EQUIPMENT LOAN AND SECURITY AGREEMENT

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EXHIBIT 10.8(a)

EQUIPMENT LOAN AND SECURITY AGREEMENT

This LOAN AND SECURITY AGREEMENT (this "Agreement"), dated as of

______________ (the "Closing Date") is made by and between KONA GRILL _____,

INC., a Delaware corporation ("Borrower"), and GE CAPITAL FRANCHISE FINANCE

CORPORATION, a Delaware corporation ("GE").

NOW, THEREFORE, in consideration of the premises and the covenants set

forth herein, the receipt and sufficiency of which are hereby acknowledged,

Borrower and GE hereby agree as follows:

1. Transaction; Closing Conditions; Interim and Term Loans. A. On the terms and

subject to the conditions set forth in the Loan Documents (as defined below), GE

shall make an equipment loan to Borrower with respect to the Collateral (as

defined below) in the amount of ___________ (the "Loan Amount"). Such equipment

loan shall be made in the form of an interim equipment loan (the "Interim Loan")

evidenced and disbursed in accordance with subsection C below, and a term

equipment loan evidenced and disbursed in accordance with subsection D below

(the "Term Loan")(the Interim Loan and the Term Loan are defined collectively as

the "Equipment Loan"). The Equipment Loan will be evidenced by the Interim Note

and the Term Note (as defined in subsections C and D below) (the Interim Note

and the Term Note are herein sometimes each called an "Equipment Note" and

collectively the "Equipment Notes"),this Agreement, such UCC-1 Financing

Statements as GE shall require and the guaranty or guaranties required by the

documents described in the following subsection B, as applicable (such

documents, together with all other documents, instruments and agreements

executed in connection with, or contemplated by such documents, including the

Authorization Regarding Information form previously delivered on behalf of the

Borrower to GE, and any amendments to any thereof collectively, the "Loan

Documents"). Borrower shall repay the outstanding principal amount of the

Equipment Loan with interest thereon in the manner and in accordance with the

terms and conditions of the Equipment Notes and the other Loan Documents. The

Equipment Loan shall be advanced in cash or otherwise immediately available

funds subject to any prorations and adjustments required by this Agreement. For

purposes of this Agreement, "Collateral" means all equipment, machinery,

furniture, appliances, trade fixtures, goods, replacements, substitutions,

additions, parts and accessories now owned or hereafter acquired by Borrower and

located at the parcel or parcels of real estate described in Exhibit A attached

hereto (the "Premises"), including, without limitation, fryers, grills, ovens,

warmers, refrigerators, freezers, waste disposal units, dishwashers, beverage

dispensers, ice cream makers, racks, display cases, light fixtures, decor,

counters, cash registers, salad equipment, tables, seating, signs and similar

property of Borrower, together with the proceeds thereof and income therefrom.

B. The obligation of GE to consummate the transaction contemplated by this

Agreement is subject to the fulfillment or waiver of each of the conditions

contained in the loan commitment issued by GE to Borrower with respect to the

Equipment Loan and the "Loan Closing Checklist" prepared by GE with respect to

the Equipment Loan.

C. The Interim Loan in an amount up to the Loan Amount shall be disbursed

by GE to Borrower or at Borrower's direction in up to six (6) partial advances

made at the request of Borrower, subject to the satisfaction of the applicable

conditions contemplated by the preceding subsection B and this subsection C. The

Interim Loan shall be evidenced by and repayable with interest in accordance

with an interim equipment promissory note dated as of the date of this Agreement

executed by Borrower and payable to the order of GE in the Loan Amount (the

"Interim Note"). Borrower shall give GE at least ten (10) days' notice, in the

form of a request for the advance of loan proceeds (the "Request"), specifying

the date on which any portion of the Interim Loan is to be borrowed. Each

Request shall be accompanied by an original copy of the invoice or invoices for

the Collateral to be acquired with such proceeds. Such notice shall constitute a

representation and warranty by Borrower that as of the date of the notice, no

Event of Default (as defined in Section 12) or event that, with the lapse of

time or the giving of notice or both, would constitute an Event of Default, has

occurred and is continuing. GE shall have no obligation to advance any portion

of the Interim Loan if an Event of Default shall have occurred and be

continuing. No Request shall be delivered to GE after the fifth day preceding

the Outside Funding Date (as defined below) and GE shall have no obligation to

disburse any portion of the Interim Loan after the Outside

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Funding Date. GE will disburse the Interim Loan proceeds to the invoicing

