Document:

Exhibit
10.7

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration
Rights Agreement (this “Agreement”) is made and entered into as of April
30, 2004 by and among Liberté Investors Inc., a Delaware corporation (“LBI”),
and the individuals listed on Exhibit A attached hereto (each a “USAuto
Holder” and collectively, the “USAuto Holders”).

 

WHEREAS,
this Agreement is entered into pursuant to the Agreement and
Plan of Merger, dated as of December 15, 2003 (the “Merger Agreement”),
by and among LBI, USAH Merger Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of LBI (“Merger Sub”), USAuto Holdings, Inc., a
Delaware corporation (“USAuto”), the USAuto Holders and each of the
other stockholders of USAuto set forth on the Schedule of USAuto Stockholders
attached thereto. Capitalized terms used but not defined in this Agreement
shall have the meanings given to such terms in the Merger Agreement;

 

WHEREAS,
the Merger Agreement provides that, subject to the terms and
conditions therein, USAuto will be merged with and into Merger Sub in a
transaction (the “Merger”) in which all outstanding shares of USAuto
Common Stock will be converted into the right to receive, and will be
exchangeable for, LBI Common Stock and/or cash as set forth in the Merger
Agreement; and

 

WHEREAS,
as an inducement for LBI, USAuto and the USAuto Holders to
approve the Merger Agreement and the transactions contemplated therein, LBI
desires to grant certain registration rights to the USAuto Holders as contained
herein.

 

NOW,
THEREFORE, in consideration of the foregoing recitals and the
mutual agreements hereinafter set forth, the parties hereto agree as follows:

 

1.             Registration Rights.

 

(a)           Definitions.

 

(i)            1933 Act.  The term “1933 Act”
means the Securities Act of 1933, as amended.

 

(ii)           1934 Act.  The term “1934 Act”
means the Securities Exchange Act of 1934, as amended.

 

(iii)          Affiliate.  The term “Affiliate”
means a Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with a specified Person.

 

(iv)          Form S-3.  The term “Form S-3” means such form
under the 1933 Act as is in effect on the date hereof or any successor
registration form under the 1933 Act subsequently adopted by the SEC that
permits inclusion or incorporation of substantial information by reference to
other documents filed by LBI with the SEC.

 

 

(v)           Immediate Family.  The term “Immediate Family” means,
with respect to a natural Person, the spouse, parents, children, grandchildren,
siblings, mother- and father-in-law, sons- and daughters-in-law, and brothers-
and sisters-in-law of such Person.

 

(vi)          Permitted Transferee.  The term “Permitted Transferee”
means, with respect to a USAuto Holder, (A) any member of such USAuto Holder’s
Immediate Family, (B) any Affiliate of such USAuto Holder, (C) such USAuto
Holder’s executor, administrator, trustee, or personal representative to whom
such Registrable Securities are transferred at death or involuntarily by
operation of law, (D) any trust established by such USAuto Holder for the
benefit of such holder’s Immediate Family, or (E) any family limited
partnership established by such USAuto Holder for estate planning purposes, the
limited partners of which are such USAuto Holder’s Immediate Family.

 

(vii)         Person.  The term “Person” means any human
being, organization, general partnership, limited partnership, corporation,
limited liability company, joint venture, trust, business trust, association,
governmental entity or other legal entity.

 

(viii)        Registration.  The terms “register,” “registered”
and “registration” refer to a registration effected by preparing and
filing a registration statement in compliance with the 1933 Act, and the
declaration or ordering of effectiveness of such registration statement.

 

(ix)           Registrable Securities.  The term “Registrable Securities”  means: 
(A) any shares of LBI Common Stock issued to a USAuto Holder pursuant to
Section 1.7 of the Merger Agreement (the “Merger Shares”); and (B) any
securities issued or issuable with respect to the Merger Shares by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
For purposes of this Agreement, any Registrable Securities shall cease to be
Registrable Securities when (x) a registration statement covering such
Registrable Securities has been declared effective and such Registrable
Securities have been disposed of pursuant to such effective registration
statement, or (y) such Registrable Securities are transferred in a transaction
that is exempt from registration pursuant to Rule 144 under the 1933 Act or a
transaction in which the USAuto Holders’ rights under this Agreement are not
assigned.  In addition, the Registrable
Securities held by any holder of Registrable Securities shall cease to be
Registrable Securities on such date on which all of the Registrable Securities
held by such holder can be sold pursuant to Rule 144(k) under the 1933 Act (or
any similar provision then in force).

 

(x)            SEC.  The term “SEC” or “Commission”
means the United States Securities and Exchange Commission.

 

(b)           Piggyback Registrations.  LBI shall notify all holders of Registrable
Securities in writing at least 30 days prior to filing any registration
statement under the 1933 Act for purposes of effecting a public offering of
securities of LBI (including, but not limited to, registration statements
relating to secondary offerings of securities of LBI, but excluding
registration statements relating to any registration under Section 1(c)
of this Agreement or any

 

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employee benefit plan or a corporate reorganization) and will afford
each such holder of Registrable Securities an opportunity to include in such
registration all or any part of the Registrable Securities then held by such
holder.  Each holder of Registrable
Securities desiring to include in any such registration all or any part of
their Registrable Securities shall, within 20 days after receipt of the above-described
notice from LBI, so notify LBI in writing, and in such notice shall inform LBI
of the number of Registrable Securities such holder wishes to include in such
registration. Notwithstanding any other provision of this Agreement, if LBI
determines in good faith that a limitation of the number of shares to be
registered is required, then LBI may exclude shares (including Registrable
Securities) from the registration, and the number of shares that may be
included in the registration shall be allocated, (x) in the case of a primary
public offering of securities by LBI, first, to LBI, second, to the holders of
Registrable Securities requesting inclusion of their Registrable Securities in
such registration and, third, to the other holders of securities of LBI
requesting inclusion of their securities in such registration and, (y) in the case of a secondary
public offering of LBI securities, first, to the holders of securities of LBI
requesting registration of their securities and, second, to the holders of
Registrable Securities requesting inclusion of their Registrable Securities in
such registration.  If LBI excludes shares from the registration
as described in the preceding sentence, then with respect to the Registrable
Securities then held by any holders of Registrable Securities, the number of
Registrable Securities to be included in the registration shall be in such
proportion as the number of Registrable Securities then held by such holder of
Registrable Securities bears to the total number of Registrable Securities then
held by all holders of Registrable Securities participating in the
registration.  If a holder of
Registrable Securities does not include all of its Registrable Securities in
any registration by LBI, such holder shall nevertheless continue to have the
right to include any Registrable Securities in any subsequent registration or
registrations by LBI with respect to offerings of its securities, all upon the
terms and conditions set forth herein.

 

(i)            Underwriting.  If a registration statement under which LBI
gives notice under this Section 1(b) is for an underwritten offering,
then LBI shall so advise the holders of Registrable Securities as a part of the
notice referred to in this Section 1(b).  In such event, the right of any such holder of Registrable
Securities to be included in a registration pursuant to this Section 1(b)
shall be conditioned upon such holder’s participation in such underwriting and
the inclusion of such holder’s Registrable Securities in the underwriting to
the extent provided herein.  All holders
of Registrable Securities proposing to distribute their Registrable Securities
through such underwriting shall enter into an underwriting agreement in
customary form with the managing underwriter or underwriter(s) selected for
such underwriting.  Notwithstanding any
other provision of this Agreement, if LBI or the managing underwriter(s)
determines in good faith that a limitation of the number of shares to be
underwritten is required, then LBI or the managing underwriter(s) may exclude
shares (including Registrable Securities) from the registration and the
underwriting, and the number of shares that may be included in the registration
and the underwriting shall be allocated, (x) in the case of a primary public
offering of securities by LBI, first, to LBI, second, to the holders of
Registrable Securities requesting inclusion of their Registrable Securities in
such registration and, third, to the other holders of securities of LBI
requesting inclusion of their securities in such registration and, (y) in the case of a secondary
public offering of LBI securities, first, to the holders of securities of LBI
requesting registration of their securities and, second, to the holders of
Registrable Securities requesting inclusion of their Registrable Securities

 

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in such
registration.  If any holder of Registrable Securities requesting
inclusion of its Registrable Securities disapproves of the terms of any such
underwriting, such holder may elect to withdraw therefrom by written notice to
LBI and the managing underwriter(s), delivered at least ten business days prior
to the effective date of the registration statement.  Any Registrable Securities excluded or withdrawn from such
underwriting shall be excluded and withdrawn from the registration.

 

(ii)           Expenses.  All expenses incurred in connection with
registrations pursuant to this Section 1(b) (excluding underwriters’ and
brokers’ discounts and commissions and fees and expenses of counsel to any
holder of Registrable Securities including Registrable Securities in any such
registration), including, without limitation, all federal and “blue sky”
registration and qualification fees, printers’ and accounting fees, and fees
and disbursements of counsel for LBI, shall be borne by LBI.

