Document:

EXHIBIT 10.2

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (“Agreement”) is
made as of March 30, 2009, by and among GRANITE CITY
FOOD & BREWERY, LTD. (“Granite City”),
GRANITE
CITY RESTAURANT OPERATIONS, INC. (“GCROI”), each a
Minnesota corporation (each a “Debtor”, and
collectively referred to herein as, the “Debtors”) and HARMONY EQUITY INCOME FUND, L.L.C., a South Dakota limited
liability company (herein, with its participants, successors and assigns,
called the “Secured Party”), as secured
party.

 

All capitalized terms not otherwise defined herein, shall have the
meaning set forth in that certain Bridge Loan Agreement of even date herewith
by and among the Debtor and the Secured Party (the “Loan
Agreement”).

 

For good and valuable consideration, Debtors hereby agree for the
benefit of the Secured Party as follows:

 

1.               Debtors hereby
grant the Secured Party a security interest (collectively referred to as the “Security Interests”) in all personal property of the Debtors
located at or utilized exclusively for the restaurant located at 2620 South
Louise Avenue, Sioux Falls, South Dakota (such location being referred to
herein as, the “Leased Premises”), including but
not limited to, the property described below, as security for the payment and
performance of each and every debt, liability and obligation of every type and
description which either Debtor, may now or at any time hereafter owe to the
Secured Party (whether such debt, liability or obligation now exists or is
hereafter created or incurred, whether it arises in a transaction involving the
Secured Party alone or in a transaction involving other creditors of Debtors,
and whether it is direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or sole, joint,
several or joint and several, and including specifically, but not limited to,
all indebtedness of Debtors arising under any loan or credit agreement or
guaranty between Debtors and the Secured Party, whether now in effect or
hereafter entered into; all such debts, liabilities and obligations are herein
collectively referred to as the “Obligations”).  The Security Interests shall attach to the
personal property of Debtors described herein and all products and proceeds
thereof, whether now owned or hereafter acquired, including the following  (collectively, the “Collateral”):

 

(a)                                  All
inventory (“Inventory”) of Debtors
located at the Leased Premises and/or used solely in Debtors’ restaurant
operations located thereon (the “Restaurant”);

 

(b)                                 All
equipment (“Equipment”)  located on the Leased Premises or used in the
Restaurant, including  but not limited to
vehicles, furniture, fixtures, office and record keeping equipment, audio
visual equipment, any goods described in any equipment schedule or list attached
hereto or hereafter furnished to the Secured Party by Debtor (but no such
schedule or list need be furnished in order the security interest to be valid
as to Debtors’ equipment), any spare and repair parts or replacements for any
of the foregoing and any software imbedded therein;

 

 

(c)                                  All
accounts (“Receivables”) arising
from the operation of the Restaurant and contract rights specifically relating
to the Restaurant;

 

(d)                                 All
general intangibles of Debtors necessary for the operation of the Restaurant;

 

(e)                                  An
undivided interest in the Debtors’ intellectual property used in connection
with the Restaurant, including but not limited to, trademarks, trade secrets,
goodwill, trade names, customer lists, permits and franchises, and the right to
use Debtors’ names (the “Granite City
Intellectual Property”) subject to the agreement of the parties as
set forth in the IP Agreement of even date herewith between Debtor and Secured
Party (the “IP Agreement”);

 

(f)                                    All
deposit accounts related solely to the Restaurant;

 

(g)                                 The
Lease between Sioux Falls Douglas L. Johnson, as Landlord, and GCROI, as
tenant, dated June 14, 2000, as amended, for the Leased Premises;

 

(h)                                 The
Master Equipment Finance Lease dated September 19, 2006 by and between DHW
Leasing, L.L.C. and Granite City together with any schedules or addendums
related to furniture fixtures and equipment located at the Restaurant;

 

(i)                                     All
supporting obligations that support the payment or performance of any of the
foregoing; and

 

(j)                                     All
additions and accessions to, all proceeds, products, offspring and profits of,
and all rights and privileges incident to, any of the foregoing;

 

provided that with respect to any assets included
within the definition of “Granite City Intellectual Property,” the Secured Party’s
security interest is limited to the security interest in an undivided interest
in such assets granted pursuant to clause (e), above.

 

2.                                       Each
Debtor represents, warrants and agrees that:

 

(a)                                  Debtors
have (or will have at the time they acquire rights in Collateral hereafter
arising) and will maintain so long as the Security Interests may remain
outstanding, absolute title to each item of Collateral and all proceeds
thereof, free and clear of all interests, liens, attachments, encumbrances and
security interests except the Security Interests as provided herein, liens
existing on the date hereof and listed on Schedule 6.1 to the Loan Agreement,
or as the Secured Party may otherwise agree in writing.  Debtors will defend the Collateral against
all claims or demands of all persons (other than the Secured Party) claiming
the Collateral or any interest therein. 
Debtors will not sell or otherwise dispose of any material portion of
the Collateral or any interest therein except for the sale of Inventory in the
normal course of Debtors’ businesses, without the Secured Party’s prior written
consent.

 

(b)                                 Each
Debtor does business solely under its own name and the trade names (if any) set
forth below (or if none are listed, such Debtor warrants that it does not have
any 

 

 

tradenames).  The chief executive office of each Debtor is
located at the address set forth below and all of such Debtor’s records
relating to its business or the Collateral are kept at that location or at the
Leased Premises. The addresses where the Collateral will be kept, if different
from the Leased Premises or the address appearing below Debtor’s signature, are
set forth in Exhibit A.  No Collateral will be kept at any other
location without the prior written consent of Secured Party, but the parties
intend that the Collateral, wherever located, is covered by this
Agreement.  Debtors will not permit any
tangible Collateral or any records pertaining to Collateral to be located in
any state or area in which, in the event of such location, a financing
statement covering such Collateral would be required to be, but has not in fact
been, filed in order to perfect the Security Interests.  Neither Debtor will change its name or the
location of its place of business, without prior written notice to the Secured
Party.  Debtors shall advise Secured
Party in writing at least thirty (30) days before any change of name, identity,
form of organization, state of organization, corporate structure, or chief
executive office.

 

(c)                                  None
of the Collateral is or will become a fixture on real estate, unless a
sufficient fixture filing is in effect with respect thereto.

 

(d)                                 Each
right to payment and each instrument, document, chattel paper and other
agreement constituting or evidencing Collateral is (or, in the case of all
future Collateral, will be when arising or issued) the valid, genuine and
legally enforceable obligation, subject to no defense, setoff or counterclaim,
of the account debtor or other obligor named therein or in Debtors’ records
pertaining thereto as being obligated to pay such obligation.  Except in the ordinary course of Debtors’
business, Debtors will not agree to modify, amend, subordinate, cancel or
terminate the obligation of any such account debtor or other obligor, without
the Secured Party’s prior written consent.

 

(e)                                  Debtors
will keep all tangible Collateral in good repair, working order and condition,
normal depreciation excepted, and will, from time to time, replace any worn,
broken or defective parts.

 

(f)                                    Debtors
will promptly pay all taxes and other governmental charges levied or assessed
upon or against any Collateral or upon or against the creation, perfection or
continuance of the Security Interests.

 

(g)                                 Debtors
will keep all Collateral free and clear of all security interests, liens and
encumbrances except the Security Interests provided herein and except other
security interests approved in writing by the Secured Party.

 

(h)                                 Debtors
will at all reasonable times permit the Secured Party or its representatives to
examine or inspect any Collateral, or any evidence of Collateral, wherever
located, and Debtors will at any time and from time to time send requests for
verification of accounts or notices of assignment to account debtors and other
obligors.

 

(i)                                     Each
Debtor will keep accurate and complete records pertaining to the Collateral and
pertaining to its respective business and financial condition, prepared on the
basis of generally accepted accounting principles consistently applied; will
submit to the Secured Party such

 

 

weekly, monthly and other
periodic reports concerning the Collateral and its respective business and
financial condition as the Secured Party may from time to time request; and
will permit the Secured Party, or its employees, accountants, attorneys or
agents, to examine and copy any or all of its records at any time during Debtor’s
business hours.

 

(j)                                     Debtors
will promptly notify the Secured Party of any loss of or material damage to any
Collateral or of any substantial adverse change, known to Debtors, in any Collateral
or the prospect of payment thereof.

 

(k)                                  Upon
request by the Secured Party, whether such request is made before or after the
occurrence of an Event of Default, Debtors will promptly deliver to the Secured
Party in pledge all instruments, documents and chattel papers constituting
Collateral, duly endorsed or assigned by each applicable Debtor.

 

(l)                                     Each
Debtor will at all times keep its business and all tangible Collateral insured
against risks of fire (including so-called extended coverage), theft, collision
(for Collateral consisting of motor vehicles) and such other risks and in such
amounts as the Secured Party may reasonably request, with a Secured Party’s
loss payee endorsement to the Secured Party to the extent of its interest.

 

(m)                               Debtors
will pay or reimburse the Secured Party on demand for all costs of collection
of any of the Obligations and all other out-of-pocket expenses (including in
each case all reasonable attorneys’ fees and legal expenses) incurred by the
Secured Party in connection with the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interests or the
creation, continuance or enforcement of this Agreement or any or all of the
Obligations.

 

(n)                                 Debtors
will use and keep the Collateral, and will require that others use and keep the
Collateral, only for lawful purposes, without violation of any federal, state
or local law, statute or ordinance.

 

(o)                                 For
all items of Equipment currently covered by certificates of title issued by any
state (“Titled Vehicles”), if any,
the Debtors shall take all steps necessary to have the Secured Party’s Security
Interest perfected in compliance with the applicable laws of each such state
and shall deliver the original certificates of title or other satisfactory
evidence of the Secured Party’s security interest to the Secured Party promptly
upon request.  The Debtors shall not
obtain a new or duplicate certificate of title for any of the Titled Vehicles
without the Secured Party’s consent, and then only if the Secured Party is
shown upon the new certificate of title as holding a first priority security
interest in said Titled Vehicle.

