EXHIBIT 10.1

SUBSCRIPTION AGREEMENT

THIS SUBSCRIPTION AGREEMENT (the “Agreement”), is made and entered into as of
July 2, 2007, by and among Grill Concepts, Inc., a Delaware corporation (the
“Company”), Robert Spivak (the “Selling Stockholder”) and the undersigned
prospective investor (the “Investor”) who is subscribing for shares of the
Company’s Common Stock, par value $0.00004 per share (the “Common Stock”), and
warrants to purchase shares of Common Stock. For the purposes of this Agreement,
the term “Sellers” shall mean the Company and the Selling Stockholder. For
purposes of this Agreement, a “Unit” shall mean (A) twenty shares of Common
Stock and (B) a warrant, in the form attached hereto as Exhibit A, as the same
may be amended, modified or supplemented from time to time in accordance with
the terms thereof (each, a “Warrant”), entitling the holder thereof to purchase
seven shares of Common Stock (subject to adjustment as provided in the Warrant).

ARTICLE I

PURCHASE AND SALE OF UNITS; CLOSING

1.1 Purchase and Sale of the Units.

(a) Subject to the terms and conditions of this Agreement, the Investor agrees
to purchase from the Sellers the number of Units indicated on Schedule A hereto
(the “Subscription Amount”) at a purchase price per Unit equal to $140.88 (the
“Unit Price”) for an aggregate purchase price indicated on Schedule A hereto
(the “Aggregate Purchase Price”). Subject to the terms and conditions of this
Agreement, the Sellers shall issue or sell (as the case may be) to the Investor
the number of Units equal to the Subscription Amount. For each twenty shares of
Common Stock sold by the Selling Stockholder to the Investor hereunder, the
Company shall issue and deliver to the Investor a Warrant, entitling the holder
thereof to purchase seven shares of Common Stock from the Company (subject to
adjustment as provided in the Warrant).

(b) Subject to the terms and conditions of this Agreement, within three business
days after the date of this Agreement, the Investor shall deliver the Aggregate
Purchase Price by wire transfer to The Bank of New York, as escrow agent (the
“Escrow Agent”), in accordance with the wire transfer instructions attached
hereto as Exhibit B.

1.2 Aggregate Number of Units Offered. The Sellers have entered and intend to
enter into this same form of Subscription Agreement, with only those differences
reflected on Schedule 1.2 attached hereto (the “Other Agreements”), with certain
other investors (the “Other Investors”), who are not acting in concert or as a
group with the Investor, and desire to offer and sell (the “Offering”) up to an
aggregate of 105,000 Units (the “Offering Amount”). The Investor hereby
acknowledges receipt of a copy of the Confidential Private Placement Memorandum
of the Company dated June 6, 2007 (the “Memorandum”), relating to the Offering.

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1.3 Aggregate Purchase Price Escrow Account. All payments for Units made by the
Investor as contemplated by Section 1.1 hereof will be held by the Escrow Agent
for the Investor’s benefit in a non-interest bearing escrow account. As
contemplated by the terms of the Escrow Agreement, the payment will be returned
promptly, without interest or deduction, if the conditions in Section 1.7 hereof
are not satisfied or waived by the Investor or this Agreement is terminated
pursuant to Section 1.4 on or after the Termination Date.

1.4 Binding Effect of this Agreement.

(a) The Investor acknowledges Oppenheimer & Co. Inc. is acting as senior
placement agent (“Oppenheimer) and Roth Capital Partners, LLC is acting as
co-placement agent (together with Oppenheimer, the “Placement Agents”) in
connection with the Offering. In the event the Closing shall not have occurred
on or prior to July 17, 2007 (the “Termination Date”) this Agreement may be
terminated by any non-breaching party and be of no force and effect. Until the
Termination Date, no party is entitled to cancel, terminate or revoke this
Agreement or any of their respective agreements hereunder. Notwithstanding any
such termination, the Company shall remain obligated to reimburse the Investor
for the expenses in accordance with Section 6.12 below. Nothing contained in
this Section 1.4 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or to impair
the right of any party to compel specific performance by any other party of its
obligations under this Agreement.