 

(c)           Form
S-3 Registration.  If at any time
after the third anniversary of the date of this Agreement, LBI receives from
any holder of Registrable Securities or group of holders of Registrable
Securities holding at least 25% of all Registrable Securities then outstanding
a written request or requests that LBI effect a registration on Form S-3 and
any related qualification or compliance, then LBI will:

 

(i)            Notice.  Promptly give written notice of the proposed
registration and the holder’s or holders’ of Registrable Securities request
therefor, and any related qualification or compliance, to all other holders of
Registrable Securities. Each holder of Registrable Securities desiring to
include in any such registration all or any part of the Registrable Securities
held by such holder shall, within 20 days after receipt of the above-described
notice from LBI, so notify LBI in writing and, in such notice, shall inform LBI
of the maximum number of Registrable Securities such holder wishes to include
in such registration.

 

(ii)           Registration.  As soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of up to all of the
Registrable Securities then outstanding. 
The number of Registrable Securities of each holder included in such
registration shall be allocated on a pro rata basis based on the total number
of Registrable Securities requested to be included in such registration by the
requesting holders and the holders of Registrable Securities joining in such
request as specified in a written request given within 20 days after receipt of
such written notice from LBI; provided, however, that LBI shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 1(c):

 

(A)          if Form S-3 is not available for such
offering by the holders of Registrable Securities;

 

(B)           if the holders of Registrable
Securities propose to sell Registrable Securities at an aggregate price to the
public of less than $2,000,000;

 

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(C)           if LBI shall furnish to the holders
of Registrable Securities a certificate signed by the Chairman of LBI stating
that in the good faith judgment of the Board of Directors of LBI, it would be
materially detrimental to LBI or its business for such Form S-3 registration to
be effected at such time or, if such Form S-3 registration has already been
effected, for resales of Registrable Securities to be made pursuant to such
Form S-3 registration statement, in which event LBI shall have the right to
defer the filing of the Form S-3 registration statement no more than once
during any 12-month period for a period of not more than 180 days after receipt
of the request of the holder or holders of Registrable Securities under this Section
1(c) and the use of the Form S-3 registration statement and the prospectus
related thereto will be deferred or suspended and will not recommence until (x)
the holders of Registrable Securities requesting inclusion of their Registrable
Securities in such Form S-3 registration receive from LBI copies of the
supplemented or amended prospectus related to the registration statement or (y)
the holders of Registrable Securities requesting inclusion of their Registrable
Securities in such Form S-3 registration are advised in writing by LBI that the
prospectus related to the registration statement may be used, as applicable;
provided, however, that if LBI shall so delay the filing of a registration
statement, it shall promptly notify the applicable holders of Registrable
Securities of such determination, and such holders of Registrable Securities
shall have the right to withdraw the relevant request for registration, in
which case such registration shall not count towards the limit set forth in Section
1(c)(ii)(D);

 

(D)          if LBI has already effected a
registration on Form S-3 for the holders of Registrable Securities pursuant to
this Section 1(c) within the twelve (12)-month period immediately
preceding receipt of the written request for such registration;

 

(E)           if the SEC refuses to declare
such registration statement effective due to the participation of any
particular holder of Registrable Securities in such registration (unless such
holder of Registrable Securities withdraws all such holder’s Registrable
Securities from such registration) or if the manner in which any Registrable
Securities are disposed of pursuant to the Form S-3 registration statement is
not included within the plan of distribution set forth in the prospectus for
the Form S-3 registration statement; or

 

(F)           in any particular jurisdiction in
which LBI would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.

 

Subject to the
foregoing, LBI shall file a Form S-3 registration statement covering the
Registrable Securities and other securities so requested to be registered
pursuant to this Section 1(c) as soon as practicable, and in any event
no later than 90 days, after receipt of the request or requests of the holders
of Registrable Securities for such registration.

 

(iii)          Expenses.  LBI shall pay all expenses incurred in
connection with the registration requested pursuant to this Section 1(c)
(excluding underwriters’ or brokers’ discounts and commissions), including,
without limitation, all filing, registration

 

5

 

and qualification,
printers’ and accounting fees and the reasonable fees and disbursements of one
(1) counsel for the selling holder or holders of Registrable Securities and
counsel for LBI. Each holder of Registrable Securities participating in such
registration shall bear such holder’s proportionate share (based on the number
of shares sold by such holder over the total number of shares included in such
registration at the time it goes effective) of all discounts, commissions or
other amounts payable to underwriters or brokers in connection with such offering.

 

(iv)          Manner of Sales.
Any sale of Registrable Securities pursuant to a registration effected pursuant
to this Section 1(c) may only be made in accordance with the method or
methods of distribution of such Registrable Securities that are described in
the registration statement for the registration and permitted by such form of
registration statement.  No sale of
Registrable Securities pursuant to any registration effected pursuant to this Section
1(c) may be effected pursuant to any underwritten offering without LBI’s
prior written consent, which consent will not be unreasonably withheld.

 

Notwithstanding anything to the contrary contained
herein, in the event of the death of either USAuto Holder prior to the third
anniversary of the date hereof, such USAuto Holder’s executor, administrator,
trustee, or personal representative to whom such USAuto Holder’s Registrable
Securities are transferred upon such death shall be entitled to request the
registration of such Registrable Securities pursuant to the terms of this Section
1(c) at any time thereafter, provided that any such request and
registration shall be subject to all of the other limitations specified herein.

 

(d)           Obligations
of LBI.  Whenever required to effect
the registration of any Registrable Securities under this Agreement, LBI shall,
as expeditiously as reasonably practicable:

 

(i)            prepare
and file with the SEC a registration statement relating to the applicable
registration on the appropriate form under the 1933 Act, which form shall be available
for the sale of the Registrable Securities in accordance with the intended
method or methods of distribution thereof and shall include all financial
statements of LBI, and use commercially reasonable efforts to cause such
registration statement to become effective; provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
including documents incorporated by reference after the filing of the
registration statement, LBI will furnish one counsel selected by the holders of
a majority of the shares of Registrable Securities covered by such registration
statement, copies of all such documents proposed to be filed, which documents,
subject to compliance with applicable securities laws, will be subject to the
review of such counsel, and LBI will not file any registration statement or
amendment thereto or any prospectus or any supplement thereto (excluding any
documents incorporated by reference) to which such counsel shall reasonably
object;

 

(ii)           prepare and file with the SEC such amendments
and post-effective amendments to the registration statement as may be necessary
to keep the registration statement effective for the applicable period
specified (but in no event shall LBI be required to keep such registration
statement effective for more than 12 months), or such

 

6

 

shorter period which will terminate when all Registrable Securities
covered by such registration statement have been sold; cause the prospectus to
be supplemented by any required prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the 1933 Act; and comply with the
provisions of the 1933 Act with respect to disposition of all securities
covered by such registration statement during the applicable period in
accordance with the intended method or methods of distribution by the sellers
thereof set forth in such registration statement or supplement to the
prospectus; LBI shall not be deemed to have used commercially reasonable
efforts to keep a registration statement effective during the applicable period
if it voluntarily takes any action that would result in selling holders of the
Registrable Securities covered thereby not being able to sell such Registrable
Securities during that period unless such action is required under applicable
law; provided that the foregoing shall not apply to actions taken by LBI in
good faith and for valid business reasons, including without limitation,
merger, acquisition or divesture of assets or other material transaction, so
long as LBI promptly thereafter complies with the requirements of Section
2(d)(ix) hereof, if applicable;

 

(iii)          notify
the selling holders of Registrable Securities promptly, and (if requested by
any such Person) confirm such notification in writing, (A) when the prospectus
or any prospectus supplement or post-effective amendment has been filed, and
with respect to the registration statement or any post-effective amendment,
when the same has become effective, (B) of any request by the SEC for
amendments or supplements to the registration statement or the prospectus or
for additional information, (C) of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose, (D) of the receipt by LBI of any notification
with respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose and (E) of the happening of any event which makes
any statement made in the registration statement, the prospectus or any
document incorporated therein by reference untrue or which requires the making
of any changes in the registration statement, the prospectus or any document
incorporated therein by reference in order to make the statements therein not
misleading;

 

(iv)          use commercially reasonable efforts to obtain
the withdrawal of any order suspending the effectiveness of the registration
statement at the earliest possible moment;

 

(v)           furnish
to each selling holder of Registrable Securities, without charge, at least one
signed copy of the registration statement and any post-effective amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those
incorporated by reference);

 

(vi)          deliver to each selling holder of Registrable
Securities, without charge, as many copies of the prospectus (including each
preliminary prospectus) and any amendment or supplement thereto (in each case
including all exhibits) as such Persons may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Person;
LBI consents to the use of the prospectus or any amendment or

 

7

 

supplement thereto by each of the selling holders of Registrable
Securities in connection with the offering and sale of the Registrable
Securities covered by the prospectus or any amendment or supplement thereto;

 

(vii)         prior
to any public offering of Registrable Securities, use commercially reasonable
efforts to register or qualify or cooperate with the selling holders of
Registrable Securities and their respective counsel in connection with the
registration or qualification of such Registrable Securities for offer and sale
under the securities or blue sky laws of such jurisdictions as any seller
reasonably requests in writing and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the registration
statement; provided, however, that LBI 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;