 

(p)                                 Debtors
from time to time will execute and deliver or endorse any and all instruments,
documents, conveyances, assignments, security agreements, financing statements
and other agreements and writings which the Secured Party may reasonably
request in order to secure, protect, perfect or enforce the Security Interests
or the rights of the Secured Party under this Agreement (but any failure to
request or assure that Debtor executes, delivers or endorses any such item
shall not affect or impair the validity, sufficiency or enforceability of this
Agreement and the

 

 

Security Interests, regardless
of whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).

 

If either Debtor at any time fails to perform or observe any of the
foregoing agreements, and if such failure shall continue for a period of ten (10) calendar
days after the Secured Party gives Debtors written notice thereof (or in the
case of the agreements contained in clauses (g) and (1) above,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Secured Party may, but need not, perform or observe such agreement
on behalf and in the name, place and stead of either Debtor (or, at the Secured
Party’s option, in the Secured Party’s name) and may, but need not, take any
and all other actions which the Secured Party may reasonably deem necessary to
cure or correct such failure (including, without limitation, the payment of
taxes, the satisfaction of security interests, liens or encumbrances, the
performance of obligations owed to account debtors or other obligors, the
procurement and maintenance of insurance, the execution of assignments,
security agreements and financing statements, and the endorsement of
instruments); and Debtors shall thereupon pay to the Secured Party on demand
the amount of all monies expended and all costs and expenses (including
reasonable attorneys’ fees and legal expenses) incurred by the Secured Party in
connection with or as a result of the performance or observance of such
agreements or the taking of such action by the Secured Party, together with
interest thereon from the date expended or incurred at the highest lawful rate
then applicable to any of the Obligations. 
To facilitate the performance or observance by the Secured Party of such
agreements of Debtors, Debtors hereby irrevocably appoints the Secured Party, or
the delegate of the Secured Party, acting alone, as the attorney-in-fact of
such Debtor with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse or file in the name and on behalf
of such Debtor any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed, delivered or
endorsed by such Debtor under this Section 1.02.

 

3.                                       With
respect to any or all rights to payment constituting Collateral the Secured
Party may at any time after the occurrence of an Event of Default notify any
account debtor or other person obligated to pay the amount due that such right
to payment has been assigned or transferred to the Secured Party for security
and shall be paid directly to the Secured Party.  Debtors will join in giving such notice, if
the Secured Party so requests.  At any
time after Debtors or the Secured Party gives such notice to an account debtor
or other obligor, the Secured Party may, but need not, in the Secured Party’s
name or in the respective Debtor’s name, (i) demand, sue for, collect or
receive any money or property at any time payable or the receivable on account
of, or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (ii) as agent and attorney-in-fact of such
Debtor notify the United States Postal Service to change the address for
delivery of such Debtor’s mail to any address designated by the Secured Party
and otherwise intercept, receive, open and dispose of such Debtor’s mail, applying
all Collateral as permitted under this Agreement or the Loan Agreement and
holding all other mail for Debtor’s account or forwarding such mail to Debtor’s
last known address.

 

4.                                       As
additional security for the payment and performance of the Obligations, each
Debtor hereby assigns to the Secured Party any and all monies (including,
without limitation,

 

 

proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of such Debtor with
respect to, any and all policies of insurance now or at any time hereafter
covering the Collateral or any evidence thereof or any business records or
valuable papers pertaining thereto, and each Debtor hereby directs the issuer
of any such policy to pay all such monies directly to the Secured Party, at any
time, whether before or after the occurrence of any Event of Default, the
Secured Party may (but need not), in the Secured Party’s name or in such Debtor’s
name, execute and deliver proof of claim, receive all such monies, endorse
checks and other instruments representing payment of such monies, and adjust,
litigate, compromise or release any claim against the issuer of any such
policy.

 

5.                                       Upon
the occurrence of any Event of Default and at any time thereafter, the Secured
Party may exercise one or more of the following rights and remedies, subject in
each case to the last two sentences of this Section 5:  (i) declare all unmatured Obligations to
be immediately due and payable, and the same shall thereupon be immediately due
and payable, without presentment or other notice or demand (but the Secured
Party expressly reserves the right to demand payment of any Obligation payable
on demand, at any time, whether or not an Event of Default has occurred or is
continuing); (ii) exercise and enforce any and all rights and remedies
available upon default to a secured party under the Uniform Commercial Code,
including, without limitation, the right to take possession of Collateral, or
any evidence thereof, proceeding without judicial process or by judicial
process (without a prior hearing or notice thereof, which each Debtor hereby
expressly waives) and the right to sell, lease or otherwise dispose of any or
all of the Collateral, and in connection therewith each Debtor will on demand
assemble the collateral and make it available to the Secured Party at a place
to be designated by the Secured Party which is reasonably convenient to both
parties, and the Secured Party shall have the right to take immediate
possession of the Collateral and may enter any of the premises of either Debtor
or wherever the Collateral is located with or without process of law and to
keep and store the same on said premises until sold (and if said premises be
the property of either Debtor, such Debtor agrees not to charge the Secured
Party or a purchaser from the Secured Party for storage thereof for a period of
at least 90 days) (If notice to Debtors of any intended disposition of
Collateral or any other intended action is required by law in a particular
instance, such notice shall be deemed commercially reasonable if given (in the
manner specified in Section 7) at least ten (10) calendar days prior
to the date of intended disposition or other action.); (iii) Secured Party
may take immediate occupancy of the Leased Premises (whether any foreclosure
action with respect to the Leased Premises has been initiated or is ongoing) to
hold, process, manufacture, sell, use,
store, liquidate, realize upon or otherwise dispose of items that are
Collateral, to operate the Restaurant and to preserve the Collateral and the
Restaurant as a going concern for a sale by Secured Party to a third party, and
for other purposes that the Secured Party may in good faith deem to be related
or incidental purposes; (iv) without notice or demand offset any
indebtedness the Secured Party or any of its participants, successors or
assigns then owes to either Debtor, whether or not then due, against any
Obligation then owed to the Secured Party or any of its participants,
successors or assigns by Debtor, whether or not then due; and (v) exercise
or enforce any and all other rights or remedies available by law or agreement
against the Collateral, against either Debtor, or against any other person or
property.  The proceeds of all sales and
collections will be applied first to all reasonable expenses of retaking,
holding, preparing for sale, selling and the like, including attorneys’ fees
and legal expenses (whether or not suit is commenced) including, without
limitation, attorneys’ fees and legal expenses incurred in connection with any
appeal of a lower court’s order or judgment

 

 

and second to the payment (in whatever order the
Secured Party elects) of all other Obligations chargeable to either Debtor in
connection with the loan transactions with Secured Party.  Subject to the provisions of the Uniform
Commercial Code, the Secured Party will return any excess to the Debtors and
the Debtors shall remain liable to the Secured Party for any deficiency.  The rights of the Secured Party as a secured
creditor with respect to the Granite City Intellectual Property following the
occurrence and during the continuance of an Event of Default are limited in all
respects to the rights of the Secured Party under the terms of the IP
Agreement.  In the event of any conflict
between this Agreement and the IP Agreement, with respect to the Granite City
Intellectual Property, the terms of the IP Agreement shall govern.

 

6.                                       This
Agreement does not contemplate a sale of accounts, contract rights or chattel
paper, and, as provided by law, Debtors are entitled to any surplus and shall
remain liable for any deficiency.  The
Secured Party’s duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled in the selection of the bailee or
other third person, and the Secured Party need not otherwise preserve, protect,
insure or care for any Collateral.  The
Secured Party shall not be obligated to preserve any rights Debtor may have
against prior parties, to realize on the Collateral at all or in any particular
manner in order or to apply any cash proceeds of the Collateral in any
particular order of application.

 

7.                                       This
Agreement can be waived, modified, amended, terminated or discharged, and the
Security Interests can be released, only explicitly in a writing signed by the
Secured Party.  A waiver so signed shall
be effective only in the specific instance and for the specific purpose
given.  Mere delay or failure to act shall
not preclude the exercise or enforcement of any rights or remedies available to
the Secured Party.  All rights and
remedies of the Secured Party shall be cumulative and may be exercised
singularly in any order or sequence, or concurrently, at the Secured Party’s
option, and the exercise or enforcement of any such right or remedy shall
neither be a condition to nor bar the exercise or enforcement of any
other.  All notices to be given to
Debtors shall be deemed sufficiently given if delivered or mailed by
registered, certified or ordinary mail, postage prepaid, to either Debtor at
its address set forth below or at its most recent address shown on the Secured
Party’s records.

 

8.                                       As
used herein, the term “Event of Default”
shall have the meaning assigned to such term in any promissory note or loan
agreement of either Debtor secured by this Security Agreement.

 

9.                                       The
Secured Party and its participants, if any, are not partners or joint
venturers, and the Secured Party shall not have any liability or responsibility
for any obligation, act or omission of any of its participants.

 

10.                                 This
Agreement, and the Security Interests granted hereby, shall be binding upon
each Debtor, its successors and assigns, and shall inure to the benefit of and
be enforceable by the Secured Party and each and all of its participants,
successors and assigns, and shall be effective when executed by Debtors and
delivered to the Secured Party whether or not this Agreement is executed by the
Secured Party.  All rights and powers
specifically conferred upon the Secured Party may be transferred or delegated
to any of the participants, successors or assigns of the Secured Party.  Except to the extent otherwise required by
law, this Agreement and the transaction evidenced hereby shall be

 

 

governed by the substantive laws of the state in which
this Agreement is accepted by the Secured Party.  If any provision or application of this
Agreement is held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or applications which can be
given effect, and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby.  All representations
and warranties contained in this Agreement or in any other agreement between
Debtors and the Secured Party shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the
Obligations.  Each Debtor waives notice
of the acceptance of this Agreement by the Secured Party.

 

[The rest of this page is intentionally left
blank.]