parties, or if Borrower shall have paid the amount of any such invoice, GE shall

reimburse Borrower for such portion of the Loan Amount upon receipt from

Borrower of proof of payment satisfactory to GE. The outstanding amount of the

Interim Loan set forth in GE's records (which may include computer records)

shall be prima facie evidence of the principal amount due and owing to GE under

the Interim Note. The Interim Loan shall be due and payable on the earlier of

January 31, 2005 (the "Outside Funding Date") and the Final Funding Date (as

defined in the following subsection D), provided, that, if all of the conditions

to GE making the Term Loan are satisfied on or before such due date, Borrower

may, in lieu of paying GE the outstanding principal amount of the Interim Note

and all accrued but unpaid interest thereunder (the "Outstanding Interim Loan

Amount") in immediately available funds, repay such amounts by crediting the

Outstanding Interim Loan Amount against the amount of the Term Loan.

D. The Term Loan in the Loan Amount shall be made by GE to Borrower,

subject to the satisfaction of the applicable conditions contemplated by the

preceding subsection B and this subsection D, but in no event later than the

Outside Funding Date. GE shall have no obligation to advance the Term Loan if an

Event of Default shall have occurred and be continuing. The Term Loan shall be

evidenced by and repayable with interest in accordance with the terms of an

equipment promissory note (the "Term Note"), dated as of the date on which the

remaining undisbursed portion of the Term Loan is disbursed by GE to Borrower

(the "Final Funding Date"). The Term Note shall be executed by Borrower and

payable to the order of GE. If Borrower elects to credit the Outstanding Interim

Loan Amount against the amount of the Term Loan, the amount of the Term Loan

advanced to Borrower in cash on the Final Funding Date shall be reduced by the

Outstanding Interim Loan Amount.

2. Security Interest Created; Obligations Secured. A. Borrower hereby grants to

GE a security interest in the Collateral to secure the payment of the following

indebtedness and obligations (the "Obligations"): (i) payment of indebtedness

evidenced by the Equipment Notes, together with all extensions, renewals,

amendments and modifications thereof; and (ii) payment of all other indebtedness

and other sums, including interest at the applicable rate, which may be owed

under, and performance of all other obligations and covenants contained in, any

other Loan Document or any Other Agreement (as defined below), together with any

other instrument given to evidence or further secure the payment and performance

of any obligation secured hereby or thereby. For purposes of this Agreement, the

term:

"Affiliate" means any individual, corporation, partnership, limited liability

company, trust, unincorporated organization, Governmental Authority (as defined

in Section 3 (iii) below) or any other form of entity ("Person") which directly

or indirectly controls, is under common control with, or is controlled by any

other Person. For purposes of this definition, "controls", "under common control

with" and "controlled by" means the possession, directly or indirectly, of the

power to direct or cause the direction of the management and policies of such

Person, whether through ownership of voting securities or otherwise; and "Other

Agreements" means, collectively, all agreements and instruments between, among

or by (1) any of Borrower and any guarantor of the Obligations (collectively,

the "Borrower Parties") or any Affiliate of any of the Borrower Parties

(including any Affiliate of any predecessor-in-interest to any of the Borrower

Parties), and, or for the benefit of, (2) any of GE (including any

predecessor-in-interest to GE) and any Affiliate of GE (including any Affiliate

of any predecessor-in-interest to GE), including, without limitation, promissory

notes and guaranties; provided, however, the term "Other Agreements" shall not

include the agreements and instruments defined as the Loan Documents.

B. Borrower authorizes GE to file financing statements with respect to the

security interest of GE, continuation statements with respect thereto, and any

amendments to such financing statements that may be necessitated by reason of

any of the changes described in Section 13. Borrower agrees that,

notwithstanding any provision in the Uniform Commercial Code as adopted in the

State of Arizona (the "UCC") to the contrary, Borrower shall not file a

termination statement of any financing statement filed by GE in connection with

any security interest granted under this Agreement if GE reasonably objects to

the filing of such termination statement.