(b) The Investor and its direct and indirect transferees of the Securities (as
defined herein) will be entitled to the benefits of the Registration Rights
Agreement, in the form of Exhibit C hereto, to be dated as of the Closing Date
among the parties hereto (the “Registration Rights Agreement”) pursuant to which
the Company shall agree, among other things, to file a shelf registration
statement (the “Shelf Registration Statement”) pursuant to Rule 415 under the
Securities Act covering the resale, by the holders thereof, of all the shares of
Common Stock purchased from the Selling Stockholder and all the Common Shares
(as defined herein) and Warrant Shares (as defined herein).

1.5 Delivery of Units at Closing.

(a) The completion of the purchase and sale of the Units (the “Closing”) shall
occur, subject to the satisfaction or waiver of the conditions set forth in
Section 1.6 hereof and Section 1.7 hereof (other than those intended to be
satisfied at Closing), at 8:00 a.m. Pacific Daylight Time on the first
(1st) business day on which the conditions to the Closing set forth in Sections
1.6 and 1.7 are satisfied or waived (the “Closing Date”) at the offices of
O’Melveny & Myers LLP, 400 S. Hope Street, Los Angeles, CA 90071, or such other
time, date or place is agreed to by the parties.

(b) At the Closing, (i) the Sellers shall authorize the Company’s transfer agent
to issue or transfer, as applicable, and the transfer agent shall issue or
transfer, as applicable, to the Investor one or more stock certificates
registered in the name of the Investor, or in such name of nominee(s) designated
by the Investor in writing, representing the number of shares of

 

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Common Stock set forth on Schedule A and (ii) the Company shall issue a Warrant
to purchase the number of shares of Common Stock set forth on Schedule A, in
each case, against payment of the Aggregate Purchase Price in accordance with
Section 1.1 hereof.

1.6 Conditions to the Sellers’ Obligation to Complete Purchase and Sale. The
Sellers’ obligation to issue or sell (as the case may be) the Units to the
Investor at Closing is subject to the satisfaction, on or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Sellers’ sole benefit and may be waived by the Sellers at any time in
their sole discretion by providing the Investor with prior written notice
thereof:

(a) Payment of Purchase Price. The Investor shall have delivered to the Escrow
Agent the Aggregate Purchase Price;

(b) Representations and Warranties; Covenants. The representations and
warranties of the Investor set forth in Article III hereof shall be true and
correct as of the date hereof and as of the Closing Date as though made at that
time (except for representations and warranties that speak as of a specific date
(which shall be true and correct as of such date)), and the Investor shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Investor on or prior to the Closing Date;

(c) Deliveries. The Investor shall have duly executed and delivered to the
applicable Sellers each of the Transaction Documents to which it is a party; and

(d) Minimum Offering Amount. The aggregate purchase price paid to the Company
for all of the Units in the Offering by the Investor pursuant to this Agreement
and the Other Investors pursuant to the Other Agreements at or prior to the
Closing hereunder shall not be less than $14 million.

1.7 Conditions to the Investor’s Obligation to Complete Purchase and Sale. The
obligation of the Investor hereunder to purchase the Units from the Sellers at
the Closing is subject to the satisfaction, on or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Investor’s sole benefit and may be waived by the Investor at any time in its
sole discretion by providing the Sellers with prior written notice thereof
(provided that the condition set forth in Section 1.7(k) below may not be
waived):

(a) Opinion of Counsel. Receipt by the Investor of an opinion letter of Michael
W. Sanders, counsel to the Company, dated the Closing Date, in a form reasonably
acceptable to the Investor.