 

 

IN WITNESS WHEREOF, this Security Agreement has been duly executed and
delivered by the proper officers thereunto duly authorized on the day and year
first above written.

 

	
  GRANITE
  CITY RESTAURANT OPERATIONS, INC.  

  	
   

  	
  GRANITE
  CITY FOOD & BREWERY, LTD.  

  
	
   

  	
   

  	
   

  
	
  By 

  	
  /s/ James G.
  Gilbertson  

  	
   

  	
  By 

  	
  /s/ James G.
  Gilbertson 

  
	
  Its

  	
  CFO

  	
   

  	
  Its

  	
  CFO

  
	
   

  	
   

  	
   

  
	
  Address: 

  	
  5402 Parkdale
  Drive, Suite 101 

  	
   

  	
  Address: 

  	
  5402 Parkdale
  Drive, Suite 101 

  
	
   

  	
  Minneapolis, MN
  55416

  	
   

  	
   

  	
  Minneapolis, MN
  55416

  
							

 

 

Accepted on March 30,
2009:

 

	
  HARMONY
  EQUITY INCOME FUND, L.L.C.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By 

  	
  /s/ Eugene E.
  McGowan

  	
   

  
	
  Its Managing
  MemberEXHIBIT 10.3

 

This document prepared by:

 

Joseph Alexander, Esq.

Maslon Edelman Borman & Brand, LLP

3300 Wells Fargo Center

90 South Seventh Street

Minneapolis, MN  55402

612.672.8369

 

LEASEHOLD 180-DAY REDEMPTION MORTGAGE AND SECURITY AGREEMENT AND FIXTURE FILING STATEMENT

 

This LEASEHOLD 180-DAY REDEMPTION MORTGAGE
AND SECURITY AGREEMENT AND FIXTURE FILING STATEMENT, dated as of the 30TH day of March, 2009, is made by Granite City
Restaurant Operations, Inc., a Minnesota corporation having an office at
5402 Parkdale Drive, Suite 101, Minneapolis, MN 55416 as mortgagor,
assignor and debtor (in such capacities and together with any successors in
such capacities, the “Mortgagor”),
in favor of  Harmony Equity Income Fund,
L.L.C., with an address of 201 S. Phillips Avenue, Suite 100, Sioux Falls,
SD 57104 (referred to herein, together with any successors or assigns, as the “Mortgagee”).

 

W I T N E S S E T H:

 

A.            Pursuant to that certain Bridge Loan Agreement, dated as of the date hereof (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Loan Agreement”), between the Mortgagor, Granite City Food & Brewery, Ltd. (the “Co-Borrower”) and Mortgagee, the Mortgagee has agreed to advance One Million Dollars ($1,000,000) to the Mortgagor and Co-Borrower.  Capitalized terms used but not otherwise defined herein shall have the meaning assigned to such terms in the Loan Agreement.
 
B.            The Mortgagor is the owner and holder of the tenant’s interest in certain real property and the buildings, improvements and fixtures constructed thereon, located in Minnehaha County, Sioux Falls, South Dakota, as more particularly described on Schedule A attached hereto and incorporated herein by this reference (the “Real Property”), pursuant to the terms of that certain lease, dated as of June 14, 2000 (as amended from time to time in accordance with the documents referenced in Schedule B and as further amended from time to time in accordance with the provisions of this Mortgage, the “Lease”), by and between  Doug Johnson, successor in interest to Sioux Falls Investments, L.L.P. as landlord (together with his successors and assigns, “Lessor”) and the Mortgagor.
 
C.            It is a condition to the obligations of the Mortgagee to make loans under the Loan Agreement that the Mortgagor execute and deliver this Mortgage.   This Mortgage is given by

 

1

 

the Mortgagor in favor of the Mortgagee for its benefit to secure the payment and performance of all Secured Obligations (as hereinafter defined).
 

NOW,
THEREFORE, the Mortgagor, in consideration of the
foregoing and in order to secure payment and performance of the Secured
Obligations and its other obligations arising under and pursuant to the Loan
Agreement and this Mortgage, hereby gives, grants, bargains, sells, warrants,
conveys, assigns, transfers, mortgages, hypothecates, deposits, pledges, sets
over, and confirms unto the Mortgagee all its estate, right, title, and
interest in, to, and under any and all of the following described property
(referred to herein as the “Mortgaged Estate”),
whether now owned or held or hereafter acquired:

 

(a) 
its leasehold interest in the Real Property, created by the Lease, including
all of the air space, easements, rights, privileges, royalties, and
appurtenances thereunto belonging or in anywise appertaining, and all of the
estate, right, title interest, claim, or demand whatsoever of the Mortgagor
therein and in the streets, alleys, and ways adjacent thereto, either at law or
in equity, in possession or expectancy, now or hereafter acquired (hereinafter
referred to as the “Premises”);

 

(b) 
all structures and buildings, and replacements thereof, now or hereafter
constructed upon the Premises by the Mortgagor, to the extent the Mortgagor
owns or otherwise has rights to the foregoing, including all equipment,
apparatus, machinery, and fixtures of every kind and nature whatsoever forming
part of said structures and/or buildings (hereinafter referred to as the “Leasehold Improvements”);

 

(c) 
all furniture, trade fixtures, fittings, appliances, apparatus, equipment,
machinery, and articles of personal property, and replacements thereof, to the
extent the Mortgagor owns or otherwise has rights to the foregoing, now or at
any time hereafter affixed to, attached to, placed upon, or used in any way in
connection with the complete and comfortable use, enjoyment, occupancy or
operation of the Premises (hereinafter referred to as the “Fixtures”);

 

(d)  all
“general intangibles” (as such term is defined in the Uniform Commercial Code
of the State of South Dakota, SDCL 57A-9) in any way relating to the Premises
and/or the Leasehold Improvements and Fixtures and in which the Mortgagor has
any interest, and all unearned premiums reasonably allocated to insuring the
Mortgaged Estate, accrued, accruing, or to accrue under all insurance policies
now or hereafter obtained by the Mortgagor insuring the Mortgaged Estate, as
hereinafter defined, and all rights and interest of Mortgagor thereunder
(hereinafter referred to as the “Intangibles”);

 

(e) 
all substitutions, replacements and proceeds of any of the foregoing including,
without limitation, proceeds of hazard and title insurance and condemnation
awards, and all accessions, substitutions or replacements of any of the
foregoing; and

 

(f) 
all subleases and lettings of the Premises now or hereafter entered into by the
Mortgagor and all right, title, and interest of the Mortgagor thereunder, and
under the Lease and any cash or securities deposited thereunder to secure
performance by the Mortgagor of its obligations thereunder, whether such cash
or securities are to be held until the expiration of the

 

2

 

terms of such
Lease or applied to one or more of the installments of rent coming due
immediately prior to the expiration of such terms, including, further, the
right, upon the happening of an Event of Default, to receive and collect the
rents thereunder.

 

TO HAVE AND TO HOLD all and singular, the
Mortgaged Estate, together with all estate, right, title and interest of the
Mortgagor and anyone claiming by, through or under the Mortgagor in and to the
Mortgaged Estate and all rights and appurtenances relating thereto, whether now
owned or hereafter owned, unto the Mortgagee, its successors and assigns,
forever, subject to the terms and conditions of this Mortgage, the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement) for
the purpose of securing the payment and performance in full of all the Secured
Obligations, with power of sale for the purposes of South Dakota Codified Laws,
Chapter  21-49, as amended.

 

For purposes of this Mortgage, the term “Secured Obligations” shall mean all
obligations (whether or not constituting future advances, obligatory or
otherwise) of the Mortgagor from time to time arising under or in respect
hereof, the Loan Agreement and the other Loan Documents (including, without
limitation, the obligations to pay principal, interest and all other charges,
fees, expenses, commissions, reimbursements, premiums, indemnities and other
payments related to or in respect of the obligations contained in this
Mortgage, the Loan Agreement), in each case whether (i) such obligations
are direct or indirect, secured or unsecured, joint or several, absolute or
contingent, due or to become due whether at stated maturity, by acceleration or
otherwise, (ii) arising in the regular course of business or otherwise, (iii) for
payment or performance and/or (iv) now existing or hereafter arising (including,
without limitation, interest and other obligations arising or accruing after
the commencement of any bankruptcy, insolvency, reorganization or similar
proceeding with respect to the Mortgagor or which would have arisen or accrued
and which would have been enforceable or allowable but for the commencement of
such proceeding, even if such obligation or the claim therefor is not
enforceable or allowable in such proceeding).

 

The maximum aggregate amount of all advances of principal under the Loan Agreement (which advances are subject to the conditions set forth therein) that may be outstanding hereunder at any time is One Million Dollars ($1,000,000), plus interest thereon, reasonable collection costs, sums advances for the payment of taxes, assessments, maintenance and repair charges, insurance premiums and other costs incurred to protect the security encumbered hereby or the lien hereof, expenses incurred by the Mortgagee by reason of any default by the Mortgagor under the terms hereof, together with all other sums secured hereby.
 

THE PARTIES AGREE THAT THE PROVISIONS OF THE
ONE HUNDRED EIGHTY DAY REDEMPTION MORTGAGE ACT GOVERN THIS MORTGAGE.  THERE IS HEREBY GRANTED TO MORTGAGEE A POWER
OF SALE FOR THE PURPOSES OF SDCL 21-49.

 

AND IT IS FURTHER COVENANTED AND AGREED AS
FOLLOWS:

 

3

 

ARTICLE I

 

COVENANTS, REPRESENTATIONS AND WARRANTIES OF
THE MORTGAGOR

 

The Mortgagor covenants, agrees, represents and warrants as follows:

 

Section 1.01.   Leasehold Interest.