C. GE shall at all times have a perfected security interest in the

Collateral that shall be prior to any other interests therein. Borrower shall do

all acts and things, shall execute and file all instruments

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(including security agreements, UCC financing statements, continuation

statements, etc.) requested by GE to establish, maintain and continue the

perfected security interest of GE in the Collateral, and shall promptly on

demand pay all costs and expenses of (i) filing and recording, including the

costs of any searches deemed necessary by GE from time to time to establish and

determine the validity and the continuing priority of the security interest of

GE, and (ii) all other claims and charges that in the reasonable opinion of GE

might prejudice, imperil or otherwise affect the Collateral or security interest

therein of GE. Borrower agrees that a carbon, photographic or other reproduction

of a security agreement or financing statement shall be sufficient as a

financing statement. GE is hereby irrevocably appointed Borrower's

attorney-in-fact to take any of the foregoing actions requested of Borrower by

GE if Borrower should fail to take such actions, which appointment shall be

deemed coupled with an interest.

3. Borrower's Representations and Warranties. Borrower represents and warrants

to GE as of the date of this Agreement and the Final Funding Date as follows:

(i) All financial statements and other information concerning the Borrower

Parties delivered to GE by Borrower in connection with the transaction described

in this Agreement (collectively, the "Financial Information") are true, correct

and complete in all material respects; there have been no amendments to the

Financial Information since the date such Financial Information was prepared or

delivered to GE; and Borrower understands that GE is relying upon the Financial

Information and Borrower represents that such reliance is reasonable. All

financial statements included in the Financial Information were prepared in

accordance with generally accepted accounting principles consistently applied

("GAAP") and fairly present as of the date of such financial statements the

financial condition of each individual or entity to which they pertain. No

change has occurred with respect to the financial condition of any of the

Borrower Parties or the Collateral as reflected in the Financial Information

which has not been disclosed in writing to GE or has had, or could reasonably be

expected to result in, a material adverse effect on (i) the Collateral,

including without limitation, the use of the Collateral in the operation of a

Kona Grill (the "Permitted Concept"), or (ii) Borrower's ability to perform its

obligations under the Loan Documents ("Material Adverse Effect").

(ii) Each of the Borrower Parties (other than individuals), as applicable,

is duly organized or formed, validly existing and in good standing under the

laws of its state of incorporation or formation, Borrower is qualified as a

foreign corporation, partnership or limited liability company, as applicable, to

do business in the state(s) where the Collateral is located, and each of the

Borrower Parties is qualified as a foreign corporation, partnership or limited

liability company, as applicable, to do business in any other jurisdiction where

the failure to be qualified would reasonably be expected to result in a Material

Adverse Effect. All necessary action has been taken to authorize the execution,

delivery and performance by the Borrower Parties of this Agreement and the other

Loan Documents. The person(s) who have executed this Agreement on behalf of

Borrower are duly authorized so to do. Borrower is not a "foreign corporation",

"foreign partnership", "foreign trust", "foreign estate" or "foreign person" (as

those terms are defined by the Internal Revenue Code of 1986, as amended).

(iii) Upon execution by the Borrower Parties, this Agreement and the other

Loan Documents shall constitute the legal, valid and binding obligations of the

Borrower Parties, respectively, enforceable against the Borrower Parties in

accordance with their respective terms. There are no suits, actions, proceedings

or investigations pending, or to the best of its knowledge, threatened against

or involving the Borrower Parties, the Collateral or the Premises before any

arbitrator or any governmental authority, agency, department, commission,

bureau, board, instrumentality, court or quasi-governmental authority having

jurisdiction or supervisory or regulatory authority over the Collateral or any

of the Borrower Parties ("Governmental Authority"), except for such suits,

actions, proceedings or investigations which, individually or in the aggregate,

have not had, and could not reasonably be expected to result in, a Material

Adverse Effect. The Borrower Parties are not, and the authorization, execution,

delivery and performance of this Agreement and the other Loan Documents will not

result, in any breach or default under any other document, instrument or

agreement to which any of the Borrower Parties is a party or by which any of the

Borrower Parties, the Premises, the Collateral or any of the property of any of

the Borrower Parties is subject or bound, except for such breaches or defaults

which, individually or in the aggregate, have not had, and could not reasonably

be expected to result in, a Material Adverse Effect.

