Document:

Exhibit 10.1

 

Execution Version

 

FORBEARANCE AGREEMENT

 

THIS FORBEARANCE AGREEMENT  (this
“Agreement”) is entered into as of March 31,
2009, by and among Panolam Holdings II Co. (“Holdings”),
Panolam Industries International, Inc. (“Company”
and together with Holdings, the “Borrower Parties”
and each a “Borrower Party”), the Requisite
Lenders (as defined below) and Credit Suisse, Cayman Islands Branch, as
administrative agent (“Agent”), as
parties to the Credit Agreement (defined below).  Capitalized terms used in this Agreement
which are not otherwise defined herein, shall have the meanings given such
terms in the Credit Agreement.

 

RECITALS:

 

WHEREAS, Holdings, the Company, Agent, Requisite Lenders and the other
lenders party thereto from time to time (together with the Requisite Lenders,
the “Lenders”), among others, are parties to
that certain Credit Agreement dated as of September 30, 2005 (as amended,
amended and restated, extended, supplemented or otherwise modified, the “Credit Agreement”);

 

WHEREAS, the Events of Default and Potential Events of Default set
forth on Schedule I attached hereto have occurred and are continuing
under the Credit Agreement (collectively, the “Existing
Events of Default”);

 

WHEREAS, the Company has advised Agent that, in the future, it may not
be in compliance with certain provisions of the Credit Agreement which would
give rise to the events of default set forth on Schedule II attached
hereto (collectively the “Anticipated Defaults”);

 

WHEREAS, as a result of the occurrence of the Existing Events of
Default and pursuant to the Credit Agreement and other Loan Documents, (i) the
Lenders are under no further obligation to make Loans or other financial
accommodations to the Company under the Credit Agreement and (ii) the
Agent and the Lenders are entitled, among other things, to enforce their rights
and remedies against the Loan Parties and the Collateral, including, without
limitation, the right to accelerate and immediately demand payment in full of
the Obligations and to foreclose on the Collateral;

 

WHEREAS, the Company has requested that the Agent and the Lenders agree
and, subject to the terms and conditions of this Agreement, the Agent and the
Requisite Lenders have agreed, to forbear from exercising those rights and
remedies afforded to them under the Credit Agreement on account of the Existing
Events of Default and the Anticipated Defaults from the date hereof through the
earliest to occur of (i) June 30, 2009; (ii) the date of
termination of the Forbearance Period pursuant to Section 5 hereof;
and (iii) the date on which all of the Obligations have been paid in full
and the Credit Agreement has been terminated (the “Forbearance
Period”);

 

WHEREAS, Section 10.6 of the Credit Agreement requires the consent
of the Requisite Lenders for this Agreement to become effective.

 

 

NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Holdings, the Company, the Agent and Requisite Lenders hereby agree as follows:

 

1.  Incorporation of Preliminary Statements.  The preliminary statements set forth above
are hereby incorporated into this Agreement as accurate and complete statements
of fact in all material respects. 
Without limiting the foregoing, the Borrower Parties hereby acknowledge
and agree that (a) the Existing Events of Default have occurred and are
continuing under the terms of the Credit Agreement, and that none of the Loan
Parties have any disputes, defenses or counterclaims of any kind with respect
thereto; (b) the Lenders are under no obligation to make Loans or other
financial accommodations to the Company under the Credit Agreement; (c) the
Agent, on behalf of the Lenders has, and shall continue to have, valid,
enforceable and perfected security interests in and liens upon the Collateral
heretofore granted by the Company to the Agent and Lenders pursuant to the Loan
Documents or otherwise granted to or held by the Agent or the Lenders; (d) absent
the effectiveness of this Agreement, the Agent and Lenders have the right to
immediately enforce their security interest in, and Liens on, the Collateral
and to exercise any and all remedies available to them under the Credit Agreement,
at law and in equity; and (e) the outstanding Loans and all other
Obligations are payable pursuant to the Credit Agreement, without defense,
dispute, offset, withholding, recoupment, counterclaim or deduction of any kind
(other than as provided in Section 2.7 of the Credit Agreement).

 

2.  Forbearance.

 

(a)           The
Borrower Parties agree and acknowledge that the Existing Events of Default set
forth on Schedule I have occurred and are continuing.

 

(b)           The
Company has advised the Agent that the Company will likely not be in compliance
with certain provisions of the Credit Agreement which would give rise to the
Anticipated Defaults set forth on Schedule II.

 

(c)           The
Borrower Parties hereby agree and acknowledge that (i) Schedule I represents
a complete and accurate list of all Existing Events of Default which are in
existence as of the Effective Date (as hereinafter defined); and (ii) Schedule
II represents a complete and accurate list of all instances in which the
Company may not be in compliance with the Credit Agreement during the
Forbearance Period.

 

(d)           Provided
that no Forbearance Default (as defined below) occurs, subject to the terms and
conditions of this Agreement and satisfaction of the conditions precedent to
the effectiveness of this Agreement set forth in Section 3 below,
during the Forbearance Period, the Agent and the Lenders hereby forbear from
exercising, on account of the Existing Events of Default and Anticipated
Defaults, those rights and remedies afforded to them under the Credit Agreement,
the other Loan Documents and applicable law.

 

3.  Conditions
of Effectiveness of this Agreement.   This Agreement shall become effective as of
the date hereof (the “Effective Date”)
when, and only when:

 

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(a)           The
Agent shall have received counterparts of this Agreement duly executed and
delivered by the Borrower Parties and the Requisite Lenders;

 

(b)           All
of the representations and warranties of the Borrower Parties contained in this
Agreement shall be true and correct on and as of the Effective Date (unless
stated to relate solely to an earlier date, in which case such representations
and warranties shall be true and correct as of such earlier date);

 

(c)           The
Agent shall have received, for the account and benefit of the Lenders, a
forbearance fee in cash in the amount of 0.5% of the aggregate outstanding
amount of Loans on the date hereof; and

 

(d)           The
Agent shall have received payment in full of all fees and expenses due and
payable in accordance with the terms of this Agreement and the Credit Agreement
(including the reasonable and documented legal fees and expenses of the Agent’s
counsel and the fees and out-of-pocket expenses of its financial advisor,
Conway Del Genio Gries & Co. (“CDG”) invoiced
at least one day prior to the anticipated Effective Date of this Agreement).

 

4.  Representations and Warranties.  To induce the Agent and the Requisite Lenders
to enter into this Agreement, each Borrower Party represents and warrants to
the Agent and the Lenders (which representations and warranties shall be made
on and as of the Effective Date):

 

(a)           Each Borrower Party
has the requisite corporate power and authority and the legal right to execute
and deliver this Agreement, and to perform the transactions contemplated
hereby.  The execution, delivery and
performance by each Borrower Party of this Agreement, (i) are within such
Borrower Party’s corporate power; (ii) have been duly authorized by all
necessary corporate or other action; (iii) do not contravene or cause such
Borrower Party or any other Loan Party to be in default under (x) any
provision of the such Borrower Party’s or other Loan Party’s formation
documents or bylaws, (y) any contractual restriction contained in any
indenture, loan or credit agreement, lease, mortgage, security agreement, bond,
note or other agreement or instrument binding on or affecting such Borrower
Party or other Loan Party or its property, or (z) any law, rule,
regulation, order, license requirement, writ, judgment, award, injunction, or
decree applicable to, binding on or affecting such Borrower Party or other Loan
Party or its property; (iv) will not result in the creation or imposition
of any Lien upon any of the property of such Borrower Party or other Loan Party
or any Subsidiary thereof other than those in favor of the Agent or any Lender,
all pursuant to the Loan Documents; and (e) do not require the consent or
approval of any Governmental Authority or any other Person, other than those
which have been duly obtained, made or complied with and which are in full
force and effect and except, in each case, to the extent such contravention,
default, Lien or failure to obtain such approval or consent could not
reasonably be expected to result in a Material Adverse Effect.

 

(b)           This Agreement has been
duly executed and delivered by each Borrower Party.  Each of this Agreement, the Credit Agreement
(as modified herein) and the Loan Documents (as modified hereby) to which each
Borrower Party is a party is the legal, valid and 

 

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binding obligation
of such Borrower Party, enforceable against such Borrower Party in accordance
with its terms, subject, as to enforceability, to (A) any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting the enforceability of creditors’
rights generally and (B) general equitable principles, whether applied in
a proceeding at law or in equity, and is in full force and effect.

 

(c)           No Event of Default or
Potential Event of Default under the Credit Agreement, other than the Existing
Events of Defaults or the Anticipated Defaults, shall have occurred and be
continuing or would result after giving effect to any of the transactions
contemplated on the date hereof.

 

(d)           No Forbearance Default
(defined below) has occurred.

 

5.  Forbearance
Defaults:  The
following events shall constitute “Forbearance Defaults”):

 

(a)           the payment by the Company or any other
Person, on behalf of the Company, of any amounts to any holder of those
certain 10 3⁄4% Senior Subordinated Notes due 2013 (the “Subordinated
Notes”), with respect to
such Subordinated Notes, including, but not limited to, that certain interest
payment due April 1, 2009 (with the exception of any fee payable in
connection with an Approved Agreement (as defined in Section 6(l) below)
with the holders of the Subordinated Notes. 
For the avoidance of doubt, the foregoing provision shall not prohibit
payments otherwise permitted to one legal counsel or one financial advisor to
the holders of the Subordinated Notes engaged in connection with an Approved
Agreement.

 

(b)           (i) the
receipt by the Company or any Loan Party of a written notice of acceleration
related to the Subordinated Notes, which
becomes effective in accordance with Section 6.02 of the Senior
Subordinated Note Indenture and which has not been rescinded or withdrawn or in
respect of which there is not a forbearance or similar agreement, in each case,
effective in accordance with the Senior Subordinated Note Indenture, or (ii) the
institution of proceedings or exercise of any other remedies by any holder of
the Subordinated Notes, with respect to such Subordinated Notes, which has not
been dismissed or withdrawn or in respect of which there is not a forbearance
or similar agreement within ten (10) days of such institution or exercise;
or

 

(c)           any
Borrower Party shall fail to observe or perform any other term, covenant,
obligation or agreement binding on it contained in this Agreement, or any other
agreement, instrument, or document executed in connection with this Agreement;
or

 

(d)           the
occurrence of an Event of Default under the Credit Agreement or any of the
other Loan Documents, other than an Existing Event of Default or an Anticipated
Default; or

 

(e)           any
instrument, document, report, schedule, agreement, written representation or
warranty made or delivered to the Agent or any Lender by any Borrower Party or
Loan Party after the date of this Agreement, taken as a whole, shall be false
or misleading in any material respect when made, or deemed made, or delivered.

 

4

 

Upon the occurrence of any Forbearance Default, the Agent, upon the
written request or with the written consent of the Requisite Lenders, may by
written notice to the Company immediately terminate the Forbearance Period,
declare all of the Obligations immediately due and payable and/or exercise any
of the other rights and remedies afforded to them under the Credit Agreement,
the other Loan Documents or applicable law; provided, however,
that upon the occurrence of any Event of Default described in Section 8.6
or Section 8.7 of the Credit Agreement, the Forbearance Period shall
automatically terminate, the Commitments shall automatically be terminated and
all Obligations shall automatically become immediately due and payable, without
notice, presentment, demand, protest or other requirements of any kind, all of
which are hereby expressly waived by the Loan Parties.  Upon the termination or expiration of the
Forbearance Period, or if for any other reason this Agreement is no longer
effective, if at such time the aggregate outstanding amount of the Obligations
has not been paid in full, the Agent and the Lenders shall be entitled to
exercise all of their rights and remedies under the Credit Agreement, the other
Loan Documents and applicable law, including, without limitation, the right to
declare all of the Obligations to be immediately due and payable and to enforce
their Liens on, and security interests in, the Collateral.  The occurrence of any Forbearance Default
shall constitute an Event of Default under the Credit Agreement and the other
Loan Documents.

 

6.  Forbearance
Period Covenants. 
In order to induce the Requisite Lenders to enter into this Agreement
and forbear during the Forbearance Period from exercising the Agent and Lenders’
rights and remedies with respect to the Existing Events of Default and the
Anticipated Defaults, the Company covenants as follows:

 

(a)           On or before
March 31, 2009, the Company shall deliver to the Agent, for the account
and benefit of the Lenders, the scheduled interest payment in the amount of
$830,335.73 due and payable on such date.

 

(b)           The
Company acknowledges and agrees that commencing on April 1, 2009, all
Loans shall become and remain during the Forbearance Period, Base Rate Loans
and shall thereafter bear interest payable (at a rate determined in accordance
with Section 2.2A of the Credit Agreement) in arrears on the last Business
Day of each month during the Forbearance Period.  For purposes of clarity, interest payable
pursuant to Section 2.2E of the Credit Agreement will not accrue on the
Loans or other Obligations during the Forbearance Period.

 

(c)           The
Company shall ensure that onsite access to the Company will be provided to CDG
on or before April 2, 2009.

 

(d)           On April 16,
2009, and on the fourth Business Day of each week thereafter during the
Forbearance Period, the Company shall deliver to Agent for distribution to the
Lenders a rolling thirteen (13) week cash flow forecast of the Company and its
Subsidiaries.

 

(e)           On or
before April 30, 2009, the Company shall hold a meeting with all of the Lenders desiring to
participate and their advisors to provide an update on the status (financial
and otherwise) of the Company and the other Loan Parties.

 

5

 

(f)            Within
thirty (30) days after the end of each month (commencing with the month ended April 30,
2009), the Company shall deliver to Agent (for further posting to all of the
Lenders on “Intralinks”) an unaudited, consolidated balance sheet, income
statement and year-to-date statement of cash flows, together with Company
management’s discussion and analysis of the financial condition and results of
operations of the Company, each for the fiscal month most recently ended.  Within three (3) Business Days after the
delivery of the financial statements and management’s discussion and analysis
described above, the Company shall schedule a telephone conference for a
discussion thereof with Agent and those Lenders desiring to participate in such
call.

 

(g)           On or
before May 15, 2009, the Company shall deliver to the Agent (for further
posting to all of the Lenders on “Intralinks”) a preliminary business plan
regarding the Company and the other Loan Parties approved by the board of
directors of the Company.

 

(h)           On or
before June 1, 2009, the Company shall deliver to the Agent (for further
posting to all of the Lenders on “Intralinks”) a preliminary financial
restructuring proposal regarding the Company and the other Loan Parties
approved by the board of directors of the Company.

 

(i)            On or before June 30,
2009, the Company shall deliver to the Agent for the account and benefit of the
Lenders the Consolidated Excess Cash Flow payment for Fiscal Year 2008 as
calculated in accordance with Section 2.4B(iii)(e) of the Credit
Agreement.

 

(j)            The Company shall
pay, promptly after the receipt of the applicable invoice, all professional
fees incurred in connection with this Agreement, including legal fees and
financial advisory service fees, in each case, in accordance with Section 10.2
of the Credit Agreement.

 

(k)           During
the Forbearance Period, no payments shall be made to Genstar Capital LLC or
Sterling (or their successors and assigns) payable under the Management
Agreement.

 

(l)            Without
the reasonable approval of the Requisite Lenders, the Company shall not shall
not amend or otherwise change the terms of any Subordinated Indebtedness
(including, but not limited to, the Subordinated Notes), including any
forbearance by the holders of such Subordinated Indebtedness from exercising
their default-related rights and remedies against the Company and the other
Loan Parties (any such approved amendment, change or forbearance, an “Approved Agreement”).

 

(m)          Notwithstanding any
provision to the contrary in the Credit Agreement, during the Forbearance
Period, the Company shall not, and shall not permit any of its Subsidiaries to:

 

(i)            directly or
indirectly, make any Investment in any Person, except Investments made under
the Credit Agreement pursuant to:

 

6

 

A.    Section 7.3(i);

 

B.    Section 7.3(ii)(a) and
(b);

 

C.    Section 7.3(iii)(a); provided, however,
that any such Investments made during the Forbearance Period shall not exceed
$200,000.00 in the aggregate;

 

D.    Section 7.3(iv);

 

E.     Section 7.3(v),
only to the extent such Restricted Junior Payments and Asset Sales are
permitted under this Agreement;

 

F.     Section 7.3(vii);

 

G.    Section 7.3(viii), only to the extent
such Restricted Junior Payment is permitted under this Agreement;

 

H.    Section 7.3(ix);

 

I.      Section 7.3(x);

 

J.     Section 7.3(xiii), only to the extent
permitted under this Agreement;

 

K.    Section 7.3(xiv);

 

L.     Section 7.3(xvi); provided, however, that during the Forbearance
Period, the amount referred to in Section 7.3(xvi) of the Credit Agreement
shall be $1,000,000.00;

 

M.   Section 7.3(xvii), only to the extent
such Asset Sale is permitted under this Agreement; and

 

N.    Section 7.3(xviii), only to the extent
permitted under this Agreement.

 

(ii)           directly or
indirectly, declare, order, pay, make or set apart any sum for any Restricted
Junior Payment except:

 

A.    that each
Subsidiary may make Restricted Junior Payments to Company and to any other
Subsidiary in the ordinary course of business and consistent with past
practice; and

 

7

 

B.    Restricted Junior
Payments permitted under the Credit Agreement pursuant to:

 

1.             Section 7.5(v)(c), (d) (with regard to out-of-pocket costs
and expenses under Section 7.9(ii)
only), (e), and (f); and

 

2.             Section 7.5(vii), only to the extent
such transactions are permitted under this Agreement.

 

(iii)          enter into any
transaction of merger or consolidation, or liquidate, wind-up or dissolve
itself (or suffer any liquidation or dissolution); or

 

(iv)          make any Asset Sale
(whether by sale, merger, recapitalization, restructuring, consolidation or
otherwise) except:

 

A.    Asset Sales made in
the ordinary course of business;

 

B.    sales of assets to
the extent that the aggregate value of such assets is equal to $1,000,000 or
less; provided, however, that the consideration received for such
assets is in an amount at least equal to the fair market value thereof;

 

C.    Asset Sales
permitted under the Credit Agreement pursuant to:

 

1.             Section 7.7B(ii), only to the extent
that such Asset Sales are consistent with past practice;

 

2.             Section 7.7B(iii);

 

3.             Section 7.7B(v); provided, however,
that during the Forbearance Period, such dispositions of obsolete,  worn out or surplus property no longer useful
in the business of the Company and its Subsidiaries in the ordinary course of
business that is (i) machinery and equipment may not exceed an aggregate
of  $500,000.00, and (ii) inventory,
raw materials, or materials in progress may not exceed $500,000.00;

 

4.             Section 7.7B(vii), only to the extent
that such Asset Sales are consistent with past practice;

 

5.             Section 7.7B(viii);

 

6.             Section 7.7B(x);

 

8

 

7.             Section 7.7B(xi);

 

8.             Section 7.7B(xii), only to the extent
permitted under this Agreement;

 

9.             Section 7.7B(xiv);

 

10.           Section 7.7B(xv);

 

11.           Section 7.7B(xvi); and

 

12.           Section 7.7B(xx), only to that each such
transaction is permitted under this Agreement; and

 

D.    Asset Sales with
regard to real property and improvements thereon located at 2901 Anaconda Road,
Tarboro, North Carolina (the “Tarboro
Property”); provided, however, that the Net Asset Sale
Proceeds with respect to the Tarboro Property be used to prepay the Loans in
accordance with Section 2.4B(iii)(a)(1) of the Credit Agreement; provided
further, however, that notwithstanding the foregoing, no sales of
Real Property Assets are permitted during the Forbearance Period, other than
the Tarboro Property.

 

(v)           directly or
indirectly, enter into any transaction (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate of
the Company or any such holder, on terms that are less favorable to the Company
or that Subsidiary, as the case may be, than those that might be obtained at
the time from Persons who are not an Affiliate; provided, however,
that the foregoing restriction shall not apply to:

 

A.    the reimbursement of reasonable out-of-pocket
costs and expenses of the members of the Governing Bodies of Holdings and its
Subsidiaries, which costs and expenses shall not exceed $50,000.00 (not
including payments of fees to Richard Gesseck, which, for the avoidance of
doubt, shall not be prohibited or limited by the foregoing);

 

B.    transactions with any Affiliate of the
Company permitted under the Credit Agreement pursuant to:

 

1.             Section 7.9(i),
only to the extent permitted under this Agreement;

 

2.             Section 7.9(v),
only to the extent permitted under this Agreement;

 

9

 

3.             Section 7.9(vii);

 

4.             Section 7.9(viii);

 

5.             Section 7.9(ix),
only to the extent permitted under this Agreement;

 

6.             Section 7.9(xi);

 

(vi)          directly or indirectly, enter into any
employment or severance arrangements between the Company and any of its Subsidiaries
and their officers or employees, or make any amendments, modifications or
supplements to any such existing employment or severance arrangements, whether
or not such employment or severance arrangements are in the ordinary course of
business;

 

(vii)         directly or indirectly, make any
Investment in Hedge Agreements required under subsection 6.10 of the Credit
Agreement or otherwise for the purpose of hedging against any Loan Party’s risk
related to fluctuations in interest rates, currency values or commodity prices,
whether or not such Hedge Agreements are in the ordinary course of business or
for speculative purposes; or

 

(viii)        make or incur Consolidated Capital
Expenditures in an aggregate amount in excess of $1,500,000.00.

 

7.  Status
of Credit Agreement and Other Loan Documents; No Novation; Reservation of
Rights and Remedies

 

(a)           Upon the Effective
Date and during the Forbearance Period, each reference in the Credit Agreement
to “this Agreement”, “hereunder”, “hereof” or words of like import, and each
reference in the Loan Documents to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as modified and supplemented hereby.

 

(b)           This Agreement shall
be limited solely to the matters expressly set forth herein and shall not (i) constitute
an amendment or waiver of, or a forbearance with respect to, any term or
condition of the Credit Agreement or any other Loan Document, except as
expressly provided herein, (ii) prejudice any right or rights which the
Agent, any Lender may now have or may have in the future under or in connection
with the Credit Agreement or any other Loan Document, (iii) require the
Agent or any Lender to agree to a similar transaction or forbearance on a
future occasion.

 

(c)           Except to the extent
specifically provided herein, the respective provisions of the Credit Agreement
and the other Loan Documents shall not be amended, modified, waived, impaired
or otherwise affected hereby, and such documents and the Obligations under each
of them are hereby confirmed as being in full force and effect.  For the avoidance of doubt, during the
Forbearance Period, the covenants contained in Section 6(m) hereof
shall amend Section 7 of the Credit Agreement, as applicable, such that
references in the Credit Agreement to Section 7 or 

 

10

 

any subsection thereof, shall be a reference to such Section 7 (or
subsection) as amended by this Agreement, and the Borrower Parties acknowledge
and agree that any mandatory prepayments required by the Credit Agreement shall
still be in full force and effect with respect to any transactions consummated
pursuant to the covenants or in effect during the Forbearance Period.

 

(d)           This Agreement is
not a novation nor is it to be construed as a release, waiver or modification
of any of the terms, conditions, representations, warranties, covenants, rights
or remedies set forth in the Credit Agreement, or any of the other Loan
Documents, except as specifically set forth herein.

 

(e)           Except as expressly
provided herein, the Agent and the Lenders expressly reserve all rights, claims
and remedies that any of them have or may have against the Company and the
other Loan Parties hereunder, under the Loan Documents and at law and in
equity.

 

8.  Acknowledgment
of Validity and Enforceability of the Credit Agreement and other Loan Documents.  Each Borrower Party expressly acknowledges
and agrees that the Credit Agreement and the other Loan Documents to which it
is a party are valid and enforceable by the Lenders against such Borrower Party
except pursuant to any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereinafter in effect relating to or limiting
the enforceability of creditors rights generally and, except as expressly
modified pursuant to this Agreement, expressly reaffirms each of its
Obligations under each Loan Document to which it is a party.  Each Borrower Party further expressly
acknowledges and agrees that the Agent, for its own benefit and for the benefit
of the Lenders, has a valid, duly perfected, first priority and fully
enforceable security interest in and lien against each item of Collateral
subject to Liens permitted under the Credit Agreement.  Each Borrower Party agrees that it shall not
dispute the validity or enforceability of the Credit Agreement or any of the
other Loan Documents or any of its Obligations thereunder, or the validity,
priority, enforceability or extent of the Agent’s security interest in or lien
against any item of Collateral (subject to Liens permitted under the Credit
Agreement), either during or following the expiration of the Forbearance
Period.

 

9.  Release;
Covenant Not to Sue.

 

(a)           Each
Borrower Party acknowledges that the Agent and the Requisite Lenders would not
enter into this Agreement without such Borrower Party’s assurance that no Loan
Party has any claim against the Agent or any Lender, their respective parent
corporations, Subsidiaries, Affiliates, officers, directors, shareholders,
employees, attorneys, agents, professionals and servants, or any of their
respective predecessors, successors, heirs and assigns (collectively, the “Lender Released Parties”) arising out of the Loan Documents
or the transactions contemplated thereby. 
Each Borrower Party, for itself and on behalf of its officers and
directors, and its respective predecessors, successors and assigns
(collectively, the “Releasors”)
releases Agent and each Lender Released Party from any known or unknown claims
which the Company now has against any Lender Released Party of any nature,
including any claims that any Releasor, or any Releasor’s successors, counsel
and advisors may in the future discover they would have had now if they had
known facts not now known to them, whether founded in contract, in tort or
pursuant to any other theory of liability, arising out of or 

 

11

 

related to this Agreement, the Loan Documents or the transactions
contemplated hereby or thereby, in each case, pertaining to the facts, events
or circumstances existing on or prior to the date hereof (individually, a “Claim” and collectively, “Claims”).

