**Exhibit 10.3**

 

**SECURITY AGREEMENT**

 

SECURITY AGREEMENT, dated as of August 28, 2003, between GRANITE CITYFOOD & BREWERY LTD., a Minnesota corporation (the “Debtor”), and FIRSTNATIONAL BANK, a national banking association (hereinafter, the “SecuredParty”).

 

WHEREAS, theDebtor has entered into a Loan Agreement dated as of August 28, 2003, (asamended and in effect from time to time, the “Loan Agreement”), with theSecured Party, pursuant to which the Secured Party, subject to the terms andconditions contained therein, is to make a loan or otherwise to extend creditto the Debtor; and

 

WHEREAS, it is a condition precedent to the Secured Party’s making theloan or otherwise extending credit to the Debtor under the Loan Agreement thatthe Debtor execute and deliver to the Secured Party a security agreement insubstantially the form hereof; and

 

WHEREAS, the Debtor wishes to grant security interests in favor of theSecured Party as herein provided;

 

NOW, THEREFORE, in consideration of the promises contained herein andfor other good and valuable consideration, the receipt and sufficiency of whichare hereby acknowledged, the parties hereto agree as follows:

 

# **1.**             Definitions.  All capitalized terms which are notdefined herein shall have the respective meanings provided therefor in the LoanAgreement.  The term “State,” as usedherein, means the State of Minnesota. All terms defined in Article 9 of the Uniform Commercial Code of the Stateand used herein shall have the same definitions herein as specified therein.  The term “Obligations,” as used herein, meansall of the indebtedness, obligations and liabilities of the Debtor to theSecured Party, individually or collectively, whether direct or indirect, jointor several, absolute or contingent, due or to become due, now existing orhereafter arising under or in respect of the Loan Agreement, and any notes orother instruments or agreements executed and delivered pursuant thereto or inconnection therewith.  The term “Eventof Default” as used herein, means any Event of Default described in the LoanAgreement, including the failure of the Debtor to pay or perform any of theObligations as and when due to be paid or performed under the terms of the LoanAgreement.

 

# **2.**             Grant ofSecurity Interest.  The Debtor hereby grants to theSecured Party, to secure the payment and performance in full of all of theObligations, a security interest in, and pledges and assigns to the SecuredParty, the following properties, assets and rights of the Debtor, whereverlocated, arising from, or used in connection with the business operations ofthe Debtor, whether now owned or hereafter acquired or arising, and allproceeds and products thereof (all of the same being hereinafter called the“Collateral”):  all personal propertyand fixture property of every kind and nature, including without limitation allgoods, including inventory, equipment, including but not limited to, allpresent and future machinery, vehicles, furniture, fixtures, office and recordkeeping equipment, and the goods described in any equipment schedule or listherewith or hereafter furnished to Secured Party by Debtor (but no suchschedule or list need be furnished in order for the security interest to bevalid as to all of Debtor’s equipment); each and every right of Debtor to thepayment of money, whether such right to payment now exists or hereafter arises,whether such right to payment arises out of a sale, lease, or other dispositionof goods or other property by Debtor, out of a rendering of services by Debtor,out of a loan by Debtor, out of the overpayment of taxes or other liabilitiesof Debtor, or otherwise arises under any contract or agreement, whether suchright to payment is or is not already earned by performance, and howsoever suchright to payment may be evidenced, together with all other rights and interests(including all liens and security interests) which Debtor may at any time haveby law or agreement against any account debtor or other obligor obligated tomake any such payment or against any of the property of such account debtor orother obligor; all including but not limited to all present and future debtinstruments, chattel paper, accounts, loans, and obligations receivable, andtax refunds; all general intangibles of Debtor including but not limited to,trademarks, trade secrets, goodwill, trade names, customer lists,

 

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# **permits and franchises, and theright to use Debtor’s name; and all room rentals, licenses and agreementsincluding without limitation all receivables and other amounts arising in theordinary course of Debtor’s business.**

 