 

(a) 
The Mortgagor represents and warrants that (i) it is the owner of a valid
and subsisting interest as tenant under the Lease; (ii) the Lease is in
full force and effect and has not been assigned, modified, amended,
supplemented, or extended in any way, except as disclosed previously to the
Mortgagee; (iii) the Lease represents the entire agreement between the
parties as to the leasing described therein, and the Lease is not subject to
any occurrence known to Mortgagor which constitutes a defense, offset or
counterclaim as of the date of this Mortgage, (iv) there is no default
which has occurred and is continuing under the Lease nor has any event occurred
which with notice, the passage of time, or both would constitute a default
under the Lease by either the Lessor or lessee thereunder; (v) all rental
payments and other charges under the Lease which are due and owing as of the
date of this Mortgage have been paid in full; (vi) the Lease is subject to
no liens and encumbrances whatsoever, other than the interest of the Lessor
thereunder and the interests set forth on Schedule B hereto; (vii) it
leases and will lease the Fixtures free and clear of all liens and claims
except the interest of DHW Leasing LLC and Great Western Bank; (viii) this
Mortgage is and will remain a valid and enforceable lien on the Mortgaged
Estate subject only to the exceptions referred to above; (ix) the
Mortgagor has full power and lawful authority to mortgage the Mortgaged Estate
in the manner and form herein done or intended hereafter to be done and this
Mortgage constitutes the legal, valid and binding obligation of the Mortgagor,
enforceable against it in accordance with its terms; and (x) Mortgagor is
in actual possession of the Premises.

 

(b)  The
Mortgagor will preserve the leasehold estate created in it by the Lease, and
will forever warrant and defend the same to the Mortgagee and will forever
warrant and defend the validity and priority of the lien hereof against the
claims of all persons and parties whomsoever.

 

(c) 
The Mortgagor will perform or cause to be performed all of the covenants and
conditions required to be performed by it under the Lease, will do all things
necessary to preserve unimpaired its rights thereunder, and will not enter into
any agreement modifying or amending the Lease or releasing the Lessor
thereunder from any obligations imposed upon it thereby. If the Mortgagor
receives a notice or default under the Lease, it shall immediately cause a copy
of such notice to be sent by registered United States mail to the Mortgagee.

 

(d) 
The Mortgagor represents and warrants that the Real Property and the Premises
consist of less than forty (40) acres.

 

Section 1.02.   Further Acts.  The Mortgagor will, at the sole cost of the
Mortgagor, and without expense to the Mortgagee, do, execute, acknowledge and
deliver all and every such further acts, deeds, conveyances, mortgages,
assignments, notices of assignment, transfers, and assurances as the Mortgagee
shall from time to time reasonably require, for the better assuring, 

 

4

 

conveying,
assigning, transferring, and confirming unto the Mortgagee the property and
rights hereby conveyed or assigned or intended now or hereafter so to be, or
which the Mortgagor may be or may hereafter become bound to convey or assign to
the Mortgagee, or for carrying out the intention or facilitating the
performance of the terms of this Mortgage, or for filing, registering, or
recording this Mortgage and, on demand, will execute and deliver, and hereby
authorizes the Mortgagee to execute and file in the name of the Mortgagor to
the extent it may lawfully do so, one or more financing statements, chattel
mortgages, or comparable security instruments to evidence more effectively the
lien hereof upon the Mortgaged Estate or any part thereof.

 

Section 1.03.   Condition of Mortgaged
Estate.  The Mortgagor
represents and warrants that (a) the Premises and the present and
contemplated use and occupancy thereof complies with all applicable zoning
ordinances, building codes, land use laws, set back or other development and
use requirements of any local or state governmental authority; (b) the
Premises are served by all utilities necessary for the present and contemplated
use thereof, and all utility services are provided by public utilities and the
Premises have accepted or are equipped to accept such utility services and the
Mortgagor has not received notice of termination of such utility service; and (c) there
has been issued and there remains in full force and effect subject to no
revocation, suspension, forfeiture or modification, each and every permit of
any local, state or federal governmental authority or agency thereof necessary
for the present and contemplated use, operation and occupancy of the Premises
by the Mortgagor.

 

Section 1.04.   Payment.  The Mortgagor will punctually pay the
principal and interest and all other sums to become due in respect of the Loan
Agreement or other Secured Obligations at the time and place and in the manner
specified in the Loan Agreement or such other instrument with respect to the
obligations secured hereby, and shall duly and punctually perform and observe
all of the covenants, agreements and provisions contained herein and therein.

 

Section 1.05.   Zoning.  The Mortgagor shall not initiate, join in or
consent to any change in the zoning or other permitted use classification of
the Premises without the prior written consent of the Mortgagee, which consent
may not be unreasonably withheld.

 

Section 1.06.   After-Acquired Property.  All right, title, and interest of the
Mortgagor in and to all extensions, improvements, betterments, renewals,
substitutes, and replacements of, and all additions and appurtenances to, the
Mortgaged Estate hereafter acquired by, or released to, the Mortgagor, or
constructed, assembled, or placed by the Mortgagor on the Premises or any part
thereof, and all conversions of the security constituted thereby, immediately
upon such acquisition, release, construction, assembling, placement, or conversion,
as the case may be, and in each such case, without any further mortgage,
conveyance, assignment, or other act by the Mortgagor, shall become subject to
the lien of this Mortgage as fully and completely, and with the same effect, as
though now owned by the Mortgagor and specifically described in the granting
clause hereof, but at any and all times the Mortgagor will execute and deliver
to the Mortgagee any and all such further assurances, mortgages, conveyances,
or assignments thereof as the Mortgagee may reasonably require for the purpose
of expressly and specifically subjecting the same to the lien of this Mortgage.

 

5

 

Section 1.07.   Taxes and Related Matters.

 

(a)  The Mortgagor, from time to time when
the same shall become due and payable, will pay and discharge or cause the
Lessor under the Lease to pay and discharge, pursuant to the Lease, all taxes
of every kind and nature, all general and special assessments, levies, permits,
inspection and license fees, all water and sewer rents and charges, and all
other public charges whether of a like or different nature, imposed upon or
assessed against the Mortgaged Estate, or any part thereof, or upon the
revenues, rents, issues, income, and profits of the Mortgaged Estate, or any
part thereof, or arising in respect of the occupancy, use, or possession
thereof. The Mortgagor will, upon the request of the Mortgagee, deliver or
cause to be delivered to the Mortgagee receipts evidencing the payment of all
such taxes, assessments, levies, fees, rents, and other public charges imposed
upon or assessed against the Mortgaged Estate, or any part thereof, or the
revenues, rents, issues, income, or profits thereof.

 

The Mortgagee
may, at its option to be exercised by thirty (30) days written notice to the
Mortgagor following an Event of Default by the Mortgagor, require the deposit
by the Mortgagor, at the time of each payment of an installment of interest or
principal under the Loan Agreement, of an additional amount sufficient to
discharge the obligations under this subsection (a) when they become due.
The determination of the amount so payable and of the fractional part thereof
to be deposited with the Mortgagee, so that the aggregate of such deposit shall
be sufficient for this purpose, shall be made by the Mortgagee in its sole
discretion. Such amounts shall be held by the Mortgagee without interest and
applied to the payment of the obligations in respect to which such amounts were
deposited or, at the option of the Mortgagee, to the payment of said
obligations in such order or priority as the Mortgagee shall determine, on or
before the respective dates on which the same or any of them would become
delinquent. If one month prior to the due date of any of the aforementioned
obligations the amounts then on deposit therefor shall be insufficient for the
payment of such obligation in full, the Mortgagor within ten (10) days
after demand shall deposit the amount of the deficiency with the Mortgagee.
Nothing herein contained shall be deemed to affect any right or remedy of the
Mortgagee under any provisions of this Mortgage or of any statute or rule of
law to pay any such amount and to add the amount so paid to the Secured
Obligations.

 

(b) 
The Mortgagor will pay, or cause the Lessor under the Lease to pay, pursuant to
the Lease, from time to time when the same shall become due, all lawful claims
and demands of mechanics, materialmen, laborers, and others, which claims and
demands, if unpaid, might result in, or permit the creation of, a lien on the
Mortgaged Estate or any part thereof, or on the revenues, rents, issues,
income, and profits arising therefrom and in general will do or cause to be
done everything necessary so that the lien shall be fully preserved, at the cost
of the Mortgagor, without expense to the Mortgagee.

 

(c) 
Nothing in this Section 1.07 shall require the payment or discharge
of any obligation imposed upon the Mortgagor by this Section 1.07
so long as the Mortgagor shall in good faith and at its own expense contest the
same or the validity thereof by appropriate legal proceedings which shall
operate to prevent the collection thereof or other realization thereon and the
sale or forfeiture of the Premises or any part thereof to satisfy the same or
termination of the Lease; provided that during such contest the Mortgagor
shall, at the option of the Mortgagee, provide security satisfactory to the
Mortgagee, assuring the discharge of the Mortgagor’s 

 

6

 

obligation
hereunder and of any additional charge, penalty, or expense arising from or
incurred as a result of such contest. 
Any such contest shall be prosecuted with due diligence and the
Mortgagor shall promptly after final determination thereof pay the amount of
any such lien or obligation so determined, together with all interest and
penalties which may be payable in connection therewith.  Notwithstanding these provisions the
Mortgagor shall (and if the Mortgagor shall fail so to do, the Mortgagee, may
but shall not be required to) pay any such lien or obligation notwithstanding
such contest if in the opinion of the Mortgagee, the Mortgaged Estate shall be
in jeopardy or in danger of being forfeited or foreclosed.

 

Section 1.08.   Protection of Security.  The Mortgagor shall promptly notify the
Mortgagee of and appear in and defend any suit, action or proceeding that
affects the Mortgaged Estate, the Lease or the rights or interest of the
Mortgagee hereunder or the rights or interest of the Mortgagor under the Lease
and the Mortgagee may elect to appear in or defend any such action or
proceeding.  The Mortgagor agrees to
indemnify and reimburse the Mortgagee from any and all loss, damage, expense or
cost arising out of or incurred in connection with any such suit, action or
proceeding, including costs of evidence of title and reasonable attorney’s fees
and such amounts together with interest thereon at the  interest
rate provided in the Loan Agreement shall become additional indebtedness
secured hereby, as applicable, and shall become immediately due and payable.