 

(b)           Except as expressly
provided herein, the Releasors each expressly waive any statutory or other
limitation on the enforceability of a general release of unknown claims which,
if known, would have materially affected this Agreement.  EACH RELEASOR HEREBY EXPLICITLY WAIVES ALL
RIGHTS UNDER AND ANY BENEFITS OF ANY COMMON LAW OR STATUTORY RULE OR PRINCIPLE
WITH RESPECT TO THE RELEASE OF SUCH CLAIMS. 
EACH RELEASOR
AGREES THAT NO SUCH COMMON LAW OR STATUTORY RULE OR PRINCIPLE SHALL AFFECT THE
VALIDITY OR SCOPE OR ANY OTHER ASPECT OF THIS AGREEMENT.

 

(c)           The
provisions, waivers and releases set forth in this Section 9 are
binding upon each Releasor.  The provisions,
waivers and releases of this Section 9 shall inure to the benefit
of each Lender Released Party.

 

(d)           The
provisions of this Section 9 shall survive payment in full of the
Obligations, full performance of all of the terms of this Agreement, the Credit
Agreement and the other Loan Documents and/or any action by the Agent or any
Lender to exercise any remedy available under the Loan Documents or applicable
law.

 

(e)           Each
Releasor represents and warrants that each such Releasor is the sole and lawful
owner of all right, title and interest in and to all of the Claims released
hereby and each such Releasor has not heretofore voluntarily, by operation of
law or otherwise, assigned or transferred or purported to assign or transfer to
any person any such Claim or any portion thereof.  Each Releasor shall jointly and severally
indemnify and hold harmless each Lender Released Party from and against any
claim, demand, damage, debt, liability (including payment of reasonable
attorneys’ fees and costs actually incurred whether or not litigation is
commenced) based on or arising out of any such assignment or transfer as an
Indemnified Liability under Section 10.3 of the Credit Agreement.

 

(f)            Each
Releasor, on behalf of itself and its successors, assigns, and other legal
representatives, hereby absolutely, unconditionally covenants and agrees with
each Lender Released Party that they will not sue (at law, in equity, in any
regulatory proceeding or otherwise) any Lender Released Party on the basis of
any Claim released, remised and discharged by the Lender Released Parties
pursuant to Section 9(a) above. 
If any Releasor violates the foregoing covenant, such Releasor agrees to
pay, in addition to such other damages as any Lender Released Party may sustain
as a result of such violation, all attorneys’ fees and costs incurred by any
Lender Released Party as a result violation.

 

10.  No
Waiver.  Each
Borrower Party hereby acknowledges and agrees that the Agent’s or any Lender’s
failure, at any time or times hereafter, to require strict performance by the
Borrower Parties of any provision or term of this Agreement, the Credit
Agreement or any other Loan Document shall not waive, affect or diminish any
right of the Agent or any Lender thereafter to demand strict compliance and
performance therewith.  Any suspension or
waiver by the Agent or the Lenders of a Forbearance Default or of an Event of
Default shall not, except as 

 

12

 

may be expressly set
forth herein, suspend, waive or affect any other Forbearance Default or any
other Event of Default, whether the same is prior or subsequent thereto and
whether of the same or of a different kind or character.

 

11.  Sole
Benefit of Parties. 
This Agreement is solely for the benefit of the parties hereto, the
Lenders and their respective successors and assigns, and no other Person shall
have any right, benefit or interest under or because of the existence of this
Agreement.

 

12.  Limitation
on Relationship Between Parties.  The relationship of the Agent and the
Lenders, on the one hand, and the Company, on the other hand, has been and
shall continue to be, at all times, that of creditor and debtor.  Nothing contained in this Agreement, any
instrument, document or agreement delivered in connection herewith or in the
Credit Agreement or any of the other Loan Documents shall be deemed or
construed to create a fiduciary relationship between the parties.

 

13.  No
Assignment.  This
Agreement shall not be assignable by any Borrower Party without the written
consent of Agent and the Requisite Lenders. 
Each Requisite Lender may assign to one or more Persons all or any part
of, or any participation interest in, such Requisite Lender’s rights and
benefits hereunder in accordance with Section 10.1 of the Credit Agreement
provided that such Person is bound by the terms and limitations of this
Agreement.

 

14.  Miscellaneous.  This Agreement is a Loan Document.  The section and subsection titles contained
in this Agreement are included for the sake of convenience only, and shall not
affect the meaning or interpretation of this Agreement, the Credit Agreement or
any other Loan Documents or any provisions hereof or thereof.

 

15.  Governing Law.
THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK
(INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW), APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THAT
WOULD REQUIRE APPLICATION OF ANOTHER LAW.

 

16.  Consultation with Counsel.  The Borrower Parties represent to the Agent
and the Lenders that they have discussed this Agreement, including the
provisions of Sections 9, 12 and 15 hereof, with their
attorneys.

 

17.  Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier or by email of a PDF shall be effective as
delivery of a manually executed counterpart of this Agreement.

 

18.  Headings.   Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.

 

13

 

19.  No
Course of Dealing. 
The Requisite Lenders have entered into this Agreement on the express
understanding with the Company that in entering into this Agreement the
Requisite Lenders are not establishing any course of dealing with the
Company.  The Agent’s and the Lenders’
rights to require strict performance with all the terms and conditions of the
Credit Agreement as modified by this Agreement and the other Loan Documents
shall not in any way be impaired by the execution of this Agreement.  Neither the Agent nor any Lender shall be
obligated in any manner to execute any amendments or further waivers, and if
any such amendments or further waivers are requested in the future, assuming
the terms and conditions thereof are acceptable to them, the Agent and the
Lenders may require the payment of fees in connection therewith.

 

20.  Expenses.  The Company hereby acknowledges and agrees
that all fees, costs and expenses of Agent and Lenders (including the
reasonable and documented fees, costs and expenses of counsel or other
advisors, if any) incurred in connection with the transactions contemplated by
this Agreement shall be payable by the Company in accordance herewith and with Section 10.2
of the Credit Agreement; provided, however, that such payments
hereunder shall be made in accordance with Section 6(j) hereof.

 

21.  Further
Assurances.  At the
Agent’s request, the Borrower Parties shall execute and deliver such additional
documents and take such additional actions as the Agent requests to effectuate
the provisions and purposes of this Agreement and to protect and/or maintain
perfection of the Lenders’ security interests in and liens upon the Collateral.

 

*              *              *

 

[signature page follows]

 

14

 

IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.

 

	
   

  	
  PANOLAM INDUSTRIES
  INTERNATIONAL, INC., as Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Robert J. Muller

  
	
   

  	
   

  	
  Name: Robert, J. Muller

  
	
   

  	
   

  	
  Title: Chairman,
  President and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PANOLAM HOLDINGS II CO.

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Robert J. Muller

  
	
   

  	
   

  	
  Name: Robert, J. Muller

  
	
   

  	
   

  	
  Title: Chairman,
  President and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CREDIT SUISSE, Cayman
  Islands Branch, as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Didier Siffer

  
	
   

  	
   

  	
  Name: Didier Siffer

  
	
   

  	
   

  	
  Title: Managing
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CREDIT
  SUISSE, Cayman Islands Branch, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Bryan
  J. Matthews

  
	
   

  	
   

  	
  Name: Bryan J. Matthews

  
	
   

  	
   

  	
  Title: Director

  
	
   

  	
   

  

 

Signature Page

 

 

	
   

  	
  SENIOR DEBT
  PORTFOLIO, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Boston
  Management and Research, as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael
  B. Botthof

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EATON VANCE SENIOR INCOME
  TRUST, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance Management,
  as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Name: 

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EATON VANCE
  INSTITUTIONAL SENIOR LOAN FUND, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance Management,
  as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael
  B. Botthof

  
	
   

  	
   

  	
   

  	
  Name: 

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EATON VANCE CDO
  VII PLC, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance
  Management, as Interim Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Name: 

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  

 

Signature Page

 

 

	
   

  	
  EATON VANCE CDO VIII,
  LTD., as a Lender

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  Eaton Vance Management,
  as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael
  B. Botthof

  
	
   

  	
   

  	
   

  	
  Name: 

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EATON VANCE CDO IX
  LTD., as a Lender

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  Eaton Vance Management,
  as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ 

  	
  Michael
  B. Botthof

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EATON VANCE CDO X PLC,
  as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance Management,
  as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael
  B. Botthof

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GRAYSON & CO,
  as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Boston Management and
  Research, as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael
  B. Botthof

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  

 

Signature Page

 

 

	
   

  	
  THE NORINCHUKIN BANK,
  NEW YORK BRANCH, through State Street Bank and Trust Company N.A. as
  Fiduciary Custodian, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance Management,
  Attorney-in-fact

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael
  B. Botthof

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BIG SKY III SENIOR LOAN
  TRUST, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance Management,
  as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael
  B. Botthof

  
	
   

  	
   

  	
   

  	
  Name: 

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EATON VANCE VT
  FLOATING-RATE INCOME FUND, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance Management,
  as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael
  B. Botthof

  
	
   

  	
   

  	
   

  	
  Name: 

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EATON VANCE LIMITED
  DURATION INCOME FUND, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance Management,
  as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael
  B. Botthof

  
	
   

  	
   

  	
   

  	
  Name:

  	
   Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  

 

Signature Page

 

 

	
   

  	
  EATON VANCE SENIOR
  FLOATING-RATE TRUST, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance Management,
  as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael
  B. Botthof

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EATON VANCE
  FLOATING-RATE INCOME TRUST, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance Management,
  as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael
  B. Botthof

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EATON VANCE SHORT
  DURATION DIVERSIFIED INCOME FUND, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance Management,
  as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  

 

Signature Page

 

 

	
   

  	
  EATON VANCE
  CREDIT OPPORTUNITIES FUND, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance
  Management, as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EATON VANCE LOAN
  OPPORTUNITIES FUND, LTD., as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Eaton Vance Management,
  as Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael B. Botthof

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GENERAL ELECTRIC
  CAPITAL CORPORATION, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Marie G.
  Mollo

  
	
   

  	
   

  	
   Name:

  	
  Marie G. Mollo

  
	
   

  	
   

  	
   Title: 

  	
   Duly Authorized
  Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  METLIFE INSURANCE
  COMPANY OF CONNECTICUT (f/k/a The Travelers Insurance Company), as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Metropolitan Life
  Insurance Company, as Investment Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   /s/ Matthew J.
  McInerny

  
	
   

  	
   

  	
   

  	
   Name:

  	
  Matthew J. McInerny

  
	
   

  	
   

  	
   

  	
   Title:

  	
  Director

  
						

 

Signature Page

 

 

	
   

  	
  METROPOLITAN LIFE
  INSURANCE COMPANY, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Matthew J.
  McInerny

  
	
   

  	
   

  	
   Name:

  	
  Matthew J. McInerny

  
	
   

  	
   

  	
   Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GOLDENTREE LOAN
  OPPORTUNITIES III, LIMITED, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Golden Tree Asset
  Management, LP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
             /s/  Karen Weber

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Karen Weber

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Director — Bank Debt

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GOLDENTREE LOAN
  OPPORTUNITIES IV, LIMITED, as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  Golden Tree Asset
  Management, LP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
             /s/  Karen Weber

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Karen Weber

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Director — Bank Debt

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GOLDENTREE LOAN
  OPPORTUNITIES V, LIMITED, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Golden Tree Asset
  Management, LP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
             /s/  Karen Weber

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Karen Weber

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Director — Bank Debt

  
						

 

Signature Page

 

 

	
   

  	
  MIZUHO CORPORATE BANK,
  LTD., as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  James R. Fayen

  
	
   

  	
   

  	
   Name:

  	
   James R. Fayen

  
	
   

  	
   

  	
   Title:

  	
   Deputy General
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VAN KAMPEN SENIOR LOAN
  FUND, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Gerard Fogarty

  
	
   

  	
   

  	
   Name:

  	
   Gerard Fogarty

  
	
   

  	
   

  	
   Title:

  	
   Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VAN KAMPEN SENIOR
  INCOME TRUST, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Gerard Fogarty

  
	
   

  	
   

  	
   Name:

  	
   Gerard Fogarty

  
	
   

  	
   

  	
   Title:

  	
   Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  QUALCOMM GLOBAL
  TRADING, INC., as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Morgan Stanley
  investment Management, Inc., As Investment Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
             /s/  John Hayes

  
	
   

  	
   

  	
   

  	
  Name:

  	
  John Hayes

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Executive Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MORGAN STANLEY PRIME
  INCOME TRUST, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  John Hayes

  
	
   

  	
   

  	
   Name:

  	
   John Hayes

  
	
   

  	
   

  	
   Title:

  	
    Executive
  Director

  
						

 

Signature Page

 

 

	
   

  	
  OLYMPIC CLO I LTD., as
  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Churchill Pacific Asset
  Management

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  John Casparian

  
	
   

  	
   

  	
   

  	
  Name:

  	
  John Casparian

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Co-President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SIERRA CLO II LTD., as
  a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Churchill Pacific Asset
  Management

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  John Casparian

  
	
   

  	
   

  	
   

  	
  Name:

  	
  John Casparian

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Co-President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WHITNEY CLO I LTD., as
  a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Churchill Pacific Asset
  Management

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  John Casparian

  
	
   

  	
   

  	
   

  	
  Name:

  	
  John Casparian

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Co-President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SHASTA CLO I LTD., as a
  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Churchill Pacific Asset
  Management

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  John Casparian

  
	
   

  	
   

  	
   

  	
  Name:

  	
  John Casparian

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Co-President

  

 

Signature Page

 

 

	
   

  	
  SAN GABRIEL CLO I LTD.,
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Churchill Pacific Asset
  Management

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
             /s/  John Casparian

  
	
   

  	
   

  	
   

  	
  Name:

  	
  John Casparian

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Co-President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CARL MARKS STRATEGIC
  INVESTMENTS, LP, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Robert C. Ruocco

  
	
   

  	
   

  	
   Name:

  	
   Robert C. Ruocco

  
	
   

  	
   

  	
   Title:

  	
   Managing Member
  of Carl Marks GP,

  
	
   

  	
   

  	
   

  	
   LLC, its General
  Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  JEFFRIES FINANCE LLC,
  as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Illegible

  
	
   

  	
   

  	
   Name:

  	
  Illegible

  
	
   

  	
   

  	
   Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  JFIN CLO 2007-LTD., as
  a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Jeffries Finance LLC as
  Collateral Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Illegible

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Illegible

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Director

  
							

 

Signature Page

 

 

	
   

  	
  ING INVESTMENT
  MANAGEMENT CLO II, LTD., as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  ING Alternative Asset
  Management LLC, As its investment manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Theodore M. Haag

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Theodore M. Haag

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ING INTERNATION (II) —
  SENIOR BANK LOANS EURO, as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  ING Investment
  Management Co., as its

  Investment manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Theodore M. Haag

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Theodore M. Haag

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LMP CORPORATE LOAN
  FUND, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Citigroup Alternative
  Investments LLC, as A Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Roger Yee

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Roger Yee

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  

 

Signature Page

 

 

	
   

  	
  EAGLE MASTER FUND LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Citigroup Alternative
  Investments LLC, as Investment Manager for and on behalf of Eagle Master Fund
  Ltd., as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
             /s/  Roger Yee

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Roger Yee

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  REGATTA FUNDING LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Citigroup Alternative
  Investments LLC,

  Attorney-in-fact, as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
             /s/  Roger Yee

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Roger Yee

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GALE FORCE 1 CLO, LTD.,
  as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Lee M. Shaiman

  
	
   

  	
   

  	
   Name:

  	
   Lee M. Shaiman

  
	
   

  	
   

  	
   Title:

  	
   Authorized Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GALE FORCE 2 CLO, LTD.,
  as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Lee M. Shaiman

  
	
   

  	
   

  	
   Name:

  	
   Lee M. Shaiman

  
	
   

  	
   

  	
   Title:

  	
   Authorized
  Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HUDSON STRAITS CLO
  2004, LTD., as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Lee M. Shaiman

  
	
   

  	
   

  	
   Name:

  	
   Lee M. Shaiman

  
	
   

  	
   

  	
   Title:

  	
   Authorized
  Signatory

  
						

 

Signature Page

 

 

	
   

  	
  VENTURE VI CDO LIMITED,
  as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Frederick H. Taylor

  
	
   

  	
   

  	
   Name:

  	
    Frederick
  H. Taylor

  
	
   

  	
   

  	
   Title:

  	
    Managing
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VENTURE VII CDO
  LIMITED, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Frederick H. Taylor

  
	
   

  	
   

  	
   Name:

  	
    Frederick
  H. Taylor

  
	
   

  	
   

  	
   Title:

  	
    Managing
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CLYDESDALE CLO 2005,
  LTD., as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Robert Hoffman

  
	
   

  	
   

  	
   Name:

  	
    Robert
  Hoffman

  
	
   

  	
   

  	
   Title:

  	
    Director

  

 

Signature Page

 

 

SCHEDULE
I

 

EXISTING
EVENTS OF DEFAULT

 

(a)           The failure of the Company to satisfy Section 7.6
of the Credit Agreement for the period ended December 31, 2008 and for the
period ending March 31, 2009, resulting in an Event of Default under Section 8.3
of the Credit Agreement.

 

(b)           The failure of the Company to comply with Section 6.1(vi) of
the Credit Agreement by not timely delivering to Agent and Lenders a written
statement by its independent certified public accountants regarding a report
concerning the financial statements referred to in Section 6.1(iii) of
the Credit Agreement in connection with the year-end financials for Fiscal
Years 2005 through 2007, resulting in an Event of Default under Section 8.5
of the Credit Agreement.

 

(c)           The failure of the Company to comply with Section 6.1(x) of
the Credit Agreement by not timely delivering the Financial Plan for Fiscal
Year 2009 to Agent and Lenders, resulting in an Event of Default under Section 8.5
of the Credit Agreement.

 

(d)           The failure of the Company to comply with Section 6.10
of the Credit Agreement by not entering into one or more Interest Rate
Agreements with respect to the Term Loans, resulting in an Event of Default
under Section 8.5 of the Credit Agreement.

 

(e)           The failure of the Company to comply with Section 6.1(i) of
the Credit Agreement by not promptly delivering to Agent and the Lenders an
Officer’s Certificate specifying the above-referenced Anticipated Defaults,
resulting in an Event of Default under Section 8.5 of the Credit
Agreement.

 

 

SCHEDULE
II

 

ANTICIPATED
DEFAULTS

 

(a)           The failure of the Company to comply with Section 2.4B(iii)(e) of
the Credit Agreement by failing to timely pay 50% of the Consolidated Excess
Cash Flow for the Fiscal Year ended December 31, 2008, which will result
in an Event of Default under Section 8.1 of the Credit Agreement.

 

(b)           The failure of the Company to comply with Section 6.1(ii) of
the Credit Agreement by not timely delivering the quarterly financials for the
Fiscal Quarter ended March 31, 2009 to Agent and Lenders, which will
result in an Event of Default under Section 8.5 of the Credit Agreement.

 

(c)           The failure of the Company to comply with Section 6.1(iii) of
the Credit Agreement by not timely delivering the year-end financials for
Fiscal Year 2008 to Agent and Lenders, which will result in an Event of Default
under Section 8.5 of the Credit Agreement.

 

(d)           The failure of the Company to comply with Section 6.1(iv) of
the Credit Agreement by not timely delivering the Compliance Certificate in
connection with the year-end financials for Fiscal Year 2008 and the quarterly
financials for the Fiscal Quarter ended March 31, 2009 to Agent and
Lenders, which will result in an Event of Default under Section 8.5 of the
Credit Agreement.

 

(e)           The failure of the Company to comply with Section 6.1(vi) of
the Credit Agreement by not timely delivering to Agent and Lenders a written
statement by its independent certified public accountants regarding a report
concerning the financial statements referred to in Section 6.1(iii) of
the Credit Agreement in connection with the year-end financials for Fiscal Year
2008, which will result in an Event of Default under Section 8.5 of the
Credit Agreement.

 

(f)            The failure of the Company to make interest payments to
holders of the Subordinated Notes, which will result in an Event of Default
under Section 8.2 of the Credit Agreement.

 

(g)           The failure of the Company to comply with Section 6.1(i) of
the Credit Agreement by not promptly delivering to Agent and the Lenders an
Officer’s Certificate specifying the above-referenced Anticipated Defaults,
which will result in an Event of Default under Section 8.5 of the Credit
Agreement.EXHIBIT
10.1

 

BRIDGE
LOAN AGREEMENT

 

by
and between

 

GRANITE
CITY FOOD & BREWERY LTD.

 

and

 

GRANITE
CITY RESTAURANT OPERATIONS, INC.,

as
Borrowers

 

and

 

HARMONY
EQUITY INCOME FUND, L.L.C.

as
Administrative Agent and as a Lender,

 

and
the Lenders party hereto

 

Dated
as of March 30, 2009

 

 

THIS LOAN AGREEMENT (“Agreement”), dated as of March 30, 2009, is made by and
among GRANITE CITY FOOD & BREWERY, LTD.
(“Granite City”), and GRANITE CITY RESTAURANT OPERATIONS, INC. (“GCROI”), each a Minnesota corporation (each of Granite City
and GCROI, a “Borrower,” and collectively, the “Borrowers”), each lender from time to time
party hereto (collectively, the “Lenders” and
individually, a “Lender”), and HARMONY EQUITY INCOME FUND, L.L.C., a South Dakota limited
liability company, as Administrative Agent.

 

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

 

Section 1.1            Defined Terms.  In
addition to the terms defined elsewhere in this Agreement, the following terms
shall have the following respective meanings (and such meanings shall be
equally applicable to both the singular and plural form of the terms defined,
as the context may require):

 

“Administrative
Agent”:  Harmony Equity Income
Fund, L.L.C., a South Dakota limited liability company in its capacity as
administrative agent under any of the Loan Documents, or any successor
administrative agent.

 

“Adverse Event”: The occurrence of any event, or series of
events, that could have material adverse effect on the business, operations,
property, assets or condition (financial or otherwise) of either Borrower, or
their Affiliates or on the ability of either Borrower or any other party
obligated thereunder to perform its obligations under the Loan Documents.

 

“Affiliate” or “Affiliates”
Any Person controlled by, or controlling or under common control with either
Borrower, including any subsidiary of either Borrower.  For purposes of this definition, “control”
means, with respect to any specified Person, the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract, or otherwise.

 

“Aggregate
Loan Commitment” means an aggregate principal amount of up to One
Million and No/100 Dollars ($1,000,000.00).

 

“Agreement”: This Loan Agreement, as it may be amended,
modified, supplemented, restated or replaced from time to time.

 

“Business Day”: Any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which national Lenders are permitted to
be open in Minneapolis, Minnesota.

 

“Capitalized Lease”: Any lease which is or should be
capitalized on the books of the lessee in accordance with GAAP.

 

“Change in
Control”:  Any act or event
(including any assignment, sale, disposition or issuance, which results in, or
with the passage of time will result in, any Person owning directly or
indirectly, 50% or more of the capital stock of either Borrower; provided that
a Change in Control shall not be deemed to have occurred as a result of: (a) Granite
City’s sale of equity securities to any Person for cash or other monetary
consideration in a private placement or public offering transaction approved by
Granite City’s board of directors and which does not provide for the
resignation or replacement of all or a majority of Granite City’s directors; or
(b) the acquisition of capital stock 

 

 

pursuant
to this Agreement or any other rights to acquire Granite City’s capital stock
existing prior to the date of this Agreement.

 

“Code”: The Internal Revenue Code of 1986, as amended, or any
successor statute, together with regulations thereunder.

 

“Constituent
Documents” means with respect to any Person, as applicable, such
Person’s certificate of incorporation, articles of incorporation, by-laws,
certificate of formation, articles of organization, limited liability company
agreement, management agreement, operating agreement, shareholder agreement,
partnership agreement or similar document or agreement governing such Person’s
existence, organization or management or concerning disposition of ownership
interests of such Person or voting rights among such Person’s owners.

 

“Default”: Any event which, with the giving of notice to the
Borrowers or lapse of time, or both, would constitute an Event of Default.

 

“ERISA”: The Employee Retirement Income Security Act of 1974,
as amended, and any successor statute, together with regulations thereunder.

 

“ERISA Affiliate”: Any trade or business (whether or not
incorporated) that is a member of a group of which either Borrower is a member
and which is treated as a single employer under Section 414 of the Code.

 

“Event of Default”: Any event described in Section 7.1.

 

“GAAP”: Generally accepted accounting principles as applied in
the preparation of the financial statements.

