**Exhibit 10.1**

**SUBSCRIPTION AGREEMENT AND LETTER OF INVESTMENT INTENT**

 

FoundersFood & Firkins Ltd.

5831Cedar Lake Road

St.Louis Park, MN  55416

 

Gentlemen:

 

THISAGREEMENT, made effective as of the 25th day of July, 2002, betweenGranite City Food & Brewery Ltd., (formerly known as Founders Food &Firkins Ltd.), a Minnesota corporation (the “Company”), and Bluestem CapitalPartners III Limited Partnership, a South Dakota limited partnership.

 

1.                        The Company agrees to sell to the undersigned, and the undersignedagrees to purchase from the Company, 10,000 shares of Series A ConvertiblePreferred Stock (the “Preferred”) and warrants to purchase common stock (the“Warrants”) at a purchase price equal to $100.00 per Preferred share.  The Preferred and the Warrants arecollectively referred to herein as the “Securities.”  The conversion price of the Preferred and the exercise price ofthe Warrants will be the price established at the initial closing of the saleof the Securities, which will be the lower of (a) 90% of the average closingprice of the common stock on Nasdaq for the ten trading days preceding theclosing date, or (b) $1.58.  Theundersigned may, with the written consent of the Company, assign all or anyportion of its subscription rights set forth herein to any accredited investorwho completes, executes and agrees to be bound by this Agreement, and assumesthe obligations of the undersigned hereunder, but such assignment will notrelieve the undersigned Bluestem Capital Partners III Limited Partnership ofthe obligation to pay the subscription price if the assignee fails to purchasethe full amount of Securities to be purchased by the undersigned under thisAgreement.  The Company will notunreasonably withhold its consent to such assignment.  The undersigned acknowledges that this subscription is contingentupon acceptance in whole or in part by the Company.  Once accepted by the Company, this subscription is irrevocable.

 

2.                        The undersigned will purchase the Securities in three installments onSeptember 20, 2002, December 20, 2002 and March 20, 2003 (each a“Purchase Date”).  On or beforeSeptember 19, 2002, the undersigned will deliver to Highland Bank, St. Paul,Minnesota, as escrow agent for the Company, the sum of $333,400 in payment for3,334 shares of Preferred and the related Warrants.  On or before December 20, 2002, the undersigned shall deliver thesecond installment payment to the escrow agent in the amount of $333,300 inpayment for 3,333 shares of the Preferred and the related Warrants; and on orbefore March 20, 2003, the undersigned shall deliver the third installmentpayment in the amount of $333,300 in payment for the remaining 3,333 shares ofthe Preferred and the related Warrants. Purchase and delivery of the Securities shall take place at a time andplace specified by the Company on each Purchase Date or such earlier date asundersigned shall specify in writing to the Company.  Payment for each installment shall be made by check or wiretransfer payable to “Highland Bank – Founders Food Escrow Account,” at leastone business day prior to each Purchase Date.

 

3.                        The undersigned acknowledges and represents as follows:

 

(a)               That it has received andcarefully reviewed the Confidential Private Placement Memorandum of the Companydated February 25, 2002 (the “Memorandum”), as amended August 16, 2002, and alldocuments delivered therewith;

 

(b)               That the undersigned is able tobear the economic risk of the investment in the Securities;

 

(c)               That the undersigned believesthat it has knowledge and experience in financial and business matters, that itis capable of evaluating the merits and risks of the prospective investment inthe Securities and that it is able to bear such risks;

 

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(d)               That it understands an investmentin the Securities is highly speculative but believes that the investment issuitable for it based upon its investment objectives and financial needs, andhas adequate means for providing for its current financial needs and personalcontingencies and has no need for liquidity of investment with respect to theSecurities;

 

(e)               That the undersigned has beengiven access to full and complete information regarding the Company (includingthe opportunity to meet with Company officers and review such documents as itmay have requested in writing) and has utilized such access to its satisfactionfor the purpose of obtaining information in addition to, or verifyinginformation included in, the Memorandum;

 

(f)                That the undersigned recognizesthat the Securities, as an investment, involve a high degree of risk,including, but not limited to, the risks described in the “CautionaryStatement” which is part of “Management’s Discussion and Analysis or Plan ofOperation” in the Company’s Form 10-KSB included within the Memorandum; and

 