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The authorization, execution, delivery and performance of this Agreement and the

other Loan Documents will not violate any applicable law, statute, regulation,

rule, ordinance, code, rule or order. The Collateral is not subject to any right

of first refusal, right of first offer or option to purchase or lease granted to

a third party.

4. Use. Borrower agrees that the Collateral will be used at the Premises solely

in the conduct of Borrower's business as a Permitted Concept and will at all

times remain in the possession and control of Borrower at the Premises and will

not be removed without GE's prior written consent. Borrower promises that the

Collateral at all times will be used and operated under and in compliance with

all applicable statutes, regulations, rules, ordinances, codes, licenses,

permits, orders and approvals of each Governmental Authority having jurisdiction

over the Collateral, and all policies or rules of common law, in each case, as

amended, and any judicial or administrative interpretation thereof, including

any judicial order, consent, decree or judgment applicable to any of the

Borrower Parties, except for such noncompliance which will not have, and will

not reasonably be expected to have, a Material Adverse Effect. Borrower will not

permit any Collateral to be subject to any lien, charge or encumbrance except

that of GE and will keep the Collateral free and clear of any and all liens,

charges, encumbrances, and adverse claims. Borrower will not sell, lease, rent,

or otherwise dispose of any item of Collateral without the prior written consent

of GE.

5. Maintenance and Improvement. Borrower shall at all times, at its own expense,

keep the Collateral in good and efficient working order, condition and repair

and well maintained, ordinary wear and tear excepted, and shall make all

inspections and repairs required by law, regulation or insurance policy.

Borrower shall also make any alterations, improvements or additions to the

Collateral that are required by law or regulation. Any alterations,

improvements, or additions to the Collateral shall be made at the expense of

Borrower, shall constitute accessions to the Collateral and shall be subject to

GE's security interest.

6. Loss and Damage. Borrower shall bear the risk of damage, loss, theft, or

destruction, partial or complete, of the Collateral from whatsoever source

arising, whether or not such loss or damage is covered by insurance. Borrower

shall promptly notify GE in writing in the event of any damage, loss, theft, or

destruction, partial or complete, of any item of Collateral. While no Event of

Default shall have occurred and be continuing, GE agrees to apply insurance

proceeds payable to GE by reason of any such damage, loss, theft, or

destruction, at the option of GE, to (a) repair or restore the Collateral to

good condition and working order, (b) replace the Collateral with similar

equipment in good repair, condition and working order, or (c) pay GE, in cash,

an amount equal to the unamortized cost for that item and all other amounts then

due and owing under this Agreement, and upon payment of that amount, this

Agreement shall terminate with respect to that item only, and GE will release

its interest in that item.; provided, however, such release shall not limit or

effect in any manner the amounts otherwise payable by Borrower to GE under the

Loan Documents. Upon the occurrence and during the continuance of an Event of

Default, GE shall have the right to apply the insurance proceeds from any

damage, loss, theft or destruction to any item of Collateral toward the

Obligations in such order, priority and proportions as GE shall determine or pay

such proceeds in whole or in part to Borrower to be applied toward repair,

restoration or replacement of the Collateral as contemplated by the preceding

subitems (a) and (b) of this Section 6.

7. Insurance. Borrower shall procure and continuously maintain and pay for (a)

all risk physical damage insurance covering loss or damage to the Collateral for

not less than the full replacement value thereof naming GE as additional insured

and loss payee, (b) bodily injury and property damage combined single limit

liability insurance in an amount not less than Two Million Dollars ($2,000,000)

for each location at which any of the Collateral is located, and (c) such other

insurance as may from time to time be reasonably required by GE in order to

protect its interests with respect to the Collateral, with such insurance

companies and pursuant to such contracts or policies and with such deductibles

as are satisfactory to GE. All contracts and policies shall include provisions

for the protection of GE notwithstanding any act or neglect of or breach or

default by Borrower, shall provide for payment of insurance proceeds to GE,

shall provide that they may not be modified, terminated or canceled unless GE

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is given at least thirty (30) days' advance written notice thereof, and shall

provide that the coverage is "primary coverage" for the protection of Borrower

or GE notwithstanding any other coverage carried by GE or Borrower protecting

against similar risks. Borrower shall promptly notify any appropriate insurer

and GE of each and every occurrence that may become the basis of a claim or

cause of action against the insured and provide GE with all data pertinent to

such occurrence. Borrower shall furnish GE with certificates of such insurance

or copies of policies upon request and shall furnish GE with renewal

certificates not less than thirty (30) days prior to the renewal date. Proceeds

of all insurance are payable first to GE to the extent of its interest.

