOCUMENTS, AND IT SHALL NOT BE
NECESSARY FOR ANY OTHER INVESTOR TO BE JOINED AS AN ADDITIONAL PARTY IN ANY
PROCEEDING FOR SUCH PURPOSE.  THE COMPANY ACKNOWLEDGES THAT EACH OF THE
INVESTORS HAS BEEN PROVIDED WITH THE SAME TRANSACTION DOCUMENTS FOR THE PURPOSE
OF CLOSING A TRANSACTION WITH MULTIPLE INVESTORS AND NOT BECAUSE IT WAS REQUIRED
OR REQUESTED TO DO SO BY ANY INVESTOR.

 

6.17         LIMITATION OF LIABILITY.  NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, THE COMPANY ACKNOWLEDGES AND AGREES THAT THE LIABILITY OF AN INVESTOR
ARISING DIRECTLY OR INDIRECTLY, UNDER ANY TRANSACTION DOCUMENT OF ANY AND EVERY
NATURE WHATSOEVER SHALL BE SATISFIED SOLELY OUT OF THE ASSETS OF SUCH INVESTOR,
AND THAT NO TRUSTEE, OFFICER, OTHER INVESTMENT VEHICLE OR ANY OTHER AFFILIATE OF
SUCH INVESTOR OR ANY INVESTOR, SHAREHOLDER OR HOLDER OF SHARES OF BENEFICIAL
INTEREST OF SUCH A INVESTOR SHALL BE PERSONALLY LIABLE FOR ANY LIABILITIES OF
SUCH INVESTOR.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]

 

26

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

 

GRANITE CITY FOOD & BREWERY LTD.

 

 

 

 

 

 By:

/s/ Daniel H. Bauer

 

 

 

Name:

Daniel H. Bauer

 

 

Title:

Chief Financial Officer

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR INVESTORS FOLLOW]

 

27

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties have executed this Security Purchase Agreement
as of the date first written above.

 

 

NAME OF INVESTOR

 

 

 

Solstice Investment Partners

 

 

 

By:

/s/ Gary Winston

 

Name:   Gary Winston

 

Title: Managing Partner of Managing Member

 

 

 

Investment Amount: $525,000.00

 

 

 

 

 

Smith Barney cust for Gary Winston IRA
Rollover

 

 

 

By:

/s/ Gary Winston

 

Name:   Gary Winston

 

 

 

Investment Amount: $300,000.00

 

 

 

 

 

Gary Winston Separate Property Account

 

 

 

By:

/s/ Gary Winston

 

Name:   Gary Winston

 

 

 

Investment Amount: $100,000.00

 

 

 

 

 

Jolene Winston Separate Property Account

 

 

 

By:

/s/ Jolene Winston

 

Name:   Jolene Winston

 

Title: Owner

 

 

 

Investment Amount: $100,000.00

 

28

--------------------------------------------------------------------------------

 

 

Yolande Jurzykowski Rev Tr DTD 03/28/2001,
Yolande L. Jurzykowski, TTEE

 

 

 

By:

/s/ Yolande L. Jurzykowski

 

Name:   Yolande L. Jurzykowski

 

Title: Trustee

 

 

 

Investment Amount: $500,000.00

 

 

 

 

 

Michael J. Kennedy & Noreen M. Kennedy
2004 Revocable Living Trust Dtd 05/03/2004,
Michael J. Kennedy TTEE

 

 

 

By:

/s/ Michael Kennedy

 

Name:   Michael Kennedy

 

Title: Trustee

 

 

 

Investment Amount: $1,000,000.00

 

 

 

 

 

Isaac Goff and Renee Goff Rev Intervivos Tr
DTD 04/29/1992, Isaac Goff and Renee Goff
TTEES

 

 

 

By:

/s/ Isaac Goff

 

Name:   Isaac Goff

 

Title: Trustee

 

 

 

Investment Amount: $250,000.00

 

 

 

 

 

Solstice Capital Management LLC

 

 

 

By:

/s/ Gary Winston

 

Name:   Gary Winston

 

Title: Managing Member

 

 

 

Investment Amount: $150,000.00

 

29

--------------------------------------------------------------------------------

 

 

Merrill Lynch cust. for the benefit of John
McGeough IRA

 

 

 

By:

/s/ John McGeough

 

Name:   John McGeough

 

Title: Owner

 

 

 

Investment Amount: $100,000.00

 

 

 

 

 

Christianna Seidel Sep. Prop. Tr. U/A
11/05/1999 Christianna E. Seidel, Trustee

 

 

 

By:

/s/ Christianna E. Seidel

 

Name:   Christianna E. Seidel

 

Title: Trustee

 

 

 

Investment Amount: $50,000.00

 

 

 

 

 

Merrill Lynch cust. for the benefit of Joseph Gil
IRA

 

 

 

By:

/s/ Joseph Gil

 

Name:   Joseph Gil

 

 

 

Investment Amount: $25,000.00

 

 

 

 

 

David F. Bellet, TTEE Profit Sharing Plan f/b/o
David F. Bellet

 

 

 

By:

/s/ David F. Bellet

 

Name:   David F. Bellet

 

Title: Trustee

 

 

 

Investment Amount: $200,000.00

 

30

--------------------------------------------------------------------------------

 

 

Q Capital Investment Partners, L.P.

 

 

 

By:

/s/ Erik Franklin

 

Name:   Erik Franklin

 

Title: General Partner

 

 

 

Investment Amount: $500,000

 

 

 

 

 

Straus Partners LP

 

 

 

By:

/s/ Mickey Straus

 

Name:   Mickey Straus

 

Title: Managing Principal

 

 

 

Investment Amount: $275,000.00

 

 

 

 

 

Straus-GEPT Partners, LP

 

 

 

By:

/s/ Mickey Straus

 

Name:   Mickey Straus

 

Title: Managing Principal

 

 

 

Investment Amount: $225,000.00

 

 

 

 

 

Whitebox Intermarket Partners, L.P.

 

 

 

By:

/s/ Andrew Redleaf

 

Name:   Andrew Redleaf

 

Title: Managing Member of the General Partner

 

 

 

Investment Amount: $400,000.00

 

 

 

 

 

Sharpe 4 Deep Value Fund, LP

 

 

 

By:

/s/ Mitchell Friedman

 

Name:   Mitchell Friedman

 

Title: CEO

 

 

 

Investment Amount: $50,000.00

 

31

--------------------------------------------------------------------------------

 

 

Wedbush Morgan Securities Cust for Jeffrey
Paul Peterson IRA Rollover

 

 

 

By:

/s/ Jeffrey Peterson

 

Name:   Jeffrey Peterson

 

 

 

Investment Amount: $50,000.00

 

 

 

 

 

Wedbush Morgan Securities Cust for John L.
Flood IRA

 

 

 

By:

/s/ John L. Flood

 

Name:   John L. Flood

 

Title: Owner

 

 

 

Investment Amount: $75,000.00

 

 

 

 

 

Craig-Hallum Capital Group LLC 401K DID
5/30/02 A/C John L. Flood

 

 

 

By:

/s/ John L. Flood

 

Name:   John L. Flood

 

 

 

Investment Amount: $25,000.00

 

 

 

 

 

Burguete Investment Partner LP

 

 

 

By:

/s/ James J. Tiampo

 

Name:   James J. Tiampo

 

 

 

Investment Amount: $240,825.00

 

 

 

 

 

Craig-Hallum Partners LP

 

 

 

By:

/s/ Kevin Harris

 

Name:   Kevin Harris

 

Title:

Craig-Hallum Management LLC, GP of

 

 

Craig-Hallum Partners LP

 

 

 

 

Investment Amount: $200,000.00

 

32

--------------------------------------------------------------------------------

 

Schedule I

 

Name

 

Investment Amount
Deliverable at Closing

 

Shares and Warrants
Deliverable at Closing

 

Shares

 

Warrants

 

 

 

 

 

 

 

 

Solstice Investment Partners

 

$

500,000.00

 

109,000

 

21,800

 

 

 

 

 

 

 

 

 

Smith Barney cust for Gary Winston IRA Rollover

 

$

300,000.00

 

62,285

 

12,457

 

 

 

 

 

 

 

 

 

Gary Winston Separate Property Account

 

$

100,000.00

 

20,761

 

4,152

 

 

 

 

 

 

 

 

 

Jolene Winston Separate Property Account

 

$

100,000.00

 

20,761

 

4,152

 

 

 

 

 

 

 

 

 

Yolande Jurzykowski Rev Tr DTD 03/28/2001, Yolande L. Jurzykowski, TTEE

 

$

500,000.00

 

103,809

 

20,761

 

 

 

 

 

 

 

 

 

Michael J. Kennedy & Noreen M. Kennedy 2004 Revocable Living Trust Dtd
05/03/2004, Michael J. Kennedy TTEE

 

$

1,000,000.00

 

207,619

 

41,523

 

 

 

 

 

 

 

 

 

Isaac Goff and Renee Goff Rev Intervivos Tr DTD 04/29/1992, Isaac Goff and Renee
Goff TTEES

 

$

250,000.00

 

51,904

 

10,380

 

 

 

 

 

 

 

 

 

Solstice Capital Management LLC

 

$

150,000.00

 

31,142

 

6,228

 

 

 

 

 

 

 

 

 

Merrill Lynch cust. for the benefit of John McGeough IRA

 

$

100,000.00

 

20,761

 

4,152

 

 

 

 

 

 

 

 

 

Christianna Seidel Sep. Prop. Tr. U/A 11/05/1999 Christianna E. Seidel, Trustee

 

$

50,000.00

 

10,380

 

2,076

 

 

 

 

 

 

 

 

 

Merrill Lynch cust. for the benefit of Joseph Gil IRA

 

$

25,000.00

 

5,190

 

1,038

 

 

 

 

 

 

 

 

 

David F. Bellet, TTEE Profit Sharing Plan f/b/o David F. Bellet

 

$

200,000.00

 

41,523

 

8,304

 

 

 

 

 

 

 

 

 

Q Capital Investment Partners, L.P.

 

$

500,000.00

 

103,809

 

20,761

 

 

 

 

 

 

 

 

 

Straus Partners LP

 

$

275,000.00

 

57,095

 

11,419

 

 

 

 

 

 

 

 

 

Straus-GEPT Partners, LP

 

$

225,000.00

 

46,714

 

9,342

 

 

 

 

 

 

 

 

 

Whitebox Intermarket Partners, L.P.

 

$

400,000.00

 

83,047

 

16,609

 

 

 

 

 

 

 

 

 

Sharpe 4 Deep Value Fund, LP

 

$

50,000.00

 

10,380

 

2,076

 

 

 

 

 

 

 

 

 

Wedbush Morgan Securities Cust for Jeffrey Paul Peterson IRA Rollover

 

$

50,000.00

 

10,380

 

2,076

 

 

 

 

 

 

 

 

 

Wedbush Morgan Securities Cust for John L. Flood IRA

 

$

75,000.00

 

15,571

 

3,114

 

 

 

 

 

 

 

 

 

Craig-Hallum Capital Group LLC 401K DID 5/30/02 A/C John L. Flood

 

$

25,000.00

 

5,190

 

1,038

 

 

 

 

 

 

 

 

 

Burguete Investment Partner LP

 

$

240,825.00

 

50,000

 

10,000

 

 

 

 

 

 

 

 

 

Craig-Hallum Partners LP

 

$

200,000.00

 

41,523

 

8,304

 

 

33

--------------------------------------------------------------------------------

 

EXHIBIT A

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED
BY SUCH SECURITIES.

 

GRANITE CITY FOOD & BREWERY LTD.

 

WARRANT

 

Warrant No. 2005 -___

 

Original Issue Date: October 21, 2005

 

Granite City Food & Brewery Ltd., a Minnesota corporation (the “Company”),
hereby certifies that, for value received, [   ] or its registered assigns (the
“Holder”), is entitled to purchase from the Company up to a total of [      ](1)
shares of Common Stock (each such share, a “Warrant Share” and all such shares,
the “Warrant Shares”), at any time and from time to time from and after the
Original Issue Date and through and including October 21, 2010 (the “Expiration
Date”), and subject to the following terms and conditions:

 

1.             DEFINITIONS.  AS USED IN THIS WARRANT, THE FOLLOWING TERMS SHALL
HAVE THE RESPECTIVE DEFINITIONS SET FORTH IN THIS SECTION 1.  CAPITALIZED TERMS
THAT ARE USED AND NOT DEFINED IN THIS WARRANT THAT ARE DEFINED IN THE PURCHASE
AGREEMENT (AS DEFINED BELOW) SHALL HAVE THE RESPECTIVE DEFINITIONS SET FORTH IN
THE PURCHASE AGREEMENT.

 

“Business Day” means any day except Saturday, Sunday and any day that is a
federal legal holiday in the United States or a day on which banking
institutions in the State of Minnesota are authorized or required by law or
other government action to close.

 

“Common Stock” means the common stock of the Company, par value $0.01 per share,
and any securities into which such common stock may hereafter be reclassified.

 

--------------------------------------------------------------------------------

(1)   A number of shares as equals 20% of the Shares issuable to such Investor
at the Closing under the Purchase Agreement.

 

--------------------------------------------------------------------------------

 

“Exercise Price” means $6.50, subject to adjustment in accordance with
Section 9.

 

“Minnesota Courts” means the state and federal courts sitting in the City of
Minneapolis, State of Minnesota.

 

“Original Issue Date” means the Original Issue Date first set forth on the first
page of this Warrant.

 

“Purchase Agreement” means the Securities Purchase Agreement, dated October 21,
2005, to which the Company and the original Holders are parties.

 

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not
listed on a Trading Market (other than the OTC Bulletin Board), a day on which
the Common Stock is traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading
Market, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

2.             REGISTRATION OF WARRANT.  THE COMPANY SHALL REGISTER THIS WARRANT
UPON RECORDS TO BE MAINTAINED BY THE COMPANY FOR THAT PURPOSE (THE “WARRANT
REGISTER”), IN THE NAME OF THE RECORD HOLDER HEREOF FROM TIME TO TIME.  THE
COMPANY MAY DEEM AND TREAT THE REGISTERED HOLDER OF THIS WARRANT AS THE ABSOLUTE
OWNER HEREOF FOR THE PURPOSE OF ANY EXERCISE HEREOF OR ANY DISTRIBUTION TO THE
HOLDER, AND FOR ALL OTHER PURPOSES, ABSENT ACTUAL NOTICE TO THE CONTRARY.

 

3.             REGISTRATION OF TRANSFERS.  THE COMPANY SHALL REGISTER THE
TRANSFER OF ANY PORTION OF THIS WARRANT IN THE WARRANT REGISTER, UPON SURRENDER
OF THIS WARRANT, WITH THE FORM OF ASSIGNMENT ATTACHED HERETO DULY COMPLETED AND
SIGNED, TO THE COMPANY AT ITS ADDRESS SPECIFIED HEREIN.  UPON ANY SUCH
REGISTRATION OR TRANSFER, A NEW WARRANT TO PURCHASE COMMON STOCK, IN
SUBSTANTIALLY THE FORM OF THIS WARRANT (ANY SUCH NEW WARRANT, A “NEW WARRANT”),
EVIDENCING THE PORTION OF THIS WARRANT SO TRANSFERRED SHALL BE ISSUED TO THE
TRANSFEREE AND A NEW WARRANT EVIDENCING THE REMAINING PORTION OF THIS WARRANT
NOT SO TRANSFERRED, IF ANY, SHALL BE ISSUED TO THE TRANSFERRING HOLDER. THE
ACCEPTANCE OF THE NEW WARRANT BY THE TRANSFEREE THEREOF SHALL BE DEEMED THE
ACCEPTANCE BY SUCH TRANSFEREE OF ALL OF THE RIGHTS AND OBLIGATIONS OF A HOLDER
OF A WARRANT.

 

4.             EXERCISE AND DURATION OF WARRANTS.

 

(A)           THIS WARRANT SHALL BE EXERCISABLE BY THE REGISTERED HOLDER AT ANY
TIME AND FROM TIME TO TIME ON OR AFTER THE ORIGINAL ISSUE DATE THROUGH AND
INCLUDING THE EXPIRATION DATE.  AT 5:30 P.M., MINNEAPOLIS TIME ON THE EXPIRATION
DATE, THE PORTION OF THIS WARRANT NOT EXERCISED PRIOR THERETO SHALL BE AND
BECOME VOID AND OF NO VALUE.