(b) Representations and Warranties; Covenants. The representations and
warranties of the Company set forth in Article II hereof shall be true and
correct as of the date hereof and as of the Closing Date as though made at that
time (except for representations and warranties that speak as of a specific date
which shall be true and correct as of such date), and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company on or prior to the Closing Date. The representations and warranties of
the Selling Stockholder set forth in Article III hereof, shall be true and
correct as of the date hereof and as of

 

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the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date which shall be true and correct as
of such date), and the Selling Stockholder shall have performed, satisfied and
complied with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Selling Stockholder
on or prior to the Closing Date;

(c) Certificate. The Company shall have delivered to the Investor a certificate,
dated the Closing Date, duly executed on behalf of the Company by its Chief
Executive Officer certifying as to the satisfaction of conditions set forth in
clauses (b) (with respect to the Company), (e), (f), (g), (h), (i) and (j) of
this Section 1.7. The Selling Stockholder shall have delivered to the Investor a
certificate, dated the Closing Date, duly executed by the Selling Stockholder
certifying, with respect to the Selling Stockholder, as to the satisfaction of
conditions set forth in clauses (b), (e), (g), (h) and (j) of this Section 1.7;

(d) Secretary’s Certificate. The Company shall have delivered to the Investor a
certificate, dated the Closing Date, duly executed by its Secretary or Assistant
Secretary, certifying that the attached copies of the Company’s articles of
incorporation, by-laws and the resolutions of the Board of Directors of the
Company approving this Agreement and the transactions contemplated hereby, are
all true, complete and correct and remain unamended and in full force and
effect;

(e) No Litigation. On the Closing Date, no legal action, suit or proceeding
shall be pending or overtly threatened which seeks to restrain or prohibit the
transactions contemplated by this Agreement;

(f) No Suspension, Etc. Trading in the Common Stock shall not have been
suspended by any stock exchange or market on which the Common Stock is then
listed or admitted for trading or quotation, as applicable, or the Securities
and Exchange Commission (the “SEC”) (and suspension shall not have been
threatened by the SEC or the Principal Market (as defined below), and, at any
time prior to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets (“Bloomberg”) shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on Nasdaq, nor shall a banking moratorium
have been declared either by the United States or New York State authorities.
The Company shall have filed an additional listing application with the
Principal Market to list all the shares of Common Stock purchased from the
Selling Stockholder and all the Common Shares and Warrant Shares and no other
approval of the Principal Market is required (and no other action shall be
required to be taken by the Company) to list all the shares of Common Stock
purchased from the Selling Stockholder and all the Common Shares and Warrant
Shares on the Principal Market;

(g) No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement;

(h) Material Adverse Effect. No material adverse effect or prospective material
adverse effect on (i) the business, assets, management, condition (financial or

 

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otherwise), operations (including results thereof) or prospects of the Company
and its Subsidiaries (defined below) considered as a whole or (ii) the
transactions contemplated hereby or in the other Transaction Documents (as
defined below), and no event that would prohibit or otherwise interfere with the
ability of the Company or the Selling Stockholder to perform any of their
respective obligations under this Agreement in any material respect (each of the
foregoing being a “Material Adverse Effect”), in each case, shall have occurred
or become known at or before the Closing Date;

(i) Minimum Offering Amount. The aggregate purchase price paid to the Company
for all of the Units in the Offering by the Investor pursuant to this Agreement
and the Other Investors pursuant to the Other Agreements at or prior to the
Closing hereunder shall not be less than $14 million;

(j) Deliveries. Each of the Sellers shall have duly executed and delivered to
the Investor each of the Transaction Documents to which it is a party, and the
Sellers shall have delivered to the Investor such other documents relating to
the transactions contemplated by this Agreement as the Investor or its counsel
may reasonably request; and

(k) Resale. The Investor shall have received assurances from the staff of the
SEC (the “Staff”) that the Staff will not (i) characterize any offering pursuant
to any registration statement filed pursuant to the Registration Rights
Agreement as constituting an offering of securities by or on behalf of the
Company, or in any other manner, such that any of the Stockholders (as defined
in the Registration Rights Agreement) participating therein are prohibited from
using any such registration statement to make continuous resales at the market
thereunder pursuant to Rule 415 on Form S-3, (ii) require that any Registrable
Shares be excluded from any such registration statement, (iii) require
any Stockholders seeking to sell securities under any such registration
statement to be specifically identified as an “underwriter” in order to permit
any such registration statement to become effective or (iv) impose any other
terms or conditions on the Investor.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to the Investor as follows:

2.1 Subsidiaries; Organization. The Company has no subsidiaries as defined by
Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”)
except as set forth in Exhibit 21 to the Company’s Form 10-K for the year ended
December 31, 2006 (collectively, the “Subsidiaries”, and each a “Subsidiary”).
Each of the Company and its Subsidiaries is duly organized and validly existing
and is in good standing under the laws of the jurisdiction of its incorporation
or organization. Each of the Company and its Subsidiaries has full corporate
power and authority to own, operate and occupy its properties and to conduct its
business as presently conducted and is registered or qualified to do business
and in good standing in each jurisdiction in which it owns or leases property or
transacts business, except where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect, and no
proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification.

 

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2.2 Due Authorization. The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement,
the Warrant, and the Registration Rights Agreement (each, a “Transaction
Document” and collectively the “Transaction Documents”). This Agreement has been
duly authorized and validly executed and delivered by the Company and, assuming
due authorization, execution and delivery by the other parties hereto,
constitutes a valid and legally binding obligation of the Company enforceable
against the Company in accordance with its terms, except (i) to the extent
rights to indemnity and contribution may be limited by state or federal
securities laws or the public policy underlying such laws, (ii) enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and (iii) enforceability may be limited by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).

2.3 Non-Contravention. The execution and delivery of the Transaction Documents,
the issuance and sale of the Common Shares (as defined herein), the Warrants and
the Warrant Shares (as defined herein) pursuant to the Transaction Documents,
the performance by the Company of its obligations under the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby will not (A) conflict with or constitute a violation of, or default
(with or without the giving of notice or the passage of time or both) under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries is bound or to which
any of the property or assets of the Company or any of its Subsidiaries may be
subject, (ii) the charter, by-laws or other organizational documents of the
Company or any of its Subsidiaries, or (iii) any law, administrative regulation,
ordinance or order of any court or governmental agency, arbitration panel or
authority applicable to the Company, any of its Subsidiaries or their respective
properties, or (B) result in the creation or imposition of any lien,
encumbrance, claim, security interest or restriction whatsoever upon any of the
material properties or assets of the Company or any of its Subsidiaries or an
acceleration of indebtedness pursuant to any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
any indenture, mortgage, deed of trust or any other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound or to which any of the property or assets of
the Company or any of its Subsidiaries may be subject. No consent, approval,
authorization or other order of, or registration, qualification or filing with,
any regulatory body, administrative agency, self-regulatory organization, stock
exchange or market, or other governmental body is required for the execution and
delivery of the Transaction Documents and the valid issuance and sale of the
Units in the Offering and the Common Shares, the Warrants and the Warrant Shares
pursuant to the Transaction Documents, other than such as have been made or
obtained. The Units in the Offering, the Common Shares, the Warrants and the
Warrant Shares and the shares of Common Stock sold by the Selling Stockholder in
the Offering are collectively referred to herein as the “Securities”).

2.4 Reporting Status. The Company has filed in a timely manner all documents
that

 

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the Company was required to file under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), during the 24 months preceding the date of this
Agreement (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
“SEC Documents”). The SEC Documents complied in all material respects with the
Exchange Act’s and the SEC’s requirements as of their respective filing dates,
and none of the information contained therein as of the date thereof contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.