 

(viii)        cooperate
with the selling holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any restrictive legends except as required by the
Certificate of Incorporation of LBI; and enable such Registrable Securities to
be in such denominations and registered in such names as the holders of such
Registrable Securities may request at least two business days prior to any sale
of Registrable Securities;

 

(ix)           upon
the occurrence of any event contemplated by Section 2(d)(iii)(E) above,
subject to LBI’s ability to postpone the preparation of such supplement or
amendment pending the public announcement of a material event such as a merger
or acquisition or divestiture of assets, prepare a supplement or post-effective
amendment to the registration statement or the related prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable
Securities, the prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein not misleading;

 

(x)            cause
all shares owned by the holders of Registrable Securities covered by the
registration statement to be listed on each securities exchange on which
similar securities issued by LBI are then listed; and

 

(xi)           make
available for inspection by representatives of the holders of the Registrable
Securities and any attorney or accountant retained by the sellers, all
financial and other records, pertinent corporate documents and properties of
LBI and cause LBI’s officers, directors and employees to supply all information
reasonably requested by any such representative, attorney or accountant in
connection with such registration; provided that any records, information or
documents that are designated by LBI in writing as confidential shall be kept
confidential by such Persons unless disclosure of such records, information or
documents is required by court or administrative order.

 

Each holder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon receipt of any notice
from LBI of the happening of any event of the kind

 

8

 

described in Section 2(d)(ix) hereof, such
holder will forthwith discontinue disposition of Registrable Securities until
such holder’s receipt of the copies of the supplemented or amended prospectus
contemplated by Section 2(d)(ix) hereof, or until it is advised in
writing (the “Advice”) by LBI that the use of the prospectus may be
resumed, and has received copies of any additional or supplemental filings
which are incorporated by reference in the prospectus, and, if so directed by
LBI such holder will deliver to LBI (at LBI’s expense), all copies, other than
permanent file copies then in such holder’s possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.

 

(e)           Furnish
Information.  It shall be a
condition precedent to the obligations of LBI to take any action pursuant to Section
1(b) or 1(c) that the selling holders of Registrable Securities
shall furnish to LBI such information regarding themselves and the Registrable
Securities held by them, and the intended method of disposition of such
securities, as shall be reasonably required to timely effect the registration
of their Registrable Securities.

 

(f)            Indemnification. 
In the event any Registrable Securities are included in a registration
statement under Section 1(b) or (c).

 

(i)            By LBI.  To the extent permitted by law, LBI will
indemnify and hold harmless each holder of Registrable Securities that has
included Registrable Securities in such registration statement, any underwriter
(as defined in the 1933 Act) for such holders, each of their respective
representatives and agents and such holders’ of Registrable Securities legal
counsel and independent accountants, and each person, if any, who controls such
holder of Registrable Securities or underwriter within the meaning of the 1933
Act or the 1934 Act, against any and all losses, claims, damages or liabilities
to which they may become subject under the 1933 Act, the l934 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 (each of the following being a “Violation”):

 

(A)          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,
offering circular, or other document or any amendments or supplements thereto
incident to any such registration, qualification or compliance;

 

(B)           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

 

(C)           any violation or alleged
violation by LBI of the 1933 Act, the 1934 Act, any federal or state securities
law or any rule or regulation promulgated under the 1933 Act, the 1934 Act or
any federal or state securities law in connection with any action or inaction
by LBI in connection with the offering covered by such registration statement;

 

9

 

and LBI will reimburse each such holder of Registrable
Securities, each of their respective representatives and agents and such
holder’s legal counsel and independent accountants, underwriter or controlling
person if any, for any legal or other expenses reasonably incurred by them, as
incurred, in connection with investigating, preparing or defending any such
loss, claim, damage, liability or action; provided however, that the indemnity
agreement contained in this subsection 1(g)(i) 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 LBI (which consent shall
not be unreasonably withheld or delayed), nor shall LBI 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 information furnished in writing for use in connection with
such registration by such holder of Registrable Securities, representative,
agent, legal counsel, independent accountant, underwriter or controlling
person, if any, of such holder of Registrable Securities.

 

(ii)           By
Selling Holders of Registrable Securities. 
To the extent permitted by law, each selling holder of Registrable
Securities, severally but not jointly, if Registrable Securities held by such
holder of Registrable Securities are included in the securities as to which
such registration, qualification or compliance is being effected, will
indemnify and hold harmless LBI, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls LBI within the meaning of the 1933 Act, any
underwriter and any other holder of Registrable Securities selling securities
under such registration statement, each of their respective representatives and
agents and such holder’s legal counsel and independent accountants, or any
person who controls such holder within the meaning of the 1933 Act or the 1934
Act, against any and all losses, claims, damages or liabilities (joint or several)
to which they may become subject under the 1933 Act, the 1934 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 Violation
under subsection 1(g)(i)(A) or (B), in each case to the extent
(and only to the extent) that such Violation under subsection 1(g)(i)(A)
or (B) occurs in reliance upon and in conformity with written
information furnished by such holder of Registrable Securities for use in
connection with such registration; and each such holder of Registrable
Securities will reimburse any legal or other expenses reasonably incurred by
LBI or any such director, officer, controlling person, underwriter or other
holder of Registrable Securities, representative, agent, legal counsel,
independent accountant or controlling person of such other holder of
Registrable Securities in connection with investigating, preparing or defending
any such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 1(g)(ii) 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 applicable
holder of Registrable Securities (which consent shall not be unreasonably
withheld); and provided further, that the total amounts payable in indemnity by
a holder of Registrable Securities under this Section 1(g)(ii) in
respect of any Violation under subsection 1(g)(i)(A) or (B) shall
not exceed the net proceeds received by such holder of Registrable Securities
in the registered offering out of which such Violation under subsection
1(g)(i)(A) or (B) arises.

 

10

 

(iii)          Conduct of Indemnification Proceedings. Any Person entitled to indemnification
hereunder will (A) give prompt notice to the indemnifying party of any claim
with respect to which it seeks indemnification and (B) permit such indemnifying
party to assume the defense of such claim with counsel reasonably satisfactory
to the indemnified party; provided, however, that any Person entitled to
indemnification hereunder shall have the right to employ separate counsel and
to participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such Person unless (x) the indemnifying
party has agreed to pay such fees or expenses, (y) the indemnifying party shall
have failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such Person or (z) based upon advice of counsel of such Person,
a conflict of interest may exist between such Person and the indemnifying party
with respect to such claims (in which case, if the Person notifies the
indemnifying party in writing that such Person elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying party shall
not be permitted to assume the defense of such claim on behalf of such Person),
in each of which events the fees and expenses of such counsel shall be at the
expense of the indemnifying party. The indemnifying party will not be subject
to any liability for any settlement made without its consent (but such consent
will not be unreasonably withheld), but if settled with its written consent, or
if there be a final judgment for the plaintiff in any such action or
proceeding, the indemnifying party shall indemnify and hold harmless the
indemnified parties from and against any loss or liability (to the extent
stated above) by reason of such settlement or judgment. No indemnified party
will be required to consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation.

 

(iv)          Defect
Eliminated in Final Prospectus. The foregoing indemnity agreements of LBI
and the holders of Registrable Securities are subject to the condition that,
insofar as they relate to any Violation made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the “Final
Prospectus”), such indemnity agreement shall not inure to the benefit of
any person or entity if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person or entity asserting the
loss, claim, damage or liability at or prior to the time such action is
required by the 1933 Act.

 

(v)           Contribution.
In order to provide for just and equitable contribution to joint liability
under the 1933 Act in any case in which either (A) any holder of Registrable
Securities exercising rights under this Agreement, or any controlling person of
any such holder of Registrable Securities, makes a claim for indemnification
pursuant to this Section 1(g) 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 1(g) provides for indemnification in such case,
or (B) contribution may be required on the part of LBI and any such selling
holder of Registrable Securities or any such controlling person in
circumstances for which

 

11

 

indemnification is
provided under this Section 1(g); then, and in each such case, such
indemnifying party will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) (x)
in such proportion so that such holder of Registrable Securities is responsible
for the portion represented by the percentage that the public offering price of
its Registrable Securities offered by and sold under the registration bears to
the public offering price of all securities offered by and sold under such
registration, and LBI and other selling holders of Registrable Securities are
responsible for the remaining portion or (y) if the allocation provided by
clause (x) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (x)
above but also the relative fault of LBI and the holders of Registrable
Securities in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of LBI and of the holders of Registrable
Securities 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
LBI or by the holders of Registrable Securities and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The holders’ of Registrable Securities respective
obligations to contribute pursuant to this Section 1(g)(v) are several
in proportion to the respective number of Registrable Securities they sell in
the offering as to which such Violation relates, and not joint. No such holder
of Registrable Securities will be required to contribute any amount in excess
of the public offering price of all such Registrable Securities offered and
sold by such holder of Registrable Securities pursuant to such registration
statement; and no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

 

(vi)          Survival.
The obligations of LBI and the holders of Registrable Securities under this Section
1(g) shall survive the completion of any offering of Registrable Securities
in a registration statement, and
otherwise.