(g)               That the undersigned realizesthat (i) the purchase of the Securities is a long–term investment; (ii)the purchasers of the Securities must bear the economic risk of investment foran indefinite period of time because the Securities have not been registeredunder the Securities Act of 1933, as amended (the “Act”) and, therefore, cannotbe sold unless they are subsequently registered under the Act or an exemptionfrom such registration is available; and (iii) the transferability of theSecurities is restricted, and (A) requires the written consent of the Company,(B) requires conformity with the restrictions contained in paragraphs 4 and 5below, and (C) will be further restricted by a legend placed on thecertificate(s) representing the Securities stating that the Securities have notbeen registered under the Act and referring to the restrictions ontransferability of the Securities, and by stop transfer orders or notations onthe Company’s records referring to the restrictions on transferability.

 

4.                        The undersigned has been advised that the Securities are not beingregistered under the Act or relevant state securities laws pursuant toexemptions from the Act and such laws, and that the Company’s reliance uponsuch exemptions is predicated in part on the undersigned’s representations tothe Company as contained herein.  Theundersigned represents and warrants that the Securities are being purchased forits own account and for investment and without the intention of reselling orredistributing the same, that it has made no agreement with others regardingany of such Securities and that its financial condition is such that it is notlikely that it will be necessary to dispose of any of such Securities in theforeseeable future.  The undersigned isaware that, in the view of the Securities and Exchange Commission andapplicable state bodies that administer state securities laws, a purchase ofSecurities with an intent to resell by reason of any foreseeable specificcontingency or anticipated change in market value, or any change in thecondition of the Company or its business, or in connection with a contemplatedliquidation or settlement of any loan obtained for the acquisition of theSecurities and for which the Securities were pledged as security, wouldrepresent an intent inconsistent with the representations set forth above.  The undersigned further represents andagrees that if, contrary to its foregoing intentions, it should later desire todispose of or transfer any of such Securities in any manner, it shall not do sowithout first obtaining (a) the opinion of counsel designated by the Companythat such proposed disposition or transfer lawfully may be made without theregistration of such Securities for such purpose pursuant to the Act, as thenin effect, and applicable state securities laws, or (b) such registrations (itbeing expressly understood that the Company shall not have any obligation toregister the shares for such purpose). The undersigned agrees that the Company may place a restrictive legendon the certificate(s) representing the Securities, containing substantially thefollowing language:

 

Thesecurities represented by this Certificate were issued without registrationunder the Securities Act of 1933, as amended (the “Act”), and withoutregistration under state securities laws, in reliance upon exemptions containedin the Act and such laws.  No

 

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transferof these securities or any interest therein may be made except pursuant toeffective registration statements under said laws unless this Corporation hasreceived an opinion of counsel satisfactory to it that such transfer ordisposition does not require registration under said laws and, for any salesunder Rule 144 of the Act, such evidence as it shall request for compliancewith that rule.

 

The undersigned agrees and consents that the Companymay place a stop transfer order on the Certificate(s) representing theSecurities to assure the undersigned’s compliance with this Agreement and thematters referenced above.

 

The undersigned agrees to save and hold harmless,defend and indemnify the Company and its directors, officers and agents fromany claims, liabilities, damages, losses, expenses or penalties arising out ofany misrepresentation of information furnished by the undersigned to theCompany in this Subscription Agreement.

 

5.                        The Subscriber understands that the Company at a future date may file aregistration or offering statement with the Securities and Exchange Commissionto facilitate a public offering of its securities.  The Subscriber agrees, for the benefit of the Company, thatshould such a public offering be made and should the managing underwriter ofsuch offering require, the undersigned will not, without the prior writtenconsent of the Company and such underwriter, during the Lock Up Period asdefined herein: (i) sell, transfer or otherwise dispose of, or agree to sell,transfer or otherwise dispose of any of the Securities beneficially held by theundersigned during the Lock Up Period; (ii) sell, transfer or otherwise disposeof, or agree to sell, transfer or otherwise dispose of any options, rights orwarrants to purchase any of the shares beneficially held by the undersignedduring the Lock Up Period; or (iii) sell or grant, or agree to sell or grant,options, rights or warrants with respect to any of the Securities.  The foregoing does not prohibit gifts todonees or transfers by will or the laws of descent to heirs or beneficiariesprovided that such donees, heirs and beneficiaries shall be bound by therestrictions set forth herein.  The term“Lock Up Period” shall mean the lesser of (x) 180 days or (y) the period duringwhich Company officers and directors are restricted by the managing underwriterfrom effecting any sales or transfers of the Company’s common stock.  The Lock Up Period shall commence on theeffective date of the applicable registration statement.