# **3.**             Authorizationto File Financing Statements.  The Debtor hereby irrevocablyauthorizes the Secured Party at any time and from time to time to file in anyUniform Commercial Code jurisdiction any initial financing statements andamendments thereto that (a) indicate the Collateral as all assets of the Debtoras described in Section 2 of the Agreement; or words of similar effect,regardless of whether any particular asset comprised in the Collateral fallswithin the scope of Article 9 of the Uniform Commercial Code of the State orsuch jurisdiction, and (b) contain any other information required by Article 9of the Uniform Commercial Code of the State or any other state for thesufficiency or filing office acceptance of any financing statement oramendment, including (i) whether the Debtor is an organization, the type oforganization and any organization identification number issued to the Debtorand, (ii) in the case of a financing statement filed as a fixture filing, asufficient description of real property to which the Collateral relates.  The Debtor agrees to furnish any suchinformation to the Secured Party promptly upon request. The Debtor alsoratifies its authorization for the Secured Party to have filed in any UniformCommercial Code jurisdiction any like initial financing statements oramendments thereto if filed prior to the date hereof.

 

# **4.**             Other Actions. Further to insure the attachment, perfection and first priority of, andthe ability of the Secured Party to enforce, the Secured Party’s securityinterest in the Collateral, the Debtor agrees, in each case at the Debtor’s ownexpense, to take the following actions with respect to the followingCollateral:

 

**4.1.****         Collateral in thePossession of a Bailee. **If anygoods are at any time in the possession of a bailee, the Debtor shall promptlynotify the Secured Party thereof and, if requested by the Secured Party, shallpromptly obtain an acknowledgment from the bailee, in form and substancesatisfactory to the Secured Party, that the bailee holds such Collateral forthe benefit of the Secured Party and shall act upon the instructions of theSecured Party, without the further consent of the Debtor.

 

**4.2.****         Other Actions as toany and all Collateral.**  Debtorfurther agrees to take any other action reasonably requested by the SecuredParty to insure the attachment, perfection and first priority of, and theability of the Secured Party to enforce, the Secured Party’s security interestin any and all of the Collateral including, without limitation, (a) executing,delivering and, where appropriate, filing financing statements and amendmentsrelating thereto under the Uniform Commercial Code, (b) causing the SecuredParty’s name to be noted as secured party on any certificate of title for atitled good if such notation is a condition to attachment, perfection orpriority of, or ability of the Secured Party to enforce, the Secured Party’ssecurity interest in such Collateral, (c) complying with any provision of anystatute, regulation or treaty of the United States as to any Collateral ifcompliance with such provision is a condition to attachment, perfection orpriority of, or ability of the Secured Party to enforce, the Secured Party’ssecurity interest in such Collateral, (d) obtaining governmental and otherthird party consents and approvals, including without limitation any consent ofany licensor, lessor or other person obligated on Collateral, (e) obtainingwaivers from mortgagees and landlords in form and substance satisfactory to theSecured Party and (f) taking all actions required by any earlier versions ofthe Uniform Commercial Code or by other law, as applicable in any relevantUniform Commercial Code jurisdiction, or by other law as applicable in anyforeign jurisdiction.

 

**5.****             Representationsand Warranties Concerning Debtor’s LegalStatus.**  The Debtor represents and warrants to theSecured Party as follows:  (a) theDebtor’s exact legal name is that indicated on Schedule 5 and on thesignature page hereof, (b) the Debtor is an organization of the type andorganized in the jurisdiction set forth in Schedule 5, (c) Schedule 5accurately sets forth the Debtor’s organizational identification number oraccurately states that the Debtor has none, (d) Schedule 5 accuratelysets forth the Debtor’s place of business or, if more than one, its chiefexecutive office as well as the Debtor’s mailing address if different, and (e)all other information set forth in Schedule 5 pertaining to the Debtoris accurate and complete.

 

**6.****             CovenantsConcerning Debtor’s Legal Status.**  The Debtor covenants with the Secured Party as follows:  (a) without providing at least 30 days priorwritten notice to the Secured Party, the Debtor will not change

 

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its name, its place of business or, if more than one, chief executiveoffice, or its mailing address or organizational identification number if ithas one, (b) if the Debtor does not have an organizational identificationnumber and later obtains one, the Debtor shall forthwith notify the SecuredParty of such organizational identification number, and (c) the Debtor will notchange its type of organization, jurisdiction of organization or other legalstructure.