 

Section 1.09.   Insurance.

 

(a) 
The Mortgagor shall keep the Leasehold Improvements and Fixtures insured
against damage by fire and other hazards as required by the Lease, and each
policy shall be endorsed to name the Mortgagee as an additional insured
thereunder, as its interest may appear, with loss payable to the Mortgagee,
without contribution or assessment, under a standard mortgagee clause.  Subject to any insurance requirements in the
Lease, all insurance policies and endorsements required pursuant to this Section 1.09
shall be fully paid for and nonassessable and contain such provisions and
expiration dates and be in such form and amounts and issued by such insurance
companies satisfactory to the Mortgagee. Without limiting the foregoing, each
policy shall specifically provide that (i) such policy may not be canceled
except upon thirty (30) days prior written notice to the Mortgagee and that no
act or thing done by the Mortgagor shall invalidate the policy as against the
Mortgagee, (ii) such policy may not be amended, modified or altered
without the prior written consent of the Mortgagee, and (iii) any and all
insurance proceeds allocated to the Mortgagor pursuant to the Lease will be
paid to the Mortgagee. In addition, the Mortgagee may require the Mortgagor to
carry such other insurance on the Leasehold Improvements and Fixtures in such
amounts as may from time to time be reasonably required by the Mortgagee,
against insurable casualties. The Mortgagor will assign and deliver the policy
or policies of all such insurance to the Mortgagee, which policy or policies
shall have endorsed thereon the standard mortgagee clause in the name of the
Mortgagee, so and in such manner and form that the Mortgagee and its successors
and assigns shall at all times have and hold said policy or policies as
collateral and further security for the payment of the Secured Obligations
until the full payment of the Secured Obligations. In addition, from time to
time, upon the occurrence of any change in the use, operation, or value of the
Premises, or in the availability of insurance in the area in which the Premises
are located, the Mortgagor shall, within five (5) days after demand by the
Mortgagee, take out such additional amounts and/or such other kinds of
insurance as the Mortgagee may reasonably require.

 

7

 

(b) 
If Mortgagor takes out separate insurance concurrent in form or contributing in
the event of loss with that required to be maintained under this Section 1.09,
the Mortgagee shall be included thereon as a named insured with loss payable to
the Mortgagee under a standard mortgage endorsement of the character above
described. The Mortgagor shall immediately notify the Mortgagee whenever any
such separate insurance is taken out and shall promptly deliver to the
Mortgagee the policy or policies of such insurance.

 

(c)  If
the Premises, or any part thereof, are located in an area which has been
identified by the Secretary of Housing and Urban Development as a flood hazard
area, the Mortgagor will keep, for as long as any Secured Obligations remains
unpaid, the Leasehold Improvements covered by flood insurance in an amount at
least equal to the full amount of the Loan Agreement or the maximum limit of
coverage available for the Premises under the National Flood Insurance Act of
1968 and the Flood Disaster Protection Act of 1973, as the same may have been
or may hereafter be amended or modified (and any successor act thereto), whichever
is less.

 

(d) 
The Mortgagor shall give the Mortgagee prompt notice of any loss covered by
insurance and the Mortgagee shall have the right to join the Mortgagor in
adjusting any loss in excess of One Hundred Thousand Dollars ($100,000).  The Mortgagee shall have the option in its
sole discretion to apply any insurance proceeds it may receive pursuant hereto,
or otherwise to the payment of the Secured Obligations or to allow all or a
portion of such proceeds to be used for the restoration of the Premises. In the
event any such insurance proceeds shall be used to reduce the Secured
Obligations, the same shall be applied by the Mortgagee, after the deduction
therefrom and repayment to the Mortgagee of any and all reasonable costs
incurred by the Mortgagee in the recovery thereof, in any manner it shall
designate, including but not limited to the application of such proceeds to the
then unpaid installments of the principal balance due under the Loan Agreement
in the inverse order of their maturity, such that the regular payments, if any,
under the Loan Agreement shall not be reduced or altered in any manner.  Notwithstanding the foregoing, the Mortgagor
may, upon timely notice to Mortgagee not later than sixty (60) days after the
loss occurred, require that the insurance proceeds be utilized for restoration
of the Premises if and only if there is no Event of Default existing, the
Mortgagor can demonstrate to the Mortgagee’s satisfaction that the insurance
proceeds together with other funds deposited with the Mortgagee are sufficient
to restore the Premises and Mortgagor complies with such disbursement and
construction terms as the Mortgagee deems reasonably necessary.  If at any time during the restoration of the
Premises an Event of Default occurs, the Mortgagee may at its option apply any
amounts it is holding for restoration of the Premises to reduce the Secured
Obligations.  Any balance that the
Mortgagee has retained after restoration of the Premises may at its option be
applied to reduce the Secured Obligations.

 

Section 1.10.   Advances.  If the Mortgagor shall fail to perform any of
the covenants contained herein, the Mortgagee may make advances to perform the
same in its behalf, and all sums so advanced shall be a lien upon the Mortgaged
Estate and shall be secured hereby. The Mortgagor will repay on demand all sums
so advanced on its behalf with interest at the rate provided in the Loan
Agreement. The provisions of this Section 1.10 shall not prevent
any default in the observance of any covenant contained herein from
constituting an Event of Default.

 

8

 

Section 1.11.   Maintenance of Premises.  The Mortgagor will not commit any waste on
the Mortgaged Estate, or any part thereof, or make any change in the use of the
Mortgaged Estate, or any part thereof, which will in any way increase any
ordinary fire or other hazard arising out of construction or operation. The
Mortgagor will, at all times, maintain, or cause the Lessor under the Lease to
maintain, the Leasehold Improvements in good operating order and condition and
will promptly make or cause the Lessor under the Lease promptly to make, from
time to time, all repairs, renewals, replacements, additions, and improvements
in connection therewith which are needful or desirable to such end.

 

Section 1.12.   Condemnation Proceedings.  The Mortgagor, immediately upon obtaining
knowledge of the institution of any proceedings for the condemnation of the
Premises or any part thereof, will notify the Mortgagee of the pendency of such
proceedings. The Mortgagee may participate in any such proceedings and the
Mortgagor from time to time will deliver to the Mortgagee all instruments
requested by it to permit such participation. In the event of such condemnation
proceedings, the award or compensation payable is hereby assigned to and shall
be paid to the Mortgagee. In any such condemnation proceedings, the Mortgagee
may be represented by counsel selected by the Mortgagee. The proceeds of any
award or compensation so received by the Mortgagor pursuant to the Lease shall,
at the option of the Mortgagee, be applied either to the payment of the Secured
Obligations, notwithstanding the fact that the Secured Obligations may not then
be due and payable, or to the restoration of the Leasehold Improvements. In the
event that any portion of the condemnation awards or compensation shall be used
to reduce the Secured Obligations, same shall be applied by the Mortgagee in
any manner it shall designate, including, but not limited to, the application
of such award or compensation to the then unpaid installments of the principal
balance due under the Loan Agreement in the inverse order of their maturity
such that the regular payments under the Loan Agreement shall not be reduced or
altered in any manner. The Mortgagor, upon request by the Mortgagee, shall
make, execute, and deliver any and all instruments requested for the purpose of
confirming the assignment of the aforesaid awards and compensation to the
Mortgagee free and clear of any liens, charges or encumbrances of any kind or
nature whatsoever. The Mortgagee shall not be limited to the interest paid on
the proceeds of any award or compensation, but shall be entitled to the payment
by the Mortgagor of interest at the applicable rate provided for in the Loan
Agreement.  Notwithstanding the
foregoing, the Mortgagor may, upon timely notice to Mortgagee not later than
sixty (60) days after the loss occurred require that the condemnation awards or
compensation be utilized for restoration of the Premises if and only if there
is no Event of Default existing, the Mortgagor can demonstrate to the Mortgagee’s
satisfaction that the condemnation awards or compensation together with other
funds deposited with the Mortgagee are sufficient to restore the Premises and
Mortgagor complies with such disbursement and construction terms as the
Mortgagee deems reasonably necessary.  If
at any time during the restoration of the Premises an Event of Default occurs,
the Mortgagee may at its option apply any amounts it is holding for restoration
of the Premises to reduce the Secured Obligations.  Any balance that the Mortgagee has retained
after restoration of the Premises may at its option be applied to reduce the
Secured Obligations.

 

9

 

Section 1.13.        Lease Assignment and
Related Matters

 

(a)  The Mortgagor will not (i) execute
an assignment of the rents, or any part thereof, from the Premises, or (ii) except
where the lessee is in default thereunder and upon the prior written approval
of the Mortgagee, terminate or consent to the cancellation or surrender of the
Lease, or (iii) modify the Lease without the prior written consent of the
Mortgagee as to such modification, or (iv) in any other manner impair the
value of the Mortgaged Estate or the security of this Mortgage.

 

(b) 
The Mortgagor will not execute any lease or sublease of any portion of the
Premises, and will at all times promptly and faithfully perform, or cause to be
performed promptly, all of the covenants, conditions, and agreements contained
in the Lease and will at all times do all things necessary to compel
performance by the Lessor under the Lease of all obligations, covenants, and
agreements by such Lessor to be performed thereunder.

 

(c) 
The Mortgagor shall furnish to the Mortgagee copies of all notices received or
sent by the Mortgagor pursuant to or in connection with the Lease immediately
upon the receipt.