 

6.                        The undersigned represents and warrants that the undersigned is a bonafide resident of, and is domiciled in, the state listed in the Recital to thisAgreement and that the Securities are being purchased solely for the beneficialinterest of the undersigned and not as nominee, for, or on behalf of, or forthe beneficial interest of, or with the intention to transfer to, any otherperson, trust or organization, except as specifically set forth in paragraph 11of this Agreement.

 

PARAGRAPH7 IS REQUIRED IN CONNECTION WITH THE EXEMPTIONS FROM THE ACT AND STATE LAWSBEING RELIED ON BY THE COMPANY WITH RESPECT TO THE OFFER AND SALE OF THESECURITIES.  ALL OF SUCH INFORMATIONWILL BE KEPT CONFIDENTIAL AND WILL BE REVIEWED ONLY BY THE COMPANY AND ITSCOUNSEL.  The undersigned agrees tofurnish any additional information which the Company deems necessary in orderto verify the responses set forth below.

 

7.                        Accredited Status.  The undersigned represents and warrants asfollows (CHECK IF APPLICABLE):

 
| o |   | A. |   | The  undersigned is an individual with a net worth, or a joint net worth together  with its spouse, in excess of $1,000,000.   (In calculating net worth, you may include equity in personal property  and real estate, including your principal residence, cash, short-term  investments, stock |
|---|--------|----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|   |   |   |   | and  securities.  Equity in personal property  and real estate should be based on the fair market value of such property  minus debt secured by such property.)                                                         |
|--------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                         |
| o      |   | B.     |   | The  undersigned is an individual with income in excess of $200,000 in each of the  prior two years and reasonably expects an income in excess of $200,000 in the  current year.                                             |
|   |   |   |   |                                                                                                                                                                                                                         |
| o      |   | C.     |   | The  undersigned is an individual who, with its spouse, had joint income in excess  of $300,000 in each of the prior two years and reasonably expects joint  income in excess of $300,000 in the current year.               |
|   |   |   |   |                                                                                                                                                                                                                         |
| o      |   | D.     |   | The  undersigned is a director or executive officer of Founders Food & Firkins  Ltd.                                                                                                                                     |
|   |   |   |   |                                                                                                                                                                                                                         |
| ý |   | E.     |   | The  undersigned, if other than an individual, is an entity all of whose equity  owners meet one of the tests set forth in (A) through (D) above.                                                                            |
|   |   |   |   |                                                                                                                                                                                                                         |
| o      |   | F.     |   | The  undersigned is an entity, and is an “Accredited Investor” as defined in Rule  501(a) of Regulation D under the Act.   This representation is based on the following (check one or more, as  applicable): |
|   |   |   |   |                                                                                                                                                                                                                         |
|   |   |   |   | o                                                                                                                                                                                                                            |   | 1. |   | The  undersigned (or, in the case of a trust, the undersigned trustee) is a bank  or savings and loan association as defined in Sections 3(a)(2) and  3(a)(5)(A), respectively, of the Act acting either in its individual or  fiduciary capacity. |
|   |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |
|   |   |   |   | o                                                                                                                                                                                                                            |   | 2. |   | The  undersigned is an insurance company as defined in section 2(13) of the Act. |
|   |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |
|   |   |   |   | o                                                                                                                                                                                                                            |   | 3. |   | The  undersigned is an investment company registered under the Investment Company  Act of 1940 or a business development company as defined in Section 2(a)(48)  of that act. |
|   |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |
|   |   |   |   | ý                                                                                                                                                                                                                       |   | 4. |   | The  undersigned is a Small Business Investment Company licensed by the United  States Small Business Administration under Section 301(c) or (d) of the Small  Business Investment Act of 1958. |
|   |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |
|   |   |   |   | o                                                                                                                                                                                                                            |   | 5. |   | The  undersigned is an employee benefit plan within the meaning of Title I of the  Employee Retirement Income Security Act of 1974 (“ERISA”) and either (check  one or more, as applicable): |
|   |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |
|   |   |   |   |                                                                                                                                                                                                                         |   | o |   | a. | the  investment decision is made by a plan fiduciary, as defined in Section 3(21)  of ERISA, which is either a bank, savings and loan association, insurance  company, or registered investment advisor; or |