 

(B)           SUBJECT TO THE PROVISIONS OF THIS SECTION 4(B), AT ANY TIME AFTER
THE SECOND ANNIVERSARY OF THE CLOSING DATE, IF THE: (I) AVERAGE CLOSING PRICE OF
THE COMMON STOCK FOR ANY 30 CONSECUTIVE TRADING DAYS AFTER SUCH SECOND
ANNIVERSARY IS EQUAL TO OR GREATER THAN $10.00

 

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(as may be adjusted pursuant to Section 9), (ii) the Warrant Shares are either
registered for resale pursuant to an effective registration statement naming the
Holder as a selling stockholder thereunder (and the prospectus thereunder is
available for use by the Holder as to all then available Warrant Shares) or
freely transferable without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act, as determined by counsel to the Company
pursuant to a written opinion letter addressed and in form and substance
reasonably acceptable to the Holder and the transfer agent for the Common Stock,
and (iii) the Company shall have fully honored in accordance with the terms of
this Warrant all Exercise Notices delivered prior to 5:30 p.m. (Minneapolis
time) on the Call Date (as defined below), then the Company may require cash
exercise pursuant to Section 10(a) hereof of all, but not less than all, of the
portion of this Warrant for which Exercise Notices have not been delivered by
5:30 p.m. (Minneapolis time) on the Call Date.  To exercise this right, the
Company must deliver to the Holder an irrevocable written notice (a “Call
Notice”), indicating therein that this Warrant shall be exercised.  If the
conditions for such Call are satisfied from the period from the date of the Call
Notice through and including the Call Date, then this Warrant shall be deemed to
have been exercised in full on a cash basis pursuant to Section 10(a) hereof at
5:30 p.m. (Minneapolis time) on the tenth Trading Day after the date the Call
Notice is received by the Holder (such date, the “Call Date”).  The Holder shall
deliver payment in immediately available funds of the Exercise Price for the
number of Warrant Shares for which this Warrant is required to be exercised
under this subsection promptly but in any event no later than the Call Date. 
The Company covenants and agrees that it will honor all Exercise Notices with
respect to Warrant Shares that are tendered from the time of delivery of the
Call Notice through 5:30 p.m. (Minneapolis time) on the Call Date.  Subject to
the immediately following sentence, any unexercised portion of this Warrant
following the Call Date shall automatically be deemed cancelled.

 

5.             DELIVERY OF WARRANT SHARES.

 

(A)           TO EFFECT EXERCISES HEREUNDER, THE HOLDER SHALL NOT BE REQUIRED TO
PHYSICALLY SURRENDER THIS WARRANT UNLESS THE AGGREGATE WARRANT SHARES
REPRESENTED BY THIS WARRANT IS BEING EXERCISED.  UPON DELIVERY OF THE EXERCISE
NOTICE (IN THE FORM ATTACHED HERETO) TO THE COMPANY (WITH THE ATTACHED WARRANT
SHARES EXERCISE LOG) AT ITS ADDRESS FOR NOTICE SET FORTH HEREIN AND UPON PAYMENT
OF THE EXERCISE PRICE MULTIPLIED BY THE NUMBER OF WARRANT SHARES THAT THE HOLDER
INTENDS TO PURCHASE HEREUNDER, THE COMPANY SHALL PROMPTLY (BUT IN NO EVENT LATER
THAN THREE TRADING DAYS AFTER THE DATE OF EXERCISE (AS DEFINED HEREIN)) ISSUE
AND DELIVER TO THE HOLDER, A CERTIFICATE FOR THE WARRANT SHARES ISSUABLE UPON
SUCH EXERCISE, WHICH, IF ELIGIBLE FOR SALE UNDER RULE 144(K), SHALL BE FREE OF
RESTRICTIVE LEGENDS.  THE COMPANY SHALL, UPON REQUEST OF THE HOLDER AND
SUBSEQUENT TO THE DATE ON WHICH A REGISTRATION STATEMENT COVERING THE RESALE OF
THE WARRANT SHARES HAS BEEN DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE
COMMISSION, USE ITS REASONABLE BEST EFFORTS TO DELIVER WARRANT SHARES HEREUNDER
ELECTRONICALLY THROUGH THE DEPOSITORY TRUST CORPORATION OR ANOTHER ESTABLISHED
CLEARING CORPORATION PERFORMING SIMILAR FUNCTIONS, IF AVAILABLE, PROVIDED, THAT,
THE COMPANY MAY, BUT WILL NOT BE REQUIRED TO CHANGE ITS TRANSFER AGENT IF ITS
CURRENT TRANSFER AGENT CANNOT DELIVER WARRANT SHARES ELECTRONICALLY THROUGH THE
DEPOSITORY TRUST CORPORATION.  A “DATE OF EXERCISE” MEANS THE DATE ON WHICH THE
HOLDER SHALL HAVE DELIVERED TO THE COMPANY: (I) THE EXERCISE NOTICE (WITH THE
WARRANT EXERCISE LOG ATTACHED TO IT), APPROPRIATELY COMPLETED AND DULY SIGNED
AND (II) IF SUCH HOLDER IS NOT UTILIZING THE CASHLESS EXERCISE PROVISIONS SET
FORTH IN THIS WARRANT, PAYMENT OF THE EXERCISE PRICE FOR THE NUMBER OF WARRANT
SHARES SO INDICATED BY THE HOLDER TO BE PURCHASED.

 

3

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(B)           IF BY THE CLOSE OF BUSINESS ON THE THIRD TRADING DAY AFTER A DATE
OF EXERCISE THE COMPANY FAILS TO DELIVER THE REQUIRED NUMBER OF WARRANT SHARES
IN THE MANNER REQUIRED PURSUANT TO SECTION 5(A), THEN THE HOLDER WILL HAVE THE
RIGHT TO RESCIND SUCH EXERCISE.

 

(C)           IF BY THE THIRD TRADING DAY AFTER A DATE OF EXERCISE THE COMPANY
FAILS TO DELIVER THE REQUIRED NUMBER OF WARRANT SHARES IN THE MANNER REQUIRED
PURSUANT TO SECTION 5(A), AND IF AFTER SUCH THIRD TRADING DAY AND PRIOR TO THE
RECEIPT OF SUCH WARRANT SHARES, THE HOLDER IS REQUIRED TO PURCHASE (IN AN OPEN
MARKET TRANSACTION OR OTHERWISE) SHARES OF COMMON STOCK TO DELIVER IN
SATISFACTION OF A SALE BY THE HOLDER OF THE WARRANT SHARES WHICH THE HOLDER
ANTICIPATED RECEIVING UPON SUCH EXERCISE (A “BUY-IN”), THEN THE COMPANY SHALL
(1) PAY IN CASH TO THE HOLDER THE AMOUNT BY WHICH (X) THE HOLDER’S TOTAL
PURCHASE PRICE (INCLUDING BROKERAGE COMMISSIONS, IF ANY) FOR THE SHARES OF
COMMON STOCK SO PURCHASED EXCEEDS (Y) THE AMOUNT OBTAINED BY MULTIPLYING (A) THE
NUMBER OF WARRANT SHARES THAT THE COMPANY WAS REQUIRED TO DELIVER TO THE HOLDER
IN CONNECTION WITH THE EXERCISE AT ISSUE BY (B) THE CLOSING BID PRICE OF THE
COMMON STOCK AT THE TIME OF THE OBLIGATION GIVING RISE TO SUCH PURCHASE
OBLIGATION AND (2) AT THE OPTION OF THE HOLDER, EITHER REINSTATE THE PORTION OF
THE WARRANT AND EQUIVALENT NUMBER OF WARRANT SHARES FOR WHICH SUCH EXERCISE WAS
NOT HONORED OR DELIVER TO THE HOLDER THE NUMBER OF SHARES OF COMMON STOCK THAT
WOULD HAVE BEEN ISSUED HAD THE COMPANY TIMELY COMPLIED WITH ITS EXERCISE AND
DELIVERY OBLIGATIONS HEREUNDER.  THE HOLDER SHALL PROVIDE THE COMPANY WRITTEN
NOTICE INDICATING THE AMOUNTS PAYABLE TO THE HOLDER IN RESPECT OF THE BUY-IN.

 

(D)           THE COMPANY’S OBLIGATIONS TO ISSUE AND DELIVER WARRANT SHARES IN
ACCORDANCE WITH THE TERMS HEREOF ARE ABSOLUTE AND UNCONDITIONAL, IRRESPECTIVE OF
ANY ACTION OR INACTION BY THE HOLDER TO ENFORCE THE SAME, ANY WAIVER OR CONSENT
WITH RESPECT TO ANY PROVISION HEREOF, THE RECOVERY OF ANY JUDGMENT AGAINST ANY
PERSON OR ANY ACTION TO ENFORCE THE SAME, OR ANY SETOFF, COUNTERCLAIM,
RECOUPMENT, LIMITATION OR TERMINATION, OR ANY BREACH OR ALLEGED BREACH BY THE
HOLDER OR ANY OTHER PERSON OF ANY OBLIGATION TO THE COMPANY OR ANY VIOLATION OR
ALLEGED VIOLATION OF LAW BY THE HOLDER OR ANY OTHER PERSON, AND IRRESPECTIVE OF
ANY OTHER CIRCUMSTANCE WHICH MIGHT OTHERWISE LIMIT SUCH OBLIGATION OF THE
COMPANY TO THE HOLDER IN CONNECTION WITH THE ISSUANCE OF WARRANT SHARES. 
NOTHING HEREIN SHALL LIMIT A HOLDER’S RIGHT TO PURSUE ANY OTHER REMEDIES
AVAILABLE TO IT HEREUNDER, AT LAW OR IN EQUITY INCLUDING, WITHOUT LIMITATION, A
DECREE OF SPECIFIC PERFORMANCE AND/OR INJUNCTIVE RELIEF WITH RESPECT TO THE
COMPANY’S FAILURE TO TIMELY DELIVER CERTIFICATES REPRESENTING WARRANT SHARES
UPON EXERCISE OF THE WARRANT AS REQUIRED PURSUANT TO THE TERMS HEREOF.

 

6.             CHARGES, TAXES AND EXPENSES.  ISSUANCE AND DELIVERY OF WARRANT
SHARES UPON EXERCISE OF THIS WARRANT SHALL BE MADE WITHOUT CHARGE TO THE HOLDER
FOR ANY ISSUE OR TRANSFER TAX, WITHHOLDING TAX, TRANSFER AGENT FEE OR OTHER
INCIDENTAL TAX OR EXPENSE IN RESPECT OF THE ISSUANCE OF SUCH CERTIFICATES, ALL
OF WHICH TAXES AND EXPENSES SHALL BE PAID BY THE COMPANY; PROVIDED, HOWEVER,
THAT THE COMPANY SHALL NOT BE REQUIRED TO PAY ANY TAX WHICH MAY BE PAYABLE IN
RESPECT OF ANY TRANSFER INVOLVED IN THE REGISTRATION OF ANY CERTIFICATES FOR
WARRANT SHARES OR WARRANTS IN A NAME OTHER THAN THAT OF THE HOLDER.  THE HOLDER
SHALL BE RESPONSIBLE FOR ALL OTHER TAX LIABILITY THAT MAY ARISE AS A RESULT OF
HOLDING OR TRANSFERRING THIS WARRANT OR RECEIVING WARRANT SHARES UPON EXERCISE
HEREOF.

 

7.             REPLACEMENT OF WARRANT.  IF THIS WARRANT IS MUTILATED, LOST,
STOLEN OR DESTROYED, THE COMPANY SHALL ISSUE OR CAUSE TO BE ISSUED IN EXCHANGE
AND SUBSTITUTION FOR AND UPON

 

4

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cancellation hereof, or in lieu of and substitution for this Warrant, a New
Warrant, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity (which shall not include a surety bond), if requested.  Applicants for
a New Warrant under such circumstances shall also comply with such other
reasonable regulations and procedures and pay such other reasonable third-party
costs as the Company may prescribe.  If a New Warrant is requested as a result
of a mutilation of this Warrant, then the Holder shall deliver such mutilated
Warrant to the Company as a condition precedent to the Company’s obligation to
issue the New Warrant.

 

8.             RESERVATION OF WARRANT SHARES.  THE COMPANY COVENANTS THAT IT
WILL AT ALL TIMES RESERVE AND KEEP AVAILABLE OUT OF THE AGGREGATE OF ITS
AUTHORIZED BUT UNISSUED AND OTHERWISE UNRESERVED COMMON STOCK, SOLELY FOR THE
PURPOSE OF ENABLING IT TO ISSUE WARRANT SHARES UPON EXERCISE OF THIS WARRANT AS
HEREIN PROVIDED, THE NUMBER OF WARRANT SHARES WHICH ARE THEN ISSUABLE AND
DELIVERABLE UPON THE EXERCISE OF THIS ENTIRE WARRANT, FREE FROM PREEMPTIVE
RIGHTS OR ANY OTHER CONTINGENT PURCHASE RIGHTS OF PERSONS OTHER THAN THE HOLDER
(TAKING INTO ACCOUNT THE ADJUSTMENTS AND RESTRICTIONS OF SECTION 9). THE COMPANY
COVENANTS THAT ALL WARRANT SHARES SO ISSUABLE AND DELIVERABLE SHALL, UPON
ISSUANCE AND THE PAYMENT OF THE APPLICABLE EXERCISE PRICE IN ACCORDANCE WITH THE
TERMS HEREOF, BE DULY AND VALIDLY AUTHORIZED, ISSUED AND FULLY PAID AND
NONASSESSABLE.

 

9.             CERTAIN ADJUSTMENTS.  THE EXERCISE PRICE AND NUMBER OF WARRANT
SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO ADJUSTMENT FROM
TIME TO TIME AS SET FORTH IN THIS SECTION 9.

 

(A)           STOCK DIVIDENDS AND SPLITS.  IF THE COMPANY, AT ANY TIME WHILE
THIS WARRANT IS OUTSTANDING, (I) PAYS A STOCK DIVIDEND ON ITS COMMON STOCK OR
OTHERWISE MAKES A DISTRIBUTION ON ANY CLASS OF CAPITAL STOCK THAT IS PAYABLE IN
SHARES OF COMMON STOCK, (II) SUBDIVIDES OUTSTANDING SHARES OF COMMON STOCK INTO
A LARGER NUMBER OF SHARES, OR (III) COMBINES OUTSTANDING SHARES OF COMMON STOCK
INTO A SMALLER NUMBER OF SHARES, THEN IN EACH SUCH CASE THE EXERCISE PRICE SHALL
BE MULTIPLIED BY A FRACTION OF WHICH THE NUMERATOR SHALL BE THE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING IMMEDIATELY BEFORE SUCH EVENT AND OF WHICH THE
DENOMINATOR SHALL BE THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
IMMEDIATELY AFTER SUCH EVENT.  ANY ADJUSTMENT MADE PURSUANT TO CLAUSE (I) OF
THIS PARAGRAPH SHALL BECOME EFFECTIVE IMMEDIATELY AFTER THE RECORD DATE FOR THE
DETERMINATION OF STOCKHOLDERS ENTITLED TO RECEIVE SUCH DIVIDEND OR DISTRIBUTION,
AND ANY ADJUSTMENT PURSUANT TO CLAUSE (II) OR (III) OF THIS PARAGRAPH SHALL
BECOME EFFECTIVE IMMEDIATELY AFTER THE EFFECTIVE DATE OF SUCH SUBDIVISION OR
COMBINATION.