 

Section 1.14.        Hazardous Materials.  The Mortgagor covenants, represents and
warrants to the Mortgagee, its successors and assigns, that, to the best of
Mortgagor’s knowledge the Premises and the Mortgagor’s existing and prior uses
comply and have at all times complied with, and the Mortgagor is not in
violation of, has not violated and will not violate, in connection with the
ownership, use, lease, maintenance or operation of the Premises and Leasehold
Improvements and the conduct of the business related thereto, any applicable
federal, state, City or local statutes, laws, regulations, rules, ordinances,
codes, standards, orders, licenses and permits of any governmental authorities
relating to environmental matters (being hereinafter collectively referred to
as the “Environmental Laws”),
including by way of illustration and not by way of limitation the Clean Air
Act, the Federal Water Pollution Control Act of 1972, the Resource Conservation
and Recovery Act of 1976, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, and the Toxic Substances Control Act
(including any amendments or extensions thereof and any rules, regulations,
standards or guidelines issued pursuant to any of said Environmental Laws), and
all other applicable environmental standards or requirements.  Without limiting the generality of the
foregoing: i) the Mortgagor, its agents, employees and independent contractors,
(a) has and will operate the Premises and Leasehold Improvements and has
and at all times will receive, handle use, store, treat, transport and dispose
of all petroleum products and all other toxic dangerous or hazardous chemicals,
materials, substances, pollutants and wastes, and any chemical, material or
substance exposure to which is prohibited, limited or regulated by any federal,
state, City, regional or local authority or which even if not so prohibited, limited
or regulation, may or could pose a hazard to the health and safety of the
occupants of the Real Property or the occupants and/or owners of property near
the Real Property (all the foregoing being hereinafter collectively referred to
as “Hazardous Materials”) in strict
compliance with all applicable environmental, health or safety statutes,
ordinances, orders, rules, standards, regulations or requirements, and (b) has
removed from the Premises and Leasehold Improvements all Hazardous Materials
not commonly used in restaurant operations; ii) to the best of Mortgagor’s
knowledge, there are no existing or pending statutes, orders, standards, rules or
regulations relating to environmental matters requiring any remedial actions or
other work, repairs, construction or capital expenditures with respect to the
Premises 

 

10

 

and Leasehold Improvements, nor has the
Mortgagor received any notice of any of the same, iii) no Hazardous Materials
have been or will be released into the environment by the Mortgagor, or have
been or will be deposited, spilled, discharged, placed or disposed of at, on or
near the Premises and Leasehold Improvements by the Mortgagor except for
placement and disposal of Hazardous Materials commonly used in restaurant
operations in compliance with Environmental Laws, nor will the Premises and
Leasehold Improvements be used at any time by any person as landfill or a
disposal site for Hazardous Materials or for garbage, waste or refuse of any kind;
iv) to the best of the Mortgagor’s knowledge, there are no electrical
transformers or other equipment containing dielectric fluid containing
polychlorinated biphenyls located in, on or under the Premises and Leasehold
Improvements, nor is there any friable asbestos contained in, on or under the
Premises and Leasehold Improvements, nor will the Mortgagor permit the
installation of same; v) to the best of the Mortgagor’s knowledge there are no
locations off the Premises where Hazardous Materials generated by or on the
Mortgaged Estate have been treated, stored, deposited or disposed of; vi) to
the best of the Mortgagor’s knowledge, there is no fact pertaining to the
physical condition of either the Mortgaged Estate, the Premises or Leasehold
Improvements or the area surrounding thereof (a) which the Mortgagor has
not disclosed to the Mortgagee in writing prior to the date of this Mortgage,
and (b) which materially adversely affects or will materially adversely
affect the Mortgaged Estate or the use or enjoyment or the value thereof, or
the Mortgagor’s ability to perform the transactions contemplated by this
Mortgage; vii) the mortgaging of the Mortgaged Estate by the Mortgagor to the
Mortgagee does not require notice to or the prior approval, consent or permission
of any federal, state or local governmental agency, body, board or official;
viii) no notices of any violation of any of the matters referred to in the
foregoing sections relating to the Mortgaged Estate, Premises or Leasehold
Improvements or its use have been received by the Mortgagor and there are no
writs, injunctions, decrees, orders or judgments outstanding, no lawsuits,
claims, proceedings or investigations known by the Mortgagor to be pending or
threatened, relating to the ownership, use, maintenance or operation of the
Mortgaged Estate nor, to the best of the Mortgagor’s knowledge, is there any
basis for any such lawsuit, claim, proceeding or investigation being instituted
or filed; and ix) the Mortgaged Estate is not listed in the United States
Environmental Protection Agency’s National Priorities List of Hazardous Waste
Sites nor, to the best of the Mortgagor’s knowledge, any other log, list,
schedule, inventory or record of Hazardous Materials or Hazardous Waste sites
whether maintained by the United States, any state or local governmental
unit.  The Mortgagor agrees to indemnify
and reimburse the Mortgagee, its successors and assigns, for any breach of
these representations and warranties and from any loss, damage, expense or cost
arising out of or incurred by the Mortgagee which is the result of a breach of,
misstatement of or misrepresentation of the above covenants, representations
and warranties, or for any loss, damage, expense or cost sustained as a result
of there being located on the Mortgaged Estate, Premises or Leasehold
Improvements any Hazardous Materials or dangerous, toxic or hazardous
pollutants, chemicals, wastes or substances, together with all attorneys’ fees
incurred in connection with the defense of any action against the Mortgagee
arising out of the above.  These
covenants, representations, warranties and indemnities shall survive the
payment of the indebtedness secured hereby and cancellations or satisfaction of
the note, and this Mortgage, and shall be deemed continuing covenants,
representations, warranties and indemnities running with the land for the
benefit of the Mortgagee, and any successors and assigns of the Mortgagee,
including any purchasers at a mortgage foreclosure sale, any transferee of the
title of the Mortgagee or any subsequent purchaser at a foreclosure sale, and
any subsequent owner of the Mortgaged Estate claiming through or under the
title of the Mortgagee 

 

11

 

and shall survive any foreclosure of this Mortgage
and any acquisition of title of the Mortgagee. 
The amount of all such indemnified loss, damage, expense or cost, shall
bear interest thereon at the rate of interest in effect on the Loan Agreement
or other indebtedness secured hereby and shall become so much additional
indebtedness secured hereby and shall become immediately due and payable in
full on demand of the Mortgagee, its successors and assigns.

 

Section 1.15.        No Claim Against the
Mortgagee.  Nothing
contained in this Mortgage shall constitute any consent or request by the
Mortgagee, express or implied, for the performance of any labor or services or
for the furnishing of any materials or other property in respect of the
Mortgaged Estate or any part thereof, nor as giving the Mortgagor or any party
in interest with the Mortgagor any right, power or authority to contract for or
permit the performance of any labor or services or the furnishing of any
materials or other property in such fashion as would create any personal
liability against the Mortgagee in respect thereof or would permit the making
of any claim that any lien based on the performance of such labor or services
or the furnishing of any such materials or other property is prior to the lien
of this Mortgage.

 

Section 1.16.        Inspection.  The Mortgagor will permit the Mortgagee’s
authorized representatives to enter the Premises at reasonable times for the
purpose of inspecting the same; provided the Mortgagee shall have no duty to
make such inspections and shall not incur any liability or obligation for
making or not making any such inspections.

 

Section 1.17.        Indemnification.  The Mortgagor agrees that it shall indemnify
and hold the Mortgagee harmless against any loss or liability, cost or expense,
including, without limitation, any judgments, reasonable attorneys’ fees, costs
of appeal bonds, and printing costs arising out of or relating to any
proceeding instituted by any claimant alleging priority over the lien of this
Mortgage, and/or by any claimant alleging a violation by the Mortgagor or the
Mortgagee.

 

Section 1.18.        Lease Covenants.

 

(a) 
The Mortgagor shall perform or observe all covenants and conditions to be
performed or observed by the Mortgagor under the Lease and shall deliver to
Mortgagee photocopies of all notices received by Mortgagor from the Lessor
under the Lease no later than three (3) calendar days after receipt
thereof by Mortgagor.

 

(b) 
Simultaneously with the making of each payment to the Lessor under the Lease,
the Mortgagor shall deliver to the Mortgagee a copy of the check in the amount
of such payment delivered to the Lessor under the Lease.

 

(c) 
The Mortgagor hereby irrevocably designates the Mortgagee its agent and
attorney-in-fact to perform or observe on behalf of the Mortgagor any covenant
or condition which the Mortgagor fails to perform or observe under the Lease
within any applicable grace period specified in the Lease, and any advances
made by the Mortgagee in connection with such performance or observance shall
be repaid by the Mortgagor within ten (10) days of demand with interest at
the rate set forth in the Loan Agreement and the amount so advanced, with
interest, shall be a lien upon the Mortgaged Estate and shall be secured by
this Mortgage. The performance or observance of such covenant or condition by
the Mortgagee shall not prevent the 

 

12

 

Mortgagor’s
failure so to perform or observe from constituting an Event of Default. In
performing or observing any such covenant or condition, the Mortgagee shall
have the right to enter upon the Mortgaged Estate. Upon receipt by the
Mortgagee from the Lessor under the Lease of any notice of default under the
Lease, the Mortgagee may rely thereon and take any action permitted by this Section 1.19
or the Lease to remedy such default notwithstanding that the existence of such
default or the nature thereof may be questioned or denied by the Mortgagor.

 

ARTICLE II

 

EVENTS OF DEFAULT AND REMEDIES

 

Section 2.01.        It shall be an Event of Default under
this Mortgage upon the happening of any of the following:

 

(a) 
the occurrence of any Event of Default under the Loan Agreement; or

 

(b) 
if default shall be made in the due observance or performance of any covenant
or agreement on the part of the Mortgagor contained in Article I of this
Mortgage, and such default shall have continued for a period of twenty (20)
days after written notice thereof shall have been given to the Mortgagor by the
Mortgagee; or

 

(c)  if
any representation made in Section 1.01 shall be incorrect at the
time such representation was made or deemed to be made, it shall be deemed to
be a default; or

 

(d) 
if the Mortgagor sells, transfers, assigns, conveys, or encumbers the Premises
or the Mortgaged Estate or any part thereof or any interest therein without the
prior written consent of the Mortgagee; or

 

(e)  if
any person or entity having or claiming an interest in the Mortgagor or the
Mortgaged Estate commences an action or proceeding against the Mortgagor, the
Mortgaged Estate, or any person or entity having or claiming an interest in the
Mortgagor or the Mortgaged Estate.