2.5 Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of 13,000,000 shares of capital stock, of which 12,000,000
shares are designated Common Stock and 1,000,000 shares are designated Preferred
Stock, including 500 shares designated as Series II Convertible Preferred Stock.
As of the date hereof, there were 6,532,950 shares of Common Stock issued and
outstanding, no shares of Preferred Stock issued and outstanding, and no shares
of Series II Convertible Preferred Stock outstanding. As of the date hereof,
918,658 shares of Common Stock were reserved for issuance upon exercise of
outstanding stock options issued by the Company to certain former and current
employees, consultants and directors of the Company. All outstanding shares of
capital stock are duly authorized, validly issued, fully paid and nonassessable
and were issued in compliance with federal and U.S. state securities laws. Other
than as disclosed in the SEC Documents, there are no outstanding rights,
options, warrants, preemptive rights, rights of first refusal, agreements,
commitments or similar rights for the purchase or acquisition from the Company
or any of its Subsidiaries of any securities of the Company or any of its
Subsidiaries. The shares of Common Stock to be sold by the Company pursuant to
this Agreement have been duly authorized, and when issued and paid for in
accordance with the terms of this Agreement (the “Common Shares”) will be
validly issued, fully paid and nonassessable and free and clear of all pledges,
liens and encumbrances. The Warrants to be issued pursuant to this Agreement
have been duly authorized. The Common Stock issuable upon exercise of the
Warrants (the “Warrant Shares”) has been duly authorized and reserved and, when
issued upon exercise of the Warrants in accordance with the terms of the
Warrants, will be validly issued, fully paid and non-assessable and free and
clear of all pledges, liens and encumbrances. No preemptive right, co-sale
right, right of first refusal or other similar right exists with respect to the
Securities or the issuance and sale thereof. No further approval or
authorization of any stockholder or the Board of Directors of the Company is
required for the issuance and sale of the Securities. Except for the
registration rights held by Eaturna, LLC prior to the date hereof, which
Eaturna, LLC has agreed it will not exercise in connection with any registration
statement that covers any Registrable Shares, no holder of any of the securities
of the Company has any rights (“demand,” “piggyback” or otherwise) to have such
securities registered by reason of the intention to file, filing or
effectiveness of a Shelf Registration Statement. The Company understands and
acknowledges that the number of Warrant Shares will increase in certain
circumstances. The Company further acknowledges that its obligation to issue the
Warrant Shares upon exercise of the Warrants in accordance with this Agreement
and the Warrants is, absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company. The transactions contemplated hereby will not
result in an adjustment or decrease to any exercise or conversion price
contained in any securities issued by the Company. 2,044,178 shares of the
Company’s issued and outstanding shares of Common Stock on the date

 

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hereof are as of the date hereof owned by Persons who are “affiliates” (as
defined in Rule 405 of the Securities Act and calculated based on the assumption
that only officers, directors and holders of at least 10% of the Company’s
issued and outstanding shares of Common Stock are “affiliates” without conceding
that any such Persons are “affiliates” for purposes of federal securities laws)
of the Company or any of its Subsidiaries. To the Company’s knowledge, as of the
date hereof no Person (other than Eaturna, LLC) owns 10% or more of the
Company’s issued and outstanding shares of Common Stock (calculated based on the
assumption that all Equivalents (as defined below), whether or not presently
exercisable or convertible, have been fully exercised or converted (as the case
may be) without regard to any limitations on exercise or conversion (including
“blockers”) contained therein without conceding that such identified Person is a
10% stockholder for purposes of federal securities laws).

2.6 Legal Proceedings. Except as disclosed in the SEC Documents, there is no
action, suit or proceeding before any court, governmental agency or body,
domestic or foreign, now pending or, to the knowledge of the Company or any of
its Subsidiaries, threatened against the Company or its Subsidiaries wherein an
unfavorable decision, ruling or finding could have a Material Adverse Effect.

2.7 No Violations. Neither the Company nor any of its Subsidiaries: (i) is in
violation of its charter, bylaws, or other organizational document, or in
violation of any law, administrative regulation, ordinance or order of any court
or governmental agency, arbitration panel or authority applicable to the Company
or any of its Subsidiaries, which violation, individually or in the aggregate,
would have a Material Adverse Effect, (ii) is in default (and there exists no
condition which, with or without the passage of time or giving of notice or
both, would constitute a default) in the performance of any bond, debenture,
note or any other evidence of indebtedness in any indenture, mortgage, deed of
trust or any agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound or by which the properties of the Company or any of its Subsidiaries may
be bound, except for those defaults that would not, individually or in the
aggregate, have a Material Adverse Effect.

