**EXHIBIT10.1**

 

**DEVELOPMENT AGREEMENT**

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**BETWEEN**

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**UNITED PROPERTIES INVESTMENTLLC**

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**AND**

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**GRANITE CITY FOOD &BREWERY, LTD.**

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**April 30, 2008**

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**DEVELOPMENT AGREEMENT**

 

THIS DEVELOPMENT AGREEMENT(hereinafter referred to as this “Agreement”), made, entered into and effectivethis 30th day of April, 2008, by and between GRANITE CITY FOOD &BREWERY, LTD., a Minnesota corporation, hereinafter referred to as “GraniteCity”, and UNITED PROPERTIES INVESTMENT LLC, a Minnesota limited liabilitycompany, hereinafter referred to as “Developer.”

 

**WITNESSETH:**

 

WHEREAS, Granite City operatescasual dining restaurants featuring on-premises breweries under the name“Granite City Food & Brewery®”; and

 

WHEREAS, Granite City desiresto enter into a development agreement with Developer for the purpose ofDeveloper building such facilities and leasing them to Granite City; and

 

WHEREAS, Developer desires toconstruct and develop Granite City Food & Brewery restaurants (each a“Restaurant” and in the aggregate, the “Project”) at locations as determined byGranite City and Developer; and

 

WHEREAS, Granite City iswilling to provide Developer with building plans and specifications andconstruction management expertise about the Granite City Food &Brewery Restaurants that has been developed by Granite City; and

 

WHEREAS, Developer shallprovide human resources and expertise to finance, construct and develop theRestaurants;

 

NOW, THEREFORE, inconsideration of the mutual promises and covenants set forth in this Agreementand for other good and valuable consideration, the parties hereby contract asfollows:

 

**SECTION 1DEVELOPMENT SERVICES**

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1.1                                 Developershall perform all services relating to the development of the Restaurants,oversee the construction of each Restaurant, and perform such services andcarry out such responsibilities with respect to the Restaurants as are setforth herein, and such additional duties and responsibilities as are reasonablywithin the general scope of such services and responsibilities.

 

1.2                                 Developer’sservices shall consist of the duties set forth in the following subparagraphsof this Section 1.2 and as provided elsewhere in this Agreement:

 

(a)                                Developershall be responsible for developing and constructing all elements of theRestaurant except for the Tenant’s Work and except for any task specificallyallocated to Granite City in Section 2.1 herein.

 

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(b)                               Workwith Granite City to establish mutually acceptable Project cost goals and toestablish a Total Project Cost (as defined in Section 7.1(c) herein)for each Restaurant approved by Granite City (“Approved Total Project Cost”).

 

(c)                                Negotiatethe terms and conditions of the purchase agreements or ground lease agreementsbetween Developer and land owners to be used to acquire all properties relatedto the development (“Land Agreement”).

 

(i)                                     Priorto negotiating a Land Agreement for a Restaurant site, Developer shall consultwith Granite City concerning the basic terms and conditions of suchagreement.  The final Land Agreementshall be subject to the written consent of Granite City which shall not beunreasonably withheld.

 

(ii)                                  Developershall provide Granite City copies of the following documents prior to closingthe Land Agreement for such property for each Restaurant:

 

(1)                                  TitleInsurance Commitment and copies of all documents constituting an exception totitle.

 

(2)                                  Surveymeeting ALTA/ACSM Land Title Standards, whenever possible, and if not possible,such surveys as can be procured as close to such standards as possible atreasonable cost.

 

(3)                                  Allenvironmental audits, tests and reports.

 

(4)                                  Allgeotechnical investigation reports.

 

(iii)                               Enterinto the Lease with Granite City or with a subsidiary of Granite Cityguarantied by Granite City pursuant to Section 7 herein.  The Lease shall be based on the standardGranite City form to be negotiated and agreed upon by the parties and attachedas Exhibit A, all post-execution of this Agreement.

 

(iv)                              Closethe Land Agreement and thereby acquire the Restaurant site in time to commenceconstruction per the Development Schedule in Section 3 herein.

 

(d)                               Negotiatethe terms and conditions of a Guaranteed Maximum Cost construction contractbetween Developer and a general contractor (“Construction Contract”) afterobtaining bids on the construction of the Restaurant from three generalcontractors for the construction work being performed by Developer at aspecific site (“Contractor’s Work”).  Thetotal construction cost of Contractor’s Work shall be limited to a “GuaranteedMaximum Cost.”  Prior to negotiating aConstruction Contract, the Developer 

 

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shall consult withGranite City concerning the basic terms and conditions of such contract, andperform appropriate financial due diligence. The final Construction Contract shall be subject to the written consentof Granite City not to be unreasonably withheld including but not limited toapproval of all contractor warranties, allowable costs, disallowed costs, feeamount, overhead amount, insurance requirements, indemnities, and “CompletionDate.”  The Developer shall cause thegeneral contractor to coordinate Tenant’s Work as set forth on **Exhibit C** in conjunction with Contractor’s Work toachieve substantial completion.  Providedthe General Contractor has adequate expertise in Tenant Work, Developer andGranite City anticipate to attempt to utilize the same contractor forContractor’s Work and Tenant’s Work with separate contracts between thecontractor and each party for the specific work.  The Developer may select a related party asthe general contractor but only with Granite City’s prior written consent.

 

(e)                                TheRestaurant Project will be deemed substantially complete when(i) governmental approvals, permits and inspections have been achieved orpassed for Contractor’s Work, and (ii) the only legal or functionalimpediment to Granite City conducting its Restaurant operations in theRestaurant is completion of the Tenants Work, and (iii) when theRestaurant Project’s external and internal appearance is appropriate for publicoperations; subject to minor punchlist items to be completed during thecompletion of the Tenants Work.  Theparties shall discuss the selection of each general contractor prior toselection and such general contractor shall be subject to Granite City’swritten approval which shall not be unreasonably withheld.