 

(B)           FUNDAMENTAL TRANSACTIONS.  IF, AT ANY TIME WHILE THIS WARRANT IS
OUTSTANDING, (1) THE COMPANY EFFECTS ANY MERGER OR CONSOLIDATION OF THE COMPANY
WITH OR INTO ANOTHER PERSON, (2) THE COMPANY EFFECTS ANY SALE OF ALL OR
SUBSTANTIALLY ALL OF ITS ASSETS IN ONE OR A SERIES OF RELATED TRANSACTIONS,
(3) ANY TENDER OFFER OR EXCHANGE OFFER (WHETHER BY THE COMPANY OR ANOTHER
PERSON) IS COMPLETED PURSUANT TO WHICH HOLDERS OF COMMON STOCK ARE PERMITTED TO
TENDER OR EXCHANGE THEIR SHARES FOR OTHER SECURITIES, CASH OR PROPERTY, OR
(4) THE COMPANY EFFECTS ANY RECLASSIFICATION OF THE COMMON STOCK OR ANY
COMPULSORY SHARE EXCHANGE PURSUANT TO WHICH THE COMMON STOCK IS EFFECTIVELY
CONVERTED INTO OR EXCHANGED FOR OTHER SECURITIES, CASH OR PROPERTY (IN ANY SUCH
CASE, A “FUNDAMENTAL TRANSACTION”), THEN THE HOLDER SHALL HAVE THE RIGHT
THEREAFTER TO RECEIVE, UPON EXERCISE OF THIS WARRANT, THE SAME AMOUNT AND KIND
OF SECURITIES, CASH

 

5

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or property as it would have been entitled to receive upon the occurrence of
such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the “Alternate Consideration”). 
For purposes of any such exercise, the determination of the Exercise Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following or concurrent with such
Fundamental Transaction.  The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(b) and insuring that the Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.

 

(C)           SUBSEQUENT EQUITY SALES.

 

(I)            SUBJECT TO THE LIMITATIONS SET FORTH BELOW, IF THE COMPANY OR ANY
SUBSIDIARY THEREOF, AS APPLICABLE WITH RESPECT TO COMMON STOCK EQUIVALENTS, AT
ANY TIME WHILE THIS WARRANT IS OUTSTANDING, SHALL ISSUE ANY SECURITIES OF THE
COMPANY OR ANY SUBSIDIARY WHICH ENTITLE THE HOLDER THEREOF TO ACQUIRE COMMON
STOCK AT ANY TIME, INCLUDING WITHOUT LIMITATION, ANY DEBT, PREFERRED STOCK,
RIGHTS, OPTIONS, WARRANTS OR ANY OTHER INSTRUMENT THAT IS AT ANY TIME
CONVERTIBLE INTO OR EXCHANGEABLE FOR, OR OTHERWISE ENTITLES THE HOLDER THEREOF
TO RECEIVE, COMMON STOCK OR COMMON STOCK EQUIVALENTS ENTITLING ANY PERSON TO
ACQUIRE SHARES OF COMMON STOCK, AT A PRICE PER SHARE LESS THAN THE CLOSING PRICE
OF THE COMMON STOCK ON THE CLOSING DATE (IF THE HOLDER OF THE COMMON STOCK OR
COMMON STOCK EQUIVALENT SO ISSUED SHALL AT ANY TIME, WHETHER BY OPERATION OF
PURCHASE PRICE ADJUSTMENTS, RESET PROVISIONS, FLOATING CONVERSION, EXERCISE OR
EXCHANGE PRICES OR OTHERWISE, OR DUE TO WARRANTS, OPTIONS OR RIGHTS ISSUED IN
CONNECTION WITH SUCH ISSUANCE, BE ENTITLED TO RECEIVE SHARES OF COMMON STOCK AT
A PRICE LESS THAN THE CLOSING PRICE OF THE COMMON STOCK ON THE CLOSING DATE,
SUCH ISSUANCE SHALL BE DEEMED TO HAVE OCCURRED FOR LESS THAN THE CLOSING PRICE
OF THE COMMON STOCK ON THE CLOSING DATE), THEN, THE EXERCISE PRICE SHALL BE
MULTIPLIED BY A FRACTION, THE NUMERATOR OF WHICH SHALL BE THE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING IMMEDIATELY PRIOR TO THE ISSUANCE OF SUCH SHARES OF
COMMON STOCK OR SUCH COMMON STOCK EQUIVALENTS PLUS THE NUMBER OF SHARES OF
COMMON STOCK WHICH THE OFFERING PRICE FOR SUCH SHARES OF COMMON STOCK OR COMMON
STOCK EQUIVALENTS WOULD PURCHASE AT THE CLOSING PRICE OF THE COMMON STOCK ON THE
CLOSING DATE, AND THE DENOMINATOR OF WHICH SHALL BE THE SUM OF THE NUMBER OF
SHARES OF COMMON STOCK OUTSTANDING IMMEDIATELY PRIOR TO SUCH ISSUANCE PLUS THE
NUMBER OF SHARES OF COMMON STOCK SO ISSUED OR ISSUABLE.  SUCH ADJUSTMENT SHALL
BE MADE WHENEVER SUCH COMMON STOCK OR COMMON STOCK EQUIVALENTS ARE ISSUED.  THE
COMPANY SHALL NOTIFY THE HOLDER IN WRITING, NO LATER THAN THE TRADING DAY
FOLLOWING THE ISSUANCE OF ANY COMMON STOCK OR COMMON STOCK EQUIVALENT SUBJECT TO
THIS SECTION, INDICATING THEREIN THE APPLICABLE ISSUANCE PRICE, OR OF APPLICABLE
RESET PRICE, EXCHANGE PRICE, CONVERSION PRICE AND OTHER PRICING TERMS. 
NOTWITHSTANDING THE FOREGOING, THE NUMBER OF WARRANT SHARES ISSUABLE (INCLUSIVE
OF ALL ANTI-DILUTION ADJUSTMENTS APPLICABLE TO SUCH SECURITIES), WHEN COMBINED
WITH THE NUMBER OF SHARES ISSUED UNDER THE PURCHASE AGREEMENT, THE NUMBER OF
ADDITIONAL SHARES

 

6

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issuable pursuant to the Purchase Agreement, and the number of shares of Common
Stock issuable upon exercise of the warrant specified in Schedule 3.1(u) of the
Purchase Agreement (inclusive of all anti-dilution adjustments applicable to
such securities), may not, in the absence of approval by the Company’s
shareholders, equal or exceed 19.9% of the number of shares of Common Stock
issued and outstanding immediately prior to the issuance of this Warrant (with
all affected parties being treated on a pari passu basis).  If any adjustments
would be made pursuant to this Section 9(c) in excess of the limitation set
forth in the immediately preceding sentence (the “Excess Adjustment”), the
Company will use reasonable best efforts to prepare and file preliminary proxy
materials and use reasonable best efforts to hold a meeting of its shareholders
for the purpose, among others, of seeking approval of the Excess Adjustment (the
“Proposal”).  In furtherance of its obligations under this Section 9(c), the
Company’s Board of Directors shall recommend to the Company’s shareholders (and
not revoke or amend such recommendation) that the shareholders vote in favor of
and approve the Proposal and shall cause the Company to use its best efforts to
solicit approval of the shareholders for the Proposal.  If the Company’s
shareholders approve the Proposal, the Company will make the Excess Adjustment. 
If the Company’s shareholders do not approve the Proposal, the Holders hereby
acknowledge that the Company will not make the Excess Adjustment and that the
Company may not otherwise compensate the Holders for the failure to make the
Excess Adjustment.  Notwithstanding the foregoing, no adjustment will be made
under this Section 9(c) in respect of:

 

(1)           ANY GRANT OF AN OPTION OR WARRANT FOR COMMON STOCK OR ISSUANCE OF
ANY SHARES OF COMMON STOCK UPON THE EXERCISE OF ANY OPTIONS OR WARRANTS TO
EMPLOYEES, OFFICERS OR DIRECTORS OF OR CONSULTANTS TO THE COMPANY PURSUANT TO
ANY STOCK OPTION PLAN, EMPLOYEE STOCK PURCHASE PLAN OR SIMILAR PLAN OR INCENTIVE
OR CONSULTING ARRANGEMENT APPROVED BY THE COMPANY’S BOARD OF DIRECTORS;

 

(2)           ANY RESTRICTED STOCK AWARDS APPROVED BY THE COMPANY’S BOARD OF
DIRECTORS;

 

(3)           SHARES OF COMMON STOCK OR COMMON STOCK EQUIVALENTS ISSUED AS
CONSIDERATION FOR THE ACQUISITION OF ANOTHER COMPANY OR BUSINESS IN WHICH THE
SHAREHOLDERS OF THE COMPANY DO NOT HAVE AN OWNERSHIP INTEREST, WHICH ACQUISITION
HAS BEEN APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY; OR

 

(4)           THE ISSUANCE OF SECURITIES PURSUANT TO THE EXERCISE OF CONVERSION
OR PURCHASE RIGHTS PURSUANT TO ISSUED AND OUTSTANDING CONVERTIBLE SECURITIES,
OPTIONS OR WARRANTS, INCLUDING THE WARRANTS TO BE ISSUED TO THE AGENT AND ANY
SUB-AGENTS IN CONNECTION WITH THE TRANSACTION CONTEMPLATED BY THE PURCHASE
AGREEMENT.

 

(II)           IF, AT ANY TIME WHILE THIS WARRANT IS OUTSTANDING, THE COMPANY OR
ANY SUBSIDIARY ISSUES COMMON STOCK EQUIVALENTS AT A PRICE PER SHARE THAT FLOATS
OR RESETS OR OTHERWISE VARIES OR IS SUBJECT TO ADJUSTMENT BASED ON MARKET PRICES
OF THE COMMON STOCK (A “FLOATING PRICE SECURITY”), THEN FOR PURPOSES OF APPLYING
THE PRECEDING PARAGRAPH IN CONNECTION WITH ANY SUBSEQUENT EXERCISE, THE EXERCISE
PRICE WILL BE DETERMINED SEPARATELY ON EACH EXERCISE DATE AND WILL BE DEEMED TO
EQUAL THE LOWEST PRICE PER SHARE AT WHICH ANY HOLDER OF SUCH FLOATING PRICE
SECURITY IS ENTITLED TO ACQUIRE SHARES OF COMMON STOCK ON SUCH EXERCISE DATE
(REGARDLESS OF WHETHER ANY SUCH HOLDER ACTUALLY ACQUIRES ANY SHARES ON SUCH
DATE).

 

7

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(D)           NUMBER OF WARRANT SHARES.  SIMULTANEOUSLY WITH ANY ADJUSTMENT TO
THE EXERCISE PRICE PURSUANT TO SECTIONS 9(A) AND 9(B) HEREUNDER, THE NUMBER OF
WARRANT SHARES THAT MAY BE PURCHASED UPON EXERCISE OF THIS WARRANT SHALL BE
INCREASED OR DECREASED PROPORTIONATELY, SO THAT AFTER SUCH ADJUSTMENT THE
AGGREGATE EXERCISE PRICE PAYABLE HEREUNDER FOR THE ADJUSTED NUMBER OF WARRANT
SHARES SHALL BE THE SAME AS THE AGGREGATE EXERCISE PRICE IN EFFECT IMMEDIATELY
PRIOR TO SUCH ADJUSTMENT.

 

(E)           CALCULATIONS.  ALL CALCULATIONS UNDER THIS SECTION 9 SHALL BE MADE
TO THE NEAREST CENT OR THE NEAREST 1/100TH OF A SHARE, AS APPLICABLE.  THE
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT ANY GIVEN TIME SHALL NOT INCLUDE
SHARES OWNED OR HELD BY OR FOR THE ACCOUNT OF THE COMPANY, AND THE DISPOSITION
OF ANY SUCH SHARES SHALL BE CONSIDERED AN ISSUE OR SALE OF COMMON STOCK.

 

(F)            NOTICE OF ADJUSTMENTS.  UPON THE OCCURRENCE OF EACH ADJUSTMENT
PURSUANT TO THIS SECTION 9, THE COMPANY AT ITS EXPENSE WILL PROMPTLY COMPUTE
SUCH ADJUSTMENT IN ACCORDANCE WITH THE TERMS OF THIS WARRANT AND PREPARE A
CERTIFICATE SETTING FORTH SUCH ADJUSTMENT, INCLUDING A STATEMENT OF THE ADJUSTED
EXERCISE PRICE AND ADJUSTED NUMBER OR TYPE OF WARRANT SHARES OR OTHER SECURITIES
ISSUABLE UPON EXERCISE OF THIS WARRANT (AS APPLICABLE), DESCRIBING THE
TRANSACTIONS GIVING RISE TO SUCH ADJUSTMENTS AND SHOWING IN DETAIL THE FACTS
UPON WHICH SUCH ADJUSTMENT IS BASED.  UPON WRITTEN REQUEST, THE COMPANY WILL
PROMPTLY DELIVER A COPY OF EACH SUCH CERTIFICATE TO THE HOLDER AND TO THE
COMPANY’S TRANSFER AGENT.

 

(G)           NOTICE OF CORPORATE EVENTS.  IF THE COMPANY (I) DECLARES A
DIVIDEND OR ANY OTHER DISTRIBUTION OF CASH, SECURITIES OR OTHER PROPERTY IN
RESPECT OF ITS COMMON STOCK, INCLUDING WITHOUT LIMITATION ANY GRANTING OF RIGHTS
OR WARRANTS TO SUBSCRIBE FOR OR PURCHASE ANY CAPITAL STOCK OF THE COMPANY OR ANY
SUBSIDIARY, (II) AUTHORIZES OR APPROVES, ENTERS INTO ANY AGREEMENT CONTEMPLATING
OR SOLICITS STOCKHOLDER APPROVAL FOR ANY FUNDAMENTAL TRANSACTION OR
(III) AUTHORIZES THE VOLUNTARY DISSOLUTION, LIQUIDATION OR WINDING UP OF THE
AFFAIRS OF THE COMPANY, THEN THE COMPANY SHALL DELIVER TO THE HOLDER A NOTICE
DESCRIBING THE MATERIAL TERMS AND CONDITIONS OF SUCH TRANSACTION (BUT ONLY TO
THE EXTENT SUCH DISCLOSURE WOULD NOT RESULT IN THE DISSEMINATION OF MATERIAL,
NON-PUBLIC INFORMATION TO THE HOLDER) AT LEAST 10 CALENDAR DAYS PRIOR TO THE
APPLICABLE RECORD OR EFFECTIVE DATE ON WHICH A PERSON WOULD NEED TO HOLD COMMON
STOCK IN ORDER TO PARTICIPATE IN OR VOTE WITH RESPECT TO SUCH TRANSACTION, AND
THE COMPANY WILL TAKE ALL STEPS REASONABLY NECESSARY IN ORDER TO INSURE THAT THE
HOLDER IS GIVEN THE PRACTICAL OPPORTUNITY TO EXERCISE THIS WARRANT PRIOR TO SUCH
TIME SO AS TO PARTICIPATE IN OR VOTE WITH RESPECT TO SUCH TRANSACTION; PROVIDED,
HOWEVER, THAT THE FAILURE TO DELIVER SUCH NOTICE OR ANY DEFECT THEREIN SHALL NOT
AFFECT THE VALIDITY OF THE CORPORATE ACTION REQUIRED TO BE DESCRIBED IN SUCH
NOTICE.

 

10.           PAYMENT OF EXERCISE PRICE. THE HOLDER MAY PAY THE EXERCISE PRICE
IN ONE OF THE FOLLOWING MANNERS:

 

(A)           CASH EXERCISE.  THE HOLDER MAY DELIVER IMMEDIATELY AVAILABLE
FUNDS; OR

 

(B)           CASHLESS EXERCISE.  IF AN EXERCISE NOTICE IS DELIVERED AT A TIME
WHEN A REGISTRATION STATEMENT PERMITTING THE HOLDER TO RESELL THE WARRANT SHARES
IS REQUIRED TO BE EFFECTIVE, BUT NOT THEN EFFECTIVE OR THE PROSPECTUS FORMING A
PART THEREOF IS NOT THEN AVAILABLE TO THE HOLDER FOR THE RESALE OF THE WARRANT
SHARES, THEN THE HOLDER MAY NOTIFY THE COMPANY IN AN

 

8

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Exercise Notice of its election to utilize cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:

 

X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares to be issued to the Holder.

 

Y = the number of Warrant Shares with respect to which this Warrant is being
exercised.

 

A = the average of the closing prices for the five Trading Days immediately
prior to (but not including) the Exercise Date.