 

“Indebtedness”: Without duplication, all obligations,
contingent or otherwise, which in accordance with GAAP should be classified
upon the obligor’s balance sheet as liabilities, but in any event including the
following (whether or not they should be classified as liabilities upon such
balance sheet): (a) obligations secured by any mortgage, pledge, security
interest, lien, charge or other encumbrance existing on property owned or
acquired subject thereto, whether or not the obligation secured thereby shall
have been assumed and whether or not the obligation secured is the obligation
of the owner or another party; (b) any obligation on account of deposits
or advances; (c) any obligation for the deferred purchase price of any
property or services not incurred in the ordinary course of business; (d) any
obligation as lessee under any Capitalized Lease other than under any  existing Capitalized Lease; (e) and all
guaranties, endorsements and other contingent obligations in respect to
Indebtedness of others; and (f) undertakings or agreements to reimburse or
indemnify issuers of letters of credit. For all purposes of this Agreement, the
Indebtedness of any Person shall include the Indebtedness of any partnership or
joint venture in which such Person is a general partner or a joint venturer or
of any Subsidiary.

 

“Investments”:  As to any Person, any direct or indirect
acquisition or investment by such Person, whether by means of:  (a) the purchase or other acquisition of
capital stock or other securities of another Person; (b) a loan, advance
or capital contribution to, guarantee or assumption of debt of, or purchase or
other acquisition of any other debt or equity participation or interest in,
another Person, including any partnership or joint venture interest in such
other Person and any arrangement pursuant to which the investor guarantees
Indebtedness of such other Person; or (c) the purchase or 

 

2

 

other acquisition (in one
transaction or a series of transactions) of assets of another Person that
constitute a business unit.  For purposes
of covenant compliance, the amount of any Investment shall be the amount
actually invested, without adjustment for subsequent increases or decreases in
the value of such Investment.

 

“Leasehold Mortgage” The Leasehold 180-Day Redemption Mortgage
and Security Agreement and Fixture Filing Statement of even date herewith
executed by the Borrowers, as Mortgagors, and delivered to the Administrative
Agent, as Mortgagee, pursuant to which the Borrowers have granted a mortgage on
the leasehold estate to the Administrative Agent to secure, among other things,
payment of the Notes, as the same may hereafter be amended or modified.

 

“Lien”: Any security interest, mortgage, pledge, lien,
hypothecation, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including, without
limitation, the interest of the lessors under Capitalized Leases and the
interest of a vendor under any conditional sale or other title retention agreement).

 

“Loan Documents”: This Agreement, the Notes, the Leasehold
Mortgage, the Security Agreement, the Patent and Trademark Security Agreement,
the Warrants, the IP Agreement, Transition Services Agreement, Investors Rights
Agreement  and each other instrument,
document, guaranty, security agreement, mortgage, or other document or
agreement executed and delivered by either Borrower or any guarantor or party
in connection with this Agreement, the Loans, or any collateral for the Loans,
as each of the same may be amended, modified or renewed from time to time.

 

“Loan” or “Loans”:
The Loans extended by the Lenders and described in Section 2.1.

 

“Maturity
Date”: October 1, 2010.

 

“Mortgaged
Property”:  The property
subject to the Leasehold Mortgage.

 

“Notes”: The notes made payable to the order of the Lenders by
Borrowers and described in Section 2.3 as the same may be amended,
supplemented and renewed from time to time.

 

“Obligations”:  The Notes
and each and every other debt, liability and obligation of every type and
description which either Borrower may now or at any time hereafter owe to the
Lender, whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving any Lender
alone or in a transaction involving other creditors of the Borrowers, 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 all indebtedness of the Borrowers arising
under any credit document or guaranty between the either Borrower and the
Administrative Agent and/or Lenders, whether now in effect or hereafter entered
into.

 

“Patent and
Trademark Security Agreement”: 
The Patent and Trademark Security Agreement of even date herewith
executed by Granite City and delivered by the Administrative Agent pursuant to
which Granite City has granted a lien on its intellectual property to the
Administrative Agent to secure, among other things, payment of the Notes, as
the same may hereafter be amended or modified.

 

3

 

“PBGC”: The Pension Benefit Guaranty Corporation, established
pursuant to Subtitle A of Title IV of ERISA, and any successor thereto or to
the functions thereof.

 

“Person”: Any natural person, corporation, partnership, joint
venture, firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether
acting in an individual, fiduciary or other capacity.

 

“Plan”: An employee benefit plan or other plan, maintained for
employees of either Borrower or of any ERISA Affiliate, and subject to Title IV
of ERISA or Section 412 of the Code.

 

“Reportable Event”: A reportable event as defined in Section 4043
of ERISA and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation has waived
the requirement of Section 4043(a) of ERISA that it be notified within
30 days of the occurrence of such event, provided that a failure to meet the
minimum funding standard of Section 412 of the Code and Section 302
of ERISA shall be a reportable event regardless of the issuance of any such
waivers in accordance with Section 412(d) of the Code.

 

“Required
Lenders”:  As of any date of
determination, Lenders holding at least 50.1% of the aggregate principal amount
then outstanding under the Notes.

 

“SEC”:  The Securities and Exchange Commission.

 

“Security Agreement” The Security Agreement of even date
herewith executed by the Borrowers and delivered to the Administrative Agent
pursuant to which the Borrowers have granted a Lien on the collateral described
therein to the Administrative Agent to secure, among other things, payment of
the Notes, as the same may hereafter be amended or modified.

 

“Sioux Falls
Restaurant” or “Restaurant”:  The restaurant operated by the Borrowers
located at 2620 S. Louise Avenue, Sioux Falls, South Dakota.

 

“Subsidiary”: Any Person of which more than fifty percent
(50%) of the outstanding ownership interests having general voting power under
ordinary circumstances to elect a majority of the board of directors or the
equivalent of such Person, regardless of whether or not at the time ownership interests
of any other class or classes shall have or might have voting power by reason
of the happening of any contingency, is at the time directly or indirectly
owned by the Borrowers, by the Borrowers and one or more other Subsidiaries, or
by one or more other Subsidiaries.

 

Section 1.2            Accounting Terms and
Calculations. Except as may
be expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder (including,
without limitation, determination of compliance with financial ratios and
restrictions in Article V and Article VI hereof) shall be made in
accordance with GAAP consistently applied. Any reference to “consolidated”
financial terms shall be deemed to refer to those financial terms as applied to
the Borrowers and their Affiliates in accordance with GAAP.

 

Section 1.3            Computation of Time Periods. In this Agreement, in the computation of a
period of time from a specified date to a later specified date, unless
otherwise stated the word “from” means “from and including” and the word “to”
or “until” each means “to but excluding.”

 

Section 1.4            Other Definitional Terms. The words “hereof”, “herein” and
“hereunder” and words of similar import when used in this Agreement shall refer
to this Agreement as a whole 

 

4

 

and not to any particular provision of this Agreement. References to
Sections, Exhibits, schedules and like references are to this Agreement unless
otherwise expressly provided.

 

ARTICLE II

LOANS

 

Section 2.1            Loans. Subject to the terms and conditions of this
Agreement, each Lender hereby agrees to severally make a loan (each a “Loan,” and collectively, the “Loans”)
to the Borrowers in the aggregate principal amount equaling the Aggregate Loan
Commitment.  The amount initially loaned
on the date hereof by each Lender is set forth on Schedule
2.1, attached hereto.  The
proceeds of the Loans shall be used by the Borrowers for general working
capital purposes and amounts borrowed that are repaid or prepaid by Borrowers
may not be re-borrowed.  To the extent
that the initial Loans advanced hereunder are less than the Aggregate Loan
Commitment, then on or before April 30, 2009, the Lenders will make
additional loans to the Borrowers, or shall cause additional Lenders to make
Loans to the Borrowers, until the aggregate of all Loans outstanding hereunder
equals the Aggregate Loan Commitment. 
Upon receipt of a Note executed by Borrower and payable to the order of
a Lender and, in the case of an additional Lender, an executed signature page to
this Agreement by such Lender, Agent shall replace Schedule 2.1 and provide
notice to the Borrowers and Lenders.

 

Section 2.2            Additional Loans. 
Lenders may, but shall not be obligated to, make additional Loans to
Borrowers on substantially the same terms and conditions contained herein (“Additional Loans”) upon the following conditions being
met:  (a)  Borrowers initiate a
written request for additional funding; (b) existing or new lenders are
available and willing to make such Loans; (c) Borrowers are able to pledge
collateral related to either its St. Cloud, MN or Fargo, ND restaurants,
including a mortgage on the respective leasehold interests; (d) no Default
or Event of Default exists or is continuing; and (e) Borrowers and Lenders
agree to amendments to the Loan Documents necessary to complete such additional
Loans.  For avoidance of doubt, Borrowers
and Lenders agree that if such conditions are met and Lenders do not give
Borrowers notice within 30 calendar days of receipt of such written notice that
they will make the Additional Loans, Borrowers may obtain the Additional Loans
from new lenders.  In the event that
Borrowers obtain the Additional Loans from new lenders, the Lenders may elect,
at their option, to accept all of the terms and conditions of the Additional
Loans, and if the Lenders so elect, the Borrowers and Lenders hereby agree to
modify the Loan Documents to reflect such new terms, from and after the date of
the initial funding of the Additional Loans.

 

Section 2.3            Note. The Borrowers’ obligation to repay each Loans
is joint and several, and shall be evidenced by a Note payable to the order of
each respective Lender in the amounts set forth on Schedule
2.1, and in the form attached hereto as Exhibit A (as may be
amended, modified or supplemented, renewed or replaced from time to time, each
a “Note,” and collectively, the “Notes”).  The terms of
the Note are incorporated herein by this reference.

 

Section 2.4            Payments and Prepayments.

 

(a)            Scheduled Payments.  The principal amount outstanding under the
Loans shall be payable in six equal monthly installments commencing on May 1,
2010 and on the first day of each month thereafter, with the final installment
of any unpaid principal due on the Maturity Date.

 

5

 

(b)           Voluntary Prepayments.  Borrowers may, upon 30 days prior notice to
the Administrative Agent, voluntarily prepay the Loans in whole or in part
without premium or penalty.

 

(c)            Mandatory Prepayments.  Borrowers shall prepay the Loans in full: (i) at
the request of the Lenders after an Event of Default hereunder; or (ii) upon
the closing of a financing transaction or transactions resulting in Borrowers’
receipt of $4,000,000 or more in proceeds from the sale of equity or securities
convertible into equity of Granite City, Borrowers shall immediately set aside
funds sufficient to prepay the Obligations hereunder and under the Notes in
full and, within three (3) Business Days following such closing, Borrowers
shall give Administrative Agent and Lenders notice that such closing has
occurred and that the Loans will be prepaid in full on the 30th day following the delivery of such notice.

 

Notwithstanding anything to the contrary contained
herein, each Lender reserves the right to exercise its right of Conversion as
provided in the Notes prior to any repayment or prepayment by the Borrowers.

 

Section 2.5            Interest Rates, Default Interest, Interest
Payments.

 

(a)            Interest Rate.  Interest
on the principal amount of the Notes shall accrue interest at an annual fixed
rate equal to nine percent (9.0%).

 

(b)           Default Rate.  From and
after the occurrence of any Event of Default, the principal balance of the
Notes shall bear interest until such Event of Default is waived or cured, at an
annual fixed rate equal to twelve percent (12.0%).

 

(c)            Payments and Computation.  Interest accrued hereunder shall be payable: (i) quarterly
in arrears commencing on July 1, 2009, and on the first day of each
consecutive calendar quarter thereafter up to and including April 1, 2010;
(ii) monthly in arrears commencing on May 1, 2010, and on the first
day of each month thereafter; with a final payment of any accrued and unpaid
interest due on the Maturity Date with the final payment of principal.  Interest shall be computed on the basis of a
360-day year, actual days elapsed.

 

Section 2.6            Payments; Application of
Payments. All payments and
prepayments on the Notes shall be applied to the Notes pro rata on the basis of
the proportion that the then-outstanding principal amount of any Note bears to
the aggregate then-outstanding principal amount of all such Notes and, such
prepayments shall be applied first to the payment of costs of collection that
may be due hereunder, then to the payment of accrued interest, and then to the
payment of principal (in the inverse order of maturity).  Payments and prepayments of principal of, and
interest on, the Notes and all fees, expenses and other obligations under this
Agreement payable to the Administrative Agent for the benefit of the respective
Lenders shall be made to the Administrative Agent at its main office in Sioux
Falls, South Dakota, without setoff or counterclaim, in immediately available
funds not later than 1:00 P.M. South Dakota time (CST or DST, as
applicable) on the dates called for under this Agreement.  Funds received after such time shall be
deemed to have been received on the next Business Day. Whenever any payment to
be made hereunder or under the Loan Documents shall be stated to be due on a
day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time, in the case of a payment of
principal, shall be included in the computation of any interest on such
principal payment.

 

6

 

Section 2.7            Collateral. As security for all indebtedness and other
obligations of Borrowers to Lender, (a) Granite City agrees to grant to
Administrative Agent (i) security interests in the collateral described in
the Security Agreement, and (ii) subject to the IP Agreement, a security
interest in all of Granite City’s intellectual property, described in the
Patent and Trademark Security Agreement; and (b) GCROI agrees to grant to
Administrative Agent (i) security interests in the collateral described in
the Security Agreement, and (ii) the Leasehold Mortgage.  Borrowers hereby agree to execute and deliver
such additional documents as are necessary to evidence and perfect the
respective security interests.  Borrowers
shall pay to Administrative Agent immediately upon demand the full amount of
all charges, costs and expenses (to include fees paid to third parties and all
allocated costs of Lender personnel), expended or incurred by Administrative
Agent in connection with any of the foregoing security, including without
limitation, filing and recording fees and costs of appraisals, audits and title
insurance.

 

ARTICLE III

CONDITIONS PRECEDENT

 

Section 3.1            Conditions of Funding. The making of the Loans shall be subject to
the prior or simultaneous fulfillment of the following conditions:

 

(a)            Documents. The Administrative Agent shall have received the
following duly executed and/or delivered by each party thereto and otherwise in
the form and substance acceptable to the Administrative Agent:

 

(i)            A Note in
favor of each Lender a party hereto in the form attached hereto as Exhibit A.;

 

(ii)           This Agreement;

 

(iii)          An
executed warrant (the “Warrant”)
in favor of each Lender, to purchase a pro-rata portion of an aggregate of
400,000 shares of Granite City’s common stock, based on the portion of the
Aggregate Loan Commitment advanced by such Lender hereunder; such warrant shall
be in the form attached hereto as Exhibit B,
and shall have a per share exercise price equal to 110% of the closing sales
price of Granite City’s common stock reported on the Nasdaq Stock Market on the
date of this Agreement, which exercise price will remain the same for any
Warrants issued upon the funding of additional Loans committed to by the
Lenders pursuant to Section 2.1 of this Agreement;

 

(iv)          An
Investors’ Rights Agreement executed by Granite City and each Lender a party
hereto in the form attached hereto as Exhibit C;

 

(v)           The IP
Agreement by and between Granite City and Administrative Agent setting forth
the rights with respect to the use of Granite City’s intellectual property;

 

(vi)          The
Transition Services Agreement by and among the Borrowers and Administrative
Agent;

 

7

 

(vii)         The Security
Agreement and the Patent and Trademark Security Agreement;

 

(viii)        The
Lessor’s Consent executed by DHW Leasing, L.L.C. in favor of Agent
acknowledging the security interest granted by Granite City in favor of
Administrative Agent;

 

(ix)           The Secured Party’s Consent executed
by Great Western Bank

 

(x)            The Leasehold Mortgage;

 

(xi)           A
Memorandum of Lease and Consent to Encumbrance and Assignment of Leases and
Rents executed by Douglas J. Johnson and Granite City in favor of
Administrative Agent;

 

(xii)          Copies of
any existing leases between either Borrower and the landlord of the Sioux Falls
Restaurant (the “Real Estate Leases”);

 

(xiii)         Copies of
any existing equipment leases for any equipment located at or used in the
operation of the Restaurant, (the “Equipment
Leases”);

 

(xiv)        A certificate of each Borrower’s
Secretary or Assistant Secretary certifying that attached to such certificate
are:  (i) resolutions of such
Borrower’s Board of Directors and, if required, the shareholders, authorizing
the execution, delivery and performance of the Loan Documents; (ii) true,
correct and complete copies of such Borrower’s Constituent Documents, and (iii) examples
of the signatures of such Borrower’s officers or agents authorized to execute
and deliver the Loan Documents and other instruments, agreements and to request
the loans hereunder; and

 

(xv)         Such other documentation or agreements
requested by Administrative Agent.

 

(b)           Compliance. The Borrowers shall have performed and complied with
all agreements, terms and conditions contained in this Agreement required to be
performed or complied with by the Borrowers prior to or simultaneously with the
funding of the loan contemplated herein.

 

(c)            Insurance.  Each Borrower
shall have delivered to Administrative Agent evidence of insurance coverage on
all such Borrower’s property, in form, substance, amounts, covering risks and
issued by companies satisfactory to Administrative Agent, and with respect to
the Sioux Falls Restaurant, with loss payable endorsements in favor of Administrative
Agent as its interest appears, including without limitation, policies of fire
and extended coverage insurance covering the Sioux Falls Restaurant any
collateral located therein.

 

(d)           Title Insurance.  Administrative Agent shall have received an
ALTA Policy of Title Insurance, with such endorsements as Administrative Agent
may require, issued by a company and in form and substance satisfactory to
Administrative Agent, in such amount as Administrative Agent shall require,
insuring each Lender’s lien on the leasehold interest in the Sioux 

 

8

 

Falls
Restaurant to be of first priority, subject only to such exceptions as
Administrative Agent shall approve in its discretion, with all costs thereof to
be paid by Borrowers.

 

(e)            Other Matters. All organizational and legal proceedings relating to
the Borrowers and all instruments and agreements in connection with the
transactions contemplated by this Agreement shall be satisfactory in scope,
form and substance to the Administrative Agent and its counsel, and
Administrative Agent and each Lender shall have received all information and
copies of all documents, including records of corporate proceedings, as
Administrative Agent, such Lender or its respective counsel may reasonably have
requested in connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities.

 

(f)            Representations and Warranties. The representations and
warranties contained in Article IV shall be true and correct on and as of
the date hereof.

 

(g)           No Default. No Default or Event of Default shall have occurred
and be continuing on the date hereof.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

 

To induce the Administrative
Agent and the Lenders to enter into this Agreement and to make Loans hereunder,
each Borrower represents and warrants to the Administrative Agent and the
Lenders:

 

Section 4.1            Organization, Standing, Etc. Each Borrower is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Minnesota and has all requisite corporate power and authority to carry on
its businesses as now conducted, and to enter into the Loan Documents and to
issue the Notes and to perform its obligations under the Loan Documents. Each
Borrower is duly qualified and in good standing as a foreign entity in each
jurisdiction in which the character of the properties owned, leased or operated
by it or the business conducted by it makes such qualification necessary, except
where the failure to so qualify would not result in an Adverse Event.

 

Section 4.2            Authorization and Validity. The execution,
delivery and performance by the Borrowers of the Loan Documents have been duly authorized by all necessary corporate
action by each Borrower, and the Loan Documents constitute the legal, valid and
binding obligations of each Borrower, enforceable against the Borrowers in
accordance with their respective terms, subject to limitations as to
enforceability which might result from bankruptcy, insolvency, moratorium and
other similar laws affecting creditors’ rights generally and subject to
limitations on the availability of equitable remedies.

 

Section 4.3            Subsidiaries. 
Except as set forth on Schedule 4.3,
neither Borrower has any Subsidiaries; Granite City owns all of the issued and
outstanding stock of GCROI; and the Subsidiaries other than GCROI in the
aggregate own less than 1.0% of the total assets of Borrowers in the aggregate,
directly or indirectly.

 

Section 4.4            No Conflict; No Default. The execution, delivery and performance by
the Borrowers of the Loan Documents will not (a) violate any provision of
any law, statute, rule or regulation or any order, writ, judgment,
injunction, decree, determination or award of any court, 

 

9

 

governmental
agency or arbitrator presently in effect having applicability to the Borrowers,
(b) violate or contravene any provisions of the Constituent Documents or
any other organizational documents of the Borrowers, or (c) result in a
breach of or constitute a default under any indenture, loan or credit agreement
or any other agreement, lease or instrument to which either Borrower is a party
or by which it or any of such Borrower’s properties may be bound or result in
the creation of any Lien on any asset of such Borrower. The Borrowers are not
in default under or in violation of any such law, statute, rule or
regulation, order, writ, judgment, injunction, decree, determination or award
or any such indenture, loan or credit agreement or other agreement, lease or
instrument in any case in which the consequences of such default or violation
could constitute an Adverse Event. No Default or Event of Default has occurred
and is continuing.

 

Section 4.5            Governmental Consent. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on the
part of either Borrower to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Loan Documents.

 

Section 4.6            Financial Statements and
Condition. The Borrowers’
audited consolidated financial statements as of December 30, 2008, as
heretofore furnished to the Lender, have been prepared on a consistent basis
and (in the case of the audited financial statements) in accordance with GAAP
and fairly present the financial condition of the Borrowers as at such date and
the results of its operations and changes in financial position for the
respective periods then ended. As of the date of such financial statements, the
Borrowers did not have any material obligation, contingent liability, liability
for taxes or long-term lease obligation which is not reflected in such
financial statements or in the notes thereto. 
Since December 30, 2008, no Adverse Event has occurred and is
continuing.

 

Section 4.7            Litigation and Contingent
Liabilities. Except as
disclosed on Schedule 4.7, there are no
actions, suits or proceedings pending or, to the knowledge of the Borrowers,
threatened against or affecting the Borrowers or any of its properties before
any court or arbitrator, or any governmental department, board, agency or other
instrumentality which, if determined adversely to the Borrowers, could
constitute an Adverse Event. Except as disclosed on Schedule
4.7, the Borrowers do not have any contingent liabilities which
are material to the Borrowers.

 

Section 4.8            Compliance. The Borrowers and the Mortgaged Property
are each in material compliance with all statutes and governmental rules and
regulations applicable to them.

 

Section 4.9            Environmental, Health and
Safety Laws. There does not
exist any material violation by the Borrowers, or with respect to the Sioux
Falls Restaurant, of any applicable federal, state or local law, rule or
regulation or order of any government, governmental department, board, agency
or other instrumentality relating to environmental, pollution, health or safety
matters that (a) with respect to either Borrower, will or threatens to
impose a material liability on such Borrower or which would require a material
expenditure by either Borrower to cure, or (b) with respect to the Sioux
Falls Restaurant, will or threatens to impose any material liability on either
Borrower.

 

Section 4.10         ERISA. Each Plan complies with all material
applicable requirements of ERISA and the Code and with all material applicable
rulings and regulations issued under the provisions of ERISA and the Code
setting forth those requirements.  No
Reportable Event, other than a Reportable Event for which the reporting
requirements have been waived by regulations of the PBGC, has occurred and is
continuing with respect to any Plan.  All
of the minimum funding 

 

10

 

standards
applicable to such Plans have been satisfied and there exists no event or
condition which would permit the institution of proceedings to terminate any
Plan under Section 4042 of ERISA. 
The current value of the Plans’ benefits guaranteed under Title IV or
ERISA does not exceed the current value of the Plans’ assets allocable to such
benefits.

 

Section 4.11         Ownership of Property; Liens. The Borrowers have good record and
marketable title to, or valid leaseholds interests in, all real property
necessary or used in the ordinary conduct of the Borrowers’ business and good
and sufficient title to its other properties, including all properties and
assets referred to as owned by the Borrowers in the audited financial
statements of the Borrowers referred to in Section 4.6 (other than
property disposed of since the date of such financial statements in the
ordinary course of business).  None of
the properties, revenues or assets of the Borrowers is subject to a Lien,
except for Liens described in such financial statements or allowed under Section 6.1.

 

Section 4.12         Taxes. The Borrowers have filed all federal, state
and local tax returns required to be filed and has paid or made provision for
the payment of all taxes due and payable pursuant to such returns and pursuant
to any assessments made against it or any of its property and all other taxes,
fees and other charges imposed on it or any of its property by any governmental
authority (other than taxes, fees or charges the amount or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in accordance with GAAP have been provided on the
books of the Borrowers). No tax Liens have been filed and no material claims
are being asserted with respect to any such taxes, fees or charges. The
charges, accruals and reserves on the books of the Borrowers in respect of
taxes and other governmental charges are adequate.

 

Section 4.13         Insurance.  The
properties of Borrowers are insured with financially sound and reputable
insurance companies, in such amounts, with such deductibles and covering such
risks as are customarily carried by companies engaged in similar businesses and
owning or occupying similar properties in localities where the Borrowers
operate.

 

Section 4.14         Investment Company Act. Neither Borrower is an “investment company”
or a company “controlled” by an investment company within the meaning of the
Investment Company Act of 1940, as amended.

 

Section 4.15         No Subordination.  There
is no agreement, indenture, contract or instrument to which either Borrower is
a party or by which either Borrower may be bound that requires the
subordination in right of payment of any of such Borrower’s obligations subject
to this Agreement to any other obligation of such Borrower.

 

Section 4.16         Permits, Franchises.  Each Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required to
enable it to conduct the business in which it is now engaged in compliance with
applicable law, except where the failure to possess such permits, consents,
approvals, franchises and licenses would not result in an Adverse Event.