 

**7.****             Representationsand Warranties Concerning Collateral. **The Debtor further represents and warrants to the Secured Party asfollows: (a) the Debtor is the owner of the Collateral, free from any adverselien, security interest or other encumbrance, except for the security interestcreated by this Agreement and other liens permitted by the Loan Agreement(b) none of the Collateral constitutes, or is the proceeds of, “farmproducts” as defined in Section 9-102(a)(34) of the Uniform Commercial Code ofthe State, (c) none of the account debtors or other persons obligated on any ofthe Collateral is a governmental authority subject to the Federal Assignment ofClaims Act or like federal, state or local statute or rule in respect of suchCollateral, (d) the Debtor holds no commercial tort claim except as indicatedin Schedule 5, and (e) the Debtor has at all times operated its businessin material compliance with all applicable provisions of the federal Fair LaborStandards Act, as amended, and with all applicable provisions of federal, stateand local statutes and ordinances dealing with the control, shipment, storageor disposal of hazardous materials or substances and (f) all other informationset forth in Schedule 5 pertaining to the Collateral is accurate andcomplete.

 

**8.****             CovenantsConcerning Collateral. **TheDebtor further covenants with the Secured Party as follows:  (a) the Collateral, to the extent notdelivered to the Secured Party pursuant to Section 4, will be kept at thoselocations listed in Schedule 5 and the Debtor will not remove theCollateral from such locations, without providing at least 30 days priorwritten notice to the Secured Party, (b) except for the security interestherein granted and liens permitted by the Loan Agreement, the Debtor shall bethe owner of the Collateral free from any lien, security interest or otherencumbrance, and the Debtor shall defend the same against all claims anddemands of all persons at any time claiming the same or any interests thereinadverse to the Secured Party, (c) the Debtor shall not pledge, mortgage orcreate, or suffer to exist a security interest in the Collateral in favor ofany person other than the Secured Party except for liens permitted by the LoanAgreement, (d) the Debtor will keep the Collateral in good order and repair,reasonable wear and tear excepted, and will not use the same in materialviolation of law or any policy of insurance thereon, (e) the Debtor will permitthe Secured Party, or its designee, to inspect the Collateral at any reasonabletime and upon reasonable prior notice, wherever located, (f) the Debtor willpay promptly when due all taxes, assessments, governmental charges and leviesupon the Collateral or incurred in connection with the use or operation of suchCollateral or incurred in connection with this Agreement, (g) the Debtor willcontinue to operate, its business in material compliance with all applicableprovisions of the federal Fair Labor Standards Act, as amended, and with allapplicable provisions of federal, state and local statutes and ordinances dealingwith the control, shipment, storage or disposal of hazardous materials orsubstances, and (h) the Debtor will not sell or otherwise dispose, or offer tosell or otherwise dispose, of the Collateral or any interest therein except for(i) sales of inventory in the ordinary course of business and (ii) sales orother dispositions of obsolescent items of equipment in the ordinary course ofbusiness.

 

**9.****             Insurance.**

 

**9.1.****         Maintenance ofInsurance. **The Debtor willmaintain with financially sound and reputable insurers insurance with respectto its properties and business against such casualties and contingencies asshall be in accordance with general practices of businesses engaged in similaractivities in similar geographic areas. Such insurance shall be in such minimum amounts that the Debtor will notbe deemed a co-insurer under applicable insurance laws, regulations andpolicies and otherwise shall be in such amounts, contain such terms, be in suchforms and be for such periods as may be reasonably satisfactory to the SecuredParty.  In addition, all such insuranceshall be payable to the Secured Party as loss payee under a “standard” losspayee clause.  Without limiting the foregoing,the Debtor will (i) keep all of its physical property insured with casualty orphysical hazard insurance on an “all risks” basis, with broad form flood andearthquake coverages and electronic data processing coverage, with a fullreplacement cost endorsement in an amount equal to 100% of the full replacementcost of such property, (ii) maintain all such workers’ compensation or similarinsurance as may be required by law and (iii) maintain, in amounts and withdeductibles equal to those generally maintained by businesses engaged insimilar activities in similar geographic areas, general public liabilityinsurance against claims of bodily

 

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injury, death or property damage occurring, on, in or about theproperties of the Debtor; business interruption insurance; and product liabilityinsurance.