Insurance must be issued by insurance companies licensed to do business in the

state in which the Premises is located and which are rated A:VIII or better by

Best's Key Rating Guide or otherwise approved by GE. All policies shall be

written as primary policies, with deductibles not to exceed $10,000.

8. Taxes. Borrower agrees to pay all taxes, assessments and other governmental

charges of whatsoever kind and character by whom payable on or relating to any

item of Collateral or the sale, ownership, use, shipment, transportation,

delivery or operation thereof or payable in respect to any obligation of

Borrower. Upon receipt of a request therefor from GE, Borrower will submit

written evidence of payment of the obligations described in this section.

9. Financial Data. Within 45 days after the end of each fiscal quarter and

within 120 days after the end of each fiscal year of Borrower, Borrower shall

deliver to GE (a) complete financial statements of the Borrower Parties

including a balance sheet, profit and loss statement, statement of cash flows

and all other related schedules for the fiscal period then ended; (b) income

statements for the business at the Premises; and (c) such other financial

information as GE may reasonably request in order to establish compliance with

the financial covenants in the Loan Documents, as applicable. All such financial

statements and information shall be prepared in accordance with GAAP from period

to period, and shall be certified to be accurate and complete by Borrower (or

the Treasurer or other appropriate officer of Borrower). Borrower understands

that GE is relying upon such financial statements and Borrower represents that

such reliance is reasonable. The financial statements delivered to GE need not

be audited, but Borrower shall deliver to GE copies of any audited financial

statements of Borrower that may be prepared, as soon as they are available.

Borrower shall also provide GE with personal financial statements and tax

returns of any guarantor on an annual basis within ninety (90) days after the

close of each calendar year, and such information concerning its business as GE

may reasonably request.

10. General Indemnity. Borrower shall, at its sole cost and expense, protect,

defend, indemnify, release and hold harmless each of the Indemnified Parties (as

defined below) for, from and against any and all claims, suits, liabilities

(including, without limitation, strict liabilities), actions, proceedings,

obligations, debts, damages, losses, costs, expenses, diminutions in value,

fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in

settlement and damages of whatever kind or nature (including, without

limitation, attorneys' fees, court costs and other costs of defense)

(collectively, "Losses") (excluding Losses suffered by an Indemnified Party

directly arising out of such Indemnified Party's gross negligence or willful

misconduct; provided, however, that the term "gross negligence" shall not

include gross negligence imputed as a matter of law to any of the Indemnified

Parties solely by reason of Borrower's interest in the Collateral or Borrower's

failure to act in respect of matters which are or were the obligation of

Borrower under the Loan Documents) caused by, incurred or resulting from

Borrower's operations of or relating in any manner to the Collateral or the

Premises, whether relating to their original design or construction, latent

defects, alteration, maintenance, use by Borrower or any person thereon,

supervision or otherwise, or from any breach of, default under, or failure to

perform, any term or provision of this Agreement by Borrower, its officers,

employees, agents or other persons, including, without limitation, Losses

arising from (1) any accident, injury to or death of any person or loss of or

damage to property occurring in connection with the Collateral or the Premises

or any portion thereof, (2) any use, non-use or condition in, on or about, or

possession, alteration, repair, operation, maintenance or management of, the

Collateral or the Premises or any portion thereof or the sidewalks, curbs,

parking areas, streets or ways adjoining the Premises, (3) any representation or

warranty made herein by Borrower, in any certificate delivered in connection

herewith or in any other agreement to which Borrower is a party or pursuant

thereto being false or misleading in any material respect as of the date such

representation or warranty was made, (4) performance of any labor or services or

the furnishing of

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any materials or other property in respect to the Collateral or the Premises or

any por