 

B = the Exercise Price.

 

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued.

 

11.           NO FRACTIONAL SHARES.  NO FRACTIONAL SHARES OF WARRANT SHARES WILL
BE ISSUED IN CONNECTION WITH ANY EXERCISE OF THIS WARRANT.  IN LIEU OF ANY
FRACTIONAL SHARES WHICH WOULD, OTHERWISE BE ISSUABLE, THE COMPANY SHALL PAY CASH
EQUAL TO THE PRODUCT OF SUCH FRACTION MULTIPLIED BY THE CLOSING PRICE OF ONE
WARRANT SHARE AS REPORTED BY THE APPLICABLE TRADING MARKET ON THE DATE OF
EXERCISE.

 

12.           NOTICES.  ANY AND ALL NOTICES OR OTHER COMMUNICATIONS OR
DELIVERIES HEREUNDER (INCLUDING, WITHOUT LIMITATION, ANY EXERCISE NOTICE) SHALL
BE IN WRITING AND SHALL BE DEEMED GIVEN AND EFFECTIVE ON THE EARLIEST OF (I) THE
DATE OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA FACSIMILE
AT THE FACSIMILE NUMBER SPECIFIED IN THIS SECTION PRIOR TO 5:30 P.M.
(MINNEAPOLIS TIME) ON A TRADING DAY, (II) THE NEXT TRADING DAY AFTER THE DATE OF
TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA FACSIMILE AT THE
FACSIMILE NUMBER SPECIFIED IN THIS SECTION ON A DAY THAT IS NOT A TRADING DAY OR
LATER THAN 5:30 P.M. (MINNEAPOLIS TIME) ON ANY TRADING DAY, (III) THE TRADING
DAY FOLLOWING THE DATE OF MAILING, IF SENT BY NATIONALLY RECOGNIZED OVERNIGHT
COURIER SERVICE, OR (IV) UPON ACTUAL RECEIPT BY THE PARTY TO WHOM SUCH NOTICE IS
REQUIRED TO BE GIVEN.  THE ADDRESSES FOR SUCH COMMUNICATIONS SHALL BE:  (I) IF
TO THE COMPANY, TO GRANITE CITY FOOD & BREWERY LTD., ATTN: CHIEF FINANCIAL
OFFICER, 5402 PARKDALE DRIVE, SUITE 101, MINNEAPOLIS, MN 55416, OR TO FACSIMILE
NO.: 952-215-0661 (OR SUCH OTHER ADDRESS AS THE COMPANY SHALL INDICATE IN
WRITING IN ACCORDANCE WITH THIS SECTION), OR (II) IF TO THE HOLDER, TO THE
ADDRESS OR FACSIMILE NUMBER APPEARING ON THE WARRANT REGISTER OR SUCH OTHER
ADDRESS OR FACSIMILE NUMBER AS THE HOLDER MAY PROVIDE TO THE COMPANY IN
ACCORDANCE WITH THIS SECTION.

 

13.           WARRANT AGENT.  THE COMPANY SHALL SERVE AS WARRANT AGENT UNDER
THIS WARRANT.  UPON 10 DAYS’ NOTICE TO THE HOLDER, THE COMPANY MAY APPOINT A NEW
WARRANT AGENT.  ANY CORPORATION INTO WHICH THE COMPANY OR ANY NEW WARRANT AGENT
MAY BE MERGED OR ANY

 

9

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corporation resulting from any consolidation to which the Company or any new
warrant agent shall be a party or any corporation to which the Company or any
new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this
Warrant without any further act.  Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by first
class mail, postage prepaid) to the Holder at the Holder’s last address as shown
on the Warrant Register.

 

14.           MISCELLANEOUS.

 

(A)           THIS WARRANT SHALL BE BINDING ON AND INURE TO THE BENEFIT OF THE
PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.  SUBJECT TO THE
PRECEDING SENTENCE, NOTHING IN THIS WARRANT SHALL BE CONSTRUED TO GIVE TO ANY
PERSON OTHER THAN THE COMPANY AND THE HOLDER ANY LEGAL OR EQUITABLE RIGHT,
REMEDY OR CAUSE OF ACTION UNDER THIS WARRANT.  THIS WARRANT MAY BE AMENDED ONLY
IN WRITING SIGNED BY THE COMPANY AND THE HOLDER AND, AS APPLICABLE, THEIR
SUCCESSORS AND ASSIGNS.

 

(B)           ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT
AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.  EACH PARTY AGREES THAT
ALL LEGAL PROCEEDINGS CONCERNING THE INTERPRETATIONS, ENFORCEMENT AND DEFENSE OF
THIS WARRANT AND THE TRANSACTIONS HEREIN CONTEMPLATED (“PROCEEDINGS”) (WHETHER
BROUGHT AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES, EMPLOYEES OR
AGENTS) SHALL BE COMMENCED EXCLUSIVELY IN THE MINNESOTA COURTS.  EACH PARTY
HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE MINNESOTA
COURTS FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH
OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND HEREBY
IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY PROCEEDING, ANY CLAIM THAT
IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY MINNESOTA COURT, OR THAT
SUCH PROCEEDING HAS BEEN COMMENCED IN AN IMPROPER OR INCONVENIENT FORUM. EACH
PARTY HERETO HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS
TO PROCESS BEING SERVED IN ANY SUCH PROCEEDING BY MAILING A COPY THEREOF VIA
REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY)
TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS WARRANT AND
AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS
AND NOTICE THEREOF.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY
WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  EACH PARTY
HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.  IF EITHER
PARTY SHALL COMMENCE A PROCEEDING TO ENFORCE ANY PROVISIONS OF THIS WARRANT,
THEN THE PREVAILING PARTY IN SUCH PROCEEDING SHALL BE REIMBURSED BY THE OTHER
PARTY FOR ITS ATTORNEY’S FEES AND OTHER COSTS AND EXPENSES INCURRED WITH THE
INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH PROCEEDING.

 

(C)           THE HEADINGS HEREIN ARE FOR CONVENIENCE ONLY, DO NOT CONSTITUTE A
PART OF THIS WARRANT AND SHALL NOT BE DEEMED TO LIMIT OR AFFECT ANY OF THE
PROVISIONS HEREOF.

 

(D)           IN CASE ANY ONE OR MORE OF THE PROVISIONS OF THIS WARRANT SHALL BE
INVALID OR UNENFORCEABLE IN ANY RESPECT, THE VALIDITY AND ENFORCEABILITY OF THE
REMAINING TERMS AND PROVISIONS OF THIS WARRANT SHALL NOT IN ANY WAY BE AFFECTED
OR IMPAIRED THEREBY AND THE PARTIES

 

10

--------------------------------------------------------------------------------

 

will attempt in good faith to agree upon a valid and enforceable provision which
shall be a commercially reasonable substitute therefor, and upon so agreeing,
shall incorporate such substitute provision in this Warrant.

 

(E)           PRIOR TO EXERCISE OF THIS WARRANT, THE HOLDER HEREOF SHALL NOT, BY
REASON OF BY BEING A HOLDER, BE ENTITLED TO ANY RIGHTS OF A STOCKHOLDER WITH
RESPECT TO THE WARRANT SHARES

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]

 

11

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its authorized officer as of the date first indicated above.

 

 

GRANITE CITY FOOD & BREWERY LTD.

 

 

 

 

 

By:

 

 

 

 

Name:

Daniel H. Bauer

 

 

Title:

Chief Financial Officer

 

12

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EXERCISE NOTICE
GRANITE CITY FOOD & BREWERY LTD.
WARRANT DATED OCTOBER 21, 2005

 

The undersigned Holder hereby irrevocably elects to purchase            shares
of Common Stock pursuant to the above referenced Warrant.  Capitalized terms
used herein and not otherwise defined have the respective meanings set forth in
the Warrant.

 

(1)           THE UNDERSIGNED HOLDER HEREBY EXERCISES ITS RIGHT TO
PURCHASE            WARRANT SHARES PURSUANT TO THE WARRANT.

 

(2)           THE HOLDER INTENDS THAT PAYMENT OF THE EXERCISE PRICE SHALL BE
MADE AS (CHECK ONE):

 

 

o

“Cash Exercise” under Section 10

 

 

 

 

o

“Cashless Exercise” under Section 10

 

(3)           IF THE HOLDER HAS ELECTED A CASH EXERCISE, THE HOLDER SHALL PAY
THE SUM OF $            TO THE COMPANY IN ACCORDANCE WITH THE TERMS OF THE
WARRANT.

 

(4)           PURSUANT TO THIS EXERCISE NOTICE, THE COMPANY SHALL DELIVER TO THE
HOLDER            WARRANT SHARES IN ACCORDANCE WITH THE TERMS OF THE WARRANT.

 

 

Dated:

 

,

 

 

 

Name of Holder:

 

 

 

 

 

(Print)

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

 

 

 

(Signature must conform in all respects to name of holder as specified on the
face of the Warrant)

 

13

--------------------------------------------------------------------------------

 

Warrant Shares Exercise Log

 

Date

 

Number of Warrant
Shares Available to be
Exercised

 

Number of Warrant Shares
Exercised

 

Number of
Warrant Shares
Remaining to
be Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

--------------------------------------------------------------------------------

 

GRANITE CITY FOOD & BREWERY LTD.
WARRANT ORIGINALLY ISSUED OCTOBER 21, 2005
WARRANT NO. 2005 -___

 

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
                    the right represented by the above-captioned Warrant to
purchase            shares of Common Stock to which such Warrant relates and
appoints            attorney to transfer said right on the books of the Company
with full power of substitution in the premises.

 

Dated:

 

,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)

 

 

 

 

 

 

 

 

 

 

 

 

Address of Transferee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In the presence of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

--------------------------------------------------------------------------------

 

EXHIBIT B

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into
as of October 21, 2005, by and among Granite City Food & Brewery Ltd., a
Minnesota corporation (the “Company”), and the investors signatory hereto (each
a “Investor” and collectively, the “Investors”).

 

This Agreement is made pursuant to the Securities Purchase Agreement, dated as
of the date hereof among the Company and the Investors (the “Purchase
Agreement”).

 

The Company and the Investors hereby agree as follows:

 

1.             DEFINITIONS.  CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED
HEREIN THAT ARE DEFINED IN THE PURCHASE AGREEMENT WILL HAVE THE MEANINGS GIVEN
SUCH TERMS IN THE PURCHASE AGREEMENT.  AS USED IN THIS AGREEMENT, THE FOLLOWING
TERMS HAVE THE RESPECTIVE MEANINGS SET FORTH IN THIS SECTION 1:

 

“Effective Date” means the date that the initial Registration Statement filed
pursuant to Section 2(a) is first declared effective by the Commission.

 

“Effectiveness Date” means (a) with respect to the initial Registration
Statement required to be filed under Section 2(a), the earlier of: (a)(i) the
90th day following the Initial Closing; provided, that, if the Commission
reviews and has written comments to the filed Registration Statement that would
require the filing of a pre-effective amendment thereto with the Commission,
then the Effectiveness Date under this clause (a)(i) shall be the 120th day
following the Initial Closing, and (ii) the fifth Trading Day following the date
on which the Company is notified by the Commission that the initial Registration
Statement will not be reviewed or is no longer subject to further review and
comments and (b) with respect to any additional Registration Statements that may
be required pursuant to Section 2(b), the earlier of (i) the 90th day following
(x) if such Registration Statement is required because the Commission shall have
notified the Company in writing that certain Registrable Securities were not
eligible for inclusion on a previously filed Registration Statement, the date or
time on which the Commission shall indicate as being the first date or time that
such Registrable Securities may then be included in a Registration Statement, or
(y) if such Registration Statement is required for a reason other than as
described in (x) above, the date on which the Company first knows, or reasonably
should have known, that such additional Registration Statement(s) is required;
provided, that, if the Commission reviews and has written comments to such filed
Registration Statement that would require the filing of a pre-effective
amendment thereto with the Commission, then the Effectiveness Date under this
clause (c)(i) shall be the 120th day following the date that the Company first
knows, or reasonably should have known, that such additional Registration
Statement is required under such Section, and (ii) the fifth Trading Day
following the date on which the Company is notified by the Commission that such
additional Registration Statement will not be reviewed or is no longer subject
to further review and comments.

 

“Effectiveness Period” has the meaning set forth in Section 2(a).

 

--------------------------------------------------------------------------------

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Filing Date” means (a) with respect to the initial Registration Statement
required to be filed under Section 2(a), the 30th day following the Initial
Closing and (b) with respect to any additional Registration Statements that may
be required pursuant to Section 2(b), the 30th day following (x) if such
Registration Statement is required because the Commission shall have notified
the Company in writing that certain Registrable Securities were not eligible for
inclusion on a previously filed Registration Statement, the date or time on
which the Commission shall indicate as being the first date or time that such
Registrable Securities may then be included in a Registration Statement, or (y)
if such Registration Statement is required for a reason other than as described
in (x) above, the date on which the Company first knows, or reasonably should
have known, that such additional Registration Statement(s) is required.

 

“Holder” or “Holders” means the holder or holders, as the case may be, from time
to time of Registrable Securities.

 

“Indemnified Party” has the meaning set forth in Section 5(c).

 

“Indemnifying Party” has the meaning set forth in Section 5(c).

 

“Losses” has the meaning set forth in Section 5(a).

 

“Minnesota Courts” means the state and federal courts sitting in the City of
Minneapolis, State of Minnesota.

 

“Prospectus” means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by a
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.

 

“Registrable Securities” means: (i) the Shares, (ii) the Warrant Shares,
(iii) any New Issue Securities acquired by a Holder pursuant to Section 4.3 of
the Purchase Agreement, (iv) any Additional Shares issued and/or issuable
pursuant to Section 4.7 of the Purchase Agreement, and (v) any securities issued
or issuable upon any stock split, dividend or other distribution,
recapitalization or similar event, or any conversion price adjustment with
respect to any of the securities referenced in (i), (ii), (iii), or (iv) above.

 

“Registration Statement” means each of the following:  (i) the initial
registration statement required to be filed in accordance with Section 2(a) and
(ii) each additional registration statement that may be required to be filed
under Section 2(b), and including, in each case, the Prospectus, amendments and
supplements to each such registration statement or Prospectus, including pre-
and post-effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.

 

2

--------------------------------------------------------------------------------

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

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

 

“Shares” means the shares of Common Stock issued or issuable to the Investors
pursuant to the Purchase Agreement.

 

“Warrants” means the Common Stock purchase warrants issued or issuable to the
Investors pursuant to the Purchase Agreement.

 

“Warrant Shares” means the shares of Common Stock issued or issuable upon
exercise of the Warrants.

 

2.             REGISTRATION.

 

(A)           ON OR PRIOR TO EACH FILING DATE, THE COMPANY SHALL PREPARE AND
FILE WITH THE COMMISSION A REGISTRATION STATEMENT COVERING THE RESALE OF ALL
REGISTRABLE SECURITIES NOT ALREADY COVERED BY AN EXISTING AND EFFECTIVE
REGISTRATION STATEMENT FOR AN OFFERING TO BE MADE ON A CONTINUOUS BASIS PURSUANT
TO RULE 415.  SUCH REGISTRATION STATEMENT SHALL CONTAIN (EXCEPT IF OTHERWISE
REQUIRED PURSUANT TO WRITTEN COMMENTS RECEIVED FROM THE COMMISSION UPON A REVIEW
OF SUCH REGISTRATION STATEMENT) THE “PLAN OF DISTRIBUTION” ATTACHED HERETO AS
ANNEX A.  THE COMPANY SHALL CAUSE SUCH REGISTRATION STATEMENT TO BE DECLARED
EFFECTIVE UNDER THE SECURITIES ACT AS SOON AS POSSIBLE BUT, IN ANY EVENT, NO
LATER THAN ITS EFFECTIVENESS DATE, AND SHALL USE ITS REASONABLE BEST EFFORTS TO
KEEP THE REGISTRATION STATEMENT CONTINUOUSLY EFFECTIVE UNDER THE SECURITIES ACT
UNTIL THE DATE WHICH IS THE EARLIER OF (I) FIVE YEARS AFTER ITS EFFECTIVE DATE,
(II) SUCH TIME AS ALL OF THE REGISTRABLE SECURITIES COVERED BY SUCH REGISTRATION
STATEMENT HAVE BEEN PUBLICLY SOLD BY THE HOLDERS, OR (III) SUCH TIME AS ALL OF
THE REGISTRABLE SECURITIES COVERED BY SUCH REGISTRATION STATEMENT MAY BE SOLD BY
THE HOLDERS PURSUANT TO RULE 144(K) AS DETERMINED BY THE COUNSEL TO THE COMPANY
PURSUANT TO A WRITTEN OPINION LETTER TO SUCH EFFECT, ADDRESSED AND ACCEPTABLE TO
THE COMPANY’S TRANSFER AGENT AND THE AFFECTED HOLDERS (THE “EFFECTIVENESS
PERIOD”).