 

**9.2.****         Insurance Proceeds. **The proceeds of any casualty insurancein respect of any casualty loss of any of the Collateral shall (i) so long asno Default or Event of Default has occurred and is continuing and to the extentthat the amount of such proceeds is less than $25,000, be disbursed to theDebtor for direct application by the Debtor solely to the repair or replacementof the Debtor’s property so damaged or destroyed, and (ii) in all othercircumstances, be held by the Secured Party as cash collateral for theObligations.  The Secured Party may, atits sole option, disburse from time to time all or any part of such proceeds soheld as cash collateral, upon such terms and conditions as the Secured Partymay reasonably prescribe, for direct application by the Debtor solely to therepair or replacement of the Debtor’s property so damaged or destroyed, or theSecured Party may apply all or any part of such proceeds to the Obligations.

 

**9.3.****         Notice of Cancellation. ** All policies of insurance shall provide for at least 30 days priorwritten cancellation notice to the Secured Party.  In the event of failure by the Debtor to provide and maintaininsurance as herein provided, the Secured Party may, at its option, providesuch insurance and charge the amount thereof to the Debtor.  The Debtor shall furnish the Secured Partywith certificates of insurance and policies evidencing compliance with theforegoing insurance provision.

 

**10.****          Collateral ProtectionExpenses; Preservation of Collateral.**

 

**10.1.****       Expenses Incurred bySecured Party. **In itsdiscretion, the Secured Party may discharge taxes and other encumbrances at anytime levied or placed on any of the Collateral, make repairs thereto and payany necessary filing fees or, if the debtor fails to do so, insurancepremiums.  The Debtor agrees toreimburse the Secured Party on demand for any and all expenditures somade.  The Secured Party shall have noobligation to the Debtor to make any such expenditures, nor shall the makingthereof relieve the Debtor of any default.

 

**10.2.****       Secured Party’sObligations and Duties. **Anythingherein to the contrary notwithstanding, the Debtor shall remain liable undereach contract or agreement comprised in the Collateral to be observed orperformed by the Debtor thereunder.  TheSecured Party shall not have any obligation or liability under any suchcontract or agreement by reason of or arising out of this Agreement or thereceipt by the Secured Party of any payment relating to any of the Collateral,nor shall the Secured Party be obligated in any manner to perform any of theobligations of the Debtor under or pursuant to any such contract or agreement,to make inquiry as to the nature or sufficiency of any payment received by theSecured Party in respect of the Collateral or as to the sufficiency of anyperformance by any party under any such contract or agreement, to present orfile any claim, to take any action to enforce any performance or to collect thepayment of any amounts which may have been assigned to the Secured Party or towhich the Secured Party may be entitled at any time or times.  The Secured Party’s sole duty with respectto the custody, safe keeping and physical preservation of the Collateral in itspossession, under Section 9-207 of the Uniform Commercial Code of the State orotherwise, shall be to deal with such Collateral in the same manner as theSecured Party deals with similar property for its own account.

 

**11.****          Power of Attorney.**

 

**11.1.****       Appointment and Powersof Secured Party.**  The Debtorhereby irrevocably constitutes and appoints the Secured Party and any officeror agent thereof, with full power of substitution, as its true and lawfulattorneys-in-fact with full irrevocable power and authority in the place andstead of the Debtor or in the Secured Party’s own name, for the purpose ofcarrying out the terms of this Agreement, to take any and all appropriateaction and to execute any and all documents and instruments that may benecessary or desirable to accomplish the purposes of this Agreement and,without limiting the generality of the foregoing, hereby gives said attorneysthe power and right, on behalf of the Debtor, without notice to or assent bythe Debtor, to do the following:

 