2.8 Governmental Permits, Etc. The Company and its Subsidiaries possess all
franchises, licenses, certificates and other authorizations from any foreign,
federal, state or local government or governmental agency, department or body
that are necessary for the operation of their respective businesses as currently
conducted, except where such failure to possess would not, individually or in
the aggregate, have a Material Adverse Effect.

2.9 Intellectual Property. The Company and its Subsidiaries own or possess
sufficient rights to use all patents, patent rights, trademarks, copyrights,
licenses, inventions, trade secrets, trade names and know-how that are necessary
for the conduct of their respective businesses as now conducted and as presently
proposed to be conducted, except where the failure to have the right to use, own
or possess would not, individually or in the aggregate, have a Material Adverse
Effect (the “Company Intellectual Property”). No intellectual property (other
than the Company Intellectual Property) is necessary or required for the
operation of the business of the Company or any of its Subsidiaries as now
conducted and as presently proposed to be conducted, except where the failure to
own or possess such intellectual property would not, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth in the SEC
Documents, (i)

 

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neither the Company nor any of its Subsidiaries has received any notice of, or
has any knowledge of, any infringement by the Company of intellectual property
rights of any third party that, individually or in the aggregate, could have a
Material Adverse Effect and (ii) neither the Company nor any of its Subsidiaries
has received any written notice of any infringement by a third party of any
Company Intellectual Property that, individually or in the aggregate, could have
a Material Adverse Effect.

2.10 Financial Statements. The consolidated financial statements of the Company
and its Subsidiaries, and the related notes thereto included in the SEC
Documents, (i) complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto as in effect as of the time of filing, (ii) present fairly the
financial position of the Company and its Subsidiaries as of the dates indicated
and the consolidated results of operations and cash flows for the periods
therein specified and (iii) have been prepared in compliance with the Securities
Act and in accordance with United States generally accepted accounting
principles applied on a consistent basis throughout the periods therein
specified; and the Company and its Subsidiaries do not have any material
liabilities or obligations, direct or indirect, contingent or otherwise
(including but not limited to off-balance sheet obligations), not disclosed in
the SEC Documents. Moss Adams LLP, which has examined certain of such financial
statements as set forth in its report included in the SEC Documents, is an
independent registered public accounting firm as required by the Securities Act
for an offering registered thereunder.

2.11 No Material Adverse Change. Except as publicly disclosed in the SEC
Documents, since January 1, 2007, there has not been (i) any material adverse
change or any development involving a prospective material adverse change in the
business, assets, management, condition (financial or otherwise), operations
(including results thereof) or prospects of the Company and its Subsidiaries
taken as a whole, (ii) any liability or obligation, direct or indirect,
contingent or otherwise, that is material to the Company and its Subsidiaries
taken as a whole, incurred by the Company and its Subsidiaries taken as a whole,
except liabilities and obligations incurred in the ordinary course of business,
(iii) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its Subsidiaries, or (iv) any loss or
damage (whether or not insured) to the physical property of the Company and its
Subsidiaries taken as a whole which has been sustained which has had a Material
Adverse Effect. The Company and its Subsidiaries, individually and on a
consolidated basis, are not as of the date hereof, and after giving effect to
the transactions contemplated hereby to occur at the Closing will not be,
insolvent

2.12 Listing. The Company’s Common Stock is registered pursuant to Section 12(b)
of the Exchange Act and is listed on the Nasdaq Capital Market (the “Principal
Market”), and the Company has taken no action designed to terminate, or likely
to have the effect of terminating, (and the Company has no knowledge of any fact
that would result in the termination of) the registration of the Common Stock
under the Exchange Act or the de-listing of the Common Stock from the Principal
Market, nor to the Company’s knowledge is The NASDAQ Stock Market, Inc.
(“Nasdaq”) currently contemplating terminating such listing. The Company is not
in violation of, and has not received notice (written or oral) from Nasdaq to
the effect that the Company is not in compliance with, the listing or
maintenance requirements of the Principal Market. Assuming the accuracy of the
representations made by the Investor in Article IV hereof,

 

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no approval of the shareholders of the Company thereunder is required for the
Company to issue and deliver the Securities to the Investor as contemplated by
the Transaction Documents or to issue and deliver the securities to the Other
Investors as contemplated by the Other Agreements, including such as may be
required pursuant to Nasdaq Rule 4350(i).