 

Section 4.17         Intellectual Property.  Each Borrower owns or is licensed or
otherwise has the right to use all of the patents, trademarks, service marks,
trade names, copyrights and other rights that are reasonably necessary for the
operation of its business.  The use of
such intellectual property by Borrower and the operation of its business does
not infringe any valid and enforceable intellectual property rights of any
other Person, except to the extent any such 

 

11

 

infringement could not,
individually or in the aggregate, be expected to have an Adverse Effect.  No claim or litigation regarding any of the
foregoing is pending or to either Borrower’s knowledge, threatened, and no
patent, invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or to the knowledge of either Borrower,
proposed, which could individually or in the aggregate reasonably be expected
to have a Adverse Effect.

 

ARTICLE V

AFFIRMATIVE COVENANTS

 

From the date of this
Agreement and thereafter until the Loans and all of the Borrowers’ other
obligations under this Agreement have been paid in full, unless the Required
Lenders shall otherwise expressly consent in writing, the Borrowers will do all
of the following:

 

Section 5.1            Financial Statements and Reports. Furnish to the Administrative Agent for
delivery to each Lender:

 

(a)            As soon as
available and in any event not later than the earlier of: (i) five days of
filing with the SEC, or (ii) 120 days after the end of each fiscal year of
the Borrower, the annual audit report of Granite City and its Subsidiaries
prepared on a consolidated basis and in conformity with GAAP, consisting of at
least statements of income, cash flow, changes in financial position and
stockholders’ equity, and a consolidated 
balance sheet as at the end of such year, certified without
qualification by independent certified public accountants included in Granite
City’s Form 10-K report filed with the SEC, together with any management
letters, management reports or other supplementary comments or reports to
Granite City or its board of directors furnished by such accountants and
requested by the Administrative Agent.

 

(b)           As soon as
available, and in any event not later than the earlier of: (i) five days
of filing with the SEC, or (ii) 45 days after the end of each fiscal
quarter, Granite City’s Form 10-Q Report filed with the SEC, including a
consolidated unaudited balance sheets of Granite City and its Subsidiaries as
of the end of each such fiscal quarter and related consolidated statement of
income, cash flow and changes in financial position of Granite City and its
Subsidiaries for each such month and for the year to date, in reasonable detail
and stating in comparative form the figures for the corresponding date and
period in the previous year, all prepared in accordance with GAAP applied on a
basis consistent with the accounting practices reflected in the annual
financial statements referred to in Section 4.6; and together with such
10-Q Report, a certification evidencing Granite City’s compliance with Section 5.2
(a) and (b) hereof.

 

(c)            Together with the financial statements
furnished under (a) and (b), a certificate of Granite City’s chief
financial officer, substantially in the form of Exhibit D
hereto, stating (i) that such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
and fairly represent Granite City’s combined, consolidated and consolidating
financial position and the results of its operations for such period, (ii) whether
or not such officer has knowledge of the occurrence of any Default or Event of
Default not theretofore reported and remedied and, if so, stating in reasonable
detail the facts with respect thereto, and (iii) all relevant facts and
reasonable detail to evidence, and the computations as to, whether or not the
Borrowers are in compliance with all financial covenants set forth in this
Agreement.

 

12

 

(d)           As soon as
available and in any event not later than 15 days after each fiscal month-end,
an unaudited income statement for the Restaurant as of the preceding month end
and for the fiscal year-to-date, together with a certificate of Granite City’s
chief financial officer certifying: (i) that the Restaurant income
statement has been prepared in accordance with GAAP, consistently applied and
fairly represents the results of the Restaurant’s operations for such period, (ii) a
calculation of the IROP (as hereinafter defined) of the Restaurant operations
for the purposes of determining compliance with Section 5.2(a) hereof,
and (iii) whether or not such officer has knowledge of the occurrence of
any Default or Event of Default not previously reported and remedied and, if
so, stating in reasonable detail the facts with respect thereto.

 

(e)            On or
about December 15, 2009, but in any event within 10 days after the
beginning of each fiscal year of the Borrower, the Borrowers will deliver to
the Administrative Agent the projected financial statements of the Borrowers
and their Subsidiaries for such fiscal year, each in reasonable detail,
representing the Borrowers’ good faith projections and certified by Granite
City’s chief financial officer as being the most accurate projections available
and identical to the projections used by the Borrowers for internal planning
purposes, together with a statement of underlying assumptions and such
supporting schedules and information as the Administrative Agent may in its discretion
require.

 

(f)            On or
about December 15, 2009, but in any event within 10 days after the
beginning of each fiscal year of the Borrowers, the Borrowers will deliver to
the Administrative Agent the projected monthly income statements of the
Restaurant for such fiscal year, in reasonable detail, representing the
Borrowers’ good faith projections and certified by Granite City’s chief
financial officer as being the most accurate projections available and
identical to the projections used by the Borrowers for internal planning
purposes, together with a statement of underlying assumptions and such
supporting schedules and information as the Administrative Agent may in its
discretion require.

 

(g)           Promptly
upon their distribution, copies of all financial statements, reports and proxy
statements, which the Granite City shall have sent to its shareholders.

 

(h)           Promptly
after the same are available, copies of each annual report, proxy or financial
statement or other report or communication sent to the stockholders of Granite
City and copies of all annual, regular, periodic and special reports and
registration statements that Granite may file or be required to file with the
Securities and Exchange Commission under Section 13 or Section 15(d) of
the Exchange Act, and, in each case, not otherwise required to be delivered to
Administrative Agent pursuant hereto.

 

(i)             Immediately
upon becoming aware of any Default or Event of Default, a notice describing the
nature thereof and what action the Borrowers propose to take with respect
thereto.

 

(j)             Immediately
upon becoming aware of the occurrence, with respect to any Plan, of any
Reportable Event (other than a Reportable Event for which the reporting
requirements have been waived by PBGC regulations) or any “prohibited transaction”
(as defined in Section 4975 of the Code), a notice specifying the nature
thereof and what action the Borrowers propose to take with respect thereto,
and, when received, copies of any notice from PBGC of intention to terminate or
have a trustee appointed for any Plan.

 

13

 

(k)            Immediately
upon becoming aware of the occurrence thereof, notice of the institution of any
litigation, arbitration or governmental proceeding, or the rendering of a
judgment or decision in such litigation or proceeding, which could constitute
an Adverse Event, and the steps being taken by the Person(s) affected by
such proceeding.

 

(l)             Immediately
upon becoming aware of the occurrence thereof, notice of any default or event
of default under the Equipment or Real Estate Leases or any other documents or
agreements relating to the Restaurant;

 

(m)           Immediately
upon becoming aware of the occurrence thereof, notice of any default or event
of default under any agreement or document that causes, or could reasonably be
expected to cause, an Adverse Event;

 

(n)           Immediately
upon becoming aware of the occurrence thereof, notice of any violation as to
any environmental matter by either Borrower and of the commencement of any
judicial or administrative proceeding relating to health, safety or
environmental matters (i) in which an adverse determination or result
could result in the revocation of or have a material adverse effect on any
operating permits, air emission permits, water discharge permits, hazardous
waste permits or other permits held by either Borrower which are related to the
Sioux Falls Restaurant or otherwise material to the operations of the Borrower,
or (ii) which will or threatens to impose a material liability on the
Borrowers or which will require a material expenditure by the Borrowers to cure
any alleged problem or violation.

 

(o)           From time
to time, such other information regarding the business, operation and financial
condition of the Borrowers and any collateral security the Obligations as the
Administrative Agent may reasonably request.

 

Section 5.2            Financial Covenants.

 

(a)            Minimum Income from Restaurant Operations.  For each period set forth below, maintain
minimum operating income from the Restaurant before interest, taxes,
depreciation and amortization (“IROP”),
measured as of the end or each month on a rolling three-month average, of at
least the amount set forth below for each such measurement date, as IROP has
historically been calculated by the Borrowers in accordance with GAAP:

 

	
  Period Ending

  	
   

  	
  Minimum IROP

  	
   

  
	
  March 31, 2009

  	
   

  	
  $

  	
  56,300

  	
   

  
	
  April 28, 2009

  	
   

  	
  $

  	
  59,144

  	
   

  
	
  May 26, 2009

  	
   

  	
  $

  	
  65,794

  	
   

  
	
  June 30, 2009

  	
   

  	
  $

  	
  69,350

  	
   

  
	
  July 28, 2009

  	
   

  	
  $

  	
  72,654

  	
   

  
	
  August 25, 2009

  	
   

  	
  $

  	
  70,301

  	
   

  
	
  September 29, 2009

  	
   

  	
  $

  	
  67,533

  	
   

  
	
  October 27, 2009

  	
   

  	
  $

  	
  64,832

  	
   

  
	
  November 24, 2009

  	
   

  	
  $

  	
  62,537

  	
   

  
	
  December 29, 2009

  	
   

  	
  $

  	
  62,183

  	
   

  
	
  January 26, 2010

  	
   

  	
  $

  	
  58,735

  	
   

  
	
  February 23, 2010

  	
   

  	
  $

  	
  56,733

  	
   

  

 

14

 

	
  March 30, 2010

  	
   

  	
  $

  	
  56,300

  	
   

  
	
  April 27, 2010

  	
   

  	
  $

  	
  59,144

  	
   

  
	
  May 25, 2010

  	
   

  	
  $

  	
  65,794

  	
   

  
	
  June 29, 2010

  	
   

  	
  $

  	
  69,350

  	
   

  
	
  July 27, 2010

  	
   

  	
  $

  	
  72,654

  	
   

  
	
  August 31, 2010

  	
   

  	
  $

  	
  70,301

  	
   

  
	
  September 28, 2010

  	
   

  	
  $

  	
  67,533

  	
   

  
	
  October 26, 2010

  	
   

  	
  $

  	
  64,832

  	
   

  
	
  November 30, 2010

  	
   

  	
  $

  	
  62,537

  	
   

  
	
  December 28, 2010

  	
   

  	
  $

  	
  62,183

  	
   

  

 

(b)           Minimum Consolidated Revenue.  Maintain Borrowers’ net consolidated revenue
on a quarterly basis, and calculated as net consolidated revenues have been
historically calculated by the Borrowers, in an amount not less than the amount
set forth below for such period:

 

	
  Quarter Ending

  	
   

  	
  Net Revenue

  	
   

  
	
  March 31, 2009

  	
   

  	
  $

  	
  19,231,625

  	
   

  
	
  June 30, 2009

  	
   

  	
  $

  	
  23,137,580

  	
   

  
	
  September 29, 2009

  	
   

  	
  $

  	
  22,516,093

  	
   

  
	
  December 29, 2009

  	
   

  	
  $

  	
  22,840,619

  	
   

  
	
  March 30, 2010

  	
   

  	
  $

  	
  19,231,625

  	
   

  
	
  June 29, 2010

  	
   

  	
  $

  	
  23,137,580

  	
   

  
	
  September 28, 2010

  	
   

  	
  $

  	
  22,516,093

  	
   

  
	
  December 28, 2010

  	
   

  	
  $

  	
  22,840,619

  	
   

  

 

Section 5.3            Existence. Maintain its existence as a Minnesota
corporation in good standing under the laws of its jurisdiction of formation
and its qualification to transact business in each jurisdiction in which the
character of the properties owned, leased or operated by it or the business
conducted by it makes such qualification necessary.

 

Section 5.4            Insurance. Maintain with financially sound and
reputable insurance companies such insurance as may be required by law and such
other insurance in such amounts and against such hazards, including business
interruption, as the Administrative Agent may reasonably request, and annually
provide written evidence reasonably acceptable to the Lender that the Lender
has been named as an additional insured, lender loss payee and mortgagee on
such insurance in form acceptable to the Lender.

 

Section 5.5            Payment of Taxes and Claims. File all tax returns and reports which are
required by law to be filed by it and pay before they become delinquent all
taxes, assessments and governmental charges and levies imposed upon it or its
property and all claims or demands of any kind (including, without limitation,
those of suppliers, mechanics, carriers, warehouses, landlords and other like
Persons) which, if unpaid, might result in the creation of a Lien upon its
property; provided that the foregoing items need not be paid if they are being
contested in good faith, and as long as the such Borrowers’ title to its
property is not materially adversely affected, its use of such property in the
ordinary course of its business is not materially interfered with and adequate
reserves with respect thereto have been set aside on the Borrowers’ books in
accordance with GAAP.

 

15

 

Section 5.6            Inspection. Permit any Person designated by the
Administrative Agent to visit and inspect any of its properties, corporate
books and financial records, to examine and to make copies of its books of
accounts and other financial records, and to discuss the affairs, finances and
accounts of the Borrowers with, and to be advised as to the same by, its
officers at such reasonable times and intervals as the Administrative Agent may
designate.

 

Section 5.7            Maintenance of Properties. Maintain its properties and equipment used
or useful in the conduct of its business in good condition, repair and working
order, and supplied with all necessary equipment, and make all necessary
repairs, renewals, replacements, betterments and improvements thereto, all as
may be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.

 

Section 5.8            Books and Records. Keep adequate and proper records and books
of account in which full and correct entries will be made of its dealings,
business and affairs.

 

Section 5.9            Compliance. Comply in all material respects with all
laws, rules, regulations, orders, writs, judgments, injunctions, decrees or
awards to which it may be subject.

 

Section 5.10         ERISA. Maintain each Plan in compliance with all
material applicable requirements of ERISA and of the Code and with all material
applicable rulings and regulations issued under the provisions of ERISA and of
the Code.

 

Section 5.11         Environmental Matters. Observe and comply with all laws, rules,
regulations and orders of any government or government agency relating to
health, safety, pollution, hazardous materials or other environmental matters
to the extent non-compliance could result in a material liability or otherwise
constitute an Adverse Event.

 

Section 5.12         Conduct of Business. Continue to engage only in the business
engaged in by the Borrowers on the date hereof.

 

ARTICLE VI

NEGATIVE COVENANTS

 

From the date of this Agreement and
thereafter until the Loans and all of the Borrowers’ other obligations under
this Agreement have been paid in full, unless the Required Lenders shall
otherwise consent in writing, the Borrowers will not do any of the following:

 

Section 6.1            Liens. 
Create, incur, assume or suffer to exist any Lien upon any of its
property, assets or revenues, whether now owned or hereafter acquired, other
than the following:

 

(a)           Liens
pursuant to any Loan Document;

 

(b)           Liens
disclosed pursuant to a search of the public records maintained by the Minnesota
Secretary of State conducted as of February 5, 2009;

 

(c)           Liens for
taxes not yet due or which are being contested in good faith and by appropriate
proceedings diligently conducted, if adequate reserves with respect thereto are
maintained in accordance with GAAP consistently applied;

 

16

 

(d)           pledges or
deposits in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other social security legislation,
other than any Lien imposed by ERISA;

 

(e)           deposits
to secure the performance of bids, trade contracts and leases, statutory
obligations, surety bonds (other than bonds related to judgments or
litigation), performance bonds and other obligations of a like nature incurred
in the ordinary course of business;

 

(f)            easements,
rights-of-way, restrictions and other similar encumbrances affecting real
property which, in the aggregate, are not substantial in amount, and which do
not in any case materially detract from the value of the property subject
thereto or materially interfere with the ordinary conduct of the business of
the Borrowers; and

 

(g)           purchase
money Liens upon or in furniture, fixtures and equipment acquired by Borrowers
to secure the purchase price of such furniture, fixtures and equipment or to
secure debt incurred solely for the purpose of financing the acquisition of any
such furniture, fixtures and equipment, or Liens existing on any such
furniture, fixtures and equipment at the time of acquisition (other than any
such Liens created in contemplation of such acquisition that do not secure the
purchase price); provided that the indebtedness secured thereby does not exceed
the cost or fair market value, whichever is lower, of the property being
acquired on the date of acquisition, and provided further, that Borrowers shall
not incur purchase money Liens against any assets at the Restaurant in excess
of $100,000 in any calendar year without the prior written consent of the
Administrative Agent; and

 

(h)           liens created
in favor of the Lenders in connection with additional loans authorized and
permitted pursuant to Section 2.2; provided that such liens may not be
created against the Restaurant or the assets located on or used in connection
with the Restaurant.

 

Section 6.2            Investments.  Make any Investments, except:

 

(a)           Investments
held by Borrowers in the form of cash and cash equivalents; and

 

(b)           Investments
in Subsidiaries on the date hereof, otherwise made in Subsidiaries in the
ordinary course of Borrowers’ business.

 

(c)           Investments
of either Borrower consisting of the formation of a wholly-owned subsidiary in
conjunction with a financing transaction in which 100% of the capital stock or
other equity interests in such subsidiary are pledged by such Borrower to the
Administrative Agent for the benefit of the Lenders and if requested such
subsidiary shall become a borrower or guarantor hereunder;

 

provided, however, that the foregoing Investments shall not be
permitted if and to the extent that they are otherwise prohibited pursuant to
any other provision of this Agreement or any other Loan Document.

 

Section 6.3            Indebtedness. Create,
incur, assume, increase, become liable on or suffer to exist any Indebtedness,
except:

 

(a)           Indebtedness
arising under the Loan Documents;

 

17

 

(b)           Indebtedness
existing on the date of this Agreement;

 

(c)           Indebtedness
arising in the ordinary course of either Borrower’s business;

 

(d)           Purchase
money obligations arising from the acquisition of personal property used in the
ordinary course of either Borrower’s business; and

 

(e)           Additional
Indebtedness not to exceed $2,000,000 created pursuant to Section 2.2,
above.

 

Section 6.4            Fundamental Changes; Subsidiaries.

 

(a)           Change its
name, federal taxpayer identification number or state of formation, nor assume
a different name, nor conduct its business or affairs under any other name
without prior consent of the Administrative Agent.

 

(b)           Merge,
dissolve, liquidate, consolidate with or into another Person, change its
structure (whether by equity sale, issuance, purchase or otherwise), or sell,
transfer or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now owned or hereafter
acquired) to or in favor of any Person.

 

Section 6.5            Dispositions.  Make any disposition of any collateral or any
other property or assets of either Borrower or enter into any agreement to make
any disposition of any of the same, except:

 

(a)           Dispositions
of obsolete or worn out property, whether now owned or hereafter acquired, in
the ordinary course of business;

 

(b)           Dispositions
of inventory in the ordinary course of business;

 

(c)           Dispositions
of equipment or real property to the extent that (i) such property is
exchanged for credit against the purchase price of similar replacement property
or (ii) the proceeds of such disposition are reasonably promptly applied
to the purchase price of such replacement property;

 

(d)           Dispositions
related to Borrowers’ Rogers, Arkansas store, operations of which have been
terminated or Borrower’s leasehold or other interest in a project in Troy, MI,
which Borrower has determined not to pursue and will dispose of when such
project can be sold; and

 

(e)            Dispositions
which may be required under the terms of loan documents for additional loans
which may be made to Borrower as contemplated by Section 2.2.

 

provided, however, that Borrowers shall undertake commercially
reasonable steps to cause any of the foregoing dispositions to be for fair
market value.

 

Section 6.6            Restricted Payments.  Directly or indirectly, declare or pay (a) any
dividend or other
distribution (whether in cash, securities or other property) with respect to
either Borrower’s capital stock or other equity interest of such Borrower, or (b) any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of either Borrower’s 

 

18

 

capital stock or other
equity interest or of any option, warrant or other right to acquire any such
capital stock or other equity interest.

 

Section 6.7            Transactions with Affiliates.  Enter into any transaction of any kind with
any Affiliate of any Borrower, except (a) in the ordinary course of
business, pursuant to written agreements and on fair and reasonable terms
substantially as favorable to such Borrower as would be obtainable by such
Borrower at the time in a comparable arm’s length transaction with a Person
other than an Affiliate; and (b) transactions with Affiliates made
pursuant to Section 2.2 and Section 6.2(b).

 

ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES

 

Section 7.1            Events of Default. An Event of Default shall exist if any of
the following events or conditions shall occur and be continuing:

 

(a)           The
Borrowers shall fail to make when due, whether by acceleration or otherwise,
any payment of principal or interest due on any or all of the Loans or any fee
or other amount required to be paid to the Lender pursuant to the Loan
Documents for more than ten (10) days after such due date;

 

(b)           Any
representation or warranty made or deemed to have been made by or on behalf of
the Borrowers or any Affiliate in the Loan Documents or in any certificate,
statement, report or other writing furnished by or on behalf of the Borrowers,
or any Affiliate to the Administrative Agent or any Lender pursuant to the Loan
Documents shall prove to have been false or misleading in any material respect
on the date as of which the facts set forth are stated or certified or deemed
to have been stated or certified, such that the result of any thereof causes,
or would be reasonably expected to cause, an Adverse Event;

 

(c)           Either
Borrower fails to comply with any agreement, covenant, condition, provision or
term contained in the Loan Documents and the failure causes, or would be
reasonably expected to cause, an Adverse Event to the Sioux Falls Restaurant;

 

(d)           Either Borrower
fails to (i) comply with any covenant in Sections 5.2, 5.3, 5.4, 5.5 or in
Article VI; or (ii) comply with any other agreement, covenant,
condition, provision or term contained in the Loan Documents (and such failure
shall not constitute an Event of Default under any of the other provisions of
this Section 7.1) and such failure to comply shall continue for 10
calendar days following the Borrowers’ receipt of written notice thereof from
the Agent;

 

(e)           Either
Borrower shall generally not pay its debts as they mature or shall apply for,
shall consent to, or shall acquiesce in the appointment of a custodian, trustee
or receiver of either Borrower or for a substantial part of the property
thereof, or for the Sioux Falls Restaurant or, in the absence of such
application, consent or acquiescence, a custodian, trustee or receiver shall be
appointed for either Borrower, or for a substantial part of the property
thereof, or for the Sioux Falls Restaurant and shall not be discharged within
60 days;

 

(f)            Any bankruptcy,
reorganization, debt arrangement or other proceedings under any bankruptcy or
insolvency law shall be instituted by or against either Borrower; and, if
instituted against either Borrower, shall have a been consented to or
acquiesced in by such Borrower or shall 

 

19

 

remain undismissed for 60 days, or an order for relief
shall have been entered against either Borrower, or either Borrower shall take
any action, corporate or otherwise, to approve institution of, or acquiescence
in, such a proceeding;

 

(g)           Any
dissolution or liquidation proceeding shall be instituted by or against either
Borrower and, if instituted against either Borrower, shall be consented to or
acquiesced in by such Borrower, or shall remain for 30 days undismissed, or
either Borrower shall take any corporate action to approve institution of, or
acquiescence in, such a proceeding;

 

(h)           A judgment
or judgments for the payment of money in excess of the sum of $250,000 in the
aggregate shall be rendered against either Borrower, and such Borrower shall
not discharge the same or provide for its discharge in accordance with its
terms, or procure a stay of execution thereof, prior to any execution on such
judgments by such judgment creditor, within 30 days from the date of entry
thereof, and within said period of 30 days, or such longer period during which
execution of such judgment shall be stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal;

 

(i)            The
institution by either Borrower or any ERISA Affiliate of steps to terminate any
Plan if in order to effectuate such termination, either Borrower or any ERISA
Affiliate would be required to make a contribution to such Plan, or would incur
a liability or obligation to such Plan, in excess of $250,000, or the
institution by the PBGC of steps to terminate any Plan;

 

(j)            The
maturity of any Indebtedness of the Borrowers that is in the aggregate in
excess of $250,000 (other than Indebtedness under this Agreement) shall be
accelerated, or either Borrower shall fail to pay any such Indebtedness when
due or, in the case of such Indebtedness payable on demand, when demanded, or
any event shall occur or condition shall exist and shall continue for more than
the period of grace, if any, applicable thereto and shall have the effect of
causing, or permitting (any required notice having been given and grace period
having expired) the holder of any such Indebtedness or any trustee or other
Person acting on behalf of such holder to cause, such Indebtedness to become
due prior to its stated maturity or to realize upon any collateral given as
security therefor;

 

(k)           There
occurs a Change of Control;

 

(l)            Either Borrower shall fail to comply
with (i) the Real Estate Leases or Equipment Leases or (ii) any other
agreement pertaining to the Restaurant where such failure to comply causes, or
would be reasonable expected to cause, an Adverse Event to the Restaurant.

 

(m)          The
resignation or termination of Granite City’s chief executive officer or chief
financial officer and Granite City’s failure to replace such individual within
30 days with a candidate reasonably acceptable to Agent;

 

(n)           The
Administrative Agent shall have determined in good faith that an Adverse Event
has occurred and that the prospect of payment or performance by the Borrowers
of any of their obligations to any Lender, hereunder or under any other
instrument, document or agreement, is materially impaired and the condition
giving rise to such determination continues for 10 days after notice describing
such Adverse Event to the Borrowers by the Administrative Agent.