 

(g)           Rule 144. LBI hereby agrees that it will file the reports required to be filed
by it under the 1933 Act and the 1934 Act and the rules and regulations adopted
by the SEC thereunder, and it will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the 1933 Act within the limitation of the exemptions
provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from
time to time, or (ii) any similar rule or regulation hereafter adopted by the
SEC. Upon the request of any holder of Registrable Securities, LBI will deliver
to such holder a written statement as to whether it has complied with such
information and requirements.

 

2.             Hold-Back Agreements. Each holder of Registrable Securities agrees
that, in connection with an underwritten public offering of LBI equity
securities, upon the request of LBI or the principal underwriter managing such
public offering, no shares of LBI equity securities held by such holder may be
sold, offered for sale or otherwise disposed of without the prior written
consent of LBI or such underwriter, as the case may be, for up to one hundred

 

12

 

eighty (180) days after the effectiveness of the registration statement
filed in connection with such offering, if all of LBI’s directors and officers
agree to be similarly bound, and releases from any and all lock-up agreements
in connection with such offering are granted on a pro-rata basis. This Section
2 shall no longer apply six (6) months after the holder ceases to be an
officer, director or 5% or more stockholder of LBI, as the case may be.

 

3.             Assignment and
Amendment.

 

(a)           Assignment.
Notwithstanding anything herein to the contrary:

 

(i)            Registration
Rights; Refusal Rights. The registration rights of a holder of Registrable
Securities under Section 1 hereof may be assigned only to a Permitted
Transferee or a party who acquires at least 940,000 shares of Registrable
Securities (as such number shall be adjusted for stock splits, dividends,
combinations and similar transactions); provided, however, that no party may be
assigned any of the foregoing rights unless LBI is given written notice by the
assigning party at the time of such assignment stating the name and address of
the assignee and identifying the securities of LBI as to which the rights in
question are being assigned; and provided further that any such assignee shall
receive such assigned rights subject to all the terms and conditions of this
Agreement, including, without limitation, the provisions of this Section 3.

 

(ii)           Aggregation.  Shares of LBI Common  Stock owned by holders of Registrable
Securities which are partnerships, limited liability companies, corporations
and other entities having substantially common ownership interests or managed
by the same principals or investment advisors or owned by individual investors
affiliated with one another (“Affiliated Investors”) shall be aggregated
for the purposes of this Agreement, and, notwithstanding anything to the
contrary contained in this Agreement, all rights granted to the holders of
Registrable Securities pursuant to this Agreement may be assigned between
Affiliated Investors.

 

(b)           Amendment
of Rights. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively) only with the written consent of LBI
and holders of Registrable Securities (and/or any of their permitted successors
or assigns) holding shares of LBI Common Stock representing a majority of all
the Registrable Securities. Any amendment or waiver effected in accordance with
this Section 3(b) shall be binding upon each holder of Registrable
Securities and/or any of their permitted successors or assigns and LBI.

 

4.             Limitations on
Subsequent Registration Rights; No Existing Registration Rights.  From and after the date of this Agreement,
LBI shall not, without the prior written consent of the Persons owning in the
aggregate at least a majority of the Registrable Securities then issued and
outstanding enter into any agreement with any holder or prospective holder of
any securities of LBI which would allow such holder or prospective holder to
include such securities in any registration filed under Section 1(c) of this
Agreement, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of such holder’s securities will not reduce the

 

13

 

amount of the
Registrable Securities of the USAuto Holders and their permitted successors and
assigns which is included.  LBI
represents and warrants to the USAuto Holders that other than (i) that certain
Registration Rights Agreement, dated as of July 1, 2002, between LBI and Donald
J. Edwards and (ii) that certain Registration Rights Agreement, dated as of
August 16, 1996, between LBI and Hunter’s Glen/Ford, Ltd., a Texas limited
partnership, there are no “registration rights” relating to securities of LBI
that exist on the date hereof other than those provided herein.

 

5.             Miscellaneous.

 

(a)           Notices. Any and all notices required or
permitted to be given to a party pursuant to the provisions of this Agreement
shall be in writing and shall be effective and deemed to provide such party
sufficient notice under this Agreement on the earliest of the following: (i) at
the time of personal delivery, if delivery is in person; (ii) one business day
after deposit with an express overnight courier for United States deliveries,
or three business days after such deposit for deliveries outside of the United
States, with proof of delivery from the courier requested; or (iii) three
business days after deposit in the United States mail by certified mail (return
receipt requested) for United States deliveries.  All notices for
delivery outside the United States will be sent by express courier. All notices
not delivered personally will be sent with postage and/or other charges prepaid
and properly addressed to the party to be notified at the address as follows,
or at such other address as such other party may designate by one of the
indicated means of notice herein to the other parties hereto as follows:

 

(i)            if
to a USAuto Holder, at such USAuto Holder’s respective address as set forth on
Exhibit A hereto;

 

(ii)           if
to any other holder of Registrable Securities, at such address and to the
attention of such person as such holder of Registrable Securities has specified
by prior written notice to LBI; and

 

(iii)          if
to LBI, marked “Attention: President”, at 3813 Green Hills Village Drive,
Nashville, Tennessee 37215.

 

Any party may
change its address or the designation of the intended recipient of notice
provided that it notifies the other party(ies) in accordance with the terms of
this Section 5(a).

 

(b)           Entire Agreement.  This Agreement, together with all the Exhibits hereto, and the
Merger Agreement and each of the other agreements and documents referred to
therein, constitute and contain the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersede any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.

 

(c)           Governing Law. This Agreement shall be
governed by and construed exclusively in accordance with the internal laws of
the State of Delaware, without giving effect to any choice of law or conflict
of law provision (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware.  All disputes arising
out of this Agreement or the obligations of the parties hereunder, including
disputes that may arise following termination of this Agreement, shall be
subject to the exclusive jurisdiction of the Chancery or other courts of the
State of Delaware.

 

14

 

(d)           Severability.
If any covenant or provision hereof is determined to be void or unenforceable
in whole or in part, it shall not be deemed to affect or impair the invalidity
of any other covenant or provision, each of which is hereby declared to be
separate and distinct.  If any provision
of this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.  If any provision of this Agreement is declared invalid or unenforceable
for any reason other than overbreadth, the offending provision will be modified
so as to maintain the essential benefits of the bargain among the parties
hereto to the maximum extent possible, consistent with law and public policy.

 

(e)           Third Parties. Nothing in this Agreement,
express or implied, is intended to confer upon any person or entity, other than
the parties hereto and their permitted successors and assigns, any rights or
remedies under or by reason of this Agreement.

 

(f)            Successors
And Assigns. Subject to the provisions of Section 3(a), the
provisions of this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and permitted assigns of the parties hereto
including, without limitation and without the need for an express assignment,
subsequent holders of Registrable Securities.

 

(g)           Captions. The captions to sections of this
Agreement have been inserted for identification and reference purposes only and
shall not be used to construe or interpret this Agreement.

 

(h)           Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.

 

(i)            Costs And Attorneys’ Fees. In the event
that any action, suit or other proceeding is instituted concerning or arising
out of this Agreement or any transaction contemplated hereunder, the prevailing
party shall recover all of such party’s costs and attorneys’ fees incurred in
each such action, suit or other proceeding, including any and all appeals or
petitions therefrom.

 

(j)            Adjustments
for Stock Splits, Etc.. Wherever in this Agreement there is a reference to
a specific number of shares of LBI Common Stock, then, upon the occurrence of
any subdivision, combination or stock dividend of such stock occurring after
the date of this Agreement, the specific number of shares so referenced in this
Agreement shall automatically be proportionally adjusted to reflect the affect
on the outstanding shares of such stock by such subdivision, combination or
stock dividend.

 

15

 

In Witness
Whereof, the parties hereto have executed this Agreement as of the date first
above written.

 

	
   

  	
  LIBERTÉ INVESTORS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donald J. Edwards

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Donald J. Edwards

  
	
   

  	
  Title:  Chief Executive Officer and President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Stephen J. Harrison

  	
   

  
	
   

  	
  Stephen J. Harrison

  
	
   

  	
   

  
	
   

  	
  /s/ Thomas M. Harrison

  	
   

  
	
   

  	
  Thomas M. Harrison

  
					

 

16

 

EXHIBIT
A

 

Schedule
of USAuto Holders

 

Stephen J. Harrison

3813 Green Hills Village
Drive

Nashville, Tennessee
37215

Fax:  (615) 327-2266

 

Thomas M. Harrison

3813 Green Hills Village
Drive

Nashville, Tennessee
37215

Fax:  (615) 327-2266

 

17Exhibit 10.1

 

BUSINESS
LOAN AGREEMENT

 

	
  Principal 

  	
   

  	
  Loan Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No 

  	
   

  	
  Call/Coll 

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  
	
  $

  	
  750,000.00

  	
   

  	
  04-14-2004

  	
   

  	
  09-01-2004

  	
   

  	
  76601

  	
   

  	
  0026

  	
   

  	
   

  	
   

  	
  CD

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  References in the shaded area are for
  Lender’s use only and do not limit the applicability of this document to any

  particular loan or item.