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(a)           upon the occurrence and during thecontinuance of an Event of Default, generally to sell, transfer, pledge, makeany agreement with respect to or otherwise deal with any of the Collateral insuch manner as is consistent with the Uniform Commercial Code of the State andas fully and completely as though the Secured Party were the absolute ownerthereof for all purposes, and to do at the Debtor’s expense, at any time, orfrom time to time, all acts and things which the Secured Party deems necessaryto protect, preserve or realize upon the Collateral and the Secured Party’ssecurity interest therein, in order to effect the intent of this Agreement, allas fully and effectively as the Debtor might do, including, without limitation,(i) the filing and prosecuting of registration and transfer applications withthe appropriate federal or local agencies or authorities with respect totrademarks, copyrights and patentable inventions and processes, (ii) uponwritten notice to the Debtor, the exercise of voting rights with respect tovoting securities, which rights may be exercised, if the Secured Party soelects, with a view to causing the liquidation in a commercially reasonablemanner of assets of the issuer of any such securities and (iii) the execution,delivery and recording, in connection with any sale or other disposition of anyCollateral, of the endorsements, assignments or other instruments of conveyanceor transfer with respect to such Collateral; and

 

(b)           to the extent that the Debtor’sauthorization given in Section 3 is not sufficient, to file such financingstatements with respect hereto, with or without the Debtor’s signature, or aphotocopy of this Agreement in substitution for a financing statement, as theSecured Party may deem appropriate and to execute and/or file in the Debtor’sname such financing statements and amendments thereto and continuationstatements which may require the Debtor’s signature.

 

**11.2.****       Ratification by Debtor.**  To the extent permitted by law, the Debtorhereby ratifies all that said attorneys shall lawfully do or cause to be doneby virtue hereof.  This power ofattorney is a power coupled with an interest and shall be irrevocable.

 

**11.3.****       No Duty on Secured Party. **The powers conferred on the SecuredParty hereunder are solely to protect its interests in the Collateral and shallnot impose any duty upon it to exercise any such powers.  The Secured Party shall be accountable onlyfor the amounts that it actually receives as a result of the exercise of suchpowers and neither it nor any of its officers, directors, employees or agentsshall be responsible to the Debtor for any act or failure to act, except forthe Secured Party’s own gross negligence or willful misconduct.

 

**12.****          Remedies. **If an Event of Default (as defined inthe Loan Agreement) shall have occurred and be continuing, the Secured Partymay, without notice to or demand upon the Debtor, declare this Agreement to bein default, and the Secured Party shall thereafter have in any jurisdiction inwhich enforcement hereof is sought, in addition to all other rights andremedies, the rights and remedies of a secured party under the UniformCommercial Code of the State or of any jurisdiction in which Collateral islocated, including, without limitation, the right to take possession of theCollateral, and for that purpose the Secured Party may, so far as the Debtorcan give authority therefor, enter upon any premises on which the Collateralmay be situated and remove the same therefrom. The Secured Party may in its discretion require the Debtor to assembleall or any part of the Collateral at such location or locations within thejurisdictions of the Debtor’s principal office(s) or at such other locations asthe Secured Party may reasonably designate. Unless the Collateral is perishable or threatens to decline speedily invalue or is of a type customarily sold on a recognized market, the SecuredParty shall give to the Debtor at least ten Business Days prior written noticeof the time and place of any public sale of Collateral or of the time afterwhich any private sale or any other intended disposition is to be made.  The Debtor hereby acknowledges that tenBusiness Days prior written notice of such sale or sales shall be reasonablenotice.  In addition, the Debtor waivesany and all rights that it may have to a judicial hearing in advance of theenforcement of any of the Secured Party’s rights hereunder, including, withoutlimitation, its right following an Event of Default to take immediatepossession of the Collateral and to exercise its rights with respect thereto.

 

**13.****          Standards forExercising Remedies. **To theextent that applicable law imposes duties on the Secured Party to exerciseremedies in a commercially reasonable manner, the Debtor acknowledges andagrees that it is not commercially unreasonable for the Secured Party (a) tofail to incur expenses reasonably deemed significant by the Secured Party toprepare Collateral for disposition or otherwise to complete raw material orwork in process into finished goods or other finished products for disposition,(b) to fail to obtain third party consents for access to

 