 

(f)                                  Consultwith Granite City prior to entering into any Construction Contract as to whichcontracts Granite City believes should be awarded on a competitive biddingprocess, not to require acceptance of the lowest bid and further to provide forsuch bidding process.  Developer, throughits Project Manager, will obtain at least three competitive bids for each site.

 

(g)                               Consultwith Granite City as to which furniture, fixtures and equipment shall beincluded or excluded from the Construction Contract.

 

(h)                               Determinelocal code requirements in order to assure that such code requirements aresatisfied by the plans and specifications referenced in the initial request forconstruction bids and construction contracts (as opposed to requiring changeorders).

 

(i)                                   Negotiatethe terms and conditions of a contract with an architectural firm, which firmand contract is acceptable to Granite City, such contract shall includeprovisions to provide final drawings and construction plans and specificationsfor each Restaurant.  Developer shall paythe architect’s fee which shall be part of the Total Project Cost.  Developer shall be entitled to utilize theplans and specifications now and in the future for the Project.  Granite City shall own exclusive rights inthe plans and specifications for the Restaurants, and 

 

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shall own theplans and specifications for purposes of constructing the Tenant’s Work on eachRestaurant and for purposes of being the sole party authorized to permit use ofthe plans and specifications or modifications thereof at other sites (subjectto architect’s rights to the plans and specifications which the parties willtry to minimize in negotiations). Granite City shall advise Developer on various final plan details andsite plans, and the final construction plans and specifications shall besubject to Granite City’s written approval. Such plans and specifications shall not be modified, supplemented, oramended without Granite City’s prior written consent and approval; provided,however, that Developer shall be allowed to amend non-material items throughoutthe period of construction, if such item would not have a material effect onthe operation of the Restaurant and if such change would not increase theconstruction cost of the Project by more than $1,000 for any single amendmentnor by more than $5,000 for all such amendments collectively.

 

(j)                                   Negotiatethe terms and conditions of other necessary and appropriate contracts betweenDeveloper and contractors and professionals (i.e. appraisers, soil engineers,environmental engineers, civil engineers, etc.) as required to completefacilities.  Developer shall require(i) the general contractor to carry and maintain adequate builder’s riskinsurance; (ii) all such contractors to carry and maintain adequategeneral liability insurance,  and(iii) professionals to have adequate liability and errors and omissionsinsurance, and all such contracts shall have adequate indemnity and insuranceprovisions so as to protect both Developer and Granite City from errors andomissions and negligent acts by such contractors and professionals.

 

(k)                                Secureall financing and funds necessary to fund the Total Project Cost.

 

(l)                                   Coordinatewith the project engineers and architects obtaining the approvals needed fromlocal, state, and federal, governmental units and agencies as required toobtain all needed permits for all Restaurant facilities and improvements.  Developer shall periodically review withGranite City any design or site plan negotiations with such governmental unitsand agencies and all final agreements regarding site plans shall be subject toGranite City’s written approval which shall not be unreasonably withheld.

 

(m)                             Providea secure, web-based application that provides real-time project status,expected completion date and project management tools to allow Granite City tomonitor the Project from the Internet.

 

(n)                               Approvalor Disapproval of any Restaurant site.

 

(o)                               Approvalor Disapproval of the Total Project Cost.

 

(p)                               Provideperiodic cost estimates to Granite City for completion of facilities, and usereasonable efforts to cause revisions to be made to plans and 

 

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specificationswhich are approved by Granite City to cause costs to be equal to or less thanthe Guaranteed Maximum Cost.

 

(q)                               Conductmeetings pursuant to a construction strip schedule with any and all architects,engineers, contractors, consultants, suppliers, Granite City, and all otherinvolved individuals and entities.

 

(r)                                  Coordinateand communicate development activities between all parties, contractors,governmental agencies, representatives, and Granite City.

 

(s)                                Assistin supervising construction including consultation with contractors,architects, engineers, Granite City and all other involved individuals andentities.

 

(t)                                  Permitperiodic formal inspections of the construction process and Project by GraniteCity and its agents at such times and frequency as Granite City may require.

 

(u)                               Performand observe in timely fashion each and all of its covenants conditions,obligations and agreements under the construction contract in accordance withthe terms and conditions thereof.

 

(v)                               Promptlynotify Granite City of any default or breach of or under the ConstructionContract by any party thereto or of any failure of performance or othercondition that with the giving of notice or the passage of time, or both, wouldbecome a default.

 

(w)                             Coordinatepayments to contractors and suppliers and assist in making recommendations forpayment for dispute work.

 

(x)                                 Arrangefor the construction of required public infrastructure (sewers, streets, etc.)by governmental bodies and advise Granite City as to any estimated specialassessments which need to be taken into account in Granite City’s budget.

 

(y)                               Assembleall Project documents and records including, but not limited to, guarantees,warranties, lien releases, operating manuals, drawings, and other documentsreferred to in the specifications of the facilities.

 

(z)                                 Preparepunch lists with Granite City upon substantial completion of each facility andsupervise corrections of the items and work on such punchlists pending finalcompletion of each facility.

 

(aa)                         Providetimely reporting of Project status to all parties.  Developer acknowledges that it is critical todeliver each Restaurant substantially completed by the construction contractCompletion Date because Granite City (i) will expend substantial amountsfor the purchase of furniture, fixtures, and equipment which will be deliveredand paid for at a time that is prior to the Completion Date 

 

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and(ii) will, at significant cost, hire and train a substantial number ofemployees some of whom will have to be paid whether or not the Restaurant issubstantially complete on the Completion Date.