  Any item above containing “***” has been omitted due to text length
  limitations.

  
	
   

  
	
  Borrower:

  	
  Granite
  City Food & Brewery Ltd.,

  a Minnesota Corporation

  (TIN: 41-1883639)

  5831 CEDAR LAKE ROAD

  ST. LOUIS PARK, MN  55416

  	
   

  	
  Lender:

  	
  First
  National Bank

  Pierre

  125 W. Sioux Avenue

  P.O. Box 730

  Pierre, SD  57501

  
																				

 

THIS BUSINESS LOAN AGREEMENT dated
April 14, 2004, is made and executed between Granite City Food &
Brewery Ltd., a Minnesota Corporation (“Borrower”) and First National Bank
(“Lender”) on the following terms and conditions.  Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans or other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement (“Loan”).  Borrower understands and agrees that: (A) in granting, renewing,
or extending any Loan, Lender is relying upon Borrower’s representations,
warranties, and agreements as set forth in this Agreement; (B) the
granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender’s sole judgment and discretion; and (C) all such Loans shall
be and remain subject to the terms and conditions of this Agreement.

 

TERM.  This
Agreement shall be effective as of April 14, 2004, and shall continue in
full force and effect until such time as all of Borrower’s Loans in favor of
Lender have been paid in full, including principal, interest, costs, expenses,
attorneys’ fees, and other fees and charges, or until September 1, 2004.

 

CONDITIONS PRECEDENT TO EACH ADVANCE. 
Lender’s obligation to make the initial Advance and each subsequent
Advance under this Agreement shall be subject to the fulfillment to Lender’s
satisfaction of all of the conditions set forth in this Agreement and in the
Related Documents.

 

Loan Documents. 
Borrower shall provide to Lender the following documents for the Loan:
(1) the Note; (2) Security Agreements granting to Lender security interests in
the Collateral; (3) financing statements and all other documents perfecting
Lender’s Security Interests; (4) evidence of insurance as required below; (5)
guaranties; (6) together with all such Related Documents as Lender may require
for the Loan; all in form and substance satisfactory to Lender and Lender’s
counsel.

 

Borrower’s Authorization. 
Borrower shall have provided in form and substance satisfactory to
Lender properly certified resolutions, duly authorizing the execution and
delivery of this Agreement, the Note and the Related Documents.  In addition, Borrower shall have provided
such other resolutions, authorizations, documents and instruments as Lender or
its counsel, may require.

 

Payment of Fees and Expenses. 
Borrower shall have paid to Lender all fees, charges, and other expenses
which are then due and payable as specified in this Agreement or any Related
Document.

 

Representations and Warranties. 
The representations and warranties set forth in this Agreement, in the
Related Documents, and in any document or certificate delivered to Lender under
this Agreement are true and correct.

 

No Event of Default. 
There shall not exist at any time of any Advance a condition which would
constitute an Event of Default under this Agreement or under any Related
Document.

 

REPRESENTATIONS AND WARRANTIES. 
Borrower represents and warrants to Lender, as of the date of this
Agreement, as of the date of each disbursement of loan proceeds, as of the date
of any renewal, extension or modification of any Loan, and at all times any
Indebtedness exists:

 

Organization. 
Borrower is a corporation for profit which is, and at all times shall
be, duly organized, validly existing, and in good standing under and by virtue
of the laws of the State of Minnesota. 
Borrower

 

 

is duly authorized
to transact business in all other states in which Borrower is doing business,
having obtained all necessary filings, governmental licenses and approvals for
each state in which Borrower is doing business.  Specifically, Borrower is, and at all times shall be, duly
qualified as a foreign corporation in all states in which the failure to so
qualify would have a material adverse effect on its business or financial
condition.  Borrower has the full power
and authority to own its properties and to transact the business in which it is
presently engaged or presently proposes to engage.  Borrower maintains an office at 5831 CEDAR LAKE ROAD,
ST. LOUIS PARK, MN  55416.  Unless Borrower has designated otherwise in
writing, the principal office is the office at which Borrower keeps its books
and records including its records concerning the Collateral.  Borrower will notify Lender prior to any
change in the location of Borrower’s state of organization or any change in
Borrower’s name.  Borrower shall do all
things necessary to preserve and to keep in full force and effect its
existence, rights and privileges, and shall comply with all regulations, rules,
ordinances, statutes, orders and decrees of any governmental or
quasi-governmental authority or court applicable to Borrower and Borrower’s
business activities.

 

Assumed Business Names. 
Borrower has filed or recorded all documents or filings required by law
relating to all assumed business names used by Borrower.  Excluding the name of Borrower, the
following is a complete list of all assumed business names under which Borrower
does business:  None.

 

Authorization. 
Borrower’s execution, delivery, and performance of this Agreement and
all the Related Documents have been duly authorized by all necessary action by
Borrower and do not conflict with, result in a violation of, or constitute a
default under (1) any provision of (a) Borrower’s articles of incorporation or
organization, or bylaws, or (b) any agreement or other instrument binding upon
Borrower or (2) any law, governmental regulation, court decree, or order
applicable to Borrower or to Borrower’s properties.

 

Financial Information. 
Each of Borrower’s financial statements supplied to Lender truly and
completely disclosed Borrower’s financial condition as of the date of the
statement, and there has been no material adverse change in Borrower’s
financial condition subsequent to the date of the most recent financial
statement supplied to Lender.  Borrower
has no material contingent obligations except as disclosed in such financial
statements.

 

Legal Effect. 
This Agreement constitutes, and any instrument or agreement Borrower is
required to give under this Agreement when delivered will constitute legal,
valid, and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms.

 

Properties. 
Except as contemplated by this Agreement or as previously disclosed in
Borrower’s financial statements or in writing to Lender and as accepted by
Lender, and except for property tax liens for taxes not presently due and
payable, Borrower owns and has good title to all of Borrower’s properties free
and clear of all Security Interests, and has not executed any security
documents or financing statements relating to such properties.  All of Borrower’s properties are titled in
Borrower’s legal name, and Borrower has not used or filed a financing statement
under any other name for at least the last five (5) years.

 

Hazardous Substances. 
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (1) During the period of Borrower’s ownership of
Borrower’s Collateral, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any Hazardous Substance
by any person on, under, about or from any of the Collateral.  (2) Borrower has no knowledge of, or reason
to believe that there has been (a) any breach or violation of any Environmental
Laws; (b) any use, generation, manufacture, storage, treatment, disposal,
release or threatened release of any Hazardous Substance on, under, about or
from the Collateral by any prior owners or occupants of any of the Collateral;
or (c) any actual or threatened litigation or claims of any kind by any person
relating to such matters.  (3) Neither
Borrower nor any tenant, contractor, agent or other authorized user of any of
the Collateral shall use, generate, manufacture, store, treat, dispose of or
release any Hazardous Substance on, under, about or from any of the Collateral;
and any such activity shall be conducted in compliance with all applicable
federal, state, and local laws, regulations, and ordinances, including without
limitation of all Environmental Laws. 
Borrower authorizes Lender and its agents to enter upon the Collateral
to make such inspections and tests as Lender may deem appropriate to determine
compliance of the Collateral with this section of the Agreement.  Any inspections or tests made by Lender
shall be at Borrower’s expense and for Lender’s purposes only and shall not be
construed to create any responsibility or liability on the part of Lender to
Borrower or to any other person.  The
representations and warranties contained herein are based

 

 

on Borrower’s due
diligence in investigating the Collateral for hazardous waste and Hazardous
Substances.  Borrower hereby
(1) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other costs
under any such laws, and (2) agrees to indemnify and hold harmless Lender
against any and all claims, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a consequence of any
use, generation, manufacture, storage, disposal, release or threatened release
of a hazardous waste or substance on the Collateral.  The provisions of this section of the Agreement, including
the obligation to indemnify, shall survive the payment of the Indebtedness and
the termination, expiration or satisfaction of this Agreement and shall not be
affected by Lender’s acquisition of any interest in any of the Collateral,
whether by foreclosure or otherwise.

 

Litigation and Claims. 
No litigation, claim, investigation, administrative proceeding or
similar action (including those for unpaid taxes) against Borrower is pending
or threatened, and no other event has occurred which may materially adversely
affect Borrower’s financial condition or properties, other than litigation,
claims, or other events, if any, that have been disclosed to and acknowledged
by Lender in writing.

 

Taxes.  To the best
of Borrower’s knowledge, all of Borrower’s tax returns and reports that are or
were required to be filed, have been filed, and all taxes, assessments and
other governmental charges have been paid in full, except those presently being
or to be contested by Borrower in good faith in the ordinary course of business
and for which adequate reserves have been provided.