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Collateral to be disposed of, or to obtain or, if not required by otherlaw, to fail to obtain governmental or third party consents for the collectionor disposition of Collateral to be collected or disposed of, (c) to fail toexercise collection remedies against account debtors or other persons obligatedon Collateral or to remove liens or encumbrances on or any adverse claimsagainst Collateral, (d) to exercise collection remedies against account debtorsand other persons obligated on Collateral directly or through the use ofcollection agencies and other collection specialists, (e) to advertisedispositions of Collateral through publications or media of generalcirculation, whether or not the Collateral is of a specialized nature, (f) tocontact other persons, whether or not in the same business as the Debtor, forexpressions of interest in acquiring all or any portion of the Collateral, (g)to hire one or more professional auctioneers to assist in the disposition ofCollateral, whether or not the collateral is of a specialized nature, (h) todispose of Collateral by utilizing Internet sites that provide for the auctionof assets of the types included in the Collateral or that have the reasonablecapability of doing so, or that match buyers and sellers of assets, (i) todispose of assets in wholesale rather than retail markets, (j) to disclaimdisposition warranties, (k) to purchase insurance or credit enhancements toinsure the Secured Party against risks of loss, collection or disposition ofCollateral or to provide to the Secured Party a guaranteed return from thecollection or disposition of Collateral, or (l) to the extent deemedappropriate by the Secured Party, to obtain the services of other brokers,consultants and other professionals to assist the Secured Party in thecollection or disposition of any of the Collateral.  The Debtor acknowledges that the purpose of this Section 13 is toprovide non-exhaustive indications of what actions or omissions by the SecuredParty would not be commercially unreasonable in the Secured Party’s exercise ofremedies against the Collateral and that other actions or omissions by the SecuredParty shall not be deemed commercially unreasonable solely on account of notbeing indicated in this Section 13. Without limitation upon the foregoing, nothing contained in this Section13 shall be construed to grant any rights to the Debtor or to impose any dutieson the Secured Party that would not have been granted or imposed by thisAgreement or by applicable law in the absence of this Section 13.

 

**14.****         No Waiver by SecuredParty, etc. **The Secured Partyshall not be deemed to have waived any of its rights upon or under theObligations or the Collateral unless such waiver shall be in writing and signedby the Secured Party.  No delay oromission on the part of the Secured Party in exercising any right shall operateas a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to orwaiver of any right on any future occasion. All rights and remedies of the Secured Party with respect to theObligations or the Collateral, whether evidenced hereby or by any otherinstrument or papers, shall be cumulative and may be exercised singularly,alternatively, successively or concurrently at such time or at such times asthe Secured Party deems expedient.

 

**15.****          Suretyship Waivers byDebtor.** The Debtor waivesdemand, notice, protest, notice of acceptance of this Agreement, notice ofloans made, credit extended, Collateral received or delivered or other actiontaken in reliance hereon and all other demands and notices of any description.  With respect to both the Obligations and theCollateral, the Debtor assents to any extension or postponement of the time ofpayment or any other indulgence, to any substitution, exchange or release of orfailure to perfect any security interest in any Collateral, to the addition orrelease of any party or person primarily or secondarily liable, to theacceptance of partial payment thereon and the settlement, compromising oradjusting of any thereof, all in such manner and at such time or times as theSecured Party may deem advisable.  TheSecured Party shall have no duty as to the collection or protection of theCollateral or any income thereon, nor as to the preservation of rights againstprior parties, nor as to the preservation of any rights pertaining theretobeyond the safe custody thereof as set forth in Section 10.2. The Debtorfurther waives any and all other suretyship defenses.

 

**16.****          Marshaling. **The Secured Party shall not be requiredto marshal any present or future collateral security (including but not limitedto this Agreement and the Collateral) for, or other assurances of payment of,the Obligations or any of them or to resort to such collateral security orother assurances of payment in any particular order, and all of its rightshereunder and in respect of such collateral security and other assurances ofpayment shall be cumulative and in addition to all other rights, howeverexisting or arising.  To the extent thatit lawfully may, the Debtor hereby agrees that it will not invoke any lawrelating to the marshalling of collateral which might cause delay in or impedethe enforcement of the Secured Party’s rights under this Agreement or under anyother instrument creating or evidencing any of the Obligations or under whichany of the Obligations is outstanding or by which any of the Obligations issecured or payment thereof is otherwise assured, and, to the extent that itlawfully may, the Debtor hereby irrevocably waives the benefits of all suchlaws.