 

20

 

Section 7.2            Remedies. If (a) any Event of Default described
in Section 7.1(e), (f) or (g) shall occur with respect to either
Borrower, the outstanding unpaid principal balance of the Notes, the accrued
interest thereon and all other Obligations of the Borrowers to the Lenders
shall automatically become immediately due and payable; or (b) any other
Event of Default shall occur and be continuing, then the Administrative Agent
shall, at the request of, or may, with the consent of the Required Lenders
declare that the outstanding unpaid principal balance of the Notes, the accrued
and unpaid interest thereon and all other Obligations of the Borrowers to the
Lenders to be forthwith due and payable, whereupon the Notes, all accrued and
unpaid interest thereon and all such Obligations shall immediately become due
and payable, in each case without demand or notice of any kind, all of which
are hereby expressly waived, anything in this Agreement, the Notes or any other
document or agreement to the contrary notwithstanding. In addition, upon the
occurrence of any Event of Default or at any time thereafter until such Event
of Default is cured to the written satisfaction of the Required Lenders, the
Administrative Agent shall, at the request of, or may, with the consent of the
Required Lenders take any or all of the following actions on behalf of itself
and the Lenders: (i) exercise all rights and remedies available under each
of the Loan Documents and/or any other instrument, document or agreement in
favor of the Lenders; and (ii) exercise all rights and remedies under any
applicable law.

 

ARTICLE VIII

ADMINISTRATIVE AGENT AND LENDERS

 

Section 8.1            Appointment of Administrative
Agent.

 

(a)           Each Lender hereby designates Harmony
Equity Income Fund, L.L.C., a South Dakota limited liability company, as
Administrative Agent to act as herein specified.  Each Lender hereby irrevocably authorizes
Administrative Agent to take such action on its behalf under the provisions of
this Agreement and the Notes and any other instruments and agreements referred
to herein and to exercise such powers and to perform such duties hereunder and
thereunder as are specifically delegated to or required of Agent by the terms
hereof and thereof and such other powers as are reasonably incidental
thereto.  Except as otherwise provided
herein, Administrative Agent shall hold any collateral and all payments of
principal, interest, fees, charges and expenses received pursuant to this
Agreement or any of the Loan Documents for the benefit of Lenders.  Administrative Agent may perform any of its
duties hereunder by or through its agents or employees.

 

(b)           The provisions of this Article VIII
are solely for the benefit of Administrative Agent and Lenders, and Borrowers
shall not have any rights as a third party beneficiary of any of the provisions
hereof.  In performing its functions and
duties under this Agreement, Administrative Agent shall act solely as agent of
Lenders and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for Borrowers or
any Subsidiaries.

 

Section 8.2          Nature of Duties of Administrative Agent. Administrative Agent shall not have duties,
obligations or responsibilities except those expressly set forth in this
Agreement and the Loan Documents. Neither Administrative Agent nor any of its
officers, directors, employees or agents shall be liable for any action taken
or omitted by it as such hereunder or in connection herewith, unless caused by
its or their gross negligence or willful misconduct.  The duties of Administrative Agent shall be
mechanical and administrative in nature; Administrative Agent shall not have by
reason of this Agreement or the Loan Documents a fiduciary relationship in
respect of any Lender; and nothing in this Agreement or the Loan Documents,
expressed or implied, is intended 

 

21

 

to or shall be so construed
as to impose upon Administrative Agent any obligations in respect of this
Agreement or the Loan Documents except as expressly set forth herein.

 

Section 8.3           Lack of Reliance on
Administrative Agent.

 

(a)           Independently and without reliance
upon Administrative Agent, each Lender, to the extent it deems appropriate, has
made and shall continue to make (i) its own independent investigation of
the financial or other condition and affairs of Administrative Agent and any
other Lender in connection with the taking or not taking of any action in
connection herewith and (ii) its own appraisal of the creditworthiness of
Administrative Agent and any other Lender, and, except as expressly provided in
this Agreement, Administrative Agent shall not have any duty or responsibility,
either initially or on a continuing basis, to provide any Lender with any
credit or other information with respect thereto, whether coming into its
possession before the making of the Loans or at any time or times thereafter.

 

(b)           Administrative Agent shall not be
responsible to any Lender for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, collectability, priority or sufficiency
of this Agreement or the Loan Documents or any notes or the financial or other
condition of either Borrower.  Administrative
Agent shall not be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or the Loan Documents, or the financial condition of either Borrower,
or the existence or possible existence of any Event of Default.

 

Section 8.4            Certain Rights of Administrative
Agent. Administrative Agent
shall have the right to request instructions from Required Lenders or all
Lenders, as applicable, pursuant to this Agreement, by notice to each
Lender.  If Administrative Agent shall
request instructions from Required Lenders or all Lenders, as applicable, with
respect to any act or action (including the failure to act) in connection with
this Agreement, Administrative Agent shall be entitled to refrain from such act
or taking such action unless and until Administrative Agent shall have received
instructions from Required Lenders or all Lenders, as applicable, and
Administrative Agent shall not incur liability to any Person by reason of so
refraining.  Without limiting the foregoing,
no Lender shall have any right of action whatsoever against Administrative
Agent as a result of Administrative Agent acting or refraining from acting
hereunder in accordance with the instructions of Required Lenders or all
Lenders, as applicable.

 

Section 8.5            Reliance by Administrative Agent. Administrative Agent shall be under no duty
to examine, inquire into, or pass upon the validity, effectiveness or
genuineness of this Agreement, any of the Loan Documents or any instrument,
document or communication furnished pursuant hereto or thereto or in connection
herewith or therewith.  Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, statement, certificate, electronic mail
or other documentary, teletransmission or telephone message believed by it to
be genuine and correct and to have been signed, sent or made by the proper
person.  Administrative Agent may consult
with legal counsel (including counsel for Borrowers with respect to matters
concerning Borrowers), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.

 

22

 

Section 8.6            Indemnification of Administrative
Agent. To the extent
Administrative Agent is not promptly reimbursed and indemnified by Borrowers,
each Lender will reimburse and indemnify Administrative Agent, in proportion to
its Pro Rata Share, for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including counsel fees and disbursements) or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against
Administrative Agent in performing its duties hereunder, in any way relating to
or arising out of this Agreement; provided,
that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from Administrative Agent’s gross
negligence or willful misconduct.  If any
indemnity furnished to Administrative Agent for any purpose shall, in the
opinion of Administrative Agent, be insufficient or become impaired,
Administrative Agent may call for additional indemnities and cease to do, or
not commence, the acts to be indemnified against, even if so directed by
Required Lenders or all Lenders, as applicable, until such additional
indemnification is provided.  The
obligations of Lenders under this Section 8.6 shall survive the payment in
full of the Obligations, any resignation by Administrative Agent and the
termination of this Agreement.

 

Section 8.7            Administrative Agent in its
Individual Capacity. With
respect to the Loans made by it pursuant hereto, Administrative Agent shall
have the same rights and powers hereunder as any other Lender or holder of a
note or participation interest and may exercise the same as though it was not
performing the duties specified herein; and the terms “Lenders,” “Required
Lenders” or any similar terms shall, unless the context clearly otherwise
indicates, include Administrative Agent in its individual capacity.  Administrative Agent may lend money to,
acquire equity interests in, and generally engage in any kind of business with
Borrowers as if it were not performing the duties specified herein, and may
accept fees and other consideration from Borrowers for services in connection
with this Agreement and otherwise without having to account for the same to
Lenders, to the extent such activities are not in contravention of the terms of
this Agreement.

 

Section 8.8          Successor Administrative Agent.

 

(a)           Administrative Agent
may, upon thirty (30) days’ notice to Lenders and Borrowers, resign at any time
(effective upon the appointment of a successor Administrative Agent pursuant to
the provisions of this Section 8.8 by giving written notice thereof to
Lenders and Borrowers.  Upon any such
resignation, Required Lenders shall have the right, upon five (5) days’
notice, to appoint a successor Administrative Agent which, if no Default is
continuing, is acceptable to Borrowers (such approval not to be unreasonably
withheld).  If no successor
Administrative Agent shall have been so appointed by Required Lenders and
approved by Borrowers, if applicable, and accepted such appointment, within
thirty (30) days after the retiring Administrative Agent’s giving of notice of
resignation, then, upon five (5) days’ notice, the retiring Administrative
Agent may, on behalf of Lenders, appoint a successor Administrative Agent.

 

(b)           Upon
the acceptance of any appointment as an Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations under
this Agreement.  After any retiring
Administrative Agent’s resignation hereunder as Administrative Agent, the
provisions of this Article VIII shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was an Administrative Agent
under this Agreement.

 

23

 

 

Section 8.9            Amendments,
Consents and Waivers.

 

(a)           Except
as otherwise provided in this Section 8.9 or in Section 9.1 and
except as to matters set forth in other subsections hereof or in any other Loan
Document as requiring only Administrative Agent’s consent, the consent of
Required Lenders and Borrowers will be required to amend, modify, terminate, or
waive any provision of this Agreement or any of the other Loan Documents.

 

(b)           In
the event Administrative Agent requests the consent of a Lender and does not
receive a written consent or denial thereof within ten (10) Business Days
after such Lender’s receipt of such request, then such Lender will be deemed to
have denied the giving of such consent.

 

(c)           If,
in connection with any proposed amendment, modification, termination or waiver
of any of the provisions of this Agreement requiring the consent or approval of
all Lenders under Section 9.1, the consent of Required Lenders is obtained
but the consent of one or more other Lenders whose consent is required is not
obtained, then Borrowers shall have the right, so long as all such
non-consenting Lenders are either replaced or prepaid as described in clauses (A) or
(B) below, to either (A) replace the non-consenting Lenders with one
or more replacement Lender so long as such replacement Lender consents to the
proposed amendment, modification, termination or waiver or (B) prepay in
full the Obligations of the non-consenting Lenders thereby terminating its
approval rights.

 

Section 8.10         Actions
with Respect to Defaults. In addition to Administrative Agent’s right
(where applicable) to take actions on its own accord as permitted under this
Agreement, Administrative Agent shall take such action with respect to an Event
of Default as shall be directed by Required Lenders or all Lenders, as
applicable, under this Agreement; provided,
that until Administrative Agent shall have received such directions,
Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Event of Default as it
shall deem advisable and in the best interests of Lenders.  No Lender shall have any right individually
to enforce or seek to enforce this Agreement or any Loan Document or to realize
upon any collateral, unless instructed to do so by Administrative Agent.

 

Section 8.11         Delivery
of Information. Administrative Agent shall not be required to
deliver to any Lender originals or copies of any documents, instruments,
notices, communications or other information received by Administrative Agent
from Borrowers, Required Lenders, any Lender or any other Person under or in
connection with this Agreement or any Loan Document except: (i) as
specifically provided in this Agreement or any Loan Document and (ii) as
specifically requested from time to time in writing by any Lender with respect
to a specific document, instrument, notice or other written communication
received by and in the possession of Administrative Agent at the time of
receipt of such request and then only in accordance with such specific request.

 

Section 8.12         Demand. Subject to
the terms of this Agreement, Administrative Agent shall make demand for
repayment by Borrowers of all amounts owing by Borrowers hereunder, after the
occurrence of an Event of Default, upon the written request of Required
Lenders.  Administrative Agent shall make
such demand in such manner as it deems appropriate, in its sole discretion, to
effectuate the request of the Required Lenders. 
Nothing contained herein shall limit the discretion of Administrative
Agent to take reserves, or to exercise any other discretion granted to
Administrative Agent in this Agreement.

 

24

 

Section 8.13         Notice
of Default. Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Event of Default or any Default,
except with respect to Events of Default arising as a result of Borrowers’
failure to pay principal, interest or fees required to be paid to
Administrative Agent for the benefit of Lenders, unless Administrative Agent
shall have received written notice from a Lender or either Borrower describing
such Event of Default or Default, and which identifies such event as a “notice
of default”.  Upon receipt of any such
notice or Administrative Agent becoming aware of Borrowers’ failure to pay
principal, interest or fees required to be paid to Administrative Agent for the
benefit of Lenders, Administrative Agent will notify each Lender of such
receipt or event.

 

Section 8.14         Purchase
for Investment.  Each Lender
severally represents that it is purchasing the Note and the Warrant for its own
account for investment purposes and not with a view to distribution
thereof.  Each Lender understands that
neither the Note nor the common stock of Granite City issuable upon conversion
of the Note or exercise of the Warrant has been registered under the Securities
Act of 1933, as amended (the “Act”) and such
securities may be resold only if registered pursuant to the provisions of the
Act or an exemption from registration is available, and that the Borrowers are
not required to register the Note, nor are Borrowers required, except as
provided in the Investor Rights Agreement, to register such common stock.

 

Section 8.15         Transfer
Restrictions.  The Note and
the Warrant may be disposed of only pursuant to an effective registration
statement under the Act, to the Borrowers, or pursuant to an available
exemption from, or in a transaction not subject to, the registration
requirements thereof.  In connection with
any transfer of the Note other than pursuant to an effective registration
statement or to either Borrower, such Borrower may require that the transferor
thereof provide such Borrower with an opinion of counsel experienced in matters
involving United States securities laws, the form and substance of which
opinion shall be reasonably satisfactory to such Borrower, to the effect that
such transfer does not require a registration under the Act, or is exempt
therefrom.  Each Lender certifies to
Borrower than it is an “accredited” investor as defined under Rule 501(a) of
the Act.  Lender and each Borrower agree
that any transferee of the Note permitted under this Agreement shall have the
rights and obligations of Lender under this Agreement.

 

Section 8.16         Source
of Funds.  Each Lender
represents that the funds used for purchasing the Note are not the funds of a
pension fund, insurance company, bank collective investment fund, governmental
plan or any employee benefit plan, other than a plan exempt from the coverage
of ERISA.

 

Section 8.17         Disclosure.  Granite City has delivered to each Lender,
and each Lender represents and warrants to Granite City that it has reviewed, a
draft of Borrower’s Form 10-K Report for the fiscal year ended December 30,
2008 (the “10-K”).  Each Lender, in addition to being an
accredited investor, represents that Lender has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Borrowers and is capable of reading and interpreting
the 10-K report and evaluating the merits and risks of investment in
Borrowers.  By reason of Lender’s
business or financial experience, Lender has the capacity to protect Lender’s
own interests in connection with Lender’s purchase of the Note and
Warrant.  Lender acknowledges that Lender
has been given access to full and complete information regarding Borrowers and
has utilized such access to its satisfaction for the purpose of obtaining
information in addition to, or verifying information included in the 10-K, and
the Lender has either met with or has been given reasonable opportunity to meet
with officers of the Borrowers for the purpose of asking questions of, and
receiving answers from, such officers concerning the terms and conditions of the

 

25

 

offering of the Note and the current and proposed business and
operations of Borrowers, and to obtain any additional information to the extent
reasonably available.  Lender
acknowledges that Lender has made an investigation of the Company, its business
and has had an opportunity to discuss that business and Borrowers’ financial
condition with officers of the Borrowers and has had an opportunity to review
each Borrower’s operations to Lender’s satisfaction.  Lender recognizes that purchasing the Note as
an investment is speculative and involves a high degree of risk including, but
not limited to, the risk of economic loss of Lender’s investment.  Each Lender represents that the Form 10-K
and this Agreement are confidential and neither Lender nor any affiliate of
Lender may publicly disclose the same or effect any transactions in Granite
City’s publicly-traded securities until this Agreement has been publicly
disclosed or filed by Borrowers under the Act and such 10-K has been filed by
Borrowers under the Act.

 

ARTICLE
IX

MISCELLANEOUS

 

Section 9.1            Waivers
and Amendments. No failure on the part of the Administrative Agent
or the holder(s) of the Notes to exercise and no delay in exercising any
power or right hereunder or under any other Loan Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any power or right
preclude any other or further exercise thereof or the exercise of any other
power or right. The remedies herein and in any other instrument, document or
agreement delivered or to be delivered to the Administrative Agent hereunder or
in connection herewith are cumulative and not exclusive of any remedies
provided by law. No notice to or demand on the Borrowers not  required hereunder or under the Notes
shall in any event entitle the Borrowers to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the right of
the Administrative Agent or the holder(s) of the Notes to any other or further action in any circumstances without notice or
demand. No amendment, modification or waiver of any provision of the Loan
Documents or consent to any departure by the Borrowers therefrom shall be
effective unless the same shall be in writing and signed by the Administrative
Agent, and then such amendment, modifications, waiver or consent shall be
effective only in the specific instances and for the specific purpose for which
given.

 

Except as otherwise provided
herein, no amendment, modification, termination or waiver of any provision of
this Agreement, the Notes or any of the other Loan Documents, or consent to any
departure by Borrowers, shall in any event be effective unless the same shall
be in writing and signed by Required Lenders (or Administrative Agent, if
expressly set forth herein, in any Note or in any other Loan Document) and the
Borrowers; provided, that no amendment,
modification, termination or waiver shall,

 

(1) increase the amount
of any Lender’s Loans or require any Lender to make additional loans, unless in
writing and signed by such Lender, and

 

(2) unless in writing
and signed by all Lenders, do any of the following: (a) reduce the
principal of or the rate of interest on any Loans; (c) extend the Maturity
Date or any date fixed for any payment of principal, interest or fees; (d) change
the definition of the term Required Lenders or the percentage of Lenders which
shall be required for Lenders to take any action hereunder; (e) amend or
waive this Section 9.1 or the definitions of the terms used in this Section 9.1
insofar as the definitions affect the substance of this Section 9.1; and provided, further, that no
amendment, modification, termination or waiver affecting the rights or duties
of Administrative Agent under any 

 

26

 

Loan
Document shall in any event be effective, unless in writing and signed by
Administrative Agent, in addition to all Lenders required to take such action. 

 

Notwithstanding anything to
the contrary in this Section 9.1, Administrative Agent and Borrowers may
execute amendments to this Agreement and the other Loan Documents for the
purpose of correcting typographical errors without the consent of Lenders.  Each amendment, modification, termination or
waiver shall be effective only in the specific instance and for the specific
purpose for which it was given.  No
notice to or demand on Borrowers or any other Loan Party in any case shall
entitle Borrowers to any other or further notice or demand in similar or other
circumstances.  Any amendment,
modification, termination, waiver or consent effected in accordance with this Section 9.1
shall be binding upon each holder of the Notes at the time outstanding, each
future holder of the Notes and the Borrowers.

 

Section 9.2            Costs and Expenses. The Borrowers shall pay on demand all costs
and expenses, including reasonable attorneys’ fees, incurred by the Agent
and Lenders in connection with the Obligations, this Agreement, the Loan
Documents and any other document or agreement related hereto or thereto, and
the transactions contemplated hereby, including all such costs, expenses and
fees incurred in connection with the negotiation, preparation, execution,
amendment, administration, performance, collection and enforcement of the
Obligations and all such documents and agreements and the creation, perfection,
protection, satisfaction, foreclosure or enforcement of any security interests
related hereto.

 

Section 9.3            Indemnities. Each Borrower
agrees to indemnify, pay, and hold Administrative Agent, each Lender and their
respective officers, directors, employees, agents, and attorneys (the “Indemnitees”) harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs and expenses (including all reasonable fees and expenses
of counsel to such Indemnitees) of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against the Indemnitee as a result of such
Indemnitees being a party to this Agreement or the transactions consummated
pursuant to this Agreement; provided
that Borrowers shall have no obligation to an Indemnitee hereunder with respect
to liabilities to the extent resulting from the gross negligence or willful
misconduct of that Indemnitee as determined by a court of competent
jurisdiction.  If and to the extent that
the foregoing undertaking may be unenforceable for any reason, Borrowers agree
to make the maximum contribution to the payment and satisfaction thereof which
is permissible under applicable law. 
This subsection and other indemnification provisions contained within
the Loan Documents shall survive the termination of this Agreement.

 

Section 9.4            Notices.

 

(c)           Except as
otherwise provided herein, including without limitation (d), all notices,
requests and demands to or upon the respective parties hereto to be effective
shall be in writing (including by telecopy), and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made when
delivered, or three Business Days after being deposited in the mail, postage
prepaid, or, in the case of telecopy notice, when received, addressed to such
party at the address specified on the signature page hereof, or at such
other address as such party shall have specified to the other party hereto in
writing; provided, however, that any notice, demand or request to the
Administrative Agent shall be deemed to have been given only when received by
the Administrative Agent.

 

(d)           Notices and
other communications to the Administrative Agent or the Lenders hereunder may
be delivered or furnished by electronic communications pursuant to 

 

27

 

procedures
approved by the Administrative Agent. 
The Administrative Agent or the Borrowers may, in their discretion,
agree to accept notices and other communications to it hereunder by electronic
communications pursuant to procedures approved by it; provided that approval of
such procedures may be limited to particular notices or communications.

 

(e)           The Borrowers
agree that the Administrative Agent may make any material delivered by the
Borrowers to the Administrative Agent, as well as any amendments, waivers,
consents, and other written information, documents, instruments and other
materials relating to the Borrower or any of its Affiliates, or any other
materials or matters relating to this Agreement, the other Loan Documents or
any of the transactions contemplated hereby or thereby (collectively, the “Communications”) available to the Lenders by electronic
transmission, including e-mail.

 

Section 9.5            Successors. This
Agreement shall be binding upon the Borrowers, the Administrative Agent, the
Lenders and their respective successors and assigns, and shall inure to the
benefit of the Borrowers the Administrative Agent, the Lenders and the
successors and assigns thereof.  The Borrowers shall not assign its rights or
duties hereunder without the written consent of the Required Lenders.

 

Section 9.6            Treatment
of Certain Information; Confidentiality.  Administrative Agent and each Lender agrees
to maintain the confidentiality of the Information, except that Information may
be disclosed: (a) to its Affiliates and to its Affiliates’ respective
partners, directors, officers, employees, agents, advisors and representatives;
(b) to the extent requested by any regulatory authority, purporting to
have jurisdiction over it; (c) to the extent required by applicable laws
or regulations or by any subpoena or similar legal process; (d) to any
other  party hereto; (e) in
connection with the exercise of any remedies hereunder or under any other Loan
Document or any action or proceeding relating to this Agreement or any other
Loan Document or the enforcement of rights hereunder or thereunder; (f) subject
to an agreement containing provisions substantially the same as those contained
in this Section 9.6 to any assignee of or Participant in, or any
prospective Lender, assignee of, or Participant in, any of its rights or
obligations under this Agreement; (g) with the consent of Borrowers; or (h) to
the extent such Information becomes publicly available other than as a result
of a breach of this Section 9.6 or becomes available to Administrative
Agent, any Lender or any of their respective Affiliates on a non-confidential
basis from a source other than the Borrowers. 
As used herein, “Information”
means all information (including financial information) received from Borrowers
or any Subsidiaries relating to Borrowers or any Subsidiary or any of their
respective businesses, other than any such information that is available to
Administrative Agent or any Lender on a non-confidential basis, and not in
contravention of this Section 9.6, prior to disclosure by Borrowers or any
Subsidiary thereof.  Any Person required
to maintain the confidentiality of Information as provided in this Section 9.6
shall be considered to have complied with its obligation to do so if such
person has exercised the same degree of care to maintain the confidentiality of
such Information as such Person would accord to its own confidential
information.

 

Section 9.7            Marshaling;
Payments Set Aside.  Neither
Administrative Agent nor any Lender shall be under any obligation to marshal
any assets in payment of any or all of the Obligations.  To the extent that either Borrower makes
payment(s) or Administrative Agent enforces its Liens or Administrative
Agent or any Lender exercises its right of set-off, and such payment(s) or
the proceeds of such enforcement or set-off is subsequently invalidated,
declared to be fraudulent or preferential, set aside, or required to be repaid
by anyone, then to the extent of such recovery, the Obligations or part thereof
originally intended to be satisfied, and all Liens, rights and remedies 

 

28

 

therefor, shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or set-off had not occurred.

 

Section 9.8            Lenders’
Obligations Several; Independent Nature of Lenders’ Rights.  The obligation of each Lender hereunder is
several and not joint and no Lender shall be responsible for the obligation or
commitment of any other Lender hereunder. 
In the event that any Lender at any time should fail to make a Loan as
herein provided, the Lenders, or any of them, at their sole option, may make
the Loan that was to have been made by the Lender so failing to make such
Loan.  Nothing contained in any Loan
Document and no action taken by Administrative Agent or any Lender pursuant
hereto or thereto shall be deemed to constitute Lenders to be a partnership, an
association, a joint venture or any other kind of entity. The amounts payable
at any time hereunder to each Lender shall be a separate and independent debt.

 

Section 9.9            Severability. Any provision
of the Agreement which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.

 

Section 9.10         Subsidiary
References. The provisions of this Agreement relating to
Subsidiaries shall apply only during such times as either Borrower has one or
more Subsidiaries.

 

Section 9.11         Joint
and Several.  The
undersigned Borrowers each shall be jointly and severally liable to Bank for
the performance and repayment of all terms, covenants and obligations owing to
the Bank under the loan documents, including without limitation, repayment of
the advances under the Line of Credit and the Term Loan made pursuant to this
Agreement and the Line of Credit Note and the Term Note, together with all
costs of collection, fees, expenses and other obligations now or hereafter
owing to Bank hereunder and under any of the loan documents.  Each of the undersigned Borrowers is
primarily liable for the indebtedness as a co-maker and none of the Borrowers
is merely an “accommodation party.”  The
Borrowers by their respective signatures below, waive all defenses based upon
the status of accommodation parties.

 

Section 9.12         Captions. The captions
or headings herein and any table of contents hereto are for convenience only
and in no way define, limit or describe the scope or intent of any provision of
this Agreement.

 

Section 9.13         Entire
Agreement. This Agreement, the Notes and the Loan Documents
of even date herewith between Borrowers and Administrative Agent embody the
entire agreement and understanding between the Borrowers and the Administrative
Agent with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.