 

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|   |   |   |   |   |   | o      |   | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | the  employee benefit plan has total assets in excess of $5,000,000; or                                                                                |
|--------|--------|--------|--------|--------|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                   |
|   |   |   |   |   |   | o      |   | c.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | the  plan is a self-directed plan with investment decisions made solely by persons  who are “Accredited Investors” as defined under the Act. |
|   |   |   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                   |
|   |   |   |   | o      |   | 6.     |   | The  undersigned is a private business development company as defined in Section  202(a)(22) of the Investment Advisors Act of 1940.                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |   |   | o      |   | 7.     |   | The  undersigned has total assets in excess of $5,000,000, was not formed for the  specific purpose of acquiring securities of the Company and is one or  more of the following (check one or more, as appropriate):                                                                                                                                                                                                                                                                                                                       |
|   |   |   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |   |   |   |   | o      |   | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | an  organization described in Section 501(c)(3) of the Internal Revenue Code; or                                                                       |
|   |   |   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                   |
|   |   |   |   |   |   | o      |   | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | a  corporation; or                                                                                                                                     |
|   |   |   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                   |
|   |   |   |   |   |   | o      |   | c.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | a  Massachusetts or similar business trust; or                                                                                                         |
|   |   |   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                   |
|   |   |   |   |   |   | o      |   | d.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | a  partnership.                                                                                                                                        |
|   |   |   |   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                   |
|   |   |   |   | o      |   | 8.     |   | The  undersigned is a trust with total assets exceeding $5,000,000 which was not  formed for the specific purpose of acquiring securities of the Company and  whose purchase is directed by a person who has such knowledge and experience  in financial and business matters that it is capable of evaluating the merits  and risks of the investment in the shares.   (IF ONLY THIS RESPONSE IS CHECKED, please contact the Company to receive  and complete an information statement before this subscription can be  considered). |
|        |        |        |        |        |        |        |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                        |  |

 

8.        RegistrationRights.

 

(a)                                  Definitions.  As used in this paragraph 8, the followingterms shall have the following meanings:

 

“Advice” has the meaning set forth in paragraph 8(c).

 

“Affiliate” means, with respect to any specified person, anyother person who, directly or indirectly, controls, is controlled by, or isunder common control with such specified person.

 

“Exchange Act” means the Securities Exchange Act of 1934, asamended from time to time, or any successor statute, and the rules andregulations of the Securities and Exchange Commission promulgated thereunder.

 

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“Holder” means the undersigned.

 

 

“Prospectus” means the prospectus included in any RegistrationStatement (including without limitation, a prospectus that disclosesinformation previously omitted from a prospectus filed as part of an effectiveRegistration Statement in reliance upon Rule 430A promulgated under the Act),as amended or supplemented by any prospectus supplement, and by all otheramendments and supplements to the prospectus, including post–effectiveamendments, and in each case including all material incorporated by referenceor deemed to be incorporated by reference in such prospectus.

 

“Registrable Securities” means the shares of common stockissuable upon exercise or conversion of the Securities and any shares of commonstock issued as payment in lieu of cash dividends on the Series A ConvertiblePreferred Stock; provided, however, that such securities shallcease to be Registrable Securities when (i) a Registration Statement coveringthe Registrable Securities has been declared effective and such RegistrableSecurities have been disposed of pursuant to such effective RegistrationStatement, or (ii) the Registrable Securities become eligible for sale pursuantto Rule 144 (or any similar rule then in force) under the Act, or (iii) theSecurities cease to be outstanding.

 

“Registration Statement” means any registration statement of theCompany that covers any of the Registrable Securities pursuant to theprovisions of this Agreement and all amendments and supplements to any suchregistration statement, including post–effective amendments, in each caseincluding the Prospectus, all exhibits, and all material incorporated byreference or deemed to be incorporated by reference in such registrationstatement.

 

“Suspension Notice” has the meaning set forth in paragraph 8(c).