 

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**17.****          Proceeds of Dispositions;Expenses. **The Debtor shall payto the Secured Party on demand any and all expenses, including reasonableattorneys’ fees and disbursements, incurred or paid by the Secured Party inprotecting, preserving or enforcing the Secured Party’s rights under or inrespect of any of the Obligations or any of the Collateral.  After deducting all of said expenses, theresidue of any proceeds of collection or sale of the Obligations or Collateralshall, to the extent actually received in cash, be applied to the payment ofthe Obligations in such order or preference as the Secured Party may determine,proper allowance and provision being made for any Obligations not thendue.  Upon the final payment andsatisfaction in full of all of the Obligations and after making any paymentsrequired by Sections 9-608(a)(1)(C) or 9-615(a)(3) of the Uniform CommercialCode of the State, any excess shall be returned to the Debtor, and the Debtorshall remain liable for any deficiency in the payment of the Obligations.

 

**18.****          Overdue Amounts. **Until paid, all amounts due and payableby the Debtor hereunder shall be a debt secured by the Collateral and shallbear, whether before or after judgment, interest at the rate of interest foroverdue principal set forth in the Loan Agreement.

 

**19.****          Governing Law;Consent to Jurisdiction. **THISAGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OFTHE STATE.  The Debtor agrees that anysuit for the enforcement of this Agreement may be brought in the courts of theState or any federal court sitting therein and consents to the non-exclusivejurisdiction of such court.  The Debtorhereby waives any objection that it may now or hereafter have to the venue ofany such suit or any such court or that such suit is brought in an inconvenientcourt.

 

**20.****         Waiver of Jury Trial. **THE PARTIES WAIVE THEIR RIGHT TO A JURYTRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE INCONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEPERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by law, the Debtor waives any right which it mayhave to claim or recover in any litigation referred to in the precedingsentence any special, exemplary, punitive or consequential damages or anydamages other than, or in addition to, actual damages.  The Debtor (i) certifies that neither theSecured Party nor any representative, agent or attorney of the Secured Partyhas represented, expressly or otherwise, that the Secured Party would not, inthe event of litigation, seek to enforce the foregoing waivers and (ii)acknowledges that, in entering into the Loan Agreement the Secured Party isrelying upon, among other things, the waivers and certifications contained inthis Section 20.

 

**21.****          Miscellaneous. **The headings of each section of thisAgreement are for convenience only and shall not define or limit the provisionsthereof.  This Agreement and all rightsand obligations hereunder shall be binding upon the Debtor and its respectivesuccessors and assigns, and shall inure to the benefit of the Secured Party andits successors and assigns.  If any termof this Agreement shall be held to be invalid, illegal or unenforceable, thevalidity of all other terms hereof shall in no way be affected thereby, andthis Agreement shall be construed and be enforceable as if such invalid,illegal or unenforceable term had not been included herein.  The Debtor acknowledges receipt of a copy ofthis Agreement.

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be dulyexecuted as of the date first above written.

 

 
|   | GRANITE CITY FOOD & BREWERY LTD. |
|--------|--------------------------------------|
|   |                                 |   |
|   |                                 |   |
|   | By:                                  |  /s/ Steven J. Wagenheim |   |
|   |                                 |    Steven J. Wagenheim |
|   |                                 |    Its:   President |

 

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Schedule 5

to

Security Agreement

 
| Debtor’s Exact Legal Name:                       |   | Granite City Food & Brewery Ltd.                                            |
|-------------------------------------------------------|--------|---------------------------------------------------------------------------------|
|                                                  |   |                                                                            |
| Debtor’s type of organization:                   |   | corporation                                                                     |
|                                                  |   |                                                                            |
| Debtor’s place of organization:                  |   | Minnesota                                                                       |
|                                                  |   |                                                                            |
| Debtor’s organization identification number:     |   | 9S-463                                                                          |
|                                                  |   |                                                                            |
| Address of Debtor’s chief executive office:      |   | 5831 Cedar Lake Road  St. Louis Park, MN 55416                                  |
|                                                  |   |                                                                            |
| Addresses of all of Debtor’s places of business: |   | Fargo, North Dakota; and Clive, Iowa;  Davenport, Iowa; and Cedar Rapids, Iowa. |

 

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