 

Lien Priority. 
Unless otherwise previously disclosed to Lender in writing, Borrower has
not entered into or granted any Security Agreements, or permitted the filing or
attachment of any Security Interests on or affecting any of the Collateral
directly or indirectly securing repayment of Borrower’s Loan and Note, that
would be prior or that may in any way be superior to Lender’s Security
Interests and rights in and to such Collateral.

 

Binding Effect. 
This Agreement, the Note, all Security Agreements (if any), and all
Related Documents are binding upon the signers thereof, as well as upon their
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.

 

AFFIRMATIVE COVENANTS. 
Borrower covenants and agrees with Lender that, so long as this
Agreement remains in effect, Borrower will:

 

Notices of Claims and Litigation. 
Promptly inform Lender in writing of (1) all material adverse changes in
Borrower’s financial condition, and (2) all existing and all threatened
litigation, claims, investigations, administrative proceedings or similar
actions affecting Borrower or any Guarantor which could materially affect the
financial condition of Borrower or the financial condition of any Guarantor.

 

Financial Records. 
Maintain its books and records in accordance with GAAP, applied on a
consistent basis, and permit Lender to examine and audit Borrower’s books and
records at all reasonable times.

 

Financial Statements. 
Furnish Lender with the following:

 

Annual Statements. 
As soon as available, but in no event later than ninety (90) days after
the end of each fiscal year, Borrower’s balance sheet and income statement for
the year ended, reviewed by a certified public accountant satisfactory to
Lender.

 

Tax Returns. 
As soon as available, but in no event later than one-hundred-twenty
(120) days after the applicable filing date for the tax reporting period ended,
Federal and other governmental tax returns, prepared by a certified public
accountant satisfactory to Lender.

 

All financial
reports required to be provided under this Agreement shall be prepared in
accordance with GAAP, applied on a consistent basis, and certified by Borrower
as being true and correct.

 

Additional Information. 
Furnish such additional information and statements, as Lender may
request from time to time.

 

 

Financial Covenants and Ratios. 
Comply with the following covenants and ratios:

 

Tangible Net Worth Requirements. 
Borrower shall comply with the following net worth ratio requirements:

 

Debt to Equity Ratio. 
Maintain a ratio of Debt to Equity in excess of 8.000 to 1.000.  This leverage ratio will be evaluated as of
year-end.

 

Except as provided
above, all computations made to determine compliance with the requirements
contained in this paragraph shall be made in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by Borrower
as being true and correct.

 

Insurance. 
Maintain fire and other risk insurance, public liability insurance, and
such other insurance as Lender may require with respect to Borrower’s
properties and operations, in form, amounts, coverages and with insurance
companies acceptable to Lender. 
Borrower, upon request of Lender, will deliver to Lender from time to
time the policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or diminished
without at least ten (10) days prior written notice to Lender.  Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired in
any way by any act, omission or default of Borrower or any other person.  In connection with all policies covering
assets in which Lender holds or is offered a security interest for the Loans,
Borrower will provide Lender with such lender’s loss payable or other
endorsements as Lender may require.

 

Insurance Reports. 
Furnish to Lender, upon request of Lender, reports on each existing
insurance policy showing such information as Lender may reasonably request,
including without limitation the following: (1) the name of the insurer; (2)
the risks insured; (3) the amount of the policy; (4) the properties insured;
(5) the then current property values on the basis of which insurance has been
obtained, and the manner of determining those values; and (6) the expiration
date of the policy.  In addition, upon
request of Lender (however not more often than annually), Borrower will have an
independent appraiser satisfactory to Lender determine, as applicable, the
actual cash value or replacement cost of any Collateral.  The cost of such appraisal shall be paid by
Borrower.

 

Guaranties. 
Prior to disbursement of any Loan proceeds, furnish executed guaranties
of the Loans in favor of Lender, executed by the guarantor named below, on
Lender’s forms, and in the amount and under the conditions set forth in those
guaranties.

 

	
  Name of Guarantor

  	
   

  	
  Amount

  	
   

  
	
  Steven J. WAGENHEIM

  	
   

  	
  **$750,000.00

  	
   

  

 

Other Agreements. 
Comply with all terms and conditions of all other agreements, whether
nor or hereafter existing, between Borrower and any other party and notify
Lender immediately in writing of any default in connection with any other such
agreements.

 

Loan Proceeds. 
Use all Loan proceeds solely for the following specific purposes:  Proceeds to be advanced based upon bank approval only.

 

Taxes, Charges and Liens. 
Pay and discharge when due all of its indebtedness and obligations,
including without limitation all assessments, taxes, governmental charges,
levies and liens, of every kind and nature, imposed upon Borrower or its
properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower’s properties, income, or profits.

 

Performance. 
Perform and comply, in a timely manner, with all terms, conditions, and
provisions set forth in this Agreement, in the Related Documents, and in all
other instruments and agreements between Borrower and Lender.  Borrower shall notify Lender immediately in
writing of any default in connection with any agreement.

 

 

Operations. 
Maintain executive and management personnel with substantially the same
qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner.

 

Environmental Studies. 
Promptly conduct and complete, at Borrower’s expense, all such
investigations, studies, samplings and testings as may be requested by Lender
or any governmental authority relative to any substance, or any waste or
by-product of any substance defined as toxic or a hazardous substance under
applicable federal, state, or local law, rule, regulations, order or directive,
at or affecting any property or any facility owned, leased or used by Borrower.

 

Compliance with Governmental
Requirements.  Comply with all laws, ordinances, and
regulations, now or hereafter in effect, of all governmental authorities
applicable to the conduct of Borrower’s properties, businesses and operations,
and to the use or occupancy of the Collateral, including without limitation,
the Americans With Disabilities Act. 
Borrower may contest in good faith any such law, ordinance, or
regulation and withhold compliance during any proceeding, including appropriate
appeals, so long as Borrower has notified Lender in writing prior to doing so
and so long as, in Lender’s sole opinion, Lender’s interests in the Collateral
are not jeopardized.  Lender may require
Borrower to post adequate security or a surety bond, reasonably satisfactory to
Lender, to protect Lender’s interest.

 

Inspection. 
Permit employees or agents of Lender at any reasonable time to inspect
any and all Collateral for the Loan or Loans and Borrower’s other properties
and to examine or audit Borrower’s books, accounts, and records and to make
copies and memoranda of Borrower’s books, accounts, and records.  If Borrower now or at any time hereafter
maintains any records (including without limitation computer generated records
and computer software programs for the generation of such records) in the
possession of a third party, Borrower, upon request of Lender, shall notify
such party to permit Lender free access to such records at all reasonable times
and to provide Lender with copies of any records it may request, all at
Borrower’s expense.

 

Compliance Certificates. 
Unless waived in writing by Lender, provide Lender at least annually,
with a certificate executed by Borrower’s chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of the date of
the certificate and further certifying that, as of the date of the certificate,
no Event of Default exists under this Agreement.

 

Environmental Compliance and Reports. 
Borrower shall comply in all respects with any and all Environmental
Laws; not cause or permit to exist, as a result of an intentional or unintentional
action or omission on Borrower’s part or on the part of any third party, on
property owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental activity is
pursuant to and in compliance with the conditions of a permit issued by the
appropriate federal, state or local governmental authorities; shall furnish to
Lender promptly and in any event within thirty (30) days after receipt thereof
a copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning any
intentional or unintentional action or omission on Borrower’s part in
connection with any environmental activity whether or not there is damage to
the environment and/or other natural resources.

 

Additional Assurances. 
Make, execute and deliver to Lender such promissory notes, mortgages,
deeds of trust, security agreements, assignments, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all Security
Interests.

 

LENDER’S EXPENDITURES. 
If any action or proceeding is commenced that would materially affect
Lender’s interest in the Collateral or if Borrower fails to comply with any
provision of this Agreement or any Related Documents, including but not limited
to Borrower’s failure to discharge or pay when due any amounts Borrower is
required to discharge or pay under this Agreement or any Related Documents,
Lender on Borrower’s behalf may (but shall not be obligated to) take any action
that Lender deems appropriate, including but not limited to discharging or
paying all taxes, liens, security interests, encumbrances and other claims, at
any time levied or placed on any Collateral and paying all costs for insuring,
maintaining and preserving any Collateral. 
All such expenditures

 

 

incurred or paid
by Lender for such purposes will then bear interest at the rate charged under
the Note from the date incurred or paid by Lender to the date of repayment by
Borrower.  All such expenses will become
a part of the Indebtedness and, at Lender’s option, will (A) be payable on
demand; (B) be added to the balance of the Note and be apportioned among and be
payable with any installment payments to become due during either (1) the term
of any applicable insurance policy; or (2) the remaining term of the Note; or
(C) be treated as a balloon payment which will be due and payable at the Note’s
maturity.

 

NEGATIVE COVENANTS. 
Borrower covenants and agrees with Lender that while this Agreement is
in effect, Borrower shall not, without the prior written consent of Lender:

 

Capital Expenditures. 
Make or contract to make capital expenditures, including leasehold improvements,
in any fiscal year in excess of $                    
or incur liability for rentals of property (including both real and personal
property) in an amount which, together with capital expenditures, shall in any
fiscal year exceed such sum.