 

(b)           If for any reason the Commission does not permit all of the
Registrable Securities to be included in the Registration Statement filed
pursuant to Section 2(a), or for any other reason any outstanding Registrable
Securities are not then covered by an effective Registration Statement, then the
Company shall prepare and file by the Filing Date for such Registration
Statement, an additional Registration Statement covering the resale of all
Registrable Securities not already covered by an existing and effective
Registration Statement for

 

3

--------------------------------------------------------------------------------

 

AN OFFERING TO BE MADE ON A CONTINUOUS BASIS PURSUANT TO RULE 415, ON FORM S-3
(EXCEPT IF THE COMPANY IS NOT THEN ELIGIBLE TO REGISTER FOR RESALE THE
REGISTRABLE SECURITIES ON FORM S-3, IN WHICH CASE SUCH REGISTRATION SHALL BE ON
ANOTHER APPROPRIATE FORM FOR SUCH PURPOSE).  EACH SUCH REGISTRATION STATEMENT
SHALL CONTAIN (EXCEPT IF OTHERWISE REQUIRED PURSUANT TO WRITTEN COMMENTS
RECEIVED FROM THE COMMISSION UPON A REVIEW OF SUCH REGISTRATION STATEMENT) THE
“PLAN OF DISTRIBUTION” ATTACHED HERETO AS ANNEX A.  THE COMPANY SHALL CAUSE EACH
SUCH REGISTRATION STATEMENT TO BE DECLARED EFFECTIVE UNDER THE SECURITIES ACT AS
SOON AS POSSIBLE BUT, IN ANY EVENT, BY ITS EFFECTIVENESS DATE, AND SHALL USE ITS
REASONABLE BEST EFFORTS TO KEEP SUCH REGISTRATION STATEMENT CONTINUOUSLY
EFFECTIVE UNDER THE SECURITIES ACT DURING THE ENTIRE EFFECTIVENESS PERIOD. 
PROMPTLY FOLLOWING ANY DATE ON WHICH THE COMPANY BECOMES ELIGIBLE TO USE A
REGISTRATION STATEMENT ON FORM S-3 TO REGISTER THE REGISTRABLE SECURITIES FOR
RESALE, BUT IN NO EVENT MORE THAN THIRTY DAYS AFTER SUCH DATE, THE COMPANY SHALL
FILE A REGISTRATION STATEMENT ON FORM S-3 COVERING THE REGISTRABLE SECURITIES
(OR A POST-EFFECTIVE AMENDMENT ON FORM S-3 TO THE THEN EFFECTIVE REGISTRATION
STATEMENT) AND SHALL CAUSE SUCH REGISTRATION STATEMENT TO BE DECLARED EFFECTIVE
AS SOON AS POSSIBLE THEREAFTER, BUT IN ANY EVENT PRIOR TO THE EFFECTIVENESS DATE
THEREFOR.

 

(C)           IF: (I) A REGISTRATION STATEMENT IS NOT FILED ON OR PRIOR TO ITS
FILING DATE (IF THE COMPANY FILES A REGISTRATION STATEMENT WITHOUT AFFORDING THE
HOLDERS THE OPPORTUNITY TO REVIEW AND COMMENT ON THE SAME AS REQUIRED BY
SECTION 3(A) HEREOF, THE COMPANY SHALL NOT BE DEEMED TO HAVE SATISFIED THIS
CLAUSE (I)), OR (II) A REGISTRATION STATEMENT IS NOT DECLARED EFFECTIVE BY THE
COMMISSION ON OR PRIOR TO ITS REQUIRED EFFECTIVENESS DATE, OR (III) AFTER ITS
EFFECTIVE DATE, WITHOUT REGARD FOR THE REASON THEREUNDER OR EFFORTS THEREFOR,
SUCH REGISTRATION STATEMENT CEASES FOR ANY REASON TO BE EFFECTIVE AND AVAILABLE
TO THE HOLDERS AS TO ALL REGISTRABLE SECURITIES TO WHICH IT IS REQUIRED TO COVER
AT ANY TIME PRIOR TO THE EXPIRATION OF ITS EFFECTIVENESS PERIOD FOR MORE THAN AN
AGGREGATE OF 20 TRADING DAYS IN ANY TWELVE-MONTH PERIOD (WHICH NEED NOT BE
CONSECUTIVE) (ANY SUCH FAILURE OR BREACH BEING REFERRED TO AS AN “EVENT,” AND
FOR PURPOSES OF CLAUSES (I) OR (II) THE DATE ON WHICH SUCH EVENT OCCURS, OR FOR
PURPOSES OF CLAUSE (III) THE DATE WHICH SUCH 20 TRADING DAY-PERIOD IS EXCEEDED,
BEING REFERRED TO AS “EVENT DATE”), THEN IN ADDITION TO ANY OTHER RIGHTS THE
HOLDERS MAY HAVE HEREUNDER OR UNDER APPLICABLE LAW: (X) ON EACH SUCH EVENT DATE
THE COMPANY SHALL PAY TO EACH HOLDER AN AMOUNT IN CASH, AS PARTIAL LIQUIDATED
DAMAGES, EQUAL TO 1.0% OF THE AGGREGATE INVESTMENT AMOUNT PAID BY SUCH HOLDER
FOR SHARES PURSUANT TO THE PURCHASE AGREEMENT THAT ARE OWNED BY SUCH HOLDER ON
SUCH EVENT DATE; AND (Y) ON EACH MONTHLY ANNIVERSARY OF EACH SUCH EVENT DATE (IF
THE APPLICABLE EVENT SHALL NOT HAVE BEEN CURED BY SUCH DATE) UNTIL THE
APPLICABLE EVENT IS CURED, THE COMPANY SHALL PAY TO EACH HOLDER AN AMOUNT IN
CASH, AS PARTIAL LIQUIDATED DAMAGES AND NOT AS A PENALTY, EQUAL TO 1.0% OF THE
AGGREGATE INVESTMENT AMOUNT PAID BY SUCH HOLDER FOR SHARES PURSUANT TO THE
PURCHASE AGREEMENT THAT ARE OWNED BY SUCH HOLDER ON THE APPLICABLE MONTHLY
ANNIVERSARY OF SUCH EVENT DATE.  THE PARTIES AGREE THAT THE COMPANY WILL NOT BE
LIABLE FOR LIQUIDATED DAMAGES UNDER THIS SECTION IN RESPECT OF THE WARRANTS.  IF
THE COMPANY FAILS TO PAY ANY PARTIAL LIQUIDATED DAMAGES PURSUANT TO THIS
SECTION IN FULL WITHIN SEVEN DAYS AFTER THE DATE PAYABLE, THE COMPANY WILL PAY
INTEREST THEREON AT A RATE OF 10% PER ANNUM (OR SUCH LESSER MAXIMUM AMOUNT THAT
IS PERMITTED TO BE PAID BY APPLICABLE LAW) TO THE HOLDER, ACCRUING DAILY FROM
THE DATE SUCH PARTIAL LIQUIDATED DAMAGES ARE DUE UNTIL SUCH AMOUNTS, PLUS ALL
SUCH INTEREST THEREON, ARE PAID IN FULL.  THE PARTIAL LIQUIDATED DAMAGES
PURSUANT TO THE TERMS HEREOF SHALL APPLY ON A DAILY PRO-RATA BASIS FOR ANY
PORTION OF A MONTH PRIOR TO THE CURE OF AN EVENT, EXCEPT IN THE CASE OF THE
FIRST EVENT DATE.

 

4

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(D)           EACH HOLDER AGREES TO FURNISH TO THE COMPANY A COMPLETED
QUESTIONNAIRE IN THE FORM ATTACHED TO THIS AGREEMENT AS ANNEX B (A “SELLING
HOLDER QUESTIONNAIRE”).  THE COMPANY SHALL NOT BE REQUIRED TO INCLUDE THE
REGISTRABLE SECURITIES OF A HOLDER IN A REGISTRATION STATEMENT AND SHALL NOT BE
REQUIRED TO PAY ANY LIQUIDATED OR OTHER DAMAGES UNDER SECTION 2(C) TO ANY HOLDER
WHO FAILS TO FURNISH TO THE COMPANY A FULLY COMPLETED SELLING HOLDER
QUESTIONNAIRE AT LEAST TWO TRADING DAYS PRIOR TO THE FILING DATE (SUBJECT TO THE
REQUIREMENTS SET FORTH IN SECTION 3(A)).

 

3.             REGISTRATION PROCEDURES

 

In connection with the Company’s registration obligations hereunder, the Company
shall:

 

(A)           NOT LESS THAN FOUR TRADING DAYS PRIOR TO THE FILING OF A
REGISTRATION STATEMENT OR ANY RELATED PROSPECTUS OR ANY AMENDMENT OR SUPPLEMENT
THERETO, THE COMPANY SHALL FURNISH TO EACH HOLDER COPIES OF THE “SELLING
SHAREHOLDERS” SECTION OF SUCH DOCUMENT, THE “PLAN OF DISTRIBUTION” AND ANY RISK
FACTOR CONTAINED IN SUCH DOCUMENT THAT ADDRESSES SPECIFICALLY THIS TRANSACTION
OR THE SELLING SHAREHOLDERS, AS PROPOSED TO BE FILED WHICH DOCUMENTS WILL BE
SUBJECT TO THE REVIEW OF SUCH HOLDER.  THE COMPANY SHALL NOT FILE A REGISTRATION
STATEMENT, ANY PROSPECTUS OR ANY AMENDMENTS OR SUPPLEMENTS THERETO IN WHICH THE
“SELLING SHAREHOLDER” SECTION THEREOF DIFFERS IN ANY MATERIAL RESPECT FROM THE
DISCLOSURE RECEIVED FROM A HOLDER IN ITS SELLING HOLDER QUESTIONNAIRE (AS
AMENDED OR SUPPLEMENTED).

 

(B)           (I)  PREPARE AND FILE WITH THE COMMISSION SUCH AMENDMENTS,
INCLUDING POST-EFFECTIVE AMENDMENTS, TO EACH REGISTRATION STATEMENT AND THE
PROSPECTUS USED IN CONNECTION THEREWITH AS MAY BE NECESSARY TO KEEP SUCH
REGISTRATION STATEMENT CONTINUOUSLY EFFECTIVE AS TO THE APPLICABLE REGISTRABLE
SECURITIES FOR ITS EFFECTIVENESS PERIOD AND PREPARE AND FILE WITH THE COMMISSION
SUCH ADDITIONAL REGISTRATION STATEMENTS IN ORDER TO REGISTER FOR RESALE UNDER
THE SECURITIES ACT ALL OF THE REGISTRABLE SECURITIES; (II) CAUSE THE RELATED
PROSPECTUS TO BE AMENDED OR SUPPLEMENTED BY ANY REQUIRED PROSPECTUS SUPPLEMENT,
AND AS SO SUPPLEMENTED OR AMENDED TO BE FILED PURSUANT TO RULE 424;
(III) RESPOND AS PROMPTLY AS REASONABLY POSSIBLE TO ANY COMMENTS RECEIVED FROM
THE COMMISSION WITH RESPECT TO EACH REGISTRATION STATEMENT OR ANY AMENDMENT
THERETO AND, AS PROMPTLY AS REASONABLY POSSIBLE PROVIDE THE HOLDERS TRUE AND
COMPLETE COPIES OF ALL CORRESPONDENCE FROM AND TO THE COMMISSION RELATING TO
SUCH REGISTRATION STATEMENT THAT WOULD NOT RESULT IN THE DISCLOSURE TO THE
HOLDERS OF MATERIAL AND NON-PUBLIC INFORMATION CONCERNING THE COMPANY; AND
(IV) COMPLY IN ALL MATERIAL RESPECTS WITH THE PROVISIONS OF THE SECURITIES ACT
AND THE EXCHANGE ACT WITH RESPECT TO THE REGISTRATION STATEMENTS AND THE
DISPOSITION OF ALL REGISTRABLE SECURITIES COVERED BY EACH REGISTRATION
STATEMENT.

 

(C)           NOTIFY THE HOLDERS AS PROMPTLY AS REASONABLY POSSIBLE (AND, IN THE
CASE OF (I)(A) BELOW, NOT LESS THAN THREE TRADING DAYS PRIOR TO SUCH FILING) AND
(IF REQUESTED BY ANY SUCH PERSON) CONFIRM SUCH NOTICE IN WRITING NO LATER THAN
ONE TRADING DAY FOLLOWING THE DAY (I)(A) WHEN A PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT OR POST-EFFECTIVE AMENDMENT TO A REGISTRATION STATEMENT IS PROPOSED
TO BE FILED; (B) WHEN THE COMMISSION NOTIFIES THE COMPANY WHETHER THERE WILL BE
A “REVIEW” OF SUCH REGISTRATION STATEMENT AND WHENEVER THE COMMISSION COMMENTS
IN WRITING ON SUCH REGISTRATION STATEMENT (THE COMPANY SHALL PROVIDE TRUE AND
COMPLETE COPIES

 

5

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THEREOF AND ALL WRITTEN RESPONSES THERETO TO EACH OF THE HOLDERS THAT PERTAIN TO
THE HOLDERS AS A SELLING SHAREHOLDER OR TO THE PLAN OF DISTRIBUTION, BUT NOT
INFORMATION WHICH THE COMPANY BELIEVES WOULD CONSTITUTE MATERIAL AND NON-PUBLIC
INFORMATION); AND (C) WITH RESPECT TO EACH REGISTRATION STATEMENT OR ANY
POST-EFFECTIVE AMENDMENT, WHEN THE SAME HAS BECOME EFFECTIVE; (II) OF ANY
REQUEST BY THE COMMISSION OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL AUTHORITY
FOR AMENDMENTS OR SUPPLEMENTS TO A REGISTRATION STATEMENT OR PROSPECTUS OR FOR
ADDITIONAL INFORMATION; (III) OF THE ISSUANCE BY THE COMMISSION OF ANY STOP
ORDER SUSPENDING THE EFFECTIVENESS OF A REGISTRATION STATEMENT COVERING ANY OR
ALL OF THE REGISTRABLE SECURITIES OR THE INITIATION OF ANY ACTIONS FOR THAT
PURPOSE; (IV) OF THE RECEIPT BY THE COMPANY OF ANY NOTIFICATION WITH RESPECT TO
THE SUSPENSION OF THE QUALIFICATION OR EXEMPTION FROM QUALIFICATION OF ANY OF
THE REGISTRABLE SECURITIES FOR SALE IN ANY JURISDICTION, OR THE INITIATION OR
THREATENING OF ANY ACTION FOR SUCH PURPOSE; AND (V) OF THE OCCURRENCE OF ANY
EVENT OR PASSAGE OF TIME THAT MAKES THE FINANCIAL STATEMENTS INCLUDED IN A
REGISTRATION STATEMENT INELIGIBLE FOR INCLUSION THEREIN OR ANY STATEMENT MADE IN
SUCH REGISTRATION STATEMENT OR PROSPECTUS OR ANY DOCUMENT INCORPORATED OR DEEMED
TO BE INCORPORATED THEREIN BY REFERENCE UNTRUE IN ANY MATERIAL RESPECT OR THAT
REQUIRES ANY REVISIONS TO SUCH REGISTRATION STATEMENT, PROSPECTUS OR OTHER
DOCUMENTS SO THAT, IN THE CASE OF SUCH REGISTRATION STATEMENT OR THE PROSPECTUS,
AS THE CASE MAY BE, IT WILL NOT CONTAIN ANY UNTRUE STATEMENT OF A MATERIAL FACT
OR OMIT TO STATE ANY MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO
MAKE THE STATEMENTS THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE
MADE, NOT MISLEADING.