 

(b)                                 Resale Registration.  The rights described in this paragraph 8(b)will be available to holders of Registrable Securities until the secondanniversary of the expiration of the warrants to purchase common stock issuedwith the Series A Convertible Preferred Stock.

 

(i)                                     DemandRegistration.  If holders of at leastone-third of the Registrable Securities request that the Company file aregistration statement having an aggregate offering price to the public of notless than $1.0 million, the Company will use its best efforts to cause suchcommon stock to be registered; provided, however, that the Company will not beobligated to effect more than two such registrations, and will not be obligatedto effect more than one such registration during any 12-month period.  If registration is demanded under anysubsection of paragraph 8(b), the Company may elect to register all of theRegistrable Securities.  The number ofdemand registrations available under this paragraph 8(b)(i) will be reduced bythe number of Form S-3 registrations demanded under paragraph 8(b)(iii).

 

(ii)                                  IncidentalRegistration.  If the Company proposesto register under the Act (except by a Form S-4 or Form S-8 RegistrationStatement or any successor forms thereto) or qualify for a public distributionunder Section 3(b) of the Act, any of its equity securities or debt withequity features, it will give written notice to all Holders of RegistrableSecurities of its intention to do so and, on the written request of any suchHolder given within twenty (20) days after receipt of any such notice (whichwritten request shall specify the interest in the Registrable

 

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Securities intended to be sold or disposed ofby such Holder and describe the nature of any proposed sale or otherdisposition thereof), the Company will use its best efforts to cause all suchRegistrable Securities, the Holders of which shall have requested theregistration or qualification thereof, to be included in such RegistrationStatement proposed to be filed by the Company; provided, however, that if agreater number of Registrable Securities is offered for participation in theproposed offering than in the reasonable opinion of the managing underwriter ofthe proposed offering can be accommodated without adversely affecting theproposed offering, then the amount of Registrable Securities proposed to beoffered by such Holders for registration, as well as the number of securitiesof any other selling shareholders participating in the registration, shall be proportionatelyreduced to a number deemed satisfactory by the managing underwriter.

 

(iii)                               S-3 Registration.  Holders of Registrable Securities areentitled to demand up to three registrations on Form S-3 (if available to theCompany) so long as each such offering is in an amount of at least $500,000(based upon the closing bid price of the common stock on the trading day beforethe demand is made).  The Company willnot be obligated to file more than one Form S-3 in any six-month period.

 

(c)                                  RegistrationProcedures.  In connection with theobligations of the Company to effect or cause the registration of anyRegistrable Securities pursuant to the terms and conditions of this Agreement,the Company shall use reasonable efforts to effect the registration and sale ofsuch Registrable Securities in accordance with the intended method ofdistribution thereof, and in connection therewith:

 

(i)                                     The Company shallprepare and file with the Securities and Exchange Commission a RegistrationStatement on Form S-3 or other similar form under the Act which permitssecondary sales of securities in a “shelf registration,” and use reasonableefforts to cause such Registration Statement to become effective and remaineffective in accordance with the provisions of this Agreement;

 

(ii)                                  The Company shallpromptly prepare and file with the Securities and Exchange Commission suchamendments and post-effective amendments to each Registration Statement as maybe necessary to keep such Registration Statement effective and shall timelyfile with the Securities and Exchange Commission all required filings under theExchange Act as are necessary to keep the Registration Statement effective foras long as such registration is required to remain effective pursuant to theterms hereof; shall cause the Prospectus to be supplemented by any requiredProspectus supplement, and, as so supplemented, to be filed pursuant to Rule424 under the Act; and shall comply with the provisions of the Act applicableto it with respect to the disposition of all Registrable Securities covered bysuch Registration Statement during the applicable period in accordance with theintended methods of disposition by Holder set forth in such RegistrationStatement or supplement to the Prospectus;

 

(iii)                               The Company shallpromptly furnish to Holder such number of copies of the Prospectus (includingeach preliminary Prospectus) and any amendments or supplements thereto, asHolder may reasonably request in order to facilitate the

 

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public sale or other disposition of theRegistrable Securities being sold by Holder;

 