 

(bb)                          Developershall be obligated to deliver the Restaurant substantially complete by theCompletion Date subject to Unavoidable Delay. Unavoidable Delay shall mean delays in the performance of obligationsunder this Agreement due to acts of God, acts of the public enemy, acts ofGranite City, other than customary performance by Granite City of Tenant’s Workor performance in accordance with the Schedule in Section 3.1,performance, which delays the completion of Developer’s work or late deliveryby Granite City’s suppliers, failure of unrelated third parties to performbinding contracts with Developer, the direct unavoidable result of strikes,walk outs and lockouts which could not be reasonably anticipated, fire, floods,epidemics and quarantines, unavailability of power, unavailability of materialswhich would not reasonably be anticipated, the requirement to remediateenvironmental conditions other than as noted in environmental audits procuredprior to commencing construction, the requirement to correct concealedconditions not revealed by adequate soil tests, action or inaction ofgovernmental authorities, unusually severe weather not reasonablyanticipatable, casualty to the Project improvements, and litigation whichdelays construction by injunction, provided no such occurrence shall constitute“Unavoidable Delay” for a party unless the party gives written notice to theother party of such occurrence within thirty (30) days of the party’s knowledgeof its first occurrence.  For each day ofUnavoidable Delay, one day shall be added to the Development Schedule underthis Agreement for completion of the affected task and any subsequent task thecommencement of which is dependent on completion of the affected task.  The parties may amend the DevelopmentSchedule by change order to incorporate those changes in completion dates foraffected tasks in order to assure agreement on such matters.

 

(cc)                            Subjectto Unavoidable Delays, deliver to Granite City first class quality Restaurantsconstructed in accordance with approved plans and specifications within timeframes provided by this agreement and the leases to be entered into byDeveloper and Granite City.

 

1.3                                 RestaurantFee.  For each Restaurant developed,Developer will earn a $75,000 fee (“Restaurant Fee”).  The Restaurant Fee shall be part of the TotalProject Cost.  Developer shall not beentitled to additional reimbursement for site selection expenses or travelexpenses.

 

**SECTION 2RESPONSIBILITIES OF GRANITE CITY**

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2.1                                 GraniteCity’s obligations are set forth in the following subparagraphs of thisSection 2, and as provided elsewhere in this Agreement; provided, however,that if the performance of any duty of Granite City set forth in this Agreementis beyond the reasonable control of Granite City, Granite City shallnonetheless be obligated to (1) use 

 

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its best efforts to perform such duty and(2) promptly notify Developer that the performance of such duty is beyondits reasonable control.  Granite Cityshall:

 

(a)                                Reviewand provide written consent or rejection for all site selections for eachRestaurant as provided by Developer.

 

(b)                               Negotiateand enter into a lease with Developer in accordance with Sections 3 and 7herein.

 

(c)                                Approveor disapprove, in writing, the plans and specifications of each Restaurant.

 

(d)                               Approveor disapprove, in writing, the Guaranteed Maximum Cost in the constructioncontract and approval or disapproval in writing of the Total Project Cost.

 

(e)                                Provideall communication to Developer in a timely manner to expedite developmentactivities between all parties, contractors, governmental agencies, and otherrepresentatives.

 

(f)                                  Providewritten materials containing the instructions, requirements, standards,specifications and procedures for the development and construction of GraniteCity Food & Brewery Restaurants.

 

(g)                               Acquire,construct, and install the Tenant’s Work described in **Exhibit C**herein.

 

(h)                               Obtainthe liquor license and brewing license for each Restaurant.

 

**SECTION 3DEVELOPMENT SCHEDULE**

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3.1                                 DevelopmentProcess.  Recognizing that time is ofthe essence, Developer (D) and Granite City (GC) acknowledge and agreethat a material provision of this Agreement is that the following developmentschedule must be completed within ten (10) days of the parties selecting asite and adhered to during the term of this Agreement.  The Development Schedule for Restaurantssubject to this Agreement will be completed with **Exhibit D**as a guide:

 
| a.     |   | Identification of city or metropolitan area (“Market”) for Project  (GC) |   | As initiated by GC                                             |
|--------|--------|------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|
|   |   |                                                                               |   |                                                           |
| b.     |   | Site Selection (GC & D)                                                        |   |      days after Market Identification |
|   |   |                                                                               |   |                                                           |
| c.     |   | Executed Land Agreement (D)                                                        |   |      days after Site Selection        |
|   |   |                                                                               |   |                                                           |
| d.     |   | Modified Plans and Specifications (GC)                                             |   |      days after Site Selection        |

 

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| e.     |   | Estimate of Project Cost (D)                                     |   |      days after delivery of Plans and  Specifications |
|--------|--------|------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|
|   |   |                                                             |   |                                                                           |
| f.     |   | Approval or Disapproval of Total Project Cost Budget (GC and D)  |   |      days after estimate of costs                     |
|   |   |                                                             |   |                                                                           |
| g.     |   | Approval or Disapproval of Restaurant Site (D and GC)            |   |                                                                           |
|   |   |                                                             |   |                                                                           |
| h.     |   | Execution of Lease (D and GC)                                    |   |      days after                                       |
|   |   |                                                             |   |                                                                           |
| i.     |   | Acquisition of Liquor License (GC)*                              |   |      days after                                       |
|   |   |                                                             |   |                                                                           |
| j.     |   | Acquisition of Brewing License (GC)                              |   |      days after                                       |
|   |   |                                                             |   |                                                                           |
| k.     |   | Expiration of Contingency Period under Land Agreement (D and GC) |   |                                                                           |
|   |   |                                                             |   |                                                                           |
| l.     |   | Closing of Land Purchase under Land Agreement (D)                |   |                                                                           |
|   |   |                                                             |   |                                                                           |
| m.     |   | Commencement of Developer Construction (D)**                     |   |      months after Land Agreement executed             |
|   |   |                                                             |   |                                                                           |
| n.     |   | Commencement of Granite City Construction (GC)                   |   |      days after                                       |
|   |   |                                                             |   |                                                                           |
| o.     |   | Completion of Developer Construction (D)                         |   |      months after commencement of  construction       |
|   |   |                                                             |   |                                                                           |
| p.     |   | Completion of Granite City Construction (GC)                     |   |      days after                                       |

 

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*                                         GraniteCity may waive acquisition of liquor license on schedule if Granite City hasentered into a purchase agreement to purchase a liquor license

 

**                                  Constructionof a Restaurant shall be deemed to commence upon Developer commencing materialand continuous work under the general construction contract.