 

Section 9.14         Counterparts. This
Agreement may be executed in any number of counterparts and by facsimile or
e-mail transmission, all of which taken together shall constitute one and the
same instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.

 

Section 9.15         Governing
Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT, THE
NOTES AND EACH OF THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF 

 

29

 

MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF.

 

Section 9.16         Consent
to Jurisdiction. AT THE OPTION OF THE AGENT, THIS AGREEMENT AND THE
NOTES MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT
SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND EACH BORROWER CONSENTS TO
THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE
IN SUCH FORUMS IS NOT CONVENIENT IN THE EVENT EITHER BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION
OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM
THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE LENDERS AT ITS OPTION SHALL BE
ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES
ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE
LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

 

Section 9.17         Waiver
of Jury Trial. EACH BORROWER WAIVES ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a) UNDER THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT
OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH OR (b) ARISING FROM ANY BANKING RELATIONSHIP EXISTING
IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

 [Signature page follows.]

 

30

 

IN WITNESS WHEREOF, the
parties hereto have caused this Bridge Loan Agreement to be executed as of the
date first above written.

 

	
  BORROWERS:

  	
  GRANITE CITY FOOD &
  BREWERY LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James G. Gilbertson  

  
	
   

  	
  Name

  	
  James G. Gilbertson  

  
	
   

  	
  Its:

  	
  CFO  

  
	
   

  	
   

  
	
   

  	
  Address for Notices:  

  5402 Parkdale Drive,
  Suite 101  

  Minneapolis, MN 55416

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GRANITE CITY RESTAURANT
  OPERATIONS, INC..

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James G. Gilbertson  

  
	
   

  	
  Name

  	
  James G. Gilbertson  

  
	
   

  	
  Its:

  	
  CFO  

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  5402 Parkdale Drive, Suite 101

  Minneapolis, MN 55416

  
	
   

  	
   

  
	
   

  	
   

  
	
  ADMINISTRATIVE AGENT:

  	
  HARMONY EQUITY INCOME
  FUND, L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eugene E. McGowan

  
	
   

  	
  Name

  	
  Eugene E. McGowan

  
	
   

  	
  Its:

  	
  Managing Member

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  201 S. Phillips Avenue, Suite 100

  Sioux Falls, SD 57104

  

 

 

 [Signature Page of Borrowers and Agent to
Bridge Loan Agreement]

 

 

IN WITNESS WHEREOF, the
undersigned have caused this Bridge Loan Agreement to be executed as of March 30,
2009.

 

	
  LENDERS:

  	
  HARMONY EQUITY INCOME
  FUND, L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eugene E. McGowan

  
	
   

  	
  Name

  	
  Eugene E. McGowan

  
	
   

  	
  Its:

  	
  Managing Member

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  201 S. Phillips Avenue, Suite 100

  Sioux Falls, SD 57104

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HARMONY EQUITY INCOME
  FUND II, L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eugene E. McGowan

  
	
   

  	
  Name

  	
  Eugene E. McGowan

  
	
   

  	
  Its:

  	
  Managing Member

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  201 S. Phillips Avenue, Suite 100

  Sioux Falls, SD 57104

  

 

 

[Signature
Page of Borrowers and Agent to Bridge Loan Agreement]

 

 

EXHIBITS AND
SCHEDULES

 

	
  Exhibit

  	
   

  	
  Contents

  
	
   

  	
   

  	
   

  
	
  A

  	
   

  	
  Form of Convertible Note

  
	
   

  	
   

  	
   

  
	
  B

  	
   

  	
  Form of Warrant

  
	
   

  	
   

  	
   

  
	
  C

  	
   

  	
  Form of Investors’ Rights Agreement

  
	
   

  	
   

  	
   

  
	
  D

  	
   

  	
  Compliance Certificate

  

 

	
  Schedule

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  Lenders/Loan Amounts

  
	
   

  	
   

  	
   

  
	
  4.3

  	
   

  	
  Subsidiaries 

  
	
   

  	
   

  	
   

  
	
  4.7

  	
   

  	
  Litigation and Contingent Liabilities Disclosure

  

 

 

EXHIBIT A

FORM OF CONVERTIBLE NOTE

 

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

 

Granite
City Food & Brewery Ltd.

Granite
City Restaurant Operations, Inc.

 

FORM OF

9% CONVERTIBLE PROMISSORY NOTE

 

	
  $400,000.00

  	
   

  	
  Minneapolis,
  Minnesota

  
	
  Note
  No. 2009-

  	
   

  	
  March       ,
  2009

  

 

FOR VALUE RECEIVED,
GRANITE CITY FOOD & BREWERY LTD.,
a Minnesota corporation (the “Company”), and Granite City Restaurant Operations, Inc., a Minnesota
corporation (“GCROI”, and together with the
Company, the “Borrowers”) hereby jointly and
severally promise to pay to the order of                                                       .,
a South Dakota limited liability company, or assigns (“Holder”),
at the address for notices to “Lender” set
forth in the Credit Agreement (as defined below) (or such other address as
Holder shall designate in writing from time to time), the principal amount of FOUR
HUNDRED THOUSAND AND NO/100 DOLLARS ($400,000.00) in lawful money of the United
States of America, together with interest from the date hereof on the principal
balance outstanding from time to time at the rate of nine percent (9%) per year
(computed on the basis of the actual number of days elapsed and a 360-day year)
or such lesser rate as shall be the maximum rate allowable under applicable
law.  Unless converted or prepaid earlier
pursuant to the provisions of this Note set forth below, the principal amount
shall be payable in six equal monthly installments commencing on May 1,
2010 and on the first day of each month thereafter, with the final installment
of any unpaid principal amount being due and payable on October 1, 2010
(the “Maturity Date”).  All accrued interest on this Note shall be
due and payable (i) quarterly in arrears commencing on July 1, 2009
and on the first day of each consecutive calendar quarter thereafter, to and
including April 1, 2010; and (ii) monthly in arrears commencing on May 1,
2010 and on the first day of each month thereafter; with a final payment of any
accrued and unpaid interest due on the Maturity Date. This Note is one in the
series of promissory notes substantially identical in form and designated as No. -1
which may be issued in the Offering (as defined below).

 

1.             Loan Agreement.  This
Note has been issued pursuant to that certain Bridge Loan Agreement dated of
even date herewith by and between the Borrower and Holder (the

 

 

“Credit
Agreement”) which contemplates (a) an initial offer and sale by
the Borrower of an aggregate of $1,000,000 in principal amount of convertible
promissory notes and warrants to purchase an aggregate of 400,000 shares of the
Company’s common stock, $0.01 par value per share (the “Common Stock”),
and (b) potential future offers and sales by the Borrower of an aggregate
of $2,000,000 in additional principal amount of convertible promissory notes
and warrants to purchase an aggregate of 800,000 additional shares of Common
Stock.  The convertible promissory notes
and warrants specified in 1(a) and (b) are collectively referred to
herein as the “Notes” and “Warrants”,
respectively. The Borrowers’ offer and sale of the Notes and Warrants is referred
to herein as the “Offering”.  The provisions of the Loan Agreement are
incorporated herein by reference with the same force and effect as if fully set
forth herein.  All capitalized terms not
defined herein shall have the meanings ascribed to them in the Loan Agreement.

 

2.             Prepayment.  The
Borrowers may, or may be required to, prepay this Note pursuant to Section 2.4
of the Credit Agreement.

 

3.             Conversion.

 

(a)           Conversion.  At any time prior to the Maturity Date,
Holder shall have the right to convert all or any portion of up to twenty
percent (20%) of the original outstanding principal balance of this Note into
shares of Common Stock (the “Conversion Shares”)
at a conversion price per share (the “Conversion Price”)
equal to $0.50 (subject to adjustment as provided in Section 4).
Notwithstanding the foregoing, the number of Conversion Shares issuable upon
exercise of this Note, when combined with the aggregate number of Conversion
Shares previously issued upon conversion of the Notes and the aggregate number
of shares of Common Stock previously issued upon exercise of the Warrants (“Warrant Shares”), may not, in the absence of approval by the
Company’s shareholders, exceed 19.9% of the number of shares of Common Stock
issued and outstanding immediately prior to the effective date of the Loan
Agreement.  If any conversion of this
Note pursuant to this Section 3(a) would otherwise result in the
issuance of Conversion Shares in excess of the limitation set forth in the
immediately preceding sentence (the “Excess Conversion”),
the Company will use its reasonable best efforts to prepare and file requisite
proxy materials with the Securities and Exchange Commission and hold a meeting
of its shareholders for the purpose of seeking approval for the Excess Conversion
(the “Proposal”).  In furtherance of its obligations under this Section 3(a),
the Company’s Board of Directors shall recommend to the Company’s shareholders,
which recommendation shall not be revoked or amended, that the shareholders
vote in favor of and approve the Proposal and shall cause the Company to use
its best efforts to solicit approval of the shareholders for the Proposal.  If the Company’s shareholders approve the
Proposal, the Company will promptly effect the Excess Conversion.  If the Company’s shareholders do not approve
the Proposal, the Holder acknowledges that the Company will not make the Excess
Conversion and that the Company may not otherwise compensate the Holder for the
failure to make the Excess Conversion. 
In the event there shall be an Excess Conversion, the Company shall have
the right to deposit the principal balance of the Note represented by the
Excess

 

 

Conversion and defease the Note (or portion thereof) following
performance of all obligations of the Company under the Loan Agreement.

 

(b)           Manner of Conversion.  To convert any indebtedness evidenced by this
Note into shares of Common Stock, Holder shall (i) surrender this Note at
the principal office of the Company, duly endorsed in blank, and (ii) give
written notice to the Company, substantially in the form attached hereto as Exhibit A,
of the dollar amount of principal and accrued interest that Holder elects to
convert into shares Common Stock. As promptly as possible thereafter, and in no
event later than ten (10) days after the Company’s receipt of such notice,
the Company shall issue and deliver to Holder stock certificates representing
the number of shares of Common Stock into which the indebtedness evidenced by
this Note has been converted. In the event of conversion of an amount less than
the entire principal balance that remains outstanding, the Company shall
deliver to Holder a convertible promissory note, with the terms and provisions
of this Note, in the principal amount equal to any remaining indebtedness of
this Note not converted by Holder, including accrued and unpaid interest.

 

4.             Conversion Price Adjustments.  The provisions of this Note are subject to
adjustment as provided in this Section 4.

 

(a)           Stock Dividends and Splits.  If the Company, at any time while this Note
is outstanding, (i) pays a stock dividend on its Common Stock or otherwise
makes a distribution on any class of capital stock that is payable in shares of
Common Stock, (ii) subdivides outstanding shares of Common Stock into a
larger number of shares, or (iii) combines outstanding shares of Common
Stock into a smaller number of shares, then in each such case the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding immediately before such event and
of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. 
Any adjustment made pursuant to clause (i) of this paragraph shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.

 

(b)           Fundamental Transactions.  If, at any time while this Note is
outstanding, (i) the Company effects any merger or consolidation of the
Company with or into another Person in which the Company is not the survivor, (ii) the
Company effects any sale of all or substantially all of its assets in one or a
series of related transactions, (iii) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (other than as a result of a subdivision or
combination of shares of Common Stock covered by Section 4(a) above)
(in any such case, a “Fundamental Transaction”),
then the Holder shall have the right thereafter to receive, upon conversion of
this Note, the same amount and kind of securities, cash or property as it would
have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental

 

 

Transaction, the holder of the number of Conversion Shares then
issuable upon conversion of this Note without regard to any limitations on
exercise contained herein (the “Alternate Consideration”).  For purposes of any such exercise, the
determination of the Conversion Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration.  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Note following or
concurrent with such Fundamental Transaction. 
The terms of any agreement pursuant to which a Fundamental Transaction
is effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this paragraph (b) and insuring
that the Note (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.

 

(c)           Subsequent Equity Sales.

 

(i)            Subject
to the limitations set forth below, if the Company at any time while this Note
is outstanding, shall issue or sell any New Securities (including any
Convertible Securities) at a price per share less than the Conversion Price
then in effect, then and in each such case thereafter, the then applicable
Conversion Price shall be reduced to an adjusted Conversion Price as of the opening of business on the date of
such issue or sale, determined by multiplying such applicable Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
shares of Common Stock which the aggregate consideration received by the
Company for the total number of New Securities so issued would purchase at such
Conversion Price in effect immediately prior to such issuance, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of such New
Securities so issued.  Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are
issued.  For purposes of adjusting the
Conversion Price under this Section 4(c)(i), Common Stock outstanding
shall include all shares of Common Stock actually issued and outstanding and
shares of Common Stock issuable upon conversion of Convertible Securities
actually issued and outstanding.

 

(ii)           If
at any time while this Note is outstanding, the Company shall issue or sell any
Convertible Securities, there shall be determined as of the date of issue the
conversion or exercise price per share for which New Securities are issuable
upon the conversion or exchange thereof, such determination to be made by
dividing (X) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the 

 

 

Company upon the conversion or exchange thereof, by (Y) the
maximum number of New Securities issuable upon conversion or exchange of all of
such Convertible Securities; and such issue or sale shall be deemed to be an
issue or sale for cash (as of the date of issue or sale of such Convertible
Securities) of such maximum number of New Securities at the price per share so
determined.  If such Convertible
Securities shall by their terms provide for an increase or increases, with the
passage of time, in the amount of additional consideration, if any, payable to
the Company, or in the rate of exchange, upon the conversion or exchange
thereof the adjusted Conversion Price shall, forthwith upon any such increase
becoming effective, be readjusted (but to no greater extent than originally
adjusted) to reflect the same. If any rights of conversion or exchange
evidenced by such Convertible Securities shall expire without having been
exercised, any adjusted Conversion Price shall forthwith be readjusted to be
the adjusted Conversion Price which would have been in effect had an adjustment
been made on the basis that the only New Securities issued or sold were those
actually issued upon the conversion or exchange of such Convertible Securities,
and that they were issued or sold for the consideration actually received by
the Company upon such conversion or exchange, plus the consideration, if any,
actually received by the Company for the issue or sale of such Convertible
Securities as were actually converted or exchanged.

 

(iii)          Upon
any issuance or sale for a consideration other than cash, or a consideration
part of which is other than cash, of any New Securities or Convertible
Securities or any rights, warrants or options to subscribe for, purchase or
otherwise acquire any New Securities or Convertible Securities, the amount of
the consideration other than cash received by the Company shall be deemed to be
the fair value of such consideration as determined in good faith by the Board.  In case any New Securities or Convertible
Securities or any rights, warrants or options to subscribe for, purchase or
otherwise acquire any New Securities or Convertible Securities shall be issued
or sold together with other stock or securities or other assets of the Company
for a consideration which covers two or more thereof, the consideration for the
issue or sale of such New Securities or Convertible Securities or such rights,
warrants or options shall be deemed to be the portion of such consideration
allocated thereto in good faith by the Board.

 

(d)           Definitions.  For purposes of this Note:

 

(i)            “Board” means the Board of Directors of the Company.

 

(ii)           “Convertible Securities” shall mean evidences of
indebtedness, shares of stock or other securities that are at any time, directly
or indirectly, convertible into or exchangeable for New Securities.

 

(iii)          “New Securities” shall mean equity securities of the
Company, whether now authorized or not, or rights, options, or warrants to
purchase said equity securities, or securities of any type whatsoever that are,
or may become, convertible into or exchangeable into or exercisable for said
equity securities,

 

 

other than (i) shares of Common Stock or options or other rights
to acquire such Common Stock issued to employees, consultants, officers or
directors of the Company pursuant to any stock option plan or other
compensatory arrangement approved by the Board; (ii) shares of Common
Stock issued by the Company in a firm commitment underwritten public offering
pursuant to a registration under the Securities Act of 1933, as amended; (iii) the
issuance of securities pursuant to the acquisition of another business entity
or business segment of any such entity by the Company by merger, purchase of
all or substantially all the assets or other reorganization whereby the Company
will own greater than 50% of the voting power of such business entity or
business segment of any such entity, if such issuance is approved by the Board;
(iv) securities issued in connection with any stock split, stock dividend
or recapitalization of the Company; (v) securities issued in the future in
connection with the transactions contemplated by the Loan Agreement, or (vi) securities
issued upon exercise or conversion of any option, warrant or other convertible
security outstanding as of the date hereof.

 

(iv)          “Person” shall mean any natural person, company,
corporation, limited liability company, general partnership, limited
partnership, trust, proprietorship, joint venture, business organization or
governmental entity.

 

(e)           Calculations.  All calculations under this Section 4
shall be made to the nearest cent.  The
number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.

 

(f)            Notice of Adjustments.  Upon the occurrence of each adjustment
pursuant to this Section 4, the Company at its expense will promptly
compute such adjustment in accordance with the terms of this Note and prepare a
certificate setting forth such adjustment, including a statement of the
adjusted Conversion Price, describing the transactions giving rise to such
adjustments and showing in detail the facts upon which such adjustment is
based.  Upon written request, the Company
will promptly deliver a copy of each such certificate to the Holder.

 

(g)           Notice of Corporate Events.  If, while this Note remains outstanding, the
Company (i) declares a dividend or any other distribution of cash,
securities or other property in respect of its Common Stock, including without
limitation any granting of rights or warrants to subscribe for or purchase any
capital stock of the Company, (ii) authorizes or approves, enters into any
agreement contemplating or solicits stockholder approval for any Fundamental
Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the
Holder a notice describing the material terms and conditions of such
transaction (but only to the extent such disclosure would not result in the
dissemination of material, non-public information to the Holder) at least 10
calendar days prior to the applicable record or effective date on which a Person
would need to hold Common Stock in order to participate in or vote with

 

 

respect to such transaction, and the Company will take all steps
reasonably necessary in order to insure that the Holder is given the practical
opportunity to convert this Note prior to such time so as to participate in or
vote with respect to such transaction; provided, however, that the failure to
deliver such notice or any defect therein shall not affect the validity of the
corporate action required to be described in such notice.

 

5.             Events of Default.  Any default in the payment or performance of any obligation under this
Note, or any defined “Event of Default” under the Loan Agreement, shall
constitute an “Event of Default” under this Note.

 

6.             Remedies Upon Events of Default.  Upon the occurrence of an Event of Default,
the Holder may exercise such rights and remedies in accordance with, and as
permitted under, the Credit Agreement.

 

7.             Investment Intent. 
The Holder adopts and agrees to be bound by Section 2.9(a) if
the Investor Rights Agreement of even date herewith between the Company and
Holder, the terms of which are incorporated herein by reference.

 

8.             Successors or Assigns. The Borrowers and Holder agree that
all of the terms of this Note shall be binding on their respective successors
and assigns, and that the term “Borrowers” and the term “Holder” as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.

 

9.             Presentment.  The Borrowers
hereby waive presentment for payment, notice of dishonor, protest and notice of
protest and, in the event of default hereunder. 
The Borrowers agree to be jointly and severally liable for and to pay
all costs of collection, including reasonable attorneys’ fees.

 

IN WITNESS WHEREOF, each Borrower has caused this Note to be executed
on its behalf by its duly authorized officer on the day and year first above
written.

 

	
   

  	
  GRANITE CITY FOOD & BREWERY LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GRANITE CITY RESTAURANT

  
	
   

  	
  OPERATIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

EXHIBIT A

 

To:          Granite City Food &
Brewery Ltd.

 

	
  NOTICE
  OF CONVERSION OF PROMISSORY NOTE —

  	
   

  	
  To be Completed
  and Signed by the Registered Holder to Convert Promissory Note

  

 

The undersigned is
the Holder named in the original Promissory Note (the “Note”)
attached hereto in the original principal amount of $                  
and dated                     ,
2009 made payable by Granite City Food & Brewery Ltd. (the “Company”) and Granite City Restaurant Operations, Inc.
(“GCROI”, and together with the Company,
the “Borrowers”) to the Holder.  The Holder hereby irrevocably elects to
exercise its rights to convert $                      
in principal amount of the Note and $                  
of interest accrued to date into                     
shares of the Company’s common stock, $0.01 par value per share, at a
conversion price of $                    
per share, and requests that stock certificates for such shares shall be issued
in the name of

 

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Print Name)

  

 

	
  Please insert
  social security

  	
   

  	
   

  
	
  or other
  identifying number

  	
   

  	
   

  
	
  of registered
  Holder of Note:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Signature*

  

 

*The signature on
the Notice of Conversion of Promissory Note must exactly correspond to the name
as written upon the face of the Note in every particular without alteration or
any change whatsoever.  When signing on
behalf of a corporation, partnership, trust of other entity, please indicate
your position(s) and title(s) with such entity.  If the Note is registered in the name of more
than one Holder, all Holders must sign.

 

 

EXHIBIT B

FORM OF WARRANT

 

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

 

GRANITE CITY FOOD & BREWERY LTD.

FORM OF

WARRANT

 

	
  Warrant No. 2009-BL-

  	
   

  	
  Original Issue Date:
  March 30, 2009

  

 

Pursuant to the terms of a Loan Agreement of even date
(the “Loan Agreement”), Granite City Food & Brewery Ltd., a Minnesota
corporation (the “Company”), hereby certifies that,
for value received,                                                       
or its registered assigns (the “Holder”), is
entitled to purchase from the Company up to a total of One Hundred Sixty
Thousand (160,000) shares of Common Stock (each such share, a “Warrant Share” and all such shares, the “Warrant Shares”), at any time and from time to time from
and after the six month anniversary of 
the Original Issue Date and until 5:30 p.m., Minneapolis time on
the fifth anniversary of the Original Issue Date (the “Expiration Date”), and subject to the following terms and
conditions:

 

1.             Definitions.  As used in this Warrant, the following terms
shall have the respective definitions set forth in this Section 1.  Capitalized terms that are used and not
defined in this Warrant that are defined in the Loan Agreement (as defined
below) shall have the respective definitions set forth in the Loan Agreement.

 

“Board” means the Board of
Directors of the Company.

 

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

 

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

 

 

“Convertible Securities” shall
mean evidences of indebtedness, shares of stock or other securities that are at
any time, directly or indirectly, convertible into or exchangeable for New
Securities.

 

“Exercise Price” means $0.25267
per share, subject to adjustment in accordance with Section 9.

 

“Loan Agreement” means the Loan
Agreement, dated March 30, 2009, to which the Company and the original
Holder are parties.

 

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

 

“New Securities” shall mean
equity securities of the Company, whether now authorized or not, or rights,
options, or warrants to purchase said equity securities, or securities of any
type whatsoever that are, or may become, convertible into or exchangeable into
or exercisable for said equity securities, other than (i) shares of Common
Stock or options or other rights to acquire such Common Stock issued to
employees, consultants, officers or directors of the Company pursuant to any
stock option plan or other compensatory arrangement approved by the Board; (ii) shares
of Common Stock issued by the Company in a firm commitment underwritten public
offering pursuant to a registration under the Securities Act of 1933, as
amended; (iii) the issuance of securities pursuant to the acquisition of
another business entity or business segment of any such entity by the Company
by merger, purchase of all or substantially all the assets or other
reorganization whereby the Company will own greater than 50% of the voting
power of such business entity or business segment of any such entity, if such
issuance is approved by the Board; (iv) securities issued in connection
with any stock split, stock dividend or recapitalization of the Company; (v) securities
issued in the future in connection with the transactions contemplated by the
Loan Agreement, or (vi) securities issued upon exercise or conversion of
any option, warrant or other convertible security outstanding as of the date
hereof.

 

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

 

“Person” shall mean any natural
person, company, corporation, limited liability company, general partnership,
limited partnership, trust, proprietorship, joint venture, business
organization or governmental entity.

 

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

 

2

 

2.             Registration of Warrant.  The Company shall register this Warrant upon
records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof
from time to time.  The Company may deem
and treat the registered Holder of this Warrant as the absolute owner hereof
for the purpose of any exercise hereof or any distribution to the Holder, and
for all other purposes, absent actual notice to the contrary.

 

3.             Registration of Transfers.  The Company shall register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Company at its address specified herein.  Upon any such registration or transfer, a new
Warrant to purchase Common Stock, in substantially the form of this Warrant
(any such new Warrant, a “New Warrant”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder.  The acceptance of the New Warrant by the
transferee thereof shall be deemed the acceptance by such transferee of all of
the rights and obligations of a holder of a Warrant.

 

4.             Exercise and Duration of Warrants.  This Warrant shall be exercisable by the
registered Holder at any time and from time to time on or after the six month
anniversary of the Original Issue Date through and including the Expiration
Date.  At 5:30 p.m., Minneapolis
time on the Expiration Date, the portion of this Warrant not exercised prior
thereto shall be and become void and of no value.

 

5.             Delivery of Warrant Shares.

 

(a)           To effect exercises
hereunder, the Holder shall not be required to physically surrender this
Warrant unless the aggregate Warrant Shares represented by this Warrant is
being exercised.  Upon delivery of the
Exercise Notice (in the form attached hereto) to the Company (with the attached
Warrant Shares Exercise Log) at its address for notice set forth herein and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, the Company shall promptly (but
in no event later than three Trading Days after the Date of Exercise (as
defined herein)) issue and deliver to the Holder, a certificate for the Warrant
Shares issuable upon such exercise, which, if eligible for sale under Rule 144
without volume restrictions, shall be free of restrictive legends.  The Company shall, upon request of the Holder
and subsequent to the date on which a registration statement covering the
resale of the Warrant Shares has been declared effective by the Securities and
Exchange Commission, use its reasonable best efforts to deliver Warrant Shares
hereunder electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions, if available, provided,
that, the Company may, but will not be required to change its transfer agent if
its current transfer agent cannot deliver Warrant Shares electronically through
the Depository Trust Corporation.  A “Date of Exercise” means the date on which the Holder shall
have delivered to the Company: (i) the Exercise Notice (with the Warrant
Exercise Log attached to it), appropriately completed and duly signed and (ii) if
such Holder is not utilizing the cashless exercise provisions set forth in this
Warrant, payment of the Exercise Price for the number of Warrant Shares so
indicated by the Holder to be purchased.