 

Indebtedness and Liens. 
(1) Except for trade debt incurred in the normal course of business and
indebtedness to Lender contemplated by this Agreement, create, incur or assume
indebtedness for borrowed money, including capital leases, (2) sell, transfer,
mortgage, assign, pledge, lease, grant a security interest in, or encumber any
of Borrower’s assets (except as allowed as Permitted Liens), or (3) sell with
recourse any of Borrower’s accounts, except to Lender.

 

Additional Financial Restrictions. 
This line of credit to be paid in full prior to stated maturity date
including all outstanding accrued interest.

 

Continuity of Operations. 
(1) Engage in any business activities substantially different than those
in which Borrower is presently engaged, (2) cease operations, liquidate, merge,
transfer, acquire or consolidate with any other entity, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of business,
or (3) pay any dividends on Borrowers stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so long
as no Event of Default has occurred and is continuing or would result from the
payment of dividends, if Borrower is a “Subchapter S Corporation” (as defined
in the Internal Revenue Code of 1986, as amended), Borrower may pay cash
dividends on its stock to its shareholders from time to time in amounts
necessary to enable the shareholders to pay income taxes and make estimated
income tax payments to satisfy their liabilities under federal and state law
which arise solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of shares of Borrower’s stock, or
purchase or retire any of Borrower’s outstanding shares or alter or amend
Borrower’s capital structure.

 

Loans, Acquisitions and Guaranties. 
(1) Loan, invest in or advance money or assets to any other person,
enterprise or entity, (2) purchase, create or acquire any interest in any other
enterprise or entity, or (3) incur any obligation as surety or guarantor other
than in the ordinary course of business.

 

Agreements. 
Borrower will not enter into any agreement containing any provisions
which would be violated or breached by the performance of Borrower’s
obligations under this Agreement or in connection herewith.

 

CESSATION OF ADVANCES. 
If Lender has made any commitment to make any Loan to Borrower, whether
under this Agreement or under any other agreement, Lender shall have no
obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower
or any Guarantor is in default under the terms of this Agreement or any of the
Related Documents or any other agreement that Borrower or any Guarantor has
with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes
insolvent, files a petition in bankruptcy or similar proceedings, or is
adjudged a bankrupt; (C) there occurs a material adverse change in Borrower’s
financial condition, in the financial condition of any Guarantor, or in the
value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims
or otherwise attempts to limit, modify or revoke such Guarantor’s guaranty of
the Loan or any other loan with Lender; or (E) Lender in good faith deems
itself insecure, even though no Event of Default shall have occurred.

 

RIGHT OF SETOFF. 
To the extent permitted by applicable law, Lender reserves a right of
setoff in all Borrower’s accounts with Lender (whether checking, savings, or
some other account).  This includes all
accounts Borrower holds jointly with someone else and all accounts Borrower may
open in the future.  However, this does
not include any IRA or Keogh accounts, or any trust accounts for which setoff
would be prohibited by law.  Borrower
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all sums owing on the indebtedness against any

 

 

and all such
accounts, and, at Lender’s option, to administratively freeze all such accounts
to allow Lender to protect Lender’s charge and setoff rights provided in this
paragraph.

 

DEFAULT. 
Each of the following shall constitute an Event of Default under this
Agreement:

 

Payment Default. 
Borrower fails to make any payment when due under the Loan.

 

Other Defaults. 
Borrower fails to comply with or to perform any other term, obligation,
covenant or condition contained in this Agreement or in any of the Related
Documents or to comply with or to perform any term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.

 

Default in Favor of Third Parties. 
Borrower or any Grantor defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower’s or any Grantor’s property or Borrower’s or any Grantor’s ability to
repay the Loans or perform their respective obligations under this Agreement or
any of the Related Documents.

 

False Statements. 
Any warranty, representation or statement made or furnished to Lender by
Borrower or on Borrower’s behalf under this Agreement or the Related Documents
is false or misleading in any material respect, either now or at the time made
or furnished or becomes false or misleading at any time thereafter.

 

Insolvency. 
The dissolution or termination of Borrower’s existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any
part of Borrower’s property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.

 

Defective Collateralization. 
This Agreement or any of the Related Documents ceases to be in full
force and effect (including failure of any collateral document to create a
valid and perfected security interest or lien) at any time and for any reason.

 

Creditor or Forfeiture Proceedings. 
Commencement of foreclosure or forfeiture proceedings, whether by
judicial proceeding, self-help, repossession or any other method, by any
creditor of Borrower or by any governmental agency against any collateral
securing the Loan.  This includes a
garnishment of any of Borrower’s accounts, including deposit accounts, with
Lender.  However, this Event of Default
shall not apply if there is a good faith dispute by Borrower as to the validity
or reasonableness of the claim which is the basis of the creditor or forfeiture
proceeding and if Borrower gives Lender written notice of the creditor or
forfeiture proceeding and deposits with Lender monies or a surety bond for the
creditor or forfeiture proceeding, in an amount determined by Lender, in its
sole discretion, as being an adequate reserve or bond for the dispute.

 

Events Affecting Guarantor. 
Any of the preceding events occurs with respect to any Guarantor of any
of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or
disputes the validity of, or liability under, any Guaranty of the
Indebtedness.  In the event of a death,
Lender, at its option, may, but shall not be required to, permit the
Guarantor’s estate to assume unconditionally the obligations arising under the
guaranty in a manner satisfactory to Lender, and, in doing so, cure any Event
of Default.

 

Change in Ownership. 
Any change in ownership of twenty-five percent (25%) or more of the
common stock of Borrower.

 

Adverse Change. 
A material adverse change occurs in Borrower’s financial condition, or
Lender believes the prospect of payment or performance of the Loan is impaired.

 

Insecurity. 
Lender in good faith believes itself insecure.

 

Right to Cure. 
If any default, other than a default on Indebtedness, is curable and if
Borrower or Grantor, as the case may be, has not been given a notice of a
similar default within the preceding twelve (12) months, it may be cured if Borrower
or Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default:  (1)
cure the default within ten (10) days, or (2) if the cure requires more than
ten (10) days, immediately initiate steps which Lender deems in Lender’s sole
discretion to be

 

 

sufficient to cure
the default and thereafter continue and complete all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.

 

EFFECT OF AN EVENT OF DEFAULT. 
If any Event of Default shall occur, except where otherwise provided in
this Agreement or the Related Documents, all commitments and obligations of
Lender under this Agreement or the Related Documents or any other agreement
immediately will terminate (including any obligation to make further Loan
Advances or disbursements), and, at Lender’s option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the “Insolvency” subsection above, such acceleration shall be automatic
and not optional.  In addition, Lender
shall have all the rights and remedies provided in the Related Documents or
available at law, in equity, or otherwise. 
Except as may be prohibited by applicable law, all of Lender’s rights
and remedies shall be cumulative and may be exercised singularly or
concurrently.  Election by Lender to
pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Borrower or of any Grantor shall not affect Lender’s right to declare a default
and to exercise its rights and remedies.

 

MISCELLANEOUS PROVISIONS. 
The following miscellaneous provisions are a part of this Agreement:

 

Amendments. 
This Agreement, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth
in this Agreement.  No alteration of or
amendment to this Agreement shall be effective unless given in writing and
signed by the party or parties sought to be charged or bound by the alteration
or amendment.

 

Attorneys’ Fees; Expenses. 
Borrower agrees to pay upon demand all of Lender’s costs and expenses,
including Lender’s attorneys’ fees and Lender’s legal expenses, incurred in
connection with the enforcement of this Agreement.  Lender may hire or pay someone else to help enforce this
Agreement, and Borrower shall pay the costs and expenses of such enforcement.  Costs and expenses include Lender’s
attorneys’ fees and legal expenses whether or not there is a lawsuit, including
attorneys’ fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. 
Borrower also shall pay all court costs and such additional fees as may
be directed by the court.

 

Caption Headings. 
Caption headings in this Agreement are for convenience purposes only and
are not to be used to interpret or define the provisions of this Agreement.

 

Consent to Loan Participation. 
Borrower agrees and consents to Lender’s sale or transfer, whether now
or later, of one or more participation interests in the Loan to one or more
purchasers, whether related or unrelated to Lender.  Lender may provide, without any limitation whatsoever, to any one
or more purchasers, or potential purchasers, any information or knowledge
Lender may have about Borrower or about any other matter relating to the Loan,
and Borrower hereby waives any rights to privacy Borrower may have with respect
to such matters.  Borrower additionally
waives any and all notices of sale of participation interests, as well as all
notices of any repurchase of such participation interests.  Borrower also agrees that the purchasers of
any such participation interests will be considered as the absolute owners of
such interests in the Loan and will have all the rights granted under the
participation agreement or agreements governing the sale of such participation interests.  Borrower further waives all rights of offset
or counterclaim that it may have now or later against Lender or against any
purchaser of such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower’s obligation under the
Loan irrespective of the failure or insolvency of any holder of any interest in
the Loan.  Borrower further agrees that
the purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have against
Lender.