 

(D)           USE ITS REASONABLE BEST EFFORTS TO AVOID THE ISSUANCE OF, OR, IF
ISSUED, OBTAIN THE WITHDRAWAL OF (I) ANY ORDER SUSPENDING THE EFFECTIVENESS OF A
REGISTRATION STATEMENT, OR (II) ANY SUSPENSION OF THE QUALIFICATION (OR
EXEMPTION FROM QUALIFICATION) OF ANY OF THE REGISTRABLE SECURITIES FOR SALE IN
ANY JURISDICTION, AS SOON AS PRACTICABLE.

 

(E)           FURNISH TO EACH HOLDER, WITHOUT CHARGE, AT LEAST ONE CONFORMED
COPY OF EACH REGISTRATION STATEMENT AND EACH AMENDMENT THERETO AND ALL EXHIBITS
TO THE EXTENT REQUESTED BY SUCH PERSON (INCLUDING THOSE PREVIOUSLY FURNISHED)
PROMPTLY AFTER THE FILING OF SUCH DOCUMENTS WITH THE COMMISSION.

 

(F)            UPON NOTIFICATION BY THE COMMISSION THAT A REGISTRATION STATEMENT
WILL NOT BE REVIEWED OR IS NO LONGER SUBJECT TO FURTHER REVIEW AND COMMENTS, THE
COMPANY SHALL REQUEST ACCELERATION OF SUCH REGISTRATION STATEMENT SUCH THAT IT
BECOMES EFFECTIVE AT 4:00 P.M. (MINNEAPOLIS TIME) ON ITS EFFECTIVE DATE.

 

(G)           DELIVER TO EACH HOLDER, BY 8:30 A.M. (MINNEAPOLIS TIME) ON THE DAY
FOLLOWING THE EFFECTIVE DATE, WITHOUT CHARGE, AN ELECTRONIC COPY OF EACH
PROSPECTUS OR PROSPECTUSES (INCLUDING EACH FORM OF PROSPECTUS) AND EACH
AMENDMENT OR SUPPLEMENT THERETO.  THE COMPANY HEREBY CONSENTS TO THE USE OF SUCH
PROSPECTUS AND EACH AMENDMENT OR SUPPLEMENT THERETO BY EACH OF THE SELLING
HOLDERS IN CONNECTION WITH THE OFFERING AND SALE OF THE REGISTRABLE SECURITIES
COVERED BY SUCH PROSPECTUS AND ANY AMENDMENT OR SUPPLEMENT THERETO.

 

(H)           PRIOR TO ANY PUBLIC OFFERING OF REGISTRABLE SECURITIES, TO
REGISTER OR QUALIFY OR COOPERATE WITH THE SELLING HOLDERS IN CONNECTION WITH THE
REGISTRATION OR QUALIFICATION (OR EXEMPTION FROM SUCH REGISTRATION OR
QUALIFICATION) OF SUCH REGISTRABLE SECURITIES FOR OFFER AND SALE UNDER THE
SECURITIES OR BLUE SKY LAWS OF JURISDICTIONS WITHIN THE UNITED STATES REASONABLY

 

6

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REQUESTED BY SUCH HOLDERS, TO KEEP EACH SUCH REGISTRATION OR QUALIFICATION (OR
EXEMPTION THEREFROM) EFFECTIVE DURING THE EFFECTIVENESS PERIOD AND TO DO ANY AND
ALL OTHER ACTS OR THINGS NECESSARY OR ADVISABLE TO ENABLE THE DISPOSITION IN
SUCH JURISDICTIONS OF THE REGISTRABLE SECURITIES COVERED BY THE REGISTRATION
STATEMENTS.

 

(I)            COOPERATE WITH THE HOLDERS TO FACILITATE THE TIMELY PREPARATION
AND DELIVERY OF CERTIFICATES REPRESENTING REGISTRABLE SECURITIES TO BE DELIVERED
TO A TRANSFEREE PURSUANT TO THE REGISTRATION STATEMENTS, WHICH CERTIFICATES
SHALL BE FREE, TO THE EXTENT PERMITTED BY THE PURCHASE AGREEMENT, OF ALL
RESTRICTIVE LEGENDS, AND TO ENABLE SUCH REGISTRABLE SECURITIES TO BE IN SUCH
DENOMINATIONS AND REGISTERED IN SUCH NAMES AS ANY SUCH HOLDERS MAY REQUEST.

 

(J)            UPON THE OCCURRENCE OF ANY EVENT CONTEMPLATED BY SECTION 3(C)(V),
AS PROMPTLY AS REASONABLY POSSIBLE, PREPARE A SUPPLEMENT OR AMENDMENT, INCLUDING
A POST-EFFECTIVE AMENDMENT, TO THE AFFECTED REGISTRATION STATEMENTS OR A
SUPPLEMENT TO THE RELATED PROSPECTUS OR ANY DOCUMENT INCORPORATED OR DEEMED TO
BE INCORPORATED THEREIN BY REFERENCE, AND FILE ANY OTHER REQUIRED DOCUMENT SO
THAT, AS THEREAFTER DELIVERED, NO REGISTRATION STATEMENT NOR ANY PROSPECTUS WILL
CONTAIN AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT
REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN, IN
LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.

 

4.             REGISTRATION EXPENSES.  ALL FEES AND EXPENSES INCIDENT TO THE
PERFORMANCE OF OR COMPLIANCE WITH THIS AGREEMENT BY THE COMPANY SHALL BE BORNE
BY THE COMPANY WHETHER OR NOT ANY REGISTRABLE SECURITIES ARE SOLD PURSUANT TO A
REGISTRATION STATEMENT.  THE FEES AND EXPENSES REFERRED TO IN THE FOREGOING
SENTENCE SHALL INCLUDE, WITHOUT LIMITATION, (I) ALL REGISTRATION AND FILING FEES
(INCLUDING, WITHOUT LIMITATION, FEES AND EXPENSES (A) WITH RESPECT TO FILINGS
REQUIRED TO BE MADE WITH ANY TRADING MARKET ON WHICH THE COMMON STOCK IS THEN
LISTED FOR TRADING, AND (B) IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR
BLUE SKY LAWS), (II) PRINTING EXPENSES (INCLUDING, WITHOUT LIMITATION, EXPENSES
OF PRINTING CERTIFICATES FOR REGISTRABLE SECURITIES AND OF PRINTING PROSPECTUSES
IF THE PRINTING OF PROSPECTUSES IS REASONABLY REQUESTED BY THE HOLDERS OF A
MAJORITY OF THE REGISTRABLE SECURITIES INCLUDED IN THE REGISTRATION STATEMENT),
(III) MESSENGER, TELEPHONE AND DELIVERY EXPENSES, (IV) FEES AND DISBURSEMENTS OF
COUNSEL FOR THE COMPANY, (V) SECURITIES ACT LIABILITY INSURANCE, IF THE COMPANY
SO DESIRES SUCH INSURANCE, AND (VI) FEES AND EXPENSES OF ALL OTHER PERSONS
RETAINED BY THE COMPANY IN CONNECTION WITH THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.  IN ADDITION, THE COMPANY SHALL BE RESPONSIBLE
FOR ALL OF ITS INTERNAL EXPENSES INCURRED IN CONNECTION WITH THE CONSUMMATION OF
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (INCLUDING, WITHOUT LIMITATION,
ALL SALARIES AND EXPENSES OF ITS OFFICERS AND EMPLOYEES PERFORMING LEGAL OR
ACCOUNTING DUTIES), THE EXPENSE OF ANY ANNUAL AUDIT AND THE FEES AND EXPENSES
INCURRED IN CONNECTION WITH THE LISTING OF THE REGISTRABLE SECURITIES ON ANY
SECURITIES EXCHANGE AS REQUIRED HEREUNDER.

 

5.             INDEMNIFICATION.

 

(A)           INDEMNIFICATION BY THE COMPANY.  THE COMPANY SHALL,
NOTWITHSTANDING ANY TERMINATION OF THIS AGREEMENT, INDEMNIFY AND HOLD HARMLESS
EACH HOLDER, THE OFFICERS, DIRECTORS, AGENTS, INVESTMENT ADVISORS, PARTNERS,
MEMBERS AND EMPLOYEES OF EACH OF THEM, EACH PERSON WHO CONTROLS ANY SUCH HOLDER
(WITHIN THE MEANING OF SECTION 15 OF THE SECURITIES ACT OR SECTION 20 OF THE
EXCHANGE ACT) AND THE OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES OF EACH SUCH

 

7

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CONTROLLING PERSON, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, FROM AND
AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, COSTS (INCLUDING,
WITHOUT LIMITATION, REASONABLE COSTS OF PREPARATION AND REASONABLE ATTORNEYS’
FEES) AND EXPENSES (COLLECTIVELY, “LOSSES”), AS INCURRED, ARISING OUT OF OR
RELATING TO ANY UNTRUE OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED
IN ANY REGISTRATION STATEMENT, ANY PROSPECTUS OR ANY FORM OF PROSPECTUS OR IN
ANY AMENDMENT OR SUPPLEMENT THERETO OR IN ANY PRELIMINARY PROSPECTUS, OR ARISING
OUT OF OR RELATING TO ANY OMISSION OR ALLEGED OMISSION OF A MATERIAL FACT
REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN (IN
THE CASE OF ANY PROSPECTUS OR FORM OF PROSPECTUS OR SUPPLEMENT THERETO, IN LIGHT
OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE) NOT MISLEADING, EXCEPT TO THE
EXTENT, BUT ONLY TO THE EXTENT, THAT (1) SUCH UNTRUE STATEMENTS OR OMISSIONS ARE
BASED SOLELY UPON INFORMATION REGARDING SUCH HOLDER FURNISHED IN WRITING TO THE
COMPANY BY SUCH HOLDER EXPRESSLY FOR USE THEREIN, OR TO THE EXTENT THAT SUCH
INFORMATION RELATES TO SUCH HOLDER OR SUCH HOLDER’S PROPOSED METHOD OF
DISTRIBUTION OF REGISTRABLE SECURITIES AND WAS REVIEWED AND EXPRESSLY APPROVED
IN WRITING BY SUCH HOLDER EXPRESSLY FOR USE IN THE REGISTRATION STATEMENT, SUCH
PROSPECTUS OR SUCH FORM OF PROSPECTUS OR IN ANY AMENDMENT OR SUPPLEMENT THERETO
(IT BEING UNDERSTOOD THAT THE HOLDER HAS APPROVED ANNEX A HERETO FOR THIS
PURPOSE) OR (2) IN THE CASE OF AN OCCURRENCE OF AN EVENT OF THE TYPE SPECIFIED
IN SECTION 3(C)(II)-(V), THE USE BY SUCH HOLDER OF AN OUTDATED OR DEFECTIVE
PROSPECTUS AFTER THE COMPANY HAS NOTIFIED SUCH HOLDER IN WRITING THAT THE
PROSPECTUS IS OUTDATED OR DEFECTIVE AND PRIOR TO THE RECEIPT BY SUCH HOLDER OF
AN ADVICE OR AN AMENDED OR SUPPLEMENTED PROSPECTUS, BUT ONLY IF AND TO THE
EXTENT THAT FOLLOWING THE RECEIPT OF THE ADVICE OR THE AMENDED OR SUPPLEMENTED
PROSPECTUS THE MISSTATEMENT OR OMISSION GIVING RISE TO SUCH LOSS WOULD HAVE BEEN
CORRECTED.  THE COMPANY SHALL NOTIFY THE HOLDERS PROMPTLY OF THE INSTITUTION,
THREAT OR ASSERTION OF ANY ACTION OF WHICH THE COMPANY IS AWARE IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

(B)           INDEMNIFICATION BY HOLDERS.  EACH HOLDER SHALL, SEVERALLY AND NOT
JOINTLY, INDEMNIFY AND HOLD HARMLESS THE COMPANY, ITS DIRECTORS, OFFICERS,
AGENTS AND EMPLOYEES, EACH PERSON WHO CONTROLS THE COMPANY (WITHIN THE MEANING
OF SECTION 15 OF THE SECURITIES ACT AND SECTION 20 OF THE EXCHANGE ACT), AND THE
DIRECTORS, OFFICERS, AGENTS OR EMPLOYEES OF SUCH CONTROLLING PERSONS, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, FROM AND AGAINST ALL LOSSES, AS
INCURRED, ARISING SOLELY OUT OF OR BASED SOLELY UPON: (X) SUCH HOLDER’S FAILURE
TO COMPLY WITH THE PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT OR (Y)
ANY UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN ANY REGISTRATION STATEMENT,
ANY PROSPECTUS, OR ANY FORM OF PROSPECTUS, OR IN ANY AMENDMENT OR SUPPLEMENT
THERETO, OR ARISING SOLELY OUT OF OR BASED SOLELY UPON ANY OMISSION OF A
MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS
THEREIN NOT MISLEADING TO THE EXTENT, BUT ONLY TO THE EXTENT THAT, (1) SUCH
UNTRUE STATEMENTS OR OMISSIONS ARE BASED SOLELY UPON INFORMATION REGARDING SUCH
HOLDER FURNISHED IN WRITING TO THE COMPANY BY SUCH HOLDER EXPRESSLY FOR USE
THEREIN, OR TO THE EXTENT THAT SUCH INFORMATION RELATES TO SUCH HOLDER OR SUCH
HOLDER’S PROPOSED METHOD OF DISTRIBUTION OF REGISTRABLE SECURITIES AND WAS
REVIEWED AND EXPRESSLY APPROVED IN WRITING BY SUCH HOLDER EXPRESSLY FOR USE IN
THE REGISTRATION STATEMENT (IT BEING UNDERSTOOD THAT THE HOLDER HAS APPROVED
ANNEX A HERETO FOR THIS PURPOSE), SUCH PROSPECTUS OR SUCH FORM OF PROSPECTUS OR
IN ANY AMENDMENT OR SUPPLEMENT THERETO OR (2) IN THE CASE OF AN OCCURRENCE OF AN
EVENT OF THE TYPE SPECIFIED IN SECTION 3(C)(II)-(V), THE USE BY SUCH HOLDER OF
AN OUTDATED OR DEFECTIVE PROSPECTUS AFTER THE COMPANY HAS NOTIFIED SUCH HOLDER
IN WRITING THAT THE PROSPECTUS IS OUTDATED OR DEFECTIVE AND PRIOR TO THE RECEIPT
BY SUCH HOLDER OF AN ADVICE OR AN AMENDED OR SUPPLEMENTED PROSPECTUS, BUT ONLY
IF AND TO THE EXTENT THAT FOLLOWING THE RECEIPT OF THE ADVICE OR THE AMENDED

 

8

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OR SUPPLEMENTED PROSPECTUS THE MISSTATEMENT OR OMISSION GIVING RISE TO SUCH LOSS
WOULD HAVE BEEN CORRECTED.  IN NO EVENT SHALL THE LIABILITY OF ANY SELLING
HOLDER HEREUNDER BE GREATER IN AMOUNT THAN THE DOLLAR AMOUNT OF THE NET PROCEEDS
RECEIVED BY SUCH HOLDER UPON THE SALE OF THE REGISTRABLE SECURITIES GIVING RISE
TO SUCH INDEMNIFICATION OBLIGATION.