 

3

 

(b)           The Company’s
obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction
by the Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any action
to enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law
by the Holder or any other Person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder in
connection with the issuance of Warrant Shares. 
Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver certificates representing Warrant Shares
upon exercise of the Warrant as required pursuant to the terms hereof.

 

6.             Charges, Taxes and Expenses.  Issuance and delivery of Warrant Shares upon
exercise of this Warrant shall be made without charge to the Holder for any
issue or transfer tax, withholding tax, transfer agent fee or other incidental
tax or expense in respect of the issuance of such certificates, all of which
taxes and expenses shall be paid by the Company; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the registration of any certificates for Warrant
Shares or Warrants in a name other than that of the Holder.  The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.

 

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

 

8.             Reservation of Warrant Shares.  The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of Persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company
covenants that all Warrant Shares so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with
the terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.

 

4

 

9.             Certain Adjustments.  The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9.

 

(a)           Stock Dividends and
Splits.  If the Company, at any time
while this Warrant is outstanding, (i) pays a stock dividend on its Common
Stock or otherwise makes a distribution on any class of capital stock that is
payable in shares of Common Stock, (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, or (iii) combines outstanding
shares of Common Stock into a smaller number of shares, then in each such case
the Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. 
Any adjustment made pursuant to clause (i) of this paragraph shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.

 

(b)           Fundamental
Transactions.  If, at any time while
this Warrant is outstanding, (1) the Company effects any merger or consolidation
of the Company with or into another Person in which the Company is not the
survivor, (2) the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (3) any tender
offer or exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (4) the Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 9(a) above)
(in any such case, a “Fundamental Transaction”),
then the Holder shall have the right thereafter to receive, upon exercise of
this Warrant, the same amount and kind of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of the number of Warrant Shares then issuable upon exercise in full
of this Warrant without regard to any limitations on exercise contained herein
(the “Alternate Consideration”).  For purposes of any such exercise, the
determination of the Exercise Price shall be appropriately adjusted to apply to
such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration.  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following or
concurrent with such Fundamental Transaction. 
The terms of any agreement pursuant to which a Fundamental Transaction
is effected shall include terms requiring any such successor or surviving entity
to comply with the provisions of this paragraph (b) and insuring that the
Warrant 

 

5

 

(or any such
replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.

 

(c)           Subsequent Equity
Sales.

 

(i)            Subject to the
limitations set forth below, if the Company at any time while this Warrant is
outstanding, shall issue or sell any New Securities (including any Convertible
Securities) at a price per share less than the Exercise Price then in effect,
then and in each such case thereafter, the then applicable Exercise Price shall
be reduced to an adjusted Exercise Price as
of the opening of business on the date of such issue or sale, determined by multiplying
such applicable Exercise Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of New Securities so
issued would purchase at such Exercise Price in effect immediately prior to
such issuance, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of  such New Securities so
issued.  Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued.  For purposes of adjusting the Exercise Price
under this Section 9(c)(i), Common Stock outstanding shall include all
shares of Common Stock actually issued and outstanding and shares of Common
Stock issuable upon conversion of Convertible Securities actually issued and
outstanding.

 

(ii)           If at any time while
this Warrant is outstanding, the Company shall issue or sell any Convertible
Securities, there shall be determined as of the date of issue the conversion or
exercise price per share for which New Securities are issuable upon the
conversion or exchange thereof, such determination to be made by dividing (X) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (Y) the maximum number of New Securities issuable
upon conversion or exchange of all of such Convertible Securities; and such
issue or sale shall be deemed to be an issue or sale for cash (as of the date
of issue or sale of such Convertible Securities) of such maximum number of New
Securities at the price per share so determined.  If such Convertible Securities shall by their
terms provide for an increase or increases, with the passage of time, in the
amount of additional consideration, if any, payable to the Company, or in the
rate of exchange, upon the conversion or exchange thereof the adjusted Exercise
Price shall, forthwith upon any such increase becoming effective, be readjusted
(but to no greater extent than originally adjusted) to reflect the same. If any
rights of conversion or exchange evidenced by such Convertible Securities shall
expire without having been exercised, any adjusted Exercise Price shall
forthwith be readjusted to be the adjusted Exercise Price which would have been
in effect had an adjustment been made on the basis that the only New Securities
issued or sold were those actually issued upon the 

 

6

 

conversion or
exchange of such Convertible Securities, and that they were issued or sold for
the consideration actually received by the Company upon such conversion or
exchange, plus the consideration, if any, actually received by the Company for
the issue or sale of such Convertible Securities as were actually converted or
exchanged.

 

(iii)          Upon any issuance or
sale for a consideration other than cash, or a consideration part of which is
other than cash, of any New Securities or Convertible Securities or any rights,
warrants or options to subscribe for, purchase or otherwise acquire any New
Securities or Convertible Securities, the amount of the consideration other
than cash received by the Company shall be deemed to be the fair value of such
consideration as determined in good faith by the Board.  In case any New Securities or Convertible
Securities or any rights, warrants or options to subscribe for, purchase or
otherwise acquire any New Securities or Convertible Securities shall be issued
or sold together with other stock or securities or other assets of the Company
for a consideration which covers two or more thereof, the consideration for the
issue or sale of such New Securities or Convertible Securities or such rights,
warrants or options shall be deemed to be the portion of such consideration
allocated thereto in good faith by the Board.

 

(iv)          Notwithstanding the
foregoing, the number of Warrant Shares issuable (inclusive of all
anti-dilution adjustments applicable to such securities), when combined with
the aggregate number of Conversion Shares previously issued upon conversion of
the Notes and the aggregate number of Warrant Shares previously issued upon
exercise of the Warrants, may not, in the absence of approval by the Company’s
shareholders, equal or exceed 19.9% of the number of shares of Common Stock
issued and outstanding immediately prior to the effective date of the Loan
Agreement.  If any adjustments made
pursuant to this Section 9(c) would otherwise result in Warrant
Shares issuable in excess of the limitation set forth in the immediately
preceding sentence (the “Excess Adjustment”),
the Company will use reasonable best efforts to prepare and file preliminary
proxy materials with the Securities and Exchange Commission and hold a meeting
of its shareholders for the purpose, among others, of seeking approval of the
Excess Adjustment (the “Proposal”).  In furtherance of its obligations under this Section 9(c),
the Board shall recommend to the Company’s shareholders (and not revoke or
amend such recommendation) that the shareholders vote in favor of and approve
the Proposal and shall cause the Company to use its best efforts to solicit
approval of the shareholders for the Proposal. 
If the Company’s shareholders approve the Proposal, the Company will
make the Excess Adjustment.  If the
Company’s shareholders do not approve the Proposal, the Holders hereby
acknowledge that the Company will not make the Excess Adjustment and that the
Company may not otherwise compensate the Holders for the failure to make the
Excess Adjustment.

 

(d)           Number of Warrant
Shares.  Simultaneously with any
adjustment to the Exercise Price pursuant to Sections 9(a) hereunder, the
number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased

 

7

 

proportionately,
so that after such adjustment the aggregate Exercise Price payable hereunder
for the adjusted number of Warrant Shares shall be the same as the aggregate
Exercise Price in effect immediately prior to such adjustment.

 

(e)           Calculations.  All calculations under this Section 9
shall be made to the nearest cent or the nearest 1/100th of
a share, as applicable.  The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.

 

(f)            Notice of
Adjustments.  Upon the occurrence of
each adjustment pursuant to this Section 9, the Company at its expense
will promptly compute such adjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant
Shares or other securities issuable upon exercise of this Warrant (as
applicable), describing the transactions giving rise to such adjustments and
showing in detail the facts upon which such adjustment is based.  Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company’s transfer agent.

 

(g)           Notice of Corporate
Events.  If, while this Warrant
remains outstanding, the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common
Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company, (ii) authorizes
or approves, enters into any agreement contemplating or solicits stockholder
approval for any Fundamental Transaction or (iii) authorizes the voluntary
dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall deliver to the Holder a notice describing the material terms and
conditions of such transaction (but only to the extent such disclosure would
not result in the dissemination of material, non-public information to the
Holder) at least 10 calendar days prior to the applicable record or effective
date on which a Person would need to hold Common Stock in order to participate
in or vote with respect to such transaction, and the Company will take all
steps reasonably necessary in order to insure that the Holder is given the
practical opportunity to exercise this Warrant prior to such time so as to
participate in or vote with respect to such transaction; provided, however,
that the failure to deliver such notice or any defect therein shall not affect
the validity of the corporate action required to be described in such notice.

 

10.           Payment of Exercise Price.  The Holder may pay the Exercise Price in one
of the following manners:

 

(a)           Cash Exercise.  The Holder may deliver the Exercise Price
immediately available funds; or

 

8

 

(b)           Cashless Exercise.  The Holder may, in its discretion, satisfy
the obligation to pay the Exercise Price through a “cashless exercise”, in
which event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:

 

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

 

where:

 

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

 

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

 

A = the average of the Closing Sale Prices of the
Common Stock for the five Trading Days immediately prior to (but not including)
the Exercise Date.

 

B = the Exercise Price.

 

For
purposes of this Warrant, “Closing
Sale Price” means, for any security as of any date, the last trade
price for such security on the principal securities exchange or trading market
for such security, or if the foregoing does not apply, the last trade price of
such security in the over-the-counter market on the electronic bulletin board
for such security, or, if no last trade price is reported for such security,
the average of the bid prices, or the ask prices, respectively, of any market
makers for such security as reported in the “pink sheets” by Pink Sheets
LLC.  If the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Closing Sale Price of such security on such date shall be the fair market
value as determined in good faith by the Board of directors of the
Company.  For purposes of Rule 144
promulgated under the Securities Act, it is intended, understood and
acknowledged that the Warrant Shares issued in a cashless exercise transaction
shall be deemed to have been acquired by the Holder, and the holding period for
the Warrant Shares shall be deemed to have commenced, on the date this Warrant
was originally issued (provided that the Securities and Exchange Commission
continues to take the position that such treatment is proper at the time of
such exercise).

 

11.           No Fractional Shares.  N fractional shares of Warrant Shares will be
issued in connection with any exercise of this Warrant.  In lieu of any fractional shares which would,
otherwise be issuable, the Company shall pay cash equal to the product of such
fraction multiplied by the closing price of one Warrant Share as reported by
the applicable trading market on the date of exercise.

 

12.           Notices.  Any and all notices or other communications
or deliveries hereunder (including, without limitation, any Exercise Notice)
shall be in writing and shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section prior to 5:30 p.m.
(Minneapolis time) on a Trading Day, (ii) the next Trading Day after the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section on a day that
is not a Trading Day or later than 5:30 p.m. (Minneapolis

 

9

 

time) on any Trading Day, (iii) the Trading Day following the date
of mailing, if sent by nationally recognized overnight courier service, or (iv) upon
actual receipt by the party to whom such notice is required to be given.  The addresses for such communications shall
be:  (i) if to the Company, to
Granite City Food & Brewery Ltd., Attn: Chief Financial Officer, 5402
Parkdale Drive, Suite 101, Minneapolis, MN 55416, or to Facsimile No.: 952-215-0671 (or such other
address as the Company shall indicate in writing in accordance with this
Section), or (ii) if to the Holder, to the address or facsimile
number appearing on the Warrant Register or such other address or facsimile
number as the Holder may provide to the Company in accordance with this
Section.

 

13.           Warrant Agent.  The Company shall serve as warrant agent
under this Warrant.  Upon 10 days’ notice
to the Holder, the Company may appoint a new warrant agent.  Any corporation into which the Company or any
new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or
any corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further
act.  Any such successor warrant agent
shall promptly cause notice of its succession as warrant agent to be mailed (by
first class mail, postage prepaid) to the Holder at the Holder’s last address
as shown on the Warrant Register.

 

14.           Miscellaneous.

 

(a)           This Warrant shall be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns.  Subject to the
preceding sentence, nothing in this Warrant shall be construed to give to any
Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. 
This Warrant may be amended only in writing signed by the Company and
the Holder and, as applicable, their successors and assigns.  Disposition of this Warrant and the Warrant
Shares are subject to the terms, conditions and restrictions of an Investor
Rights Agreement dated the Original Issue Date hereof between the Company and
the original Holder hereof, a copy of which is available from the Company upon
written request.

 

(b)           All questions
concerning the construction, validity, enforcement and interpretation of this
Warrant shall be governed by and construed and enforced in accordance with the
internal laws of the State of Minnesota, without regard to the principles of
conflicts of law thereof.  Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of this Warrant and the transactions herein contemplated (“Proceedings”) (whether brought against a party hereto or
its respective Affiliates, employees or agents) shall be commenced exclusively
in the Minnesota Courts.  Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the
Minnesota Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any Proceeding, any
claim that it is not personally subject to the jurisdiction of any Minnesota
Court, or that such Proceeding has been commenced in an improper or
inconvenient forum.  Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such Proceeding by mailing a copy thereof via registered or
certified 

 

10

 

mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Warrant and agrees that such service shall
constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating
to this Warrant or the transactions contemplated hereby.  If either party shall commence a Proceeding
to enforce any provisions of this Warrant, then the prevailing party in such
Proceeding shall be reimbursed by the other party for its attorney’s fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such Proceeding.

 

(c)           The headings herein are
for convenience only, do not constitute a part of this Warrant and shall not be
deemed to limit or affect any of the provisions hereof.

 

(d)           In case any one or more
of the provisions of this Warrant shall be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the
parties will attempt in good faith to agree upon a valid and enforceable
provision which shall be a commercially reasonable substitute therefor, and
upon so agreeing, shall incorporate such substitute provision in this Warrant.

 

(e)           Prior to exercise of this
Warrant, the Holder hereof shall not, by reason of by being a Holder, be
entitled to any rights of a stockholder with respect to the Warrant Shares

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

11

 

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

 

	
   

  	
  GRANITE CITY FOOD & BREWERY LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:  James G. Gilbertson

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:
     Chief Financial Officer

  

 

12

 

EXERCISE NOTICE

GRANITE CITY FOOD & BREWERY
LTD.

WARRANT DATED MARCH 30, 2009

 

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

 

(1)           The undersigned Holder
hereby exercises its right to purchase                                   
Warrant Shares pursuant to the Warrant.

 

(2)           The Holder intends that
payment of the Exercise Price shall be made as (check one):

 

	
   

  	
  o

  	
  “Cash Exercise” under Section 10

  
	
   

  	
   

  	
   

  
	
   

  	
  o

  	
  “Cashless Exercise” under Section 10

  

 

(3)           If the holder has elected
a Cash Exercise, the holder shall pay the sum of $                        
to the Company in accordance with the terms of the Warrant.

 

(4)           Pursuant to this
Exercise Notice, the Company shall deliver to the holder                               
Warrant Shares in accordance with the terms of the Warrant.

 

 

	
  Dated:

  	
   

  	
  ,

  	
   

  	
   

  	
  Name of Holder:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Print)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature
  must conform in all respects to name of 

  holder as specified on the face of the Warrant)

  

 

13

 

Warrant Shares Exercise Log

 

	
  Date

  	
   

  	
  Number of Warrant 

  Shares Available to be 

  Exercised

  	
   

  	
  Number of Warrant Shares

  Exercised

  	
   

  	
  Number of 

  Warrant Shares 

  Remaining to 

  be Exercised

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

14

 

GRANITE CITY FOOD & BREWERY
LTD.

WARRANT ORIGINALLY ISSUED MARCH 30, 2009

WARRANT NO. 2009-BL-    

 

FORM OF ASSIGNMENT

 

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

 

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

 

	
  Dated:

  	
   

  	
  ,

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Signature
  must conform in all respects to name of 

  holder as specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address
  of Transferee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  In
  the presence of:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
							

 

15

 

EXHIBIT C

INVESTOR RIGHTS AGREEMENT

 

This
Investor Rights Agreement (this “Agreement”) is
made and entered into as of March 30, 2009, by an among Granite City Food &
Brewery Ltd., a Minnesota corporation (the “Company”) and
the several investors signatory hereto (each an “Investor”
and collectively, the “Investors”).

 

This
Agreement is made pursuant to the Loan Agreement dated as of the date hereof
between the Company and each Investor (the “Loan
Agreement”).

 

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

 

1.                                       Definitions.  Capitalized terms used herein without
definition shall have the meanings given thereto in the Loan Agreement.  For
purposes of this Agreement:

 

1.1.                              The
term “Affiliate” means any Person which
controls, is controlled by or is under common control with any other Person or
Persons.  For the purposes of this
definition, “control” has the meaning specified as of the date of this
Agreement for that word in Rule 405 promulgated by the Commission under
the Securities Act.

 

1.2.                              The
term “Board” means the Board of Directors of
the Company.

 

1.3.                              The
term “Common Stock” shall mean shares of the
Company’s common stock, par value $0.01 per share.

 

1.4.                              The
term “Conversion  Shares” means the shares of Common Stock issued or issuable
upon conversion of the Notes (without giving effect to any limitations on
conversion set forth in the Notes).

 

1.5.                              The
term “Exchange Act” shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

 

1.6.                              The
term “Form S-3” means such form under the
Securities Act as in effect on the date hereof or any registration form under
the Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.

 

1.7.                              The
term “GAAP” shall mean generally accepted
accounting principles.

 

1.8.                              The
term “Holder” means any Person owning or
having the right to acquire Registrable Securities or any assignee thereof who
has become a party to this Agreement in accordance with Section 2.10
hereof.

 

1.9.                              The
term “New Securities” shall mean common stock
of the Company, whether now authorized or not, or rights, options, or warrants
to purchase said equity 

 

1

 

securities, or
securities of any type whatsoever that are, or may become, convertible into or
exchangeable into or exercisable for said equity securities.

 

1.10.                        The
term “Notes”  means
any of those certain Convertible Promissory Notes issued by Company to the
Investors pursuant to the Loan Agreement.

 

1.11.                        The
term “register,” “registered,”
and “registration” refer to a registration
effected by preparing and filing a registration statement or similar document
in compliance with the Securities Act and
pursuant to Rule 415, and the declaration or ordering of
effectiveness of such registration statement or document.

 

1.12.                        “Registrable Securities” means all of (i) the
Conversion Shares, (ii) the Warrant Shares issued or issuable upon the
exercise of the Warrants, including any additional shares issuable in
connection with any anti-dilution provisions in the Warrants (without giving
effect to any limitations on exercise set forth in the Warrant), and (iii) any
securities issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event; provided, that a Holder’s security shall cease to be
Registrable Securities upon the earliest to occur of the following:  (A) sale pursuant to a registration
statement or SEC Rule 144 (in which case, only such security sold shall cease
to be a Registrable Security); or (B) such security becoming eligible for
sale by the Holder without volume restrictions pursuant to SEC Rule 144.

 

1.13.                        The
term “SEC” means the Securities and Exchange
Commission.

 

1.14.                        The
term “SEC Rule 144” means Rule 144
promulgated by the SEC under the Securities Act.

 

1.15.                        The
term “SEC Rule 145” means Rule 145
promulgated by the SEC under the Securities Act.

 

1.16.                        The
term “Securities Act” means the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder.

 

1.17.                        The
term “Violation” means losses, claims,
damages, or liabilities (joint or several) to which a party hereto may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations:  (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by any other party hereto, of the Securities
Act, the Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state securities
law.

 

1.18.                        The
term “Warrants” means
any of those certain stock purchase warrants issued by the Company to the
Investors pursuant to the Loan Agreement.

 

2

 

1.19.                        The
term “Warrant Shares” means the shares of
Common Stock issued or issuable upon exercise of the Warrants, including any
additional shares issuable in connection with any anti-dilution provisions in
the Warrants (without giving effect to any limitations on conversion set forth
in the Warrants).

 

2.               Registration Rights.  The Company
covenants and agrees as follows:

 

2.1.                              Request for Registration.

 

(a)          At
any time following the six month anniversary of the date of the Loan Agreement,
if any Holder that owns, beneficially or of record, or has the right to acquire
Registrable Securities, such Holder may deliver a written request that the
Company file a registration statement under the Securities Act, then the
Company shall:

 

(i)                           within 10 days of the
receipt of such written request, give written notice of such request to all
Holders that such registration is to be effected (the “Registration
Notice”);

 

(ii)                        as soon as practicable, and in any event within 90 days of the receipt
of such request, file a registration statement under the Securities Act
covering all Registrable Securities which the Holders request to be registered,
subject to the limitations of subsection 2.1(c); and

 

(iii)                     use its commercially reasonable efforts to cause such registration
statement to be declared effective by the SEC as soon as practicable.

 

Subject to Section 2.1(c), the Company shall be obligated to file
only one such registration statement pursuant to this Section 2.1.

 

(b)         If
the Holders  intend to distribute the
Registrable Securities covered by its request by means of an underwriting, they
shall so advise the Company as a part of its request made pursuant to subsection 2.1(a).
If an underwriter is willing to sell the Registrable Securities, the
underwriter will be selected by the Company and shall be reasonably acceptable
to Holders of a majority of the participating Registrable Securities.  The Holders shall (together with the Company
as provided in subsection 2.3(e)) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting.

 

(c)          The
Company shall only be obligated to proceed with filing a registration statement
pursuant to Section 2.1(a) if (i) Form S-3 is then
available to Company for purposes of registering the offer and resale of
Registrable Securities by the Holders; and (ii) the Company has not
previously prepared, filed and caused to become effective one registration
statement on Form S-3 pursuant to Section 2.1(a); provided, however, that in the event the SEC informs the Company
that all of the Registrable Securities cannot, as a result of the application
of Rule 415, be registered for resale on a single registration statement,
the Company shall promptly (A) inform each of the holders thereof and use
its reasonable best efforts to file amendments to the registration statement as
required by the SEC and/or (B) withdraw such registration statement and
file a new registration statement (a “New Registration Statement”),
in 

 

3

 

either case
covering the maximum number of Registrable Securities permitted to be
registered by the SEC on Form S-3. 
In the event the Company amends the registration statement or files a
New Registration Statement, as the case may be, under clauses (ii)(A) or (B) above,
the Company shall, provided that Form S-3 is then available to Company for
purposes of registering the offer and resale of Registrable Securities by the
Holders, use its commercially reasonable efforts to file with the SEC, as
promptly as allowed by SEC or staff guidance provided to the Company or to
registrants of securities in general, one or more registration statements on Form S-3
to register for resale those Registrable Securities that were not registered
for resale on the initial registration statement, as amended, or the New
Registration Statement (the “Remainder Registration
Statements”).

 

(d)                                 A
registration statement shall not be considered “prepared, filed and caused to
become effective” for purposes of this Section 2.1(c) until
such time as such registration statement has been declared effective by the SEC
(unless the Holder or Holders initiating such request withdraws its request for
such registration (other than as a result of information concerning the
business or financial condition of the Company which is made known to such
Holder after the date on which such registration was requested) and elect not
to pay the registration expenses therefor pursuant to Section 2.5).

 

(e)                                  Notwithstanding
the foregoing, if the Company shall furnish the Holders a certificate signed by
the Chief Executive Officer of the Company stating that in the good faith
judgment of the Board of Directors of the Company it would be materially
detrimental to the Company and its shareholders for such registration statement
to become effective or to remain effective as long as such registration
statement would otherwise be required to remain effective because such action (x) would
materially interfere with a significant acquisition, corporate reorganization
or other similar transaction involving the Company, (y) would require
premature disclosure of material information that the Company has a bona fide
business purpose for preserving as confidential or (z) would render the
Company unable to comply with requirements under the Securities Act or Exchange
Act, the Company shall have the right to defer taking action with respect to
such filing for a period of not more than ninety (90) days after receipt of the
request of the Holders.

 

2.2.                              Company Registration.  If the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the Holders), or shall have filed a registration
statement to register, any of its stock or other securities under the
Securities Act in connection with the public offering of such securities solely
for cash (other than a registration statement relating either to (i) the
sale of securities to employees of the Company pursuant to a stock option,
stock purchase or similar plan; (ii) an SEC Rule 145 transaction or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities; or (iii) a registration
statement filed pursuant to a contractual obligation of the Company in
existence prior to the date of this Agreement, which precludes the registration
of other securities therein), the Company shall, at such time, promptly give
the Holders written notice of such registration. Upon the written request of a
Holder whose Registrable Securities have not been previously registered
pursuant to this Agreement or are not included in a pending registration
statement, given within ten (10) days after mailing of such notice, the Company
shall, subject to the provisions of Section 2.7, cause to be
registered under 

 

4

 

the Securities Act all of the
Registrable Securities that the Holder has requested to be registered.  The Company shall have the right to terminate
or withdraw any registration initiated by it under this Section 2.2
prior to the effectiveness of such registration whether or not Holders have
elected to include securities in such registration.  The expenses of such withdrawn registration
shall be borne by the Company in accordance with Section 2.6
hereof.