 

Section 2.02.        Mortgagee’s Right to Accelerate.  If an Event of Default shall occur the
Mortgagee may on  such notice as may be required by
SDCL 21-49-13 or other law declare the entire unpaid principal balance of the
Loan Agreement together with all other indebtedness secured hereby to be
immediately due and payable and thereupon all such unpaid principal balance of
the Loan Agreement together with all accrued interest thereon at the rate of
interest provided in Loan Agreement  and all other
indebtedness secured hereby shall be and become immediately due and
payable.  This notice may be given
concurrently with any notice of default required to be provided under the Loan
Agreement or Section 2.01 above.

 

Section 2.03.        Right to Foreclose.  If an Event of Default shall occur and upon
the giving of  notice to the Mortgagor as
provided in the Loan Agreement and in Sections 2.01 and 2.02
above, the Mortgagee may, either with or without entry or taking possession,
proceed by 

 

13

 

suit or suits at law or in equity or by any
other appropriate proceedings or remedy to enforce payment of the indebtedness
secured hereby or the performance of any other term hereof or any other right
and the Mortgagor hereby grants the Mortgagee the power to institute a
proceeding or proceedings, judicial or otherwise, for the complete foreclosure
of this Mortgage under any applicable provision of law, and out of the proceeds
arising from sale and foreclosure to retain the principal and interest due on
the Loan Agreement and the other indebtedness secured hereby together with all
such sums of money as the Mortgagee shall have expended or advanced pursuant to
this Mortgage or pursuant to statute together with interest thereon at the rate
of interest provided for in the obligation being foreclosed upon, and all costs
and expenses of such foreclosure, including lawful attorney’s fees, with the
balance, if any, to be paid to the persons entitled thereto by law.  In any such proceeding the Mortgagee may
apply all or any portion of the indebtedness secured hereby to any bid at a
sheriff’s sale conducted hereunder.

 

Section 2.04.        Receiver.  Upon an Event of Default, the Mortgagee is hereby
authorized to appoint a receiver to take possession of the Mortgaged Estate, if
the Mortgaged Estate is abandoned or have a receiver appointed by the court
upon sufficient proof being established therefore.  Further, upon an Event of Default, the Mortgagee
may require monthly amounts equal to monthly installments of taxes and
insurance to be deposited into an escrow account with the Mortgagee to be
applied to such amounts as and when due.

 

Section 2.05.        Sale, Lease, Etc. of Mortgaged Property.   The Mortgagor will not sell, lease or
sub-lease, assign or transfer or otherwise dispose of the Mortgaged
Estate.  If the Mortgagor leases,
sub-leases, sells, assigns, conveys, transfers or otherwise disposes of, or
hereafter encumbers, any part of its interest in the Mortgaged Estate, whether
voluntarily, involuntarily or by operation of law, without the prior written
consent of Mortgagee, Mortgagee shall have the option to declare the
obligations secured immediately due and payable without notice.  This Section 2.05 shall have the effect
of a “due-on-sale clause” as provided for in SDCL 44-8-27.

 

Section 2.06.        Right of Entry.  During the continuance of any Event of
Default, the Mortgagee and its employees, agents or attorneys, may enter into
and upon all or any part of the Premises, and each and every part thereof, and
may exclude the Mortgagor and its agents and servants wholly therefrom; and
having and holding the same, may use, operate, manage, and control the
Premises; and upon every such entry, the Mortgagee, at the expense of the
Mortgaged Estate, from time to time, either by purchase, repairs, or
construction, may maintain and restore the Mortgaged Estate whereof it shall
become any of the Leasehold Improvements possessed as aforesaid, and the
Mortgagee may make all necessary or proper repairs, renewals, and replacements
and such useful alterations, additions, betterments, and improvements thereto
and thereon as to it may seem advisable; and in every such case the Mortgagee
shall have the right to manage and operate the Mortgaged Estate and to carry on
the business thereof and exercise all rights and powers of the Mortgagor with
respect thereto either in the name of the Mortgagor or otherwise as it shall
deem best; and the Mortgagee shall be entitled to collect and receive all
earnings, revenues, rents, issues, profits, and income of the Mortgaged Estate;
and after deducting the expenses of conducting the business thereof and of all
maintenance, repairs, renewals, replacements, alterations, additions, betterments,
and improvements and amounts necessary to pay for taxes, assessments,
insurance, and prior or other proper charges upon the Mortgaged Estate, or any
part thereof, as well as just and reasonable compensation for the 

 

14

 

services of the Mortgagee and for all
attorneys, counsel, agents, clerks, servants, and other employees by it
properly engaged and employed, the Mortgagee shall apply the moneys arising as
aforesaid, first to the payment of the principal of the Loan Agreement and the
interest thereon, when and as the same shall become payable, and second to the
payment of any other Secured Obligations and sums required to be paid by the
Mortgagor under this Mortgage.

 

Section 2.07.        Rights Cumulative.  Each right, power or remedy herein conferred
upon the Mortgagee is cumulative and in addition to every other right, power or
remedy, express or implied, now or hereafter arising, available to the
Mortgagee, at law or in equity, or under any other agreement, and each and
every right, power and remedy herein set forth or otherwise so existing may be
exercised from time to time as often and in such order as may be deemed
expedient by the Mortgagee and shall not be a waiver of the right to exercise
at any time thereafter any other right, power or remedy.  No delay or omission by the Mortgagee in the
exercise of any right, power or remedy arising hereunder or arising otherwise
shall impair any such right, power or remedy or the right of the Mortgagee to
resort thereto at a later date or be construed to be a waiver of any default or
event of default under this Mortgage or the Loan Agreement or other
indebtedness secured hereby.

 

Section 2.08.        Right to Discontinue Proceedings.  In the event the Mortgagee shall have proceeded
to invoke any right, remedy or recourse permitted under this Mortgage and shall
thereafter elect to discontinue or abandon the same for any reason, the
Mortgagee shall have the unqualified right to do so and in such event the
Mortgagor and the Mortgagee shall be restored to their former positions with
respect to the indebtedness secured hereby. 
This Mortgage, the Mortgaged Estate and all rights, remedies and
recourse of the Mortgagee shall continue as if the same had not been invoked.

 

Section 2.09.        Right to Reduction of Redemption Period.  In the event of foreclosure by action, the
holder of the certificate of sale may apply to the court for a reduction of the
redemption period if the Mortgaged Estate has been abandoned by the Mortgagor.  If, after notice to the parties as the court
directs, the court finds the property has been abandoned, the redemption period
may be reduced, but in no event, may the redemption period be reduced to less
than sixty (60) days from the date of recording of the certificate of sale.

 

Section 2.10.        Purchaser at Foreclosure.  Upon the completion of any sale or sales made
by the Mortgagee under or by virtue of this Article II, the Mortgagee, or
an officer of any court empowered to do so, shall execute and deliver to the
accepted purchaser or purchasers a good and sufficient instrument, or good and
sufficient instruments, conveying, assigning, and transferring all estate,
right, title, and interest in and to the property and rights sold. The
Mortgagee is hereby irrevocably appointed the true and lawful attorney of the
Mortgagor, in its name and stead, to make all necessary conveyances,
assignments, transfers, and deliveries of the Mortgaged Estate and rights so
sold, and for that purpose the Mortgagee may execute all necessary instruments
of conveyance, assignment, and transfer, and may substitute one or more persons
with like power, the Mortgagor hereby ratifying and confirming all that its
said attorney or such substitute or substitutes shall lawfully do by virtue
hereof. Nevertheless, the Mortgagor, if so requested by the Mortgager, shall
ratify and confirm any such sale or sales by executing and delivering to the
Mortgagee or to such purchaser or purchasers all such instruments as may be
advisable, in the judgment of the Mortgagee, for that purpose, and as may be
designated in such 

 

15

 

request. Any
such sale or sales made under or by virtue of this Article II, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, shall operate
to divest all the estate, right, title, interest, claim, and demand whatsoever,
whether at law or in equity, of the Mortgagor in and to the properties and
rights so sold, and shall be a perpetual bar both at law and in equity against
the Mortgagor and against any and all persons claiming or who may claim the
same, or any part thereof, from, through, or under the Mortgagor.

 

Section 2.11.        Waivers; Releases; Resort to Other Security, Etc.  Without affecting the liability of any party
liable for payment of any indebtedness or obligations secured hereby or
performance of any obligation contained herein, and without affecting the
rights of the Mortgagee with respect to any security not expressly released in
writing, the Mortgagee may, at any time, and without notice to or the consent
of the Mortgagor or any party in interest with the Mortgaged Estate or the Loan
Agreement other indebtedness or obligations secured hereby:

 

(a)  make any
agreement extending the time or otherwise altering the terms of payment of all
or any part of the indebtedness or obligations secured hereby or modifying or
waiving any obligation, or subordinating, modifying or otherwise dealing with
the lien or charge hereof;

 

(b)  accept any
additional security;

 

(c)  release or
otherwise deal with any property, real or personal, including any or all of the
Mortgaged Estate, including making partial releases of the Mortgaged Estate; or

 

(d)  resort to
any security agreements, pledges, contracts of guarantee, assignments of rents
and leases or other security, and exhaust any one or more of said security and
the security hereunder, either concurrently or independently and in such order
as it may determine.

 

Section 2.12.        Waiver of Appraisement and Marshaling.  The Mortgagor waives to the full extent
lawfully allowed the benefit of any appraisement, evaluation, stay and
extension laws now or hereinafter in force. 
The Mortgagor waives any rights available with respect to marshaling of
assets so as to require the separate sales of any portion of the Mortgaged
Estate, or as to require the Mortgagee to exhaust its remedies against a
specific portion of the Mortgaged Estate before proceeding against the other
and does hereby expressly consent to and authorize the sale of the Mortgaged
Estate or any part thereof as a single unit or parcel or as separate parcels.