 

(C)           CONDUCT OF INDEMNIFICATION PROCEEDINGS.  IF ANY ACTION SHALL BE
BROUGHT OR ASSERTED AGAINST ANY PERSON ENTITLED TO INDEMNITY HEREUNDER (AN
“INDEMNIFIED PARTY”), SUCH INDEMNIFIED PARTY SHALL PROMPTLY NOTIFY THE PERSON
FROM WHOM INDEMNITY IS SOUGHT (THE “INDEMNIFYING PARTY”) IN WRITING, AND THE
INDEMNIFYING PARTY SHALL ASSUME THE DEFENSE THEREOF, INCLUDING THE EMPLOYMENT OF
COUNSEL REASONABLY SATISFACTORY TO THE INDEMNIFIED PARTY AND THE PAYMENT OF ALL
FEES AND EXPENSES INCURRED IN CONNECTION WITH DEFENSE THEREOF; PROVIDED, THAT
THE FAILURE OF ANY INDEMNIFIED PARTY TO GIVE SUCH NOTICE SHALL NOT RELIEVE THE
INDEMNIFYING PARTY OF ITS OBLIGATIONS OR LIABILITIES PURSUANT TO THIS AGREEMENT,
EXCEPT (AND ONLY) TO THE EXTENT THAT IT SHALL BE FINALLY DETERMINED BY A COURT
OF COMPETENT JURISDICTION (WHICH DETERMINATION IS NOT SUBJECT TO APPEAL OR
FURTHER REVIEW) THAT SUCH FAILURE SHALL HAVE PROXIMATELY AND MATERIALLY
ADVERSELY PREJUDICED THE INDEMNIFYING PARTY.

 

An Indemnified Party shall have the right to employ separate counsel in any such
Action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Action and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Action; or (3) the named parties to any such
Action (including any impleaded parties) include both such Indemnified Party and
the Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that a conflict of interest is likely to exist if the same counsel were
to represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party).  It being
understood, however, that the Indemnifying Party shall not, in connection with
any one such Action be liable for the fees and expenses of more than one
separate firm of attorneys at any time for all Indemnified Parties, which firm
shall be appointed by the Indemnified Parties that hold a majority of the Shares
then outstanding.  The Indemnifying Party shall not be liable for any settlement
of any such Action effected without its written consent, which consent shall not
be unreasonably withheld.  No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending
Action in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Action.

 

All fees and expenses of the Indemnified Party (including reasonable fees and
expenses payable by an Indemnifying Party to the extent incurred in connection
with investigating or preparing to defend such Action in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten Trading Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses

 

9

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to the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

 

(D)           CONTRIBUTION.  IF A CLAIM FOR INDEMNIFICATION UNDER
SECTION 5(A) OR 5(B) IS UNAVAILABLE TO AN INDEMNIFIED PARTY (BY REASON OF PUBLIC
POLICY OR OTHERWISE), THEN EACH INDEMNIFYING PARTY, IN LIEU OF INDEMNIFYING SUCH
INDEMNIFIED PARTY, SHALL CONTRIBUTE TO THE AMOUNT PAID OR PAYABLE BY SUCH
INDEMNIFIED PARTY AS A RESULT OF SUCH LOSSES, IN SUCH PROPORTION AS IS
APPROPRIATE TO REFLECT THE RELATIVE FAULT OF THE INDEMNIFYING PARTY AND
INDEMNIFIED PARTY IN CONNECTION WITH THE ACTIONS, STATEMENTS OR OMISSIONS THAT
RESULTED IN SUCH LOSSES AS WELL AS ANY OTHER RELEVANT EQUITABLE CONSIDERATIONS. 
THE RELATIVE FAULT OF SUCH INDEMNIFYING PARTY AND INDEMNIFIED PARTY SHALL BE
DETERMINED BY REFERENCE TO, AMONG OTHER THINGS, WHETHER ANY ACTION IN QUESTION,
INCLUDING ANY UNTRUE OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT OR OMISSION
OR ALLEGED OMISSION OF A MATERIAL FACT, HAS BEEN TAKEN OR MADE BY, OR RELATES TO
INFORMATION SUPPLIED BY, SUCH INDEMNIFYING PARTY OR INDEMNIFIED PARTY, AND THE
PARTIES’ RELATIVE INTENT, KNOWLEDGE, ACCESS TO INFORMATION AND OPPORTUNITY TO
CORRECT OR PREVENT SUCH ACTION, STATEMENT OR OMISSION.  THE AMOUNT PAID OR
PAYABLE BY A PARTY AS A RESULT OF ANY LOSSES SHALL BE DEEMED TO INCLUDE, SUBJECT
TO THE LIMITATIONS SET FORTH IN SECTION 5(C), ANY REASONABLE ATTORNEYS’ OR OTHER
REASONABLE FEES OR EXPENSES INCURRED BY SUCH PARTY IN CONNECTION WITH ANY ACTION
TO THE EXTENT SUCH PARTY WOULD HAVE BEEN INDEMNIFIED FOR SUCH FEES OR EXPENSES
IF THE INDEMNIFICATION PROVIDED FOR IN THIS SECTION WAS AVAILABLE TO SUCH PARTY
IN ACCORDANCE WITH ITS TERMS.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. 
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Action exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.

 

The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

 

6.             MISCELLANEOUS

 

(A)           REMEDIES.  IN THE EVENT OF A BREACH BY THE COMPANY OR BY A HOLDER,
OF ANY OF THEIR OBLIGATIONS UNDER THIS AGREEMENT, EACH HOLDER OR THE COMPANY, AS
THE CASE MAY BE, IN ADDITION TO BEING ENTITLED TO EXERCISE ALL RIGHTS GRANTED BY
LAW AND UNDER THIS AGREEMENT, INCLUDING RECOVERY OF DAMAGES, WILL BE ENTITLED TO
SPECIFIC PERFORMANCE OF ITS RIGHTS UNDER THIS AGREEMENT.  THE COMPANY AND EACH
HOLDER AGREE THAT MONETARY DAMAGES WOULD NOT PROVIDE ADEQUATE COMPENSATION FOR
ANY LOSSES INCURRED BY REASON OF A BREACH BY IT OF ANY OF THE PROVISIONS OF THIS
AGREEMENT AND HEREBY FURTHER AGREES THAT, IN THE EVENT OF ANY ACTION FOR
SPECIFIC PERFORMANCE IN RESPECT OF SUCH BREACH, IT SHALL WAIVE THE DEFENSE THAT
A REMEDY AT LAW WOULD BE ADEQUATE.

 

10

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(B)           NO PIGGYBACK ON REGISTRATIONS.  EXCEPT FOR SHARES UNDERLYING THE
WARRANT(S) TO BE ISSUED TO CRAIG-HALLUM CAPITAL GROUP LLC AND ANY SUB-AGENTS AS
SPECIFIED IN SCHEDULE 3.1(U) TO THE PURCHASE AGREEMENT AND EXCEPT FOR SHARES AS
SPECIFIED IN SCHEDULE 3.1(V) TO THE PURCHASE AGREEMENT, NEITHER THE COMPANY NOR
ANY OF ITS SECURITY HOLDERS (OTHER THAN THE HOLDERS IN SUCH CAPACITY PURSUANT
HERETO) MAY INCLUDE SECURITIES OF THE COMPANY IN A REGISTRATION STATEMENT OTHER
THAN THE REGISTRABLE SECURITIES, AND THE COMPANY SHALL NOT DURING THE
REGISTRATION PERIOD ENTER INTO ANY AGREEMENT PROVIDING ANY SUCH RIGHT TO INCLUDE
SECURITIES OF THE COMPANY IN A REGISTRATION STATEMENT TO ANY OF ITS SECURITY
HOLDERS.

 

(C)           COMPLIANCE.  EACH HOLDER COVENANTS AND AGREES THAT IT WILL COMPLY
WITH THE PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT AS APPLICABLE TO
IT IN CONNECTION WITH SALES OF REGISTRABLE SECURITIES PURSUANT TO THE
REGISTRATION STATEMENT.

 

(D)           DISCONTINUED DISPOSITION.  EACH HOLDER AGREES BY ITS ACQUISITION
OF SUCH REGISTRABLE SECURITIES THAT, UPON RECEIPT OF A NOTICE FROM THE COMPANY
OF THE OCCURRENCE OF ANY EVENT OF THE KIND DESCRIBED IN SECTION 3(C), SUCH
HOLDER WILL FORTHWITH DISCONTINUE DISPOSITION OF SUCH REGISTRABLE SECURITIES
UNDER THE REGISTRATION STATEMENT UNTIL SUCH HOLDER’S RECEIPT OF THE COPIES OF
THE SUPPLEMENTED PROSPECTUS AND/OR AMENDED REGISTRATION STATEMENT OR UNTIL IT IS
ADVISED IN WRITING (THE “ADVICE”) BY THE COMPANY THAT THE USE OF THE APPLICABLE
PROSPECTUS MAY BE RESUMED, AND, IN EITHER CASE, HAS RECEIVED COPIES OF ANY
ADDITIONAL OR SUPPLEMENTAL FILINGS THAT ARE INCORPORATED OR DEEMED TO BE
INCORPORATED BY REFERENCE IN SUCH PROSPECTUS OR REGISTRATION STATEMENT.  THE
COMPANY MAY PROVIDE APPROPRIATE STOP ORDERS TO ENFORCE THE PROVISIONS OF THIS
PARAGRAPH.

 

(E)           PIGGY-BACK REGISTRATIONS.  IF AT ANY TIME DURING THE EFFECTIVENESS
PERIOD THERE IS NOT AN EFFECTIVE REGISTRATION STATEMENT COVERING ALL OF THE
REGISTRABLE SECURITIES (INCLUDING, BUT NOT LIMITED TO, ANY ADDITIONAL SHARES)
AND THE COMPANY SHALL DETERMINE TO PREPARE AND FILE WITH THE COMMISSION A
REGISTRATION STATEMENT RELATING TO AN OFFERING FOR ITS OWN ACCOUNT OR THE
ACCOUNT OF OTHERS UNDER THE SECURITIES ACT OF ANY OF ITS EQUITY SECURITIES,
OTHER THAN ON FORM S-4 OR FORM S-8 (EACH AS PROMULGATED UNDER THE SECURITIES
ACT) OR THEIR THEN EQUIVALENTS RELATING TO EQUITY SECURITIES TO BE ISSUED SOLELY
IN CONNECTION WITH ANY ACQUISITION OF ANY ENTITY OR BUSINESS OR EQUITY
SECURITIES ISSUABLE IN CONNECTION WITH STOCK OPTION OR OTHER EMPLOYEE BENEFIT
PLANS, THEN THE COMPANY SHALL SEND TO EACH HOLDER WRITTEN NOTICE OF SUCH
DETERMINATION AND, IF WITHIN FIFTEEN DAYS AFTER RECEIPT OF SUCH NOTICE, ANY SUCH
HOLDER SHALL SO REQUEST IN WRITING, THE COMPANY SHALL INCLUDE IN SUCH
REGISTRATION STATEMENT ALL OR ANY PART OF SUCH REGISTRABLE SECURITIES
(INCLUDING, BUT NOT LIMITED TO, ANY ADDITIONAL SHARES) SUCH HOLDER REQUESTS TO
BE REGISTERED, SUBJECT TO CUSTOMARY UNDERWRITER CUTBACKS APPLICABLE TO ALL
HOLDERS OF REGISTRATION RIGHTS.

 

(F)            AMENDMENTS AND WAIVERS.  THE PROVISIONS OF THIS AGREEMENT,
INCLUDING THE PROVISIONS OF THIS SECTION 6(F), MAY NOT BE AMENDED, MODIFIED OR
SUPPLEMENTED, AND WAIVERS OR CONSENTS TO DEPARTURES FROM THE PROVISIONS HEREOF
MAY NOT BE GIVEN, UNLESS THE SAME SHALL BE IN WRITING AND SIGNED BY THE COMPANY
AND THE HOLDERS OF NO LESS THAN A MAJORITY IN INTEREST OF THE THEN OUTSTANDING
REGISTRABLE SECURITIES.  NOTWITHSTANDING THE FOREGOING, A WAIVER OR CONSENT TO
DEPART FROM THE PROVISIONS HEREOF WITH RESPECT TO A MATTER THAT RELATES
EXCLUSIVELY TO THE RIGHTS OF CERTAIN HOLDERS AND THAT DOES NOT DIRECTLY OR
INDIRECTLY AFFECT THE RIGHTS OF OTHER HOLDERS MAY

 

11

--------------------------------------------------------------------------------

 

BE GIVEN BY HOLDERS OF AT LEAST A MAJORITY OF THE REGISTRABLE SECURITIES TO
WHICH SUCH WAIVER OR CONSENT RELATES.

 

(G)           NOTICES.  ANY AND ALL NOTICES OR OTHER COMMUNICATIONS OR
DELIVERIES REQUIRED OR PERMITTED TO BE PROVIDED HEREUNDER SHALL BE IN WRITING
AND SHALL BE DEEMED GIVEN AND EFFECTIVE ON THE EARLIEST OF (A) THE DATE OF
TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA FACSIMILE
(PROVIDED THE SENDER RECEIVES A MACHINE-GENERATED CONFIRMATION OF SUCCESSFUL
TRANSMISSION) AT THE FACSIMILE NUMBER SPECIFIED IN THIS SECTION PRIOR TO
5:30 P.M. (MINNEAPOLIS TIME) ON A TRADING DAY, (B) THE NEXT TRADING DAY AFTER
THE DATE OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA
FACSIMILE AT THE FACSIMILE NUMBER SPECIFIED IN THIS SECTION ON A DAY THAT IS NOT
A TRADING DAY OR LATER THAN 5:30 P.M. (MINNEAPOLIS TIME) ON ANY TRADING DAY,
(C) THE TRADING DAY FOLLOWING THE DATE OF MAILING, IF SENT BY U.S. NATIONALLY
RECOGNIZED OVERNIGHT COURIER SERVICE, OR (D) UPON ACTUAL RECEIPT BY THE PARTY TO
WHOM SUCH NOTICE IS REQUIRED TO BE GIVEN.  THE ADDRESS FOR SUCH NOTICES AND
COMMUNICATIONS SHALL BE AS FOLLOWS:

 

If to the Company:

 

Granite City Food & Brewery Ltd.

 

 

5402 Parkdale Drive, Suite 101

 

 

Minneapolis, Minnesota 55416

 

 

Facsimile: (952) 215-0661

 

 

Attn: Chief Financial Officer

 

 

 

With a copy to:

 

Briggs and Morgan, P.A.

 

 

80 South Eighth Street

 

 

2200 IDS Center

 

 

Minneapolis, MN 55402

 

 

Facsimile: (612) 977-8650

 

 

Attn: Avron L. Gordon, Esq.

 

 

 

If to a Investor:

 

To the address set forth under such Investor’s name on the signature
pages hereto.

 

 

 

If to any other Person who is then the registered Holder:

 

 

 

 

 

To the address of such Holder as it appears in the stock transfer books of the
Company

 

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

 

(H)           SUCCESSORS AND ASSIGNS.  THIS AGREEMENT SHALL INURE TO THE BENEFIT
OF AND BE BINDING UPON THE SUCCESSORS AND PERMITTED ASSIGNS OF EACH OF THE
PARTIES AND SHALL INURE TO THE BENEFIT OF EACH HOLDER.  THE COMPANY MAY NOT
ASSIGN ITS RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF
EACH HOLDER.  EACH HOLDER MAY ASSIGN THEIR RESPECTIVE RIGHTS HEREUNDER IN THE
MANNER AND TO THE PERSONS AS PERMITTED UNDER THE PURCHASE AGREEMENT.

 

(I)            EXECUTION AND COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN
ANY NUMBER OF COUNTERPARTS, EACH OF WHICH WHEN SO EXECUTED SHALL BE DEEMED TO BE
AN ORIGINAL AND, ALL OF WHICH TAKEN TOGETHER SHALL CONSTITUTE ONE AND THE SAME
AGREEMENT.  IN THE EVENT THAT ANY

 

12

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SIGNATURE IS DELIVERED BY FACSIMILE TRANSMISSION, SUCH SIGNATURE SHALL CREATE A
VALID BINDING OBLIGATION OF THE PARTY EXECUTING (OR ON WHOSE BEHALF SUCH
SIGNATURE IS EXECUTED) THE SAME WITH THE SAME FORCE AND EFFECT AS IF SUCH
FACSIMILE SIGNATURE WERE THE ORIGINAL THEREOF.