 

3.2                                 Failureto Comply with Development Schedule. The Developer or Granite City’s failure to comply with the aboveDevelopment Schedule without material contribution to such failure by the otherparty will constitute a material breach of this Agreement by the defaultingparty and, in that event, the non-defaulting party will have the right toterminate this Agreement as provided in Section 4.2.  Termination of this Agreement as a result ofthe defaulting party’s failure to meet the Development Schedule set forth abovewill not affect an individual Restaurant which is in compliance with theDevelopment Schedule or for which a lease has been executed, but will terminatethe contract with respect to the obligation to construct or lease additionalRestaurants with Developer.

 

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**SECTION 4EVENTS OF DEFAULT**

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4.1                                 Defined.  The term “Event of Default” shall mean anyfailure by any party to observe or perform any material covenant, condition,obligation or agreement on its part to be observed or performed under thisAgreement, insolvency of a party, the filing of a petition in bankruptcy by aparty or the filing of a petition in bankruptcy against such party which is notdismissed within sixty (60) days.

 

4.2                                 Remedies.

 

(a)                                  Defaultby Developer.  Whenever any Event ofDefault occurs as a result of an act or omission of Developer, after providingthirty (30) days written notice to Developer of the Event of Default, and onlyif the Event of Default has not been cured within thirty (30) days of Developerreceiving such notice, Granite City may, as its sole and exclusive remedies:

 

(i)                                     suspendGranite City’s performance under this Agreement; and/or

 

(ii)                                  cancel,rescind or terminate this Agreement.

 

(b)                                 Defaultby Granite City.  Whenever an Eventof Default occurs as a result of an act or omission of Granite City set forthin this Agreement, Developer shall have, as its sole and exclusive remedy, theright to terminate this Agreement after providing thirty (30) days writtennotice to Granite City of the event of default, but only if the event ofdefault has not been cured within said thirty (30) days.  Developer’s inability to sell Restaurantssites shall not be an Event of Default that entitles Developer to exercise itsremedies.

 

4.3                                 Termination.  Upon termination of the Agreement,

 

(a)                                  Developerwill have no further right or obligation to construct Restaurants.

 

(b)                                 GraniteCity will have the right to develop and construct Restaurants in any locationand to contract with another party for development in any location.

 

(c)                                  Neitherparty shall have further liabilities under this Agreement except as provided inSection 4.3(d) and 4.3(e) below but both parties shall remainobligated under any lease they have entered into pursuant to this Agreement.

 

(d)                                 GraniteCity will have the right but not the obligation to take assignment fromDeveloper of any existing land purchase agreements for sites identified asRestaurant sites pursuant to this agreement for a purchase price equal to theamount, if any, of Developer’s out of pocket costs relating to such site, and

 

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the right but notthe obligation to purchase from Developer any uncompleted Restaurant facilitysubject to this Agreement, and not subject to an executed lease between theparties, for a price equal to the lesser of the Total Project Cost or theamount of allowable costs incurred by Developer to date of exercise of GraniteCity’s purchase.

 

(e)                                  Notwithstandingthe above, neither Granite City or the Developer shall terminate this Agreementon account of a default which is not a material default (as defined below),provided the defaulting party uses commercially reasonable efforts to cure thedefault.  For purposes of this Agreementa Material Default means a default which either delays the Completion Date byat least 30 days or causes the nondefaulting party at least $50,000 in damages.

 

(f)                                    Notwithstandingthe above, termination of this Agreement will not affect an individualRestaurant which is in compliance with the Development Schedule or for which alease has been executed.

 

4.4                                 DisputeResolution.  In the event the partiescannot agree on any matter set out in this Agreement, the parties, at theoption of either party, may election to have the matter resolved bymediation.  The mediation shall takeplace in Hennepin County, State of Minnesota. The party exercising the option to mediate shall give not less than ten(10) days’ written notice of the mediation.  The notice shall state the place and time ofmediation and the name of the mediator, who shall be agreed upon by the partiesor attorneys for the parties after consultation, or in absence of suchagreement, shall be a licensed lawyer with prior experience as a mediatordesignated by the party calling for the mediation.  In the event mediation does not successfullyresolve the matter, or in the event the option to mediate is not timelyexercised, the parties may seek their remedies at law, including but notlimited to the right to pursue such remedies in any state or federal court ofcompetent jurisdiction, with the law of the State of Minnesota, without regardto its conflict of law provisions, to govern the construction andinterpretation of this Agreement.

 

4.5                                 Remedies.  Each and every such remedy set forth in thisAgreement shall be cumulative and shall be in addition to every other remedygiven under this Agreement, provided that in no event shall a party be entitledto double recovery or multiple remedies which if effected in their totalitywould be inequitable or in bad faith.  Nodelay or omission to exercise any remedy or power accruing upon any event ofdefault shall impair any such remedy or power or shall be construed to be awaiver thereof.  Any such remedy andpower may be exercised from time to time and as often as may be deemedexpedient.  In order to entitle eitherparty to exercise any remedy reserved to it, it shall not be necessary to givenotice, other than such notice as may be required in this Section 4.

 

4.6                                 NoAdditional Waiver Implied by One Waiver. In the event any Event of Default is waived by the non-defaulting party,such waiver shall be limited to the particular Event of Default so waived andshall not be deemed to waive any other concurrent, previous or subsequent Eventof Default hereunder.

 

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**SECTION 5SITE SELECTION**

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Developer will assume all cost,liability, expense and responsibility for locating and obtaining sites for eachRestaurant, provided Granite City has fulfilled its obligations related toreview and cooperation in approval of such sites.  Developer will be responsible forcoordination of constructing or renovating each Restaurant at such sites.