 

ARTICLE III

 

UNIFORM COMMERCIAL CODE SECURITY
AGREEMENT

 

Section 3.1.           Security Agreement.  This Mortgage shall constitute a security
agreement as defined in Title 57A of the Uniform Commercial Code of South
Dakota (“Code”) in the Mortgaged
Estate.  The remedies of the Mortgagee
hereunder are cumulative and separate, and 

 

16

 

the exercise of any one or more of the
remedies provided for herein or under the  Code shall not
be construed as a waiver of any of the other rights of the Mortgagee including
having any Mortgaged Estate deemed part of the realty upon any foreclosure
thereof.  If notice to any party of the
intended disposition of the Mortgaged Estate is required by law in a particular
instance, such notice shall be deemed commercially reasonable if given at least
ten (10) days prior to such intended disposition and may be given by
advertisement in a newspaper accepted for legal publications either separately
or as part of a notice given to foreclose the Premises or may be given by
private notice if such parties are known to the Mortgagee.  Neither the grant of a security interest
pursuant to this Mortgage nor the filing of a financing statement pursuant to
the Code shall ever impair the stated intention of this Mortgage that all
Leasehold Improvements and Fixtures comprising the Mortgaged Estate at all
times and for all purposes and in all proceedings both legal or equitable shall
be regarded as part of the Premises mortgaged hereunder irrespective of whether
such item is physically attached to the Premises or any such item is referred
to or reflected in a financing statement. 
The Mortgagor will on demand deliver all financing statements that may
from time to time be required by the Mortgagee to establish, perfect and
continue the priority of the Mortgagee’s security interest in the Mortgaged
Estate and shall pay all expenses incurred by the Mortgagee in connection with
the renewal or extensions of any financing statements, executed in connection
with the Mortgaged Estate; and shall give advance written notice of any
proposed change in the Mortgagor’s name, identity or structure and will execute
and deliver to the Mortgagee prior to or concurrently with such change all
additional financing statements that the Mortgagee may require to establish and
perfect the priority of the Mortgagee’s security interest.

 

Section 3.2.           FIXTURE
FILING.  THIS MORTGAGE SHALL BE
EFFECTIVE AS A FINANCING STATEMENT FILED AS A FIXTURE FILING WITH RESPECT TO
ALL GOODS CONSTITUTING A PART OF THE MORTGAGED ESTATE WHICH ARE OR ARE TO
BECOME FIXTURES RELATED TO THE PREMISES. 
FOR PURPOSES OF THE UNIFORM COMMERCIAL CODE THE FOLLOWING
INFORMATION IS FURNISHED:

 

(a)  The name,
address and Internal Revenue Service tax identification number of the Debtor
is:

 

Granite City Food & Brewery, Ltd.

5402 Parkdale Drive, Suite 101

Minneapolis, MN 55416

 

Federal EIN: 
41-1883639

 

(b)  The name
and address of each Secured Party:

 

Harmony Equity Income Fund, L.L.C.

201 S. Phillips Avenue, Suite 100

Sioux Falls, SD 57104

 

(c)  Information
concerning the security interest evidenced by this instrument may be obtained
from the Secured Party at its address above.

 

17

 

(d)  This
document covers goods which are or are to become fixtures, such goods being all
of the personal property described in this Mortgage, the Leasehold Improvements
and Fixtures.

 

(e)  The real
property where the fixtures and other goods or personal property affixed
thereto is located is described on Exhibit A hereto.

 

ARTICLE IV

 

MISCELLANEOUS

 

Section 4.01.        Choice of Law.  The construction and interpretation of this
Mortgage and the indebtedness secured hereby shall be governed by the laws of
the State of South Dakota.

 

Section 4.02.        Successors and Assigns.  This Mortgage and each and every covenant,
agreement and other provision hereof shall be binding upon the Mortgagor and
its successors and assigns.  In the event
that the ownership of the Mortgaged Estate becomes vested in a person or persons
other than the Mortgagor, the Mortgagee shall not have any obligation to deal
with such successor or successors in interest unless such transfer is permitted
by this Mortgage, and may thereafter deal with such successor in place of the
Mortgagor without any obligation to thereafter deal with the Mortgagor and
without waiving any liability of the Mortgagor hereunder or under the Loan
Agreement or other indebtedness secured hereby. 
No change of ownership shall in any way operate to release or discharge
the liability of the Mortgagor hereunder unless such release or discharge is
expressly agreed to in writing by the Mortgagee.

 

Section 4.03.        Unenforceability of Certain Clauses.  The unenforceability or invalidity of any
provisions hereof shall not render any other provision herein contained unenforceable
or invalid.

 

Section 4.04.        Captions and Headings.  The captions and headings of the various
sections of this Mortgage are for convenience only and are not to be construed
as confining or limiting in any way the scope or intent of the provisions hereof.  Whenever the context requires or permits the
singular shall include the plural, the plural shall include the singular and
the masculine, feminine and neuter shall be freely interchangeable.

 

Section 4.05.        Notices.  Any notices and other communications
permitted or required by the provisions of this Mortgage (except for telephonic
notices expressly permitted) shall be in writing and shall be given or served
in the manner set forth in the Loan Agreement.

 

Section 4.06.        No Release.  Nothing set forth in this Mortgage shall
relieve the Mortgagor from the performance of any term, covenant, condition or
agreement on the Mortgagor’s part to be performed or observed under or in
respect of the Lease or the Mortgaged Estate or shall impose any obligation on
the Mortgagee to perform or observe any such term, covenant, condition or
agreement o the Mortgagor’s part to be so performed or observed or shall impose
any liability on the Mortgagee for any act or omission on the part of the
Mortgagor relating thereto.

 

18

 

Section 4.07.        Legal Limits of the Secured Obligations Secured Hereby.  Notwithstanding anything to the contrary
contained in the Loan Agreement or in this Mortgage or any document evidencing
other indebtedness secured hereby, all agreements which either now are or which
shall become agreements between the Mortgagor and the Mortgagee are hereby
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness secured hereby or otherwise, shall
the total liability for payments in the nature of interest and other charges
exceed the applicable limits imposed by the usury laws of the State of South
Dakota.  If any payments in the nature of
interest, additional interest and other charges made under the Loan Agreement
or under this Mortgage or other indebtedness secured hereby are held to be in
excess of the applicable limits imposed by the usury laws of the State of South
Dakota, it is agreed that any such amount held to be in excess shall be
considered payment of principal hereunder, and the indebtedness evidenced
hereby shall be reduced by such amount so that the total liability for payment
in the nature of interest, additional interest and other charges shall not
exceed the applicable limits imposed by the usury laws of the State of South
Dakota.

 

Section 4.08.        Reinstatement.  This Mortgage shall remain in full force and
effect and continue to be effective against the Mortgagor should any petition
be filed by or against the Mortgagor for liquidation or reorganization, should
the Mortgagor become insolvent or make an assignment for the benefit of
creditors or should a receive or trustee be appointed for all or any
significant part of the Mortgagor’s property and assets, and shall continue to
be effective or be reinstated, as the case may be, if at any time payment and
performance of indebtedness secured by this Mortgage is, pursuant to applicable
law, rescinded or reduced in amount or must otherwise be restored or returned
by any obligee of the indebtedness secured hereby, whether as a “voidable
preference”, “fraudulent conveyance” or otherwise, all as though such payment
or performance had not been made.  In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the indebtedness shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.

 

Signature page follows.

 

19

 

IN WITNESS WHEREOF, the Mortgagor has caused
these presents to be executed as of the date first above written.

 

	
   

  	
  GRANITE CITY RESTAURANT OPERATIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ Steven J. Wagenheim

  
	
   

  	
   

  	
  Its President

  

 

	
  STATE OF MINNESOTA

  	
  )

  
	
   

  	
  ) ss

  
	
  COUNTY OF HENNEPIN

  	
  )

  

 

On this 28th day of March, 2009, before me, the undersigned
officer, personally appeared Steven J. Wagenheim, who acknowledged himself to
be the President of Granite City Restaurant Operations, Inc. and that he,
as such officer, being authorized so to do, executed the foregoing instrument
in the name of the Mortgagor by signing the name of the Mortgagor by himself as
President.

 

IN WITNESS WHEREOF, I hereunto set my hand
and official seal.

 

	
   

  	
  /s/ Becky L. Nelson

  
	
   

  	
  Notary Public - Minnesota

  

 

My commission expires: 1-31-10

 

20

 

SCHEDULE A

 

LEGAL DESCRIPTION

 

The real property subject to the Lease is as
follows:

 

LOT 5A OF RIVER MARKET ADDITION TO TH ECITY
OF SIOUX FALLS, MINNEHAHA COUNTY, COUTH DAOTA, ACCORDING TO THE RECORDED PLAT
THEREOF, EXCEPT LOT E-1 CONTAINED THEREIN; AND

 

LOT E-1 IN LOT 5A OF RIVER MARKET ADDITION TO
THE CITY OF SIOUX FALLS, MINNEHAHA COUNTY, SOUTH DAKOTA, ACCORDING TO THE
RECORDED PLAT THEREOF.

 

PROPERTY ADDRESSS:  2620 S. LOUISE AVENUE, SIOUX FALLS, SD

 

21

 

SCHEDULE B

 

LEASE AMENDMENTS, ASSIGNMENTS AND

MORTGAGED ESTATE ENCUMBRANCES

 

1.                                       Assignment of
Landlord’s interest in lease from Sioux Falls Investments, L.L.P. to Doug
Johnson as of July 24, 2003.

 

2.                                       Assignment of
Tenant’s interest in lease from Granite City Good & Brewery, Ltd. To
Granite City Restaurant Operations, Inc. dated November           ,
2008.

 

3.                                       Second Amendment
to Lease dated January 1, 2009.

 

4.                                       Financing
Statement No. 20090401570109 filed February 11, 2009 and recorded by
and between DHW Leasing LLC as Debtor and Great Western Bank as secured party.

 

22

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