(iv)                              The Company shallpromptly notify Holder, (A) when a Prospectus or any Prospectus supplement orpost-effective amendment has been filed and, with respect to a RegistrationStatement or any post-effective amendment, when the same has become effective,(B) of any request by the Securities and Exchange Commission or any statesecurities authority for amendments and supplements to a Registration Statementand Prospectus or for additional information after the Registration Statementhas become effective, (C) of the issuance by the Securities and ExchangeCommission of any stop order suspending the effectiveness of a RegistrationStatement, (D) of the issuance by any state securities commission or otherregulatory authority of any order suspending the qualification or exemptionfrom qualification of any of the Registrable Securities under state securitiesor “blue sky” laws, and (E) of the happening of any event which makes anystatement made in a Registration Statement or related Prospectus untrue orwhich requires the making of any changes in such Registration Statement orProspectus so that they will not contain any untrue statement of a materialfact or omit to state any material fact required to be stated therein ornecessary to make the statements therein, in light of the circumstances underwhich they were made, not misleading. As soon as practicable following expiration of the Suspension Period (asdefined below), the Company shall prepare and file with the Securities andExchange Commission and furnish a supplement or amendment to such Prospectus sothat, as thereafter deliverable to the purchasers of such RegistrableSecurities, such Prospectus will not contain any untrue statement of a materialfact or omit to state a material fact necessary to make the statements therein,in light of the circumstances under which they were made, not misleading.

 

Upon receipt of any notice (a “Suspension Notice”) by Holder from theCompany of the happening of any event of the kind described in paragraph8(c)(iv), Holder shall forthwith discontinue disposition of the RegistrableSecurities pursuant to the Registration Statement covering such RegistrableSecurities until such Holder’s receipt of the copies of the supplemented oramended Prospectus contemplated by paragraph 8(c)(iv) or until Holder isadvised in writing (the “Advice”) by the Company that the use of the Prospectusmay be resumed, and has received copies of any additional or supplementalfilings which are incorporated by reference in the Prospectus, and, if sodirected by the Company, will, or will request any broker–dealer actingas Holder’s agent to, deliver to the Company (at the Company’s expense) allcopies, other than permanent file copies then in Holder’s or broker–dealer’spossession, of the Prospectus covering such Registrable Securities current atthe time of receipt of such notice; provided, however, that in noevent shall the period from the date on which Holder receives a SuspensionNotice to the date on which Holder receives either the Advice or copies of thesupplemented or amended Prospectus contemplated by paragraph 8(c)(iv) (the“Suspension Period”) exceed 90 days.

 

(d)                                 RegistrationExpenses.  The Company shall bear allexpenses incurred in connection with the registration of Registrable Securitiespursuant to paragraph 8(b).  Suchexpenses shall include, without limitation, all printing, legal and accountingexpenses incurred by the Company and all registration and filing fees imposedby the Securities and Exchange

 

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Commission, any state securities commission or The Nasdaq StockMarket.  Each Holder shall beresponsible for any underwriting discounts, brokerage fees or commissions andtaxes of any kind (including, without limitation, transfer taxes) with respectto any disposition, sale or transfer of Registrable Securities and for anylegal, accounting and other expenses incurred by such Holder.

 

(e)                                                                                 Indemnificationand Contribution.

 

(i)                                     Indemnification bythe Company.  The Company agrees toindemnity and hold harmless, to the full extent permitted by law, each Holderfrom and against all losses, claims, damages, liabilities and expenses(including without limitation reasonable legal fees and expenses incurred byHolder (collectively, the “Damages”) to which Holder may become subject underthe Act or otherwise, insofar as such Damages (or proceedings in respectthereat) arise out of or are based upon any untrue statement of material factcontained in any Registration Statement (or any amendment thereto) pursuant towhich Registrable Securities were registered under the Act, or caused by anyomission to state therein a material fact necessary to make the statementstherein in light of the circumstances under which they were made notmisleading, or caused by any untrue statement of a material fact contained inany Prospectus (as amended or supplemented if the Company shall have furnishedany amendments or supplements thereto), or caused by any omission to statetherein a material fact necessary to make the statements therein in light ofthe circumstances under which they were made not misleading, except insofar assuch Damages arise out of or are based upon any such untrue statement oromission based upon information relating to Holder furnished in writing to theCompany by Holder specifically for use therein; provided, however,that the Company shall not be liable to Holder under this paragraph 8(e)(i) tothe extent that any such Damages were caused by the fact that Holder soldsecurities to a person as to whom it shall be established that there was notsent or given, at or prior to the written confirmation of such sale, a copy ofthe Prospectus as then amended or supplemented if, but only if, (A) the Companyhas previously furnished copies of such amended or supplemented Prospectus toHolder and (B) such Damages were caused by any untrue statement or omissioncontained in the Prospectus so delivered which was corrected in such amended orsupplemented Prospectus.