 

Governing Law.  This Agreement will be governed by,
construed and enforced in accordance with federal law and the laws of the State
of South Dakota.  This Agreement has
been accepted by Lender in the State of South Dakota.

 

No Waiver by Lender. 
Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.  No delay or omission on the part of Lender
in exercising any right shall operate as a waiver of such right or any other
right.  A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender’s right otherwise to demand strict compliance with that provision or any
other provision of this Agreement.  No
prior waiver by Lender, nor any course of dealing between Lender and Borrower,
or between Lender and any Grantor, shall

 

 

constitute a
waiver of any of Lender’s rights or of any of Borrower’s or any Grantor’s
obligations as to any future transactions. 
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is required and
in all cases such consent may be granted or withheld in the sole discretion of
Lender.

 

Notices. 
Any notice required to be given under this Agreement shall be given in
writing, and shall be effective when actually delivered, when actually received
by telefacsimile (unless otherwise required by law), when deposited with a
nationally recognized overnight courier, or, if mailed, when deposited in the
United States mail, as first class, certified or registered mail postage
prepaid, directed to the addresses shown near the beginning of this
Agreement.  Any party may change its
address for notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change the
party’s address.  For notice purposes,
Borrower agrees to keep Lender informed at all times of Borrower’s current
address.  Unless otherwise provided or
required by law, if there is more than one Borrower, any notice given by Lender
to any Borrower is deemed to be notice given to all Borrowers.

 

Severability.  If
a court of competent jurisdiction finds any provision of this Agreement to be
illegal, invalid, or unenforceable as to any circumstance, that finding shall
not make the offending provision illegal, invalid, or unenforceable as to any
other circumstance.  If feasible, the
offending provision shall be considered modified so that it becomes legal,
valid and enforceable.  If the offending
provision cannot be so modified, it shall be considered deleted from this
Agreement.  Unless otherwise required by
law, the illegality, invalidity, or unenforceability of any provision of this
Agreement shall not affect the legality, validity or enforceability of any
other provision of this Agreement.

 

Subsidiaries and Affiliates of
Borrower.  To the extent the context of any provisions
of this Agreement makes it appropriate, including without limitation any
representation, warranty or covenant, the word “Borrower” as used in this
Agreement shall include all of Borrower’s subsidiaries and affiliates.  Notwithstanding the foregoing however, under
no circumstances shall this Agreement be construed to require Lender to make
any Loan or other financial accommodation to any of Borrower’s subsidiaries or
affiliates.

 

Successors and Assigns. 
All covenants and agreements by or on behalf of Borrower contained in
this Agreement or any Related Documents shall bind Borrower’s successors and
assigns and shall inure to the benefit of Lender and its successors and
assigns.  Borrower shall not, however,
have the right to assign Borrower’s rights under this Agreement or any interest
therein, without the prior written consent of Lender.

 

Survival of Representations and
Warranties.  Borrower understands and agrees that in
extending Loan Advances, Lender is relying on all representations, warranties,
and covenants made by Borrower in this Agreement or in any certificate or other
instrument delivered by Borrower to Lender under this Agreement or the Related
Documents.  Borrower further agrees that
regardless of any investigation made by Lender, all such representations,
warranties and covenants will survive the extension of Loan Advances and
delivery to Lender of the Related Documents, shall be continuing in nature,
shall be deemed made and redated by Borrower at the time each Loan Advance is
made, and shall remain in full force and effect until such time as Borrower’s
Indebtedness shall be paid in full, or until this Agreement shall be terminated
in the manner provided above, whichever is the last to occur.

 

Time is of the Essence. 
Time is of the essence in the performance of this Agreement.

 

Waive Jury.  All parties
to this Agreement hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by any party against any other party.

 

DEFINITIONS. 
The following capitalized words and terms shall have the following
meanings when used in this Agreement. 
Unless specifically stated to the contrary, all references to dollar
amounts shall mean amounts in lawful money of the United States of
America.  Words and terms used in the
singular shall include the plural, and the plural shall include the singular,
as the context may require.  Words and
terms not otherwise defined in this Agreement shall have the meanings
attributed to such terms in the Uniform Commercial Code.  Accounting words and terms not otherwise
defined in this Agreement shall have the meanings assigned to them in
accordance with generally accepted accounting principles as in effect on the
date of this Agreement:

 

 

Advance. 
The word “Advance” means a disbursement of Loan funds made, or to be
made, to Borrower or on Borrower’s behalf on a line of credit or multiple
advance basis under the terms and conditions of this Agreement.

 

Agreement. 
The word “Agreement” means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time, together
with all exhibits and schedules attached to this Business Loan Agreement from
time to time.

 

Borrower. 
The word “Borrower” means Granite City Food & Brewery Ltd., a
Minnesota Corporation and includes all co-signers and co-makers signing the
Note.

 

Collateral. 
The word “Collateral” means all property and assets granted as
collateral security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage,
collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional
sale, trust receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.

 

Environmental Laws. 
The words “Environmental Laws” mean any and all state, federal and local
statutes, regulations and ordinances relating to the protection of human health
or the environment, including without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other
applicable state or federal laws, rules, or regulations adopted pursuant
thereto.

 

Event of Default. 
The words “Event of Default” mean any of the events of default set forth
in this Agreement in the default section of this Agreement.

 

GAAP.  The word
“GAAP” means generally accepted accounting principles.

 

Grantor. 
The word “Grantor” means each and all of the persons or entities
granting a Security Interest in any Collateral for the Loan, including without
limitation all Borrowers granting such a Security Interest.

 

Guarantor. 
The word “Guarantor” means any guarantor, surety, or accommodation party
of any or all of the Loan.

 

Guaranty. 
The word “Guaranty” means the guaranty from Guarantor to Lender,
including without limitation a guaranty of all or part of the Note.

 

Hazardous Substances.  The words “Hazardous Substances” mean materials that,
because of their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to human
health or the environment when improperly used, treated, stored, disposed of,
generated, manufactured, transported or otherwise handled.  The words “Hazardous Substances” are used in
their very broadest sense and include without limitation any and all hazardous
or toxic substances, materials or waste as defined by or listed under the
Environmental Laws.  The term “Hazardous
Substances” also includes, without limitation, petroleum and petroleum by-products
or any fraction thereof and asbestos.

 

Indebtedness. 
The word “Indebtedness” means the indebtedness evidenced by the Note or
Related Documents, including all principal and interest together with all other
indebtedness and costs and expenses for which Borrower is responsible under
this Agreement or under any of the Related Documents.

 

Lender. 
The word “Lender” means First National Bank, its successors and assigns.

 

Loan.  The word
“Loan” means any and all loans and financial accommodations from Lender to
Borrower whether now or hereafter existing, and however evidenced, including
without limitation those loans and

 

 

financial
accommodations described herein or described on any exhibit or
schedule attached to this Agreement from time to time.

 

Note.  The word
“Note” means the Note executed by Granite City Food & Brewery Ltd., a
Minnesota Corporation in the principal amount of $750,000.00 dated
April 14, 2004, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions for the
note or credit agreement.

 

Permitted Liens. 
The words “Permitted Liens” mean (1) liens and security interests
securing indebtedness owed by Borrower to Lender; (2) liens for taxes,
assessments, or similar charges either not yet due or being contested in good
faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other
like liens arising in the ordinary course of business and securing obligations
which are not yet delinquent; (4) purchase money liens or purchase money
security interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the date of
this Agreement or permitted to be incurred under the paragraph of this Agreement
titled “Indebtedness and Liens”; (5) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the Lender
in writing; and (6) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to the
net value of Borrower’s assets.

 

Related Documents. 
The words “Related Documents” mean all promissory notes, credit
agreements, loan agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, security deeds, collateral mortgages,
and all other instruments, agreements and documents, whether now or hereafter
existing, executed in connection with the Loan.

 

Security Agreement. 
The words “Security Agreement” mean and include without limitation any
agreements, promises, covenants, arrangements, understandings or other
agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.

 

Security Interest.  The words “Security Interest” mean, without limitation, any and
all types of collateral security, present and future, whether in the form of a
lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment,
pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel
trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device,
or any other security or lien interest whatsoever whether created by law,
contract, or otherwise.

 

BORROWER ACKNOWLEDGES HAVING READ ALL
THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS
TERMS.  THIS BUSINESS LOAN AGREEMENT IS
DATED APRIL 14, 2004.

 

 

	
  BORROWER:

  	
   

  
	
   

  	
   

  
	
  GRANITE
  CITY FOOD & BREWERY LTD.,

  	
   

  
	
  A
  MINNESOTA CORPORATION

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Steven
  J. WAGENHEIM, President of Granite City

  
	
  Food
  & Brewery Ltd., a Minnesota Corporation

  	
   

  
	
   

  	
   

  
	
  LENDER:

  	
   

  
	
   

  	
   

  
	
  FIRST
  NATIONAL BANK

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Authorized Signer

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