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

 

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“ Maturity Date ”: October 1, 2010.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“ SEC ”:  The Securities and Exchange Commission.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE II
LOANS

 

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

 

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

 

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

 

Section 2.4            Payments and Prepayments .

 

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

 

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

 

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

 

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

 

Section 2.5            Interest Rates, Default Interest, Interest Payments.

 

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

 

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

 

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

 

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

 

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

 

ARTICLE III
CONDITIONS PRECEDENT

 

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

 

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

 

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

 

(ii)           This Agreement;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(x)            The Leasehold Mortgage;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE IV
REPRESENTATIONS AND WARRANTIES

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE V
AFFIRMATIVE COVENANTS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 5.2            Financial Covenants .

 

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

 

Period Ending		Minimum IROP
March 31, 2009		$	56,300
April 28, 2009		$	59,144
May 26, 2009		$	65,794
June 30, 2009		$	69,350
July 28, 2009		$	72,654
August 25, 2009		$	70,301
September 29, 2009		$	67,533
October 27, 2009		$	64,832
November 24, 2009		$	62,537
December 29, 2009		$	62,183
January 26, 2010		$	58,735
February 23, 2010		$	56,733

 

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March 30, 2010		$	56,300
April 27, 2010		$	59,144
May 25, 2010		$	65,794
June 29, 2010		$	69,350
July 27, 2010		$	72,654
August 31, 2010		$	70,301
September 28, 2010		$	67,533
October 26, 2010		$	64,832
November 30, 2010		$	62,537
December 28, 2010		$	62,183

 

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

 

Quarter Ending		Net Revenue
March 31, 2009		$	19,231,625
June 30, 2009		$	23,137,580
September 29, 2009		$	22,516,093
December 29, 2009		$	22,840,619
March 30, 2010		$	19,231,625
June 29, 2010		$	23,137,580
September 28, 2010		$	22,516,093
December 28, 2010		$	22,840,619

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE VI
NEGATIVE COVENANTS

 

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

 

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

 

(a)           Liens pursuant to any Loan Document;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 6.2            Investments.  Make any Investments, except:

 

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

 

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

 

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

 

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

 

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

 

(a)           Indebtedness arising under the Loan Documents;

 

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

 

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

 

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

 

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

 

Section 6.4            Fundamental Changes; Subsidiaries.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(k)           There occurs a Change of Control;

 

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

 

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

 

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

 

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

 

ARTICLE VIII
ADMINISTRATIVE AGENT AND LENDERS

 

Section 8.1            Appointment of Administrative Agent .

 

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

 

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

 

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

 

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

 

Section 8.3           Lack of Reliance on Administrative Agent .

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 8.8          Successor Administrative Agent .

 

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

 

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

 

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Section 8.9             Amendments, Consents and Waivers .

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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offering of the Note and the current and proposed business and operations of Borrowers, and to obtain any additional information to the extent reasonably available.  Lender acknowledges that Lender has made an investigation of the Company, its business and has had an opportunity to discuss that business and Borrowers’ financial condition with officers of the Borrowers and has had an opportunity to review each Borrower’s operations to Lender’s satisfaction.  Lender recognizes that purchasing the Note as an in