 

5.1                                 Priorto the acquisition of each site for a Restaurant, Granite City will, at itsexpense, submit to the Developer in writing, a description of the site and amarket feasibility study including demographic information, land site plans,photographs, and such other information or materials as the Developer mayreasonably require.  The Developer will havethirty (30) days after receipt of such information and materials from GraniteCity to review and approve the proposed site as the location for aRestaurant.  If Developer disapproves ofany site, Developer will state in writing its reasons for disapproval.

 

5.2                                 Ifthe phase one environmental audit for a potential site indicates a materialrisk of contamination, the Developer may elect not to develop the site.  In such an event Granite City shall agree notto develop such site as well.  Developerand Granite City will then endeavor to locate an alternative site.

 

5.3                                 Afterthe location for a Restaurant has been reviewed and agreed upon by theDeveloper and Granite City, Developer shall purchase or lease the site inaccordance with Development Schedule deadline set forth in Section 3.

 

5.4                                 GraniteCity shall select all furniture, fixtures and equipment necessary for theoperation of each Restaurant.  Developershall use its best efforts to secure a financing package for the furniture,fixtures and equipment for the four Restaurants for which construction isscheduled herein to commence in 2009.

 

5.5                                 Aspart of the services being provided by Developer under this Agreement,Developer is acting as Granite City’s exclusive agent in locating sites forRestaurant development, except for specific transactions which Granite Cityprovides written notice to Developer prior to Developer’s contact with theowner of a site or the owner’s representative. As such, Granite City acknowledges and agrees that Developer may beentitled to an additional brokerage commission paid by the owner of asite.  When reasonable to do so, GraniteCity agrees to support Developer in obtaining such a commission.

 

**SECTION 6INSPECTION**

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Upon receipt thereof, Developeragrees to provide Granite City copies of all proposed and executed constructioncontracts, subcontracts and purchase orders related to the construction of theRestaurant.  Granite City or its agents,contractors or employees shall be entitled, but not obligated, to inspectconstruction of the Restaurant, all records relating to the Project realestate, and the books and other financial records of Developer

 

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or theContractor and Developer relating to the Project.  Developer shall require Contractor tocooperate with Granite City in enabling Granite City to accomplish suchinspection.  At the completion ofconstruction of the Restaurant, all items set forth on any inspection report orpunchlist shall be completed before final payment is made to the Contractor.  The right of inspection is for the benefit ofGranite City.  Granite City shall not bedeemed to have assumed any responsibility to Developer or the Contractor, orany third party as a result of any such action nor shall Granite City be deemedto have waived any claims or warranties either by exercising such rights or bydeclining to exercise such rights.

 

**SECTION 7LEASE AGREEMENT**

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7.1                                 Leases.  For each Restaurant site developed byDeveloper, Granite City shall enter into a lease agreement (the “Lease”) withDeveloper or an assignee of Developer substantially in Granite City’s standardform to be finalized by the parties to be consistent with the terms andconditions of this Agreement and attached as **Exhibit A**prior to May 30, 2008 or such other date to which the parties may mutuallyagree in writing.  If the Parties cannotreach an agreement, this Agreement shall become null and void.  Each lease agreement shall contain thefollowing terms:

 

(a)                                  TripleNet.  Each lease shall be a “pure”triple net lease in which the Developer will incur no additional operating expenseswhatsoever, except for certain capital costs specified in the lease.

 

(b)                                 Termof Lease.  Each lease term shall befor twenty (20) years with three (3) seven-year options to renew, unlessthe underlying ground lease term is for a lesser term and Granite Cityspecifically approves a lesser term for that reason.

 

(c)                                  ProjectCosts.  The Approved Total ProjectCost of construction of the Restaurant shall be equal to the sum of(i) the Guaranteed Maximum Cost amount set forth in the AIA GuaranteedMaximum Cost Construction Contract, and (ii) the “Approved Soft CostBudget” and (iii) “Approved Land Costs.” The Approved Total Project Cost will not change unless Granite Cityinitiates a change to the plans and specifications and both parties execute achange order or in the event that the Total Project Cost changes as a result ofactions of Granite City or its suppliers. Granite City will not be responsible for increases in costs resultingfrom change orders required as a result of failure of Developer to correctlydetermine conditions of a site prior to purchasing the site.  Except for the Restaurant Fee and a fee thatmay be paid by the owner of a site to Developer as Granite City’srepresentative, there will be no development fee, management, financing or otherfee earned or due by the Developer it being agreed that such fees and the rentfully compensates Developer.  Projectcosts are more specifically defined in **Exhibit B**.

 

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(d)                                 Rent.  The annual Base Rent (as defined in theLease) shall be determined by multiplying the approved Total Project Cost, by9.5%.  Annual Base Rent shall beincreased on the 5th, 10th and 15thanniversaries of the Lease Commencement Date for the following five lease yearsby seven and one-half percent (7.5%). Annual Base Rent shall be increased on each of the 20th, 27thand 34th anniversaries of the Lease Commencement Date for thefollowing seven lease years by 10%.

 

For example, if the firstProject has a Approved Total Project Cost of $3,000,000 and an actual TotalProject Cost of $3,002,000 the annual Base Rent for the first lease year wouldbe (9.5%) ($3,000,000) = $285,000.  Onthe fifth anniversary of the Lease Commencement Date the annual Base Rent wouldincrease to $306,375.

 

Beginning on January 1,2010, the parties shall annually review the market condition for the terminalcap rate used to calculate the Expected Sales Price in subsection 7.1(g).  The market terminal cap rate as of the dateof this Agreement has been calculated at 8.25%. The market terminal cap rate shall be reviewed to determine whether thepercent used to calculate the annual base rent for a Restaurant site where alease has not been executed between the parties needs to be adjusted.  If market conditions have changed, theparties shall use good faith efforts to agree upon a changed percent used tocalculate the annual base rent that is 125 basis points over the changed marketterminal cap rate.  In the event that theparties cannot in good faith agree on changed percent used to calculate theannual base rent to reflect market conditions related to the Expected SalesPrice, either party may terminate this Agreement upon written thirty (30) daynotice with the further opportunity to agree upon the changed percent duringthe thirty (30) day period.