 

(ii)                                  Indemnification bythe Holder.  Holder agrees to indemnifyand hold harmless the Company, its stockholders, directors, officers and eachperson, if any, who controls the Company within the meaning of either Section15 of the Act or Section 20 of the Exchange Act to the same extent as theforegoing indemnity from the Company to Holder, but only with reference toinformation relating to Holder furnished in writing to the Company by Holderspecifically for use in any Registration Statement (or any amendment thereto)or any Prospectus (or any amendment or supplement thereto); provided, however,that Holder shall not be obligated to provide such indemnity to the extent thatsuch Damages result from the failure of the Company to promptly amend or takeaction to correct or supplement any such Registration Statement or Prospectuson the basis of corrected or supplemental information provided by Holder to theCompany expressly for such purpose.  Inno event shall the liability of Holder hereunder be greater in amount than theamount of the proceeds received by Holder upon the sale of the RegistrableSecurities giving rise to such indemnification obligation.

 

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(iii)                               Contribution.  To the extent that the indemnificationprovided for in paragraph 8(e)(i) or paragraph 8(e)(ii) is unavailable to anindemnified party or insufficient in respect of any Damages, then eachindemnifying party under such paragraph, in lieu of indemnifying suchindemnified party thereunder, shall contribute to the amount paid or payable bysuch indemnified party as a result of such Damages in such proportion as isappropriate to reflect the relative fault of the Company on the one hand andHolder on the other hand in connection with the statements or omissions thatresulted in such Damages, as well as any other relevant equitableconsiderations.  The relative fault ofthe Company on the one hand and of Holder on the other hand shall be determinedby reference to, among other things, whether the untrue statement of a materialfact or the omission to state a material fact relates to information suppliedby the Company or by Holder and the parties’ relative intent, knowledge, accessto information and opportunity to correct or prevent such statement oromission.

 

If indemnification is available under subsection (i) or (ii) of thisparagraph 8(e), the indemnifying parties shall indemnify each indemnified partyto the full extent provided in such paragraphs without regard to the relativefault of said indemnifying party or indemnified party or any other equitableconsideration provided for in this paragraph 8(e)(iii).  The Company and Holder agree that it wouldnot be just or equitable if contribution pursuant to this paragraph 8(e)(iii)were determined by pro rata allocation or by any other method of allocationthat does not take account of the equitable considerations referred to herein.

 

9.                                       NASD Affiliation.  Theundersigned is affiliated or associated, directly or indirectly, with aNational Association of Securities Dealers, Inc. (“NASD”) member firm orperson.

 

Yes  o                                    No  ý

 

Ifyes, list the affiliated member firm or person:

 

Yourrelationship to such member firm or person:

 

10.                                 Entities.  If the undersigned is anentity, the individual signing on behalf of such entity and the entity jointlyand severally agree and certify that:

 

A.                                   The undersigned was not organized for thespecific purpose of acquiring securities of the Company; and

 

B.                                     This Agreement has been duly authorized byall necessary action on the part of the undersigned, has been duly executed byan authorized officer or representative of the undersigned, and is a legal,valid and binding obligation of the undersigned enforceable in accordance withits terms.

 

11.                                  Covenant.

 

In consideration of the investment by theundersigned, Brew Buddies, LLC or its designee, Bluestem Capital Partners IIILimited Partnership, may designate one nominee to the Company’s board ofdirectors.  Brewing Ventures LLC, theprincipal shareholder of the Company, shall

 

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execute and deliver a voting agreement whichshall provide that Brewing Ventures LLC will vote its shares in favor of theelection of such nominee.