 

2.3.                              Obligations of the Company.  Whenever required under this Section 2
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible,

 

(a)          prepare
and file with the SEC a registration statement with respect to such Registrable
Securities and use its commercially reasonable efforts to cause such
registration statement to become effective, and, upon the request of the Holders,
keep such registration statement effective until the distribution contemplated
in the Registration Statement has been completed or, if earlier, until all
Registrable Securities registered thereon may be sold by the Holder(s) thereof
without volume restrictions under SEC Rule 144;

 

(b)         prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement;

 

(c)          furnish
to the Holders such numbers of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by it;

 

(d)         use
reasonable efforts to register and qualify the securities covered by such
registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders; provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;

 

(e)          in
the event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter of such offering. 
The Holders shall also enter into and perform its obligations under such
an agreement;

 

(f)            cause
all such Registrable Securities registered pursuant to this Agreement hereunder
to be listed on each securities exchange and trading system on which similar
securities issued by the Company are then listed;

 

(g)         provide
a transfer agent and registrar for all Registrable Securities registered
pursuant hereunder and a CUSIP number for all such Registrable Securities, in
each case not later than the effective date of such registration;

 

5

 

(i)                                     use
commercially reasonable efforts to furnish, at the request of the Holders, on
the date on which such Registrable Securities are sold to the underwriter, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and (ii) a “comfort” letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, if any.

 

2.4.                              Furnish Information.  It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 2
with respect to the Registrable Securities of any Holder that the Holder shall
furnish to the Company a completed questionnaire (the “Questionnaire”)
containing such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as the Company
determines shall be reasonably required to effect the registration of the
Holder’s Registrable Securities.

 

2.5.                              Expenses of Registration.  The Company shall bear and pay all
registration, filing and qualification fees, printers and accounting fees, fees
and disbursements of counsel for the Company and reasonable fees and
disbursements of one special counsel, if any, for the selling Holders, in any
case relating or apportionable to any registration, filing or qualification of
Registrable Securities with respect to the registrations pursuant to Sections
2.1, or 2.2 hereof, but not the underwriting discounts and
commissions relating to Registrable Securities; provided, however,
that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 2.1 if the
registration request is subsequently withdrawn at the request of the Holders,
unless they agree to forfeit their right to one demand registration pursuant to
Section 2.1.

 

2.6.                              Underwriting Requirements.  In connection with any offering involving an
underwriting of shares of the Company’s capital stock pursuant to Section 2.2,
the Company shall not be required to include any of the Registrable Securities
in such underwriting unless the Holders accept the terms of the underwriting as
agreed upon between the Company and its underwriters, and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company.  If the total number of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities to be sold other than by the Company
that the underwriters determine in their reasonable discretion is compatible
with the success of the offering, then the Company shall be required to include
in the offering only that number of such securities, including Registrable
Securities, which the underwriters and the Company determine in their sole
discretion will not jeopardize the success of the offering.  In the event that the underwriters determine
that less than all of the Registrable Securities requested to be registered can
be included in such offering, then the Registrable Securities that are included
in such offering shall first be allocated to the Holders, pro rata based on the
proportionate number Registrable Securities then held (whether or not such
Holders have requested that all such Registrable Securities be included) and
then to other shareholders holding rights as selling security holders.

 

6

 

2.7.                              Delay of Registration.  The Holders shall not have any right to
obtain or seek an injunction restraining or otherwise delaying any registration
pursuant to this Agreement as the result of any controversy that might arise
with respect to the interpretation or implementation of this Section 2.

 

2.8.                              Indemnification.  In the event any Registrable Securities are
included in a registration statement under this Section 2:

 

(a)          To
the extent permitted by law, the Company will indemnify and hold harmless each
Holder, the partners, members, officers, directors and stockholders of such
Holder, legal counsel and accountants for the Holder, any underwriter (as
defined in the Securities Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Securities Act or
the Exchange Act, against any Violation and the Company will pay to the Holder,
underwriter, controlling person or other aforementioned person, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action as such expenses
are incurred; provided, however, that the
indemnity agreement contained in this subsection 2.8(a) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by the Holder
or any underwriter, controlling person or other aforementioned person.

 

(b)         To
the extent permitted by law, each Holder will severally and not jointly
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, legal counsel
and accountants for the Company, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any
such underwriter or other Holder, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing persons may become
subject, under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by the Holder expressly
for use in connection with such registration; and the Holder will pay, any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 2.8(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in
this subsection 2.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder; which consent shall
not be unreasonably withheld; provided, further, that, in no event shall any
indemnity under this subsection 2.8(b) exceed the net proceeds
from the offering received by such Holder, except in the case of fraud or
willful misconduct by the Holder.

 

7

 

(c)          Promptly
after receipt by an indemnified party under this Section 2.8 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 2.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however,
that an indemnified party (together with all other indemnified parties which
may be represented without conflict by one counsel) shall have the right to
retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding.

 

(d)         In
order to provide for just and equitable contribution to joint liability under
the Securities Act in any case in which either (i) a Holder, or any
controlling person of the Holder, makes a claim for indemnification pursuant to
this Section 2.8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 2.8 provides for indemnification in such case, or
(ii) contribution under the Securities Act may be required on the part of
a Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 2.8, then, and in
each such case, the Company and the Holder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other
relevant equitable considerations.  The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the indemnifying party
or by the indemnified party and the parties’ relative intent, knowledge, access
to information, and opportunity to correct or prevent such statement or
omission; provided however, that, in any such
case, (I) a Holder will not be required to contribute any amount in excess
of the public offering price of all such Registrable Securities offered and
sold pursuant to such registration statement, and (II) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.

 

(e)          Notwithstanding
the foregoing, to the extent that the provisions on indemnification and
contribution contained in the underwriting agreement entered into in connection
with the underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall control.

 

(f)            Unless
otherwise superceded by an underwriting agreement entered into in connection
with the underwritten public offering, the obligations of the Company and the
Holders under this Section 2.8 shall survive the completion of any
offering of Registrable 

 

8

 

Securities in
a registration statement under this Section 2, and otherwise and
shall survive the termination of this Agreement.

 

2.9.                              Transfer of Shares after Registration; Suspension.  The rights set forth in this Section 2
shall terminate as to any Holder, when the Registrable Securities held by such
Holder could be sold without volume restrictions under SEC Rule 144.

 

(a)          Each
Holder agrees that it will not effect any disposition of the Registrable
Securities that would constitute a sale within the meaning of the Securities
Act except as contemplated in the registration statement referred to herein, or
as otherwise permitted by law, and that it will promptly notify the Company of
any change in any information in its Questionnaire until such time as such
Holder has sold all of its Registrable Securities or until the Company is no
longer required to keep the registration statement effective.  Prior to any proposed transfer of any
Registrable Securities other than pursuant to the registration statement or Rule 144,
the Holder proposing to make such transfer shall give written notice to the
Company of such Holder’s intention to effect such transfer, which notice shall
set forth the date of such proposed transfer. 
Such holder also shall furnish to the Company (i) a written
agreement by the proposed transferee that it is taking and holding the same
subject to the terms and conditions specified in this Agreement and (ii) a
written opinion of such Holder’s counsel, in a form reasonably satisfactory to
the Company, to the effect that the proposed transfer may be effected without
registration under the Securities Act.

 

(b)         Except
in the event that paragraph (c) below applies, the Company shall:

 

(i)                  if
it deems necessary, prepare and file from time to time with the SEC one or more
post-effective amendments to the registration statement or supplements to the
related prospectus so that such registration statement will not contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and so that, as thereafter delivered to purchasers of the
Registrable Securities being sold thereunder, such prospectus will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and

 

(ii)               as
soon as practicable provide to each Holder copies of any documents filed
pursuant to the preceding Section 2.09(b)(1).

 

(c)          Subject
to paragraph (d) below, in the event of:

 

(i)                  any
request by the SEC or any other federal governmental authority during any
effectiveness period for amendments or supplements to the registration
statement or related prospectus or for additional information;

 

(ii)               the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspecting the effectiveness of the registration statement or the
initiation of any proceedings for that purpose; or

 

9

 

(iii)            any
event or circumstance which necessitates the making of any changes in the
registration statement or prospectus so that, in the case of the registration
statement, it will not contain any untrue statement of a material fact or any
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and that in the case of the
prospectus, it will not contain any untrue statement of a material fact or any
omission to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, the Company shall promptly deliver a certificate in
writing to each Holder (the “Suspension Notice”)
to the effect of the foregoing and, upon receipt of such Suspension Notice,
such Holder will refrain from selling any Shares covered thereby pursuant to
such registration statement (a “Suspension”)
until such Holder receives from the Company copies of a supplemented or amended
prospectus prepared and filed by the Company, or until it is advised in writing
by the Company that the current prospectus may be used.  In the event of any Suspension, the Company
will use its commercially reasonable best efforts to cause the use of the
prospectus so suspended to be resumed as soon as practicable after delivery of
a Suspension Notice to the Holder, and the Company shall as soon as practicable
provide each Holder with copies of any supplemented or amended Prospectus or,
as the case may be, advise each Holder in writing that the current prospectus
may be used.

 

(d)         Notwithstanding
the foregoing paragraphs of this Section 2.09, the Company shall
use its commercially reasonable best efforts to ensure that each Holder shall
not be prohibited from selling Registrable Securities under the registration
statement as a result of Suspensions of not more than 30 days in the aggregate
during any 12 month period.

 

2.10.                        Termination of Registration Rights.   The rights set forth in
this Section 2 shall terminate as to any Holder, when the
Registrable Securities held by such Holder could be sold without volume
restrictions under SEC Rule 144.

 

3.                                       Participation
Rights.

 

3.1.                              Participation Right.  Subject to the terms and conditions specified
in this Section 3.1, and applicable securities laws, in the event
the Company proposes to offer or sell in a transaction or series of related
transactions New Securities in an amount that exceeds one percent (1%) of the
Company’s outstanding shares of Common Stock on the date of issuance (or the
date of first issuance in connection with a series of related transactions),
the Company shall first make an offering of such New Securities to the Holders
in accordance with the following provisions of this Section 3.1.

 

(a)          The
Company shall deliver a written notice (the “Offer Notice”)
to each Holder at least fourteen (14) days prior to any such offering or sale
of New Securities, stating (i) its bona fide intention to offer such New
Securities, (ii) the number of such New Securities to be offered, and (iii) the
price and terms, if any, upon which it proposes to offer such New Securities.

 

10

 

(b)         By
written notification received by the Company, within fourteen (14) calendar
days after receipt by Holders of the Offer Notice, any Holder may elect to
purchase or obtain, at the price and on the terms specified in the Offer
Notice, up to that portion of the New Securities which equals the proportion
that the number of Registrable Securities 
then held by the Holder (or then issuable to such Holder upon conversion
or exercise of Notes and Warrants, as the case may be) bears to the total
number of shares of Common Stock of the Company then outstanding (assuming full
conversion and exercise of all convertible or exercisable securities).

 

(c)          If
all New Securities referred to in the Offer Notice are not elected to be
purchased or obtained as provided in Section 3.1(b) hereof,
the Company may, during the one hundred and twenty (120) day period following
the expiration of the period provided in Section 3.1(b) hereof,
offer the remaining unsubscribed portion of such New Securities (collectively,
the “Refused Securities”) to any person or
persons at a price not less than, and upon terms no more favorable to the
offeree than, those specified in the Offer Notice.  If the Company does not enter into an
agreement for the sale of the New Securities within such period, or if such
agreement is not consummated within thirty (30) days of the execution thereof,
the right provided hereunder shall be deemed to be revived and such New
Securities shall not be offered unless first reoffered to the Holders in
accordance with this Section 3.1.

 

(d)         The
participation right in this Section 3.1 shall not be applicable to:
(i) shares of Common Stock or options or other rights to acquire such
Common Stock issued to employees, consultants, officers or directors of the
Company pursuant to any stock option plan or compensatory arrangement approved
by the Board; (ii) shares of Common Stock issued by the Company in a firm
commitment underwritten public offering pursuant to a registration under the
Securities Act of 1933, as amended; (iii) the issuance of securities
pursuant to the acquisition of another business entity or business segment of
any such entity by the Company by merger, purchase of all or substantially all
the assets or other reorganization whereby the Company will own greater than
50% of the voting power of such business entity or business segment of any such
entity, if such issuance is approved by the Board; (iv) securities issued
in connection with any stock split, stock dividend or recapitalization of the
Company; (v) securities issued in the future in connection with the
transactions contemplated by the Loan Agreement, or (vi) securities issued
upon exercise or conversion of any option, warrant, right or convertible
security outstanding as of the date hereof.

 

(e)          In
lieu of complying with the provisions of this Section 3.1, the
Company may elect to give notice to a Holder within thirty (30) days after the
issuance or first offer of New Securities. 
Such notice shall describe the type, price and terms of the New
Securities. The Holder shall
have fourteen (14) days from the date of receipt of such notice to elect to
purchase up to the number of New Securities that would, if purchased by the
Holder, maintain such Holder’s percentage ownership position, calculated as set
forth in Section 3.1(b) prior to giving effect to the issuance
of such New Securities.  The closing of
such sale shall occur within thirty (30) days of the date of notice to the
Holder.

 

3.2.                              Termination.  The provisions of this Section 3
shall terminate (a) with respect to all Holders on May 1, 2010, and (b) with
respect to each Holder upon the 

 

11

 

consummation of an offering or
sale of New Securities in which such Holder elects not to participate.

 

4.                                       Assignment
of Registration and Participation Rights. 
The Participation Rights provided under Section 3 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities (or rights to acquire such securities).  In addition, the rights to cause the Company
to register Registrable Securities pursuant to Section 2, may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities (or rights to acquire such securities); provided, however, that the rights to cause the Company to
register Registrable Securities pursuant to Section 2: (a) the
Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned; (b) such
transferee or assignee agrees in writing to be bound by and subject to the
terms and conditions of this Agreement; and (c) such assignment shall be
effective only if immediately following such transfer the further disposition
of such securities by the transferee or assignee is restricted under the
Securities Act.

 

5.                                       Miscellaneous.

 

5.1.                              Transfers, Successors and Assigns.  The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties.  Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.

 

5.2.                              Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota without regard
to its principles of conflicts of laws.

 

5.3.                              Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  This Agreement may also be executed and
delivered by facsimile signature and in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

 

5.4.                              Titles and Subtitles.  The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

 

5.5.                              Notices. 
All notices and other communications
given or made pursuant to this Agreement shall be in writing and shall be
deemed effectively given:  (a) upon
personal delivery to the party to be notified, (b) when sent by confirmed
electronic mail or facsimile if sent during normal business hours of the
recipient, and if not so confirmed, then on the next business day, (c) five
(5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt.  

 

12

 

All communications shall be sent to the
respective parties at their address as set forth on the signature
page hereto, to the address indicated below, or to such email address,
facsimile number or address as subsequently modified by written notice given in
accordance with this Section 5.5.

 

To the
Company:

 

Granite
City Food & Brewery Ltd.

5402
Parkdale Drive, Suite 101

Minneapolis,
MN 55416

Facsimile No.: 952-215-0671

Attn:
Chief Financial Officer

 

with a
copy to:

 

Briggs &
Morgan, P.A.

2200
IDS Center

80
South 8th Street

Minneapolis,  MN 55402

Facsimile:
(612) 977-8650

Attn:  Avron Gordon

 

To the Investors:

 

At the addresses of such Investors set forth

in the Loan Agreement; with a copy to:

 

Maslon Edelman Borman &
Brand, LLP

3300 Wells Fargo Center

90 South 7th Street

Minneapolis, Minnesota
55402

Facsimile: (612) 642-8369

Attn:  Joseph Alexander

 

5.6.                              Severability.  The invalidity of unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.

 

5.7.                              Entire Agreement.  This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with respect to the subject matter hereof, and any other
written or oral agreement relating to the subject matter hereof existing
between the parties are expressly canceled.

 

Signature Page Follows

 

13

 

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

 

	
   

  	
  GRANITE
  CITY FOOD & BREWERY LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James
  G. Gilbertson

  
	
   

  	
   

  	
  Name: James
  G. Gilbertson

  
	
   

  	
   

  	
  Title:
  Chief Financial Officer

  

 

 

[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES OF HOLDERS TO FOLLOW]

 

14

 

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

 

 

	
   

  	
  NAME
  OF INDIVIDUAL INVESTOR:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  OR

  
	
   

  	
   

  
	
   

  	
  HARMONY EQUITY INCOME FUND, L.L.C.:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AUTHORIZED
  SIGNATORY

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eugene E. McGowan

  
	
   

  	
   

  	
  Name:
  Eugene E. McGowan

  
	
   

  	
   

  	
  Title:
  Managing Member

  

 

 

ADDRESS FOR NOTICE

 

15

 

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

 

 

	
   

  	
  NAME
  OF INDIVIDUAL INVESTOR:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  OR

  
	
   

  	
   

  
	
   

  	
  HARMONY EQUITY INCOME FUND II, L.L.C.:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AUTHORIZED
  SIGNATORY

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eugene E. McGowan

  
	
   

  	
   

  	
  Name:
  Eugene E. McGowan

  
	
   

  	
   

  	
  Title:
  Managing Member

  

 

 

ADDRESS FOR NOTICE

 

 

	
  c/o:

  	
  McGowan Capital Group

  	
   

  
	
  Street:
  201 S. Phillips Avenue, Suite 100

  	
   

  
	
  City/State/Zip:
  Sioux Falls, SD 57104

  	
   

  
	
  Attention:

  	
   

  	
   

  
	
  Tel:

  	
  (605) 357-5307

  	
   

  
	
  Fax:

  	
  (605) 357-5303

  	
   

  
	
  Email:

  	
  gene@mcgowancapitalgroup.com

  	
   

  
							

 

16

 

EXHIBIT D

COMPLIANCE
CERTIFICATE

 

	
  To:

  	
  Harmony Equity Income Fund, L.L.C. (“Administrative
  Agent”)

  
	
  Date:

  	
                                    ,
  20      

  
	
  Subject:

  	
  Financial Statements

  

 

In
accordance with our Bridge Loan Agreement dated as of March     ,
2009 (as amended, the “Credit Agreement”),
attached are the financial statements of Granite City Food & Brewery
Ltd., a Minnesota corporation (the “Borrower”) as
of and for
                                  ,
20       (the “Reporting
Date”) and the year-to-date period then ended (the “Current Financials”). 
All terms used in this certificate have the meanings given in the Credit
Agreement.

 

The
undersigned certifies that the Current Financials have been prepared in
accordance with GAAP, and fairly present the Borrowers’ financial condition as
of the date thereof.

 

Events of Default.  The undersigned further hereby certifies as
follows:  (Check one):

 

o            The
undersigned does not have knowledge of the occurrence of a Default or Event of
Default under the Credit Agreement except as previously reported in writing to
the Lender.

 

o            The
undersigned has knowledge of the occurrence of a Default or Event of Default
under the Credit Agreement not previously reported in writing to the Lender and
attached hereto is a statement of the facts with respect to thereto.  The Borrower acknowledges that pursuant to
2.5(b) of the Credit Agreement, the Lender may impose the Default Rate at
any time during the resulting Default Period.

 

Adverse Events of the Borrower.  The undersigned further hereby certifies as
follows (check one):

 

o            The
undersigned has no knowledge of any event constituting an Adverse Event to the
Borrowers.

 

o            The
undersigned has knowledge of an event or events constituting an Adverse Event
to the Borrowers, which has not been previously disclosed in writing to the
Lender.  Attached to this Certificate is
a statement of the facts with respect thereto.

 

Financial Covenants.  The undersigned further hereby certifies as
follows (check and complete each of the following):

 

1.             Minimum
Income from Restaurant Operations.  Pursuant to Section 5.2(a) of
the Credit Agreement, as of the Reporting Date, the operating
income from the Restaurant before interest, taxes, depreciation and
amortization (“IROP”), measured on a rolling three-month
average, was
$                              ,
which o satisfies o does not satisfy the requirement that
such amount be not less than the amount set forth opposite the applicable
period below:

 

	
  Period Ending

  	
   

  	
  Minimum IROP

  	
   

  
	
  March 31, 2009

  	
   

  	
  $

  	
  56,300

  	
   

  
					

 

 

	
  Period Ending

  	
   

  	
  Minimum IROP

  	
   

  
	
  April 28, 2009

  	
   

  	
  $

  	
  59,144

  	
   

  
	
  May 26, 2009

  	
   

  	
  $

  	
  65,794

  	
   

  
	
  June 30, 2009

  	
   

  	
  $

  	
  69,350

  	
   

  
	
  July 28, 2009

  	
   

  	
  $

  	
  72,654

  	
   

  
	
  August 25, 2009

  	
   

  	
  $

  	
  70,301

  	
   

  
	
  September 29, 2009

  	
   

  	
  $

  	
  67,533

  	
   

  
	
  October 27, 2009

  	
   

  	
  $

  	
  64,832

  	
   

  
	
  November 24, 2009

  	
   

  	
  $

  	
  62,537

  	
   

  
	
  December 29, 2009

  	
   

  	
  $

  	
  62,183

  	
   

  
	
  January 26, 2010

  	
   

  	
  $

  	
  58,735

  	
   

  
	
  February 23, 2010

  	
   

  	
  $

  	
  56,733

  	
   

  
	
  March 30, 2010

  	
   

  	
  $

  	
  56,300

  	
   

  
	
  April 27, 2010

  	
   

  	
  $

  	
  59,144

  	
   

  
	
  May 25, 2010

  	
   

  	
  $

  	
  65,794

  	
   

  
	
  June 29, 2010

  	
   

  	
  $

  	
  69,350

  	
   

  
	
  July 27, 2010

  	
   

  	
  $

  	
  72,654

  	
   

  
	
  August 31, 2010

  	
   

  	
  $

  	
  70,301

  	
   

  
	
  September 28, 2010

  	
   

  	
  $

  	
  67,533

  	
   

  
	
  October 26, 2010

  	
   

  	
  $

  	
  64,832

  	
   

  
	
  November 30, 2010

  	
   

  	
  $

  	
  62,537

  	
   

  
	
  December 28, 2010

  	
   

  	
  $

  	
  62,183

  	
   

  

 

2.             Minimum Consolidated Cash Flow.  Pursuant to Section 5.2(b) of
the Credit Agreement, as of the Reporting Date (provided such Reporting Date
coincides with the end of Borrowers’ fiscal quarter), the Borrowers’ net
consolidated revenue on a quarterly basis, was
$                            ,
which o satisfies o does not satisfy the requirement that
such amount be not less than the amount set forth below for such fiscal
quarter:

 

	
  Quarter Ending

  	
   

  	
  Net Revenue

  	
   

  
	
  March 31, 2009

  	
   

  	
  $

  	
  19,231,625

  	
   

  
	
  June 30, 2009

  	
   

  	
  $

  	
  23,137,580

  	
   

  
	
  September 29, 2009

  	
   

  	
  $

  	
  22,516,093

  	
   

  
	
  December 29, 2009

  	
   

  	
  $

  	
  22,840,619

  	
   

  
	
  March 30, 2010

  	
   

  	
  $

  	
  19,231,625

  	
   

  
	
  June 29, 2010

  	
   

  	
  $

  	
  23,137,580

  	
   

  
	
  September 28, 2010

  	
   

  	
  $

  	
  22,516,093

  	
   

  
	
  December 28, 2010

  	
   

  	
  $

  	
  22,840,619

  	
   

  

 

 

Attached
hereto are all relevant facts in reasonable detail to evidence, and the
computations of the financial covenants referred to above.  These computations were made in accordance
with GAAP.

 

	
   

  	
  GRANITE CITY FOOD & BREWERY LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Its:

  	
   

  

 

 

	
   

  	
  GRANITE CITY RESTAURANT OPERATIONS, 

  INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Its:

  	
   

  

 

 

SCHEDULE 2.1

LENDERS/LOAN AMOUNTS

 

	
  Lender

  	
   

  	
  Loan Amount

  	
   

  
	
  Harmony Equity Income Fund, L.L.C.

  	
   

  	
  $

  	
  400,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Harmony Equity Income Fund II, L.L.C.

  	
   

  	
  $

  	
  400,000.00

  	
   

  

 

 

SCHEDULE 4.3

OWNERSHIP DISCLOSURE

 

	
  Name of Subsidiary

  	
   

  	
  State of Incorporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Granite City — Arkansas, Inc.

  	
   

  	
  Arkansas

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Granite City — Orland Park, Inc.

  	
   

  	
  Illinois

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Granite City — Rockford, Inc.

  	
   

  	
  Illinois

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Granite City — Peoria, Inc.

  	
   

  	
  Illinois

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Granite City of Indiana, Inc.

  	
   

  	
  Indiana

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Granite City of Kansas Ltd.

  	
   

  	
  Kansas

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Granite City Restaurant Operations, Inc.

  	
   

  	
  Minnesota

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Granite City — Creve Coeur, Inc.

  	
   

  	
  Missouri

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Granite City of Ohio, Inc.

  	
   

  	
  Ohio

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00157-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00157-of-00352.parquet"}]]