 

(e)                                  RentCommencement Date.  Rent shallcommence for each site the earlier of (i) the day Granite City commencesto operate as a public Restaurant, or (ii) the twenty-first (21) day afterthe issuance of a certificate of occupancy, provided that Granite City shall beliable for rent that would have been due and payable except for any delay inobtaining a certificate of occupancy beyond the approved Development Scheduleto the extent such delay results solely from Granite City failing to completethe Tenant Improvements specified on **Exhibit C**per the approved Development Schedule without contribution to such delay by anyacts or omissions of Developer.

 

(f)                                    Rightof First Offer.  Granite City shallhave the right of first offer to purchase the Restaurant real estate,improvements and, if owned by the Developer, the Restaurant furniture, fixturesand equipment, (“Restaurant Property”) prior to any sale of the Restaurant byDeveloper to a third party.  Developershall provide notice to Granite City of acceptable terms of sale.  Granite City shall have ten (10) days toenter into a purchase agreement with Developer. If Granite City does not enter into a purchase agreement with Developer withinsuch ten (10) day period, Granite City’s right of first offer with

 

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respect to suchsale shall expire.  If Developer does notenter into a purchase agreement at a purchase price of at least 90% of thepurchase price Developer offered Granite City and close the purchase, withinone (1) year of the expiration of Granite City’s ten day acceptance periodor such purchase agreement is terminated prior to closing, Developer may notsell the Restaurant Property to a third party without first offering to sellthe Restaurant Property to Granite City pursuant to the terms and conditions ofthe Right of First Offer.  The Right ofFirst Offer shall not be included in the lease but may be recorded.  Provided that Granite City’s Right of FirstOffer has terminated pursuant to the terms of this subsection (f), Granite Cityshall execute and deliver to Developer a written recordable acknowledgement ofthe termination of Granite City’s Right of First Offer drafted by Developer andreasonably acceptable to Granite City.

 

(g)                                 ProfitSplit.  The Lease will provide thatwhen Developer sells any Restaurant developed pursuant to this Agreement(“Restaurant”) and/or assigns the landlord’s interest in such Lease,(collectively, the Restaurant and Lease are sometimes called the “Property”),Developer will pay half of any “Excess Profit” to Granite City upon closing ofthe sale.  Excess Profit is defined asthe amount of the sales price for the Property in excess of the sum of“Expected Sales Price” and Costs of Sale. “Costs of Sale” means customary costs incurred to sell the RestaurantProperty inclusive of transfer taxes, recording costs, title costs, duediligence costs incurred by Developer under the purchase agreement, brokeragecommissions and legal fees.  TheDeveloper may select a related party as the broker for such sale.  The Expected Sales Price is the annual BaseRent (as defined in the Lease) on the day the purchase agreement for theProperty is fully executed divided by 8.25%.  For example, a Restaurant that cost $2,450,000 would be leased toGranite City at 9.5% of the cost, or $232,750 annually.  The terminal cap rate of 8.25% would imply anExpected Sales Price of $2,821,212 (i.e. $232,750/8.25%).  The excess of any sale price above $2,821,212would be split 50/50 between United and Granite City.  If, for example the building sold at a caprate of 7.5% or $3,103,333 (i.e. $232,750/7.5%) then each party would split theexcess profit of $282,121 (i.e. $3,103,333 - $2,821,212).  Any loss on the sale of a property would beborne solely by Developer.

 

(h)                                 Itis anticipated that Granite City will need to make substantial improvements tothe Restaurant every 5 to 7 years during the term of the Lease.  After obtaining written approval of suchimprovements from Developer, which shall not be unreasonably withheld ordelayed, Granite City may enter into a construction contract with a generalcontractor to construct such improvements. In such event Granite City will not commence construction unlessDeveloper approves the contractor, the contract, and builders risk insurance,such approvals not to be unreasonably withheld or delayed and until GraniteCity has satisfied Developer that Granite City has the funds necessary to paythe cost of such improvements.  GraniteCity may finance such improvements with a leasehold mortgage reasonablyacceptable to Developer.  The terms ofthis Section 7.1(i) shall be incorporated in more detail in theLease.

 

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7.2                                 Leaseto Govern.  Once a lease is executedfor a specific Restaurant site, the terms of the lease shall govern and controlthe relationship of the parties with respect to the specific Restaurantsite.  To the extent that any provisionsof this Agreement are inconsistent with or contrary to the provisions of theexecuted lease, the provisions of the executed lease shall control.

 

**SECTION 8NUMBER OF SITES**

** **

8.1                                 Developeragrees to develop, build and lease up to twenty-two (22) Restaurants in theperiod commencing January 1, 2009 through December 31, 2012.  Except as hereinafter provided, during suchperiod, Developer shall be the exclusive developer for Granite City during theterm of this Agreement except as set forth in Sections 8.2, 8.3 and 8.4.  Granite City shall not utilize any otherdeveloper as long as this Agreement is in effect.  Developer shall be owner of Restaurantsdeveloped pursuant to this Agreement.  Granite City and Developer agree upon thefollowing development schedule:

 
| 2009 |   | 4 Restaurants |
|------|--------|---------------|
| 2010 |   | 6 Restaurants |
| 2011 |   | 6 Restaurants |
| 2012 |   | 6 Restaurants |

 

8.2                                 Notwithstandingthe above, without penalty or liability, and without waiving any rights underthis Agreement, Granite City may:

 

(a)                                  Useanother developer to develop Restaurants if the Agreement is terminatedpursuant to Section 3 or 4.2 because of a Developer Default.

 

(b)                                 Useanother developer to develop a particular Restaurant if Developer declines todevelop such Restaurant for any reason including Developer’s unwillingness toapprove the Guaranteed Maximum Cost, the Total Project Cost, or the RestaurantSite.