 

12.                                 Miscellaneous.

 

A.       Manner in which title is to be held: (check one)

 

o        IndividualOwnership

o        JointTenants with Right of Survivorship*

o        Partnership*

o        Tenantsin Common*

o        Corporation

o        Trust

ý        Other  limited partnership (describe)

 

B.                                     The undersigned agrees that the undersignedunderstands the meaning and legal consequences of the agreements,representations and warranties contained herein, agrees that such agreements,representations and warranties shall survive and remain in full force and effectafter the execution hereof and payment for the shares, and further agrees toindemnify and hold harmless the Company, each current and future officer,director, employee, agent and shareholder from and against any and all loss,damage or liability due to, or arising out of, a breach of any agreement,representation or warranty of the undersigned contained herein.  The undersigned acknowledges that theundersigned has retained his, her or its own independent legal counsel to theextent that the undersigned determined it to be necessary or helpful.  The undersigned further acknowledges thatthe undersigned was not represented by counsel for Aethlon Capital, LLC.

 

C.                                     This Agreement shall be construed andinterpreted in accordance with Minnesota law without regard to conflict of lawprovisions.

 

D.                                    The agreements and covenants of the partieshereto shall survive the delivery of the Securities and be binding upon theparties and their respective successors, personal representatives and assigns.

 

E.                                      The undersigned agrees to furnish to theCompany or the Agent, if applicable, upon request, such additional informationas may be deemed necessary to determine the undersigned’s suitability as aninvestor.

 

F.                                      This Agreement supersedes all previousSubscription Agreements by the undersigned and all previous SubscriptionAgreements are hereby withdrawn.

 

G.                                     In event of a party’s default or breach ofthis Agreement, the prevailing party in any action to enforce this Agreement orto recover damages as a result of a breach or default, shall be entitled torecover its reasonable costs and expenses therein, including reasonableattorneys fees.

 

[NOTE: SIGNATURE PAGES TO FOLLOW]

 

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*Multiplesignatures required.

 

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**SIGNATURE PAGE**

 
| Dated: September 19, 2002.                     |
|------------------------------------------------|
|                                           |
| BLUESTEM  CAPITAL PARTNERS III                 |
| LIMITED PARTNERSHIP                            |
|                                           |
| By:  Bluestem Capital Company III, L.L.C.      |
| Its:  General Partner                     |
|                                           |
| By                                             | /s/  Sandy Horst |   |
| Its  Authorized Officer                        |
|                                           |
|                                           |
| Sandy  Horst                                   |   |
| Name  Typed or Printed                         |
|                                           |
|                                           |
|                                           |   |
| Residence  Address                             |
|                                           |
|                                           |   |
|                                           |
|                                           |   |
| City,  State and Zip Code                      |
|                                           |
|                                           |   |
| Mailing  Address                               |
|                                           |
| 122  S. Phillips Ave., Ste 300                 |   |
|                                           |
| Sioux  Falls, SD  57104                   |   |
| City,  State and Zip Code                      |
|                                           |
|                                           |
| 46-0456561                                     |   |
| Tax  Identification or Social  Security Number |
|                                                |  |  |  |

 

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CERTIFICATEOF SIGNATORY

 

(To be completed if the Securities are being subscribed by an Entity.)

 

I,Sandy Horst, am the Authorized Officer of the General Partner of BluestemCapital Partners III Limited Partnership (the “Entity”).

 

Icertify that I am empowered and duly authorized by the Entity to execute andcarry out the terms of the Subscription Agreement and Letter of InvestmentIntent and to purchase and hold the Securities, and certify further that theSubscription Agreement and Letter of Investment Intent has been duly andvalidly executed on behalf of the Entity and constitutes a legal and bindingobligation of the Entity.

** **

**IN WITNESS WHEREOF**, I have set my hand this 19th day of September, 2002.

 

 
|   | /s/  Sandy Horst     |   |
|--------|----------------------|--------|
|   | (Signature)     |
|   |                 |
|   | Authorized  Officer  |
|   | (Title)              |
|   |                 |
|   | Sandy  Horst         |   |
|   | (Please  Print Name) |

 

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Acceptanceby the Company

 

Founders Food & FirkinsLtd.  hereby accepts the foregoingSubscription Agreement to the extent of 3,334 shares of Series A ConvertiblePreferred Stock and warrants to purchase 105,506 shares of common stock.

 
|   | Granite City Food &  Brewery Ltd. |
|--------|---------------------------------------|
|   |                                  |
|   |                                  |
|   | By                                    | /s/ Steven J. Wagenheim |   |
|   |                                  | Steven J. Wagenheim |
|   |                                  | Chief Executive Officer |
|        |                                       |  |  |  |

 

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