 

(J)            GOVERNING LAW.  ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
MINNESOTA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.  EACH
PARTY AGREES THAT ALL ACTIONS CONCERNING THE INTERPRETATIONS, ENFORCEMENT AND
DEFENSE OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (WHETHER BROUGHT
AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES, EMPLOYEES OR AGENTS) WILL
BE COMMENCED IN THE MINNESOTA COURTS.  EACH PARTY HERETO HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE MINNESOTA COURTS FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY ACTION, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF ANY MINNESOTA COURT, OR THAT SUCH
ACTION HAS BEEN COMMENCED IN AN IMPROPER OR INCONVENIENT FORUM.  EACH PARTY
HERETO HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO
PROCESS BEING SERVED IN ANY SUCH ACTION BY MAILING A COPY THEREOF VIA REGISTERED
OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH
PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES
THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND
NOTICE THEREOF.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY
ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  EACH PARTY HERETO
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.  IF EITHER PARTY SHALL
COMMENCE A ACTION TO ENFORCE ANY PROVISIONS OF THIS AGREEMENT, THEN THE
PREVAILING PARTY IN SUCH ACTION SHALL BE REIMBURSED BY THE OTHER PARTY FOR ITS
ATTORNEY’S FEES AND OTHER COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION,
PREPARATION AND PROSECUTION OF SUCH ACTION.

 

(K)           CUMULATIVE REMEDIES.  THE REMEDIES PROVIDED HEREIN ARE CUMULATIVE
AND NOT EXCLUSIVE OF ANY REMEDIES PROVIDED BY LAW.

 

(L)            SEVERABILITY.  IF ANY TERM, PROVISION, COVENANT OR RESTRICTION OF
THIS AGREEMENT IS HELD BY A COURT OF COMPETENT JURISDICTION TO BE INVALID,
ILLEGAL, VOID OR UNENFORCEABLE, THE REMAINDER OF THE TERMS, PROVISIONS,
COVENANTS AND RESTRICTIONS SET FORTH HEREIN SHALL REMAIN IN FULL FORCE AND
EFFECT AND SHALL IN NO WAY BE AFFECTED, IMPAIRED OR INVALIDATED, AND THE PARTIES
HERETO SHALL USE THEIR REASONABLE EFFORTS TO FIND AND EMPLOY AN ALTERNATIVE
MEANS TO ACHIEVE THE SAME OR SUBSTANTIALLY THE SAME RESULT AS THAT CONTEMPLATED
BY SUCH TERM, PROVISION, COVENANT OR RESTRICTION.  IT IS HEREBY STIPULATED AND
DECLARED TO BE THE INTENTION OF THE PARTIES THAT THEY WOULD HAVE EXECUTED THE
REMAINING TERMS, PROVISIONS, COVENANTS AND RESTRICTIONS WITHOUT INCLUDING ANY OF
SUCH THAT MAY BE HEREAFTER DECLARED INVALID, ILLEGAL, VOID OR UNENFORCEABLE.

 

(M)          HEADINGS.  THE HEADINGS IN THIS AGREEMENT ARE FOR CONVENIENCE OF
REFERENCE ONLY AND SHALL NOT LIMIT OR OTHERWISE AFFECT THE MEANING HEREOF.

 

(N)           INDEPENDENT NATURE OF INVESTORS’ OBLIGATIONS AND RIGHTS.  THE
OBLIGATIONS OF EACH INVESTOR UNDER THIS AGREEMENT ARE SEVERAL AND NOT JOINT WITH
THE OBLIGATIONS OF EACH OTHER INVESTOR, AND NO INVESTOR SHALL BE RESPONSIBLE IN
ANY WAY FOR THE PERFORMANCE OF THE OBLIGATIONS

 

13

--------------------------------------------------------------------------------

 

OF ANY OTHER INVESTOR UNDER THIS AGREEMENT.  NOTHING CONTAINED HEREIN OR IN ANY
TRANSACTION DOCUMENT, AND NO ACTION TAKEN BY ANY INVESTOR PURSUANT THERETO,
SHALL BE DEEMED TO CONSTITUTE THE INVESTORS AS A PARTNERSHIP, AN ASSOCIATION, A
JOINT VENTURE OR ANY OTHER KIND OF ENTITY, OR CREATE A PRESUMPTION THAT THE
INVESTORS ARE IN ANY WAY ACTING IN CONCERT OR AS A GROUP WITH RESPECT TO SUCH
OBLIGATIONS OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT.  EACH INVESTOR ACKNOWLEDGES THAT NO OTHER INVESTOR WILL BE
ACTING AS AGENT OF SUCH INVESTOR IN ENFORCING ITS RIGHTS UNDER THIS AGREEMENT. 
EACH INVESTOR SHALL BE ENTITLED TO INDEPENDENTLY PROTECT AND ENFORCE ITS RIGHTS,
INCLUDING WITHOUT LIMITATION THE RIGHTS ARISING OUT OF THIS AGREEMENT, AND IT
SHALL NOT BE NECESSARY FOR ANY OTHER INVESTOR TO BE JOINED AS AN ADDITIONAL
PARTY IN ANY ACTION FOR SUCH PURPOSE.  THE COMPANY ACKNOWLEDGES THAT EACH OF THE
INVESTORS HAS BEEN PROVIDED WITH THE SAME REGISTRATION RIGHTS AGREEMENT FOR THE
PURPOSE OF CLOSING A TRANSACTION WITH MULTIPLE INVESTORS AND NOT BECAUSE IT WAS
REQUIRED OR REQUESTED TO DO SO BY ANY INVESTOR.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES TO FOLLOW]

 

14

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

 

GRANITE CITY FOOD & BREWERY LTD.

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

Daniel H. Bauer

 

 

Title:

Chief Financial Officer

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF INVESTORS TO FOLLOW]

 

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

 

 

NAME OF INVESTING ENTITY

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

 

 

ADDRESS FOR NOTICE

 

 

 

c/o:

 

 

 

 

 

Street:

 

 

 

 

 

City/State/Zip:

 

 

 

 

 

Attention:

 

 

 

 

 

Tel:

 

 

 

 

 

Fax:

 

 

 

 

 

Email:

 

 

 

16

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Annex A

 

PLAN OF DISTRIBUTION

 

The Selling Shareholders and any of their pledgees, donees, transferees,
assignees and successors-in-interest may, from time to time, sell any or all of
their shares of Common Stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions.  These sales may be
at fixed or negotiated prices.  The Selling Shareholders may use any one or more
of the following methods when selling shares:

 

•      ordinary brokerage transactions and transactions in which the
broker-dealer solicits Investors;

 

•      block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as principal to
facilitate the transaction;

 

•      purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;

 

•      an exchange distribution in accordance with the rules of the applicable
exchange;

 

•      privately negotiated transactions;

 

•      to cover short sales made after the date that this Registration Statement
is declared effective by the Commission;

 

•      broker-dealers may agree with the Selling Shareholders to sell a
specified number of such shares at a stipulated price per share;

 

•      a combination of any such methods of sale; and

 

•      any other method permitted pursuant to applicable law.

 

The Selling Shareholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

 

Broker-dealers engaged by the Selling Shareholders may arrange for other
brokers-dealers to participate in sales.  Broker-dealers may receive commissions
or discounts from the Selling Shareholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated.  The Selling Shareholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

 

The Selling Shareholders may from time to time pledge or grant a security
interest in some or all of the Shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of Common Stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 amending the list of selling
shareholders to include the pledgee, transferee or other successors in interest
as selling shareholders under this prospectus.

 

17

--------------------------------------------------------------------------------

 

Upon the Company being notified in writing by a Selling Shareholder that any
material arrangement has been entered into with a broker-dealer for the sale of
Common Stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such Selling Shareholder and of
the participating broker-dealer(s), (ii) the number of shares involved,
(iii) the price at which such the shares of Common Stock were sold, (iv)the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus, and (vi) other facts material to the transaction.  In addition,
upon the Company being notified in writing by a Selling Shareholder that a donee
or pledgee intends to sell more than 500 shares of Common Stock, a supplement to
this prospectus will be filed if then required in accordance with applicable
securities law.

 

The Selling Shareholders also may transfer the shares of Common Stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.

 

The Selling Shareholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales.  In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.  Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of
Securities will be paid by the Selling Shareholder and/or the purchasers.  Each
Selling Shareholder has represented and warranted to the Company that it
acquired the securities subject to this registration statement in the ordinary
course of such Selling Shareholder’s business and, at the time of its purchase
of such securities such Selling Shareholder had no agreements or understandings,
directly or indirectly, with any person to distribute any such securities.

 

The Company has advised each Selling Shareholder that it may not use shares
registered on this Registration Statement to cover short sales of Common Stock
made prior to the date on which this Registration Statement shall have been
declared effective by the Commission.  If a Selling Shareholder uses this
prospectus for any sale of the Common Stock, it will be subject to the
prospectus delivery requirements of the Securities Act.  The Selling
Shareholders will be responsible to comply with the applicable provisions of the
Securities Act and Exchange Act, and the rules and regulations thereunder
promulgated, including, without limitation, Regulation M, as applicable to such
Selling Shareholders in connection with resales of their respective shares under
this Registration Statement.

 

The Company is required to pay all fees and expenses incident to the
registration of the shares, but the Company will not receive any proceeds from
the sale of the Common Stock.  The Company and the Selling Shareholders have
agreed to indemnify each other against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.  If the Selling
Shareholders use this prospectus for any sale of the Common Stock, they will be
subject to the prospectus delivery requirements of the Securities Act.

 

18

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Annex B

 

GRANITE CITY FOOD & BREWERY LTD.

 

Selling Securityholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock (the “Common Stock”), of
Granite City Food & Brewery Ltd. (the “Company”) understands that the Company
has filed or intends to file with the Securities and Exchange Commission (the
“Commission”) a Registration Statement for the registration and resale of the
Registrable Securities, in accordance with the terms of the Registration Rights
Agreement, dated as of October 21, 2005 (the “Registration Rights Agreement”),
among the Company and the Investors named therein.  A copy of the Registration
Rights Agreement is available from the Company upon request at the address set
forth below.  All capitalized terms used and not otherwise defined herein shall
have the meanings ascribed thereto in the Registration Rights Agreement.

 

The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1.

 

Name.

 

 

 

 

 

(a)

Full Legal Name of Selling Securityholder

 

 

 

 

 

 

 

 

 

 

(b)

Full Legal Name of Registered Holder (if not the same as (a) above) through
which Registrable Securities Listed in Item 3 below are held:

 

 

 

 

 

 

 

 

 

 

(c)

Full Legal Name of Natural Control Person (which means a natural person who
directly or indirectly alone or with others has power to vote or dispose of the
securities covered by the questionnaire):

 

 

 

 

 

19

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2.  Address for Notices to Selling Securityholder:

 

 

Telephone:

 

Fax:

 

Contact Person:

 

 

3.  Beneficial Ownership of Registrable Securities:

 

 

 

 

 

(a)

Type and Number of Registrable Securities beneficially owned:

 

 

 

 

 

 

 

 

 

 

4. Broker-Dealer Status:

 

 

 

(a)

Are you a broker-dealer?

 

 

 

 

 

 

 

Yes  o

No  o

 

 

 

 

 

 

Note:

If yes, the Commission’s staff has indicated that you should be identified as an
underwriter in the Registration Statement.

 

 

 

 

 

 

(b)

Are you an affiliate of a broker-dealer?

 

 

 

 

 

 

 

Yes  o

No  o

 

 

 

 

 

 

(c)

If you are an affiliate of a broker-dealer, do you certify that you bought the
Registrable Securities in the ordinary course of business, and at the time of
the purchase of the Registrable Securities to be resold, you had no agreements
or understandings, directly or indirectly, with any person to distribute the
Registrable Securities?

 

 

 

 

 

 

 

Yes  o

No  o

 

 

 

 

 

 

Note:

If no, the Commission’s staff has indicated that you should be identified as an
underwriter in the Registration Statement.

 

20

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5. Beneficial Ownership of Other Securities of the Company Owned by the Selling
Securityholder.

 

 

 

 

Except as set forth below in this Item 5, the undersigned is not the beneficial
or registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.

 

 

 

 

(a)

Type and Amount of Other Securities beneficially owned by the Selling
Securityholder:

 

 

 

 

 

6. Relationships with the Company:

 

 

 

 

Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (owners of 5% of more of the
equity securities of the undersigned) has held any position or office or has had
any other material relationship with the Company (or its predecessors or
affiliates) during the past three years.

 

 

 

 

State any exceptions here:

 

 

 

 

The undersigned agrees to promptly notify the Company of any inaccuracies or
changes in the information provided herein that may occur subsequent to the date
hereof and prior to the Effective Date for the Registration Statement.

 

By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 6 and the inclusion of such
information in the Registration Statement and the related prospectus.  The
undersigned understands that such information will be relied upon by the Company
in connection with the preparation or amendment of the Registration Statement
and the related prospectus.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by its
duly authorized agent.

 

Dated:

 

 

Beneficial Owner:

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

21

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PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

Briggs and Morgan, P.A.

80 South Eighth Street

2200 IDS Center

Minneapolis, MN 55402

Facsimile: (612) 977-8650

Attn: Avron L. Gordon, Esq.

 

22

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Schedule 3.1(a)

Subsidiaries

 

Name

 

State of Incorporation

Granite City of Kansas Ltd.

 

Kansas

 

--------------------------------------------------------------------------------

 

Schedule 3.1(g)

Granite City Food & Brewery Ltd.

Capitalization Table

As of October 12, 2005

 

Preferred shares authorized

 

10,000,000

 

Preferred shares issued and outstanding

 

—

 

 

 

 

 

Common shares authorized

 

90,000,000

 

Common shares issued and outstanding

 

11,699,785

 

Common stock options granted and outstanding under plans

 

1,532,500

 

Common stock options available for grant under plans

 

617,308

 

Common stock options issued outside plans

 

60,500

 

Stock warrants issued to agents

 

413,437

 

Stock warrants issued to underwriters

 

6,514

 

Stock warrants issued to consultants

 

35,000

 

Stock warrants issued to investors

 

2,117,733

 

 

 

 

 

Fully diluted common stock equivalents outstanding

 

16,482,777

 

 

--------------------------------------------------------------------------------

 

Schedule 3.1(u)

Certain Fees

 

The Company entered into a letter agreement with Craig-Hallum Capital Group LLC
(the “Agent”) in September 2005, to act as the Company’s placement agent in
connection with the sale of up to $10 million of the Securities.  One or more
sub-agents may also participate in this financing.  The Company will pay the
Agent aggregate cash fees equal to 5% of the gross proceeds raised from the
Investors in the placement, excluding the exercise price of the warrants.  In
addition, the Company will sell for nominal consideration to the Agent a warrant
to purchase shares equal to 5% of the shares sold to Investors in the placement,
excluding shares issuable upon exercise of the warrants issued to investors. 
The warrants issued to the Agent will be on the terms of the warrants issued to
the Investors, except that the warrants issued to the Agent will have a term of
two-years and will incorporate a mandatory exercise provision if the average
closing price of the Company’s Common Stock for 30 consecutive trading days is
greater than or equal to $9.75.

 

The Company has agreed to reimburse the Agent for its accountable expenses
relating to the placement, including outside legal fees, up to $50,000.

 

The remaining terms and conditions of the Company’s letter agreement with the
Agent are customary terms and conditions for similar transactions.

 

--------------------------------------------------------------------------------

 

Schedule 3.1(v)

Outstanding Registration Rights

 

Name of Holder

 

Number of Shares

 

 

 

 

 

Warrant shares issued to Brewing Ventures LLC*

 

812,500

 

Shares issuable upon exercise of 2003 Financial Advisory Warrants**

 

35,000

 

Warrant shares issued or issuable upon exercise of 2000 Public Offering
Underwriter Warrants

 

13,028

 

Shares issuable upon exercise of 2002 Private Placement Sub-Agent Warrants

 

411

 

Warrants units issued upon exercise of 2002 Private Placement Sub-Agent Warrants

 

221

 

 

--------------------------------------------------------------------------------

*

The managing members of Brewing Ventures LLC are Steven J. Wagenheim, Arthur E.
Pew III and William E. Burdick (each of whom is a director of Granite City Food
& Brewery Ltd.).

**

These registration rights are inapplicable if at the time the holder seeks to
exercise, the warrant shares are eligible for sale under Rule 144.

 

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