 

In addition to the foregoing, Granite City may, without liability toDeveloper, utilize its existing developer to develop three planned Restaurants;one in South Bend, Indiana; one in Indianapolis, Indiana in 2008, and one inTroy, Michigan in 2009.  Such Restaurantsshall not be counted toward the 22-Restaurant Project to be developed byDeveloper pursuant to this Agreement.

 

8.3                                 Notwithstandingany other clause herein to the contrary, if Granite City elects to develop agreater number of Restaurants during the term of this Agreement than providedin this Agreement, it shall: (a) notify Developer in writing of the locations and tentativeschedule for developments; and (b) agree to promptly meet with Developerto discuss such increased development. Developer shall have thirty (30) days following the date of writtennotice from Granite City to elect to increase the number of Restaurants by someor all of the additional Restaurants requested by Granite City.  If such election is

 

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made, such additional Restaurants shall be added tothe number of Restaurants to be developed pursuant to Section 8.1.  If Developer declines to develop some or allof such additional Restaurants, Granite City may pursue development of suchRestaurants utilizing other developers, free of any obligation to Developer underthis Agreement with respect to such additional Restaurants, and the partieshereto shall remain obligated under this Agreement in accordance with itsterms.

 

8.4                                 Theparties anticipate that the preferred project is for Developer to purchase feetitle to a site and construct a Restaurant for lease to Granite City.  However, the parties recognize thatoccasionally it might be preferable for Developer to purchase and rehab anexisting building or to ground lease land for construction of a Restaurant tobe leased to Granite City.  On suchoccasions, Developer and Granite City shall enter into exclusive negotiationsfor a period of sixty (60) days to attempt to determine a fee arrangementacceptable to the parties.  If a mutuallyacceptable fee arrangement can not be agreed upon within such time frame, GraniteCity can utilize another developer for such site.

 

**SECTION 9TERM**

** **

9.1                                 ThisAgreement shall terminate on the later of i) December 31, 2012 orii) the date of completion of the last Restaurant to be completed forwhich construction was commenced prior to December 31, 2012.

 

9.2                                 Notwithstandingany other clause herein to the contrary, Granite City may terminate thisAgreement without penalty or payment by written notice to Developer withinninety (90) days of another party acquiring substantially all the stock orassets of Granite City by merger or otherwise. In such event, Granite City shall comply with the terms of thisAgreement with respect to any Restaurant for which Developer has previouslyentered into a binding agreement to acquire the land for such Restaurant butGranite City shall not be obligated to develop other Restaurants withDeveloper.

 

**SECTION 10GENERAL PROVISIONS**

** **

10.1                           Notice.  Unless otherwise required by law, any noticesrequired or permitted to be given hereunder may be, and shall be deemed, givenwhen delivered in person, by overnight courier or deposited in the UnitedStates Mail, postage prepaid, addressed to the party or parties to whom noticeis to be given, at the following addresses, or to such other addresses as theparties may for themselves designate in writing by notice hereunder:

 

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| If to Developer:                                  |   | With a Copy to:                          |
|---------------------------------------------------|--------|------------------------------------------|
| John Breitinger                                   |   | Greg Brenny                              |
| 3500 American Blvd. W, Ste 200                    |   | Fafinski Mark & Johnson, P.A.   |
| Minneapolis, MN 55431                             |   | 775 Prairie Center Drive, Suite 400 |
|                                              |   | Eden Prairie, Minnesota 55344            |
|                                              |   |                                     |
| If to Granite City Food & Brewery, Ltd.: |   | With a Copy to:                          |
| Steven J. Wagenheim                               |   | Avron Gordon, Esq.                  |
| 5402 Parkdale Drive, Ste 101                      |   | Briggs and Morgan, P.A.                  |
| St. Louis Park, MN 55416                          |   | 2400 IDS Center                          |
|                                              |   | Minneapolis, MN 55402                    |

 

10.2                           Miscellaneous.  This Agreement (i) shall be construedunder and in accordance with the laws of the State of Minnesota; (ii) maybe executed in one or more counterparts, all of which shall be considered oneand the same agreement; (iii) embodies the entire agreement andunderstanding, and supersedes all prior agreements and understandings betweenDeveloper and Granite City relating to the subject matter hereof; and(iv) may be amended or modified only in writing or as specificallyprovided herein.

 

10.3                           Successorsand Assigns.  Developer shall have noright to assign this Agreement or any of its rights or obligations hereunder,except to an entity of which Developer has a controlling interest.  Subject to the preceding sentence, thisAgreement shall be binding on and inure to the benefit of the parties heretoand their respective personal representatives, successors and assigns.

 

10.4                           Exhibits.  All exhibits attached hereto are incorporatedherein and form a part of this Agreement.

 

10.5                           BindingEffect.  This Agreement shall bebinding on the parties hereto, their heirs, executors, personalrepresentatives, successors and assigns and supersedes any prior agreement forthe development of the Project between the parties hereto.

 

10.6                           Headings.  All section headings in this Agreement arefor convenience of reference only and are not intended to qualify the meaningof any section.

 

10.7                           Pronouns.  All personal pronouns used in this Agreement,whether used in the masculine, feminine or neuter gender, shall include allother genders, the singular shall include the plural, and vice versa as thecontext may require.

 

10.8                           Benefitof Agreement.  The obligations andundertakings of the Developers set forth in this Agreement are made for thebenefit of the parties and shall not inure to the benefit of any creditor ofthe parties or any owner of the parties or any other third party,notwithstanding any pledge or assignment by a party of this Agreement or anyrights hereunder.

 

10.9                           Counterparts.  This agreement may be executed by the partiesin counterpart and the signature pages assembled into one agreement.  In such event each

 

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such assembled agreement shall be deemed a completeagreement binding on both parties to the Agreement.

 

IN WITNESS WHEREOF, the partieshave caused this Agreement to be duly executed as of the date first writtenabove.

 
|   | GRANITE CITY  FOOD & BREWERY,  LTD. |
|--------|----------------------------------------------|
|   |                                         |   |
|   |                                         |   |
|   | By                                           | /s/ James G.  Gilbertson |
|   | Its                                          | Chief  Financial Officer |
|   |                                         |   |
|   |                                         |   |
|   | UNITED  PROPERTIES INVESTMENT  LLC           |
|   |                                         |   |
|   |                                         |   |
|   | By                                           | /s/ | Keith A. Ulstad |
|   | Print                                        | Keith A.  Ulstad |
|   | Its                                          | Vice  President |
|   |                                         |   |
|   |                                         |   |
|   | By                                           | /s/ John  Breitinger |
|   | Print                                        | John  Breitinger |
|   | Its                                          | Vice  President |
|        |                                              |  |  |  |

 

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**EXHIBIT A**

 

**LEASE**

 

[To be filed when prepared.]

 

A-1

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**EXHIBIT B**

 

**PROJECT COSTS**

 

**The following items are included in, but notlimited to, “Total Project Cost”:**

 

**HARD COSTS TO INCLUDE:**

** **

·                                          BuildingPermit(s)

·                                          SoilTest(s)

·                                          Survey &Stakeout

·                                          Demolitionand Clearing of Site

·                                          Excavation,Fill, Grading, Final Grade

·                                          Sewerand Water

·                                          Footingsand Foundations

·                                          Damproofing

·                                          BuildingFloor

·                                          ExteriorConcrete/Flatwork

·                                          Patio

·                                          Curb &Gutter

·                                          AsphaltPaving

·                                          ParkingLot Striping

·                                          LawnSprinkler System, Sod, Landscaping

·                                          Fencesand Enclosures

·                                          ExteriorSignage (illuminated and non-illuminated)

·                                          Toolsand Equipment

·                                          CleanUp

·                                          TemporaryPower and Utilities

·                                          TemporaryFacilities

·                                          MiscellaneousMaterials & Labor

·                                          HVAC

·                                          Plumbing

·                                          Electrical

·                                          ElectricalFixtures (Some)

·                                          BuildingSprinkler Systems

·                                          Framing

·                                          Insulation

·                                          Drywall

·                                          FinishLabor

·                                          Paintingand Staining

·                                          AcousticalCeiling

·                                          Quarry/CeramicTile, Carpet, Vinyl, Cove Base

·                                          BuildingPackage System, Building Materials, Trusses, Steel, Finish Materials

·                                          Aluminum EntranceAssemblies/Exterior Doors

 

B-1

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·                                          ImpactFees, SAC and WAC, park dedication fees and other government entitlement costs

·                                          SoilTreatment for Termite Inspection (if locally advisable)

·                                          Windows

·                                          Roof,Gutters, Downspouts

·                                          FireExtinguishers (if purchased by Developer)

·                                          Mini-Blinds(if purchased by Developer)

·                                          BathroomAccessories (if purchased by Developer)

·                                          Cabinets(if purchased by Developer)

·                                          Shelving(if purchased by Developer)

·                                          Laminate/MarbleTops

·                                          Furniture,Fixtures or Equipment installed and paid for by Landlord, if any

 

**HARD COSTS TO BE EXCLUDED FROM TOTAL PROJECTCOST:**

** **

The following costs shall be excluded fromthe Project Costs:

 

·                                          TenantWork constructed and paid for by Tenant

·                                          Furniture,Fixtures and Equipment installed or constructed and paid for by Tenant

 

**LAND AND SOFT COSTS TO BE INCLUDED IN TOTALPROJECT COST:**

** **

The following costs shall be included in theTotal Project Cost:

 

·                                          LandCost

·                                          TitleInsurance

·                                          Architectfees (even if architect contract is with Granite City)

·                                          CivilEngineer

·                                          MechanicalEngineer

·                                          ElectricalEngineer

·                                          ProjectManagement Fee

·                                          Appraisal

·                                          RecordingFees

·                                          FinancingFees

·                                          ConstructionInterest

·                                          RealEstate Taxes

·                                          DraftingFees

·                                          BuildersRisk Insurance

·                                          Blueprintsand Spec Books

·                                          ProjectSign

·                                          GeotechnicalFees

·                                          Environmentalaudits

·                                          Legalfees for site specific legal matters such as zoning, land use, environmentalmatters or negotiating contracts specifically for the site 

 

B-2

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(this categoryexcludes among other things legal fees incurred by either party negotiatingnon-site specific contracts and base forms between the parties, or advising aparty as to the parties corporate matters)

·                                          Travelexpenses subsequent to site approval within an agreed upon budget

·                                          RestaurantFee

 

**SOFT COSTS TO BE EXCLUDED FROM TOTAL PROJECTCOST**

** **

·                                          Coststo set up and administer the relationship inclusive of legal fees for thisDevelopment Agreement and lease forms

·                                          Coststo develop, build and maintain the secure web based applications

·                                          Travelexpenses prior to site approval

·                                          Marketanalysis costs

·                                          Developeroverhead and professional time expended

 

B-3

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**EXHIBIT C**

 

**TENANT’S WORK**

 

Tenant’s Work to include furniture, fixturesand equipment (“FF&E”)

 

**Back of House**

 

·                                          KitchenEquipment

·                                          Coolersand freezers

·                                          Shelving

·                                          Pots,pans, and other food preparation small goods

·                                          Dinnerware

·                                          Barcasework and tops

 

**Front of House**

 

·                                          POSStation Casework and tops

·                                          HostStation Casework and tops

·                                          Furnitureroom divider and tops

·                                          PublicRestroom vanities and tops

·                                          Booths,Tables, Chairs and Bar Stools

·                                          Hammeredmetal Trim and Railings

·                                          Artwork

·                                          Otherloose decorations

 

**Brewery**

 

·                                          AllBrewery Equipment (Provided by GCFB, installed by Developer via GeneralContractor

·                                          Cooler

 

C-1

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**EXHIBIT D**

 

**GCFB DEVELOPMENT SCHEDULE**

 

 

D-1

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