2.13 No Manipulation of Stock. Neither the Company, nor any of its Subsidiaries,
nor any of their respective affiliates has taken or may take directly or
indirectly, any action in violation of applicable law or any action designed to
or that might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Common Shares, the Warrant Shares or the shares of Common Stock to be
sold by the Selling Stockholder hereunder. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or the laws of the
jurisdiction of its incorporation or otherwise which is or could become
applicable to the Investor or any Other Investor as a result of the transactions
contemplated by this Agreement and the Other Agreements, including, without
limitation, the Company’s issuance of the Securities and ownership of the
Securities by the Investor or the Company’s issuance of securities and ownership
of the securities by any Other Investor. The Company has not adopted a
stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.

2.14 Insurance. The Company and each of its Subsidiaries maintain and will
continue to maintain insurance in amounts and covering risks as are prudent and
customary with industry practice for the conduct of their respective businesses
and the value of their respective properties.

2.15 Tax Matters. The Company and each of its Subsidiaries have timely filed all
material federal, state, local and foreign income and franchise and other tax
returns required to be filed by any jurisdiction to which it is subject and has
paid all taxes due in accordance therewith, and no tax deficiency has been
determined adversely to the Company or any of its Subsidiaries which has had
(nor does the Company have any knowledge of any tax deficiency which, if
determined adversely to the Company or any of its Subsidiaries, could have) a
Material Adverse Effect.

2.16 Investment Company. The Company is not an “investment company,” an
affiliate of an “investment company,” a company controlled by an “investment
company” or an “affiliated person” of, or “promoter” or “principal underwriter”
for, an “investment company,” within the meaning of such terms under the
Investment Company Act of 1940, as amended (the “1940 Act”), and the rules and
regulations of the SEC thereunder, and the Company will not be or be required to
register as any of the foregoing under the 1940 Act after giving effect to the
transactions contemplated by this Agreement.

2.17 No Registration. Assuming the accuracy of the representations and
warranties made by, and compliance with the covenants of, the Investor in
Article III hereof, no registration of the Units under the Securities Act is
required in connection with the offer and sale of the Units by the Company in
the Offering.

 

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2.18 Disclosure. Neither this Agreement, the Memorandum, nor any other
documents, certificates or instruments furnished to the Investor by or on behalf
of the Company in connection with the transactions contemplated by this
Agreement contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made herein or therein,
in the light of the circumstances under which they were made herein or therein,
not misleading

2.19 No Integrated Offering; No General Solicitation. Neither the Company nor
any of its affiliates, nor any Person acting on its behalf or their behalf,
directly or indirectly has (i) sold, offered for sale, solicited offers to buy
or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the sale of the Securities
in a manner that would require the registration under the Securities Act of the
sale of the Securities pursuant to this Agreement and the Other Agreements; or
(ii) offered, solicited offers to buy or sold Securities by any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act. The Company does not have any
registration statement pending before the SEC or currently under the SEC’s
review.

2.20 Compliance with Law. The business of the Company and its Subsidiaries has
been and is presently being conducted in accordance with all applicable federal,
state and local governmental laws, rules, regulations and ordinances, including
but not limited to those relating to the protection of human health and safety,
labor, employment and employment practices and benefits, terms and conditions of
employment and wages and hours, the environment or hazardous or toxic substances
or wastes, pollutants or contaminants, except for the alleged violation of
California labor laws with respect to providing meal and rest breaks that are
the subject of the pending litigation described in the SEC Documents or except
such that, individually or in the aggregate, the noncompliance therewith would
not have a Material Adverse Effect.

2.21 Sarbanes-Oxley Act. The Company is in compliance in all material respects
with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”), and the rules and regulations promulgated thereunder, and
intends to comply with other applicable provisions of the Sarbanes-Oxley Act,
and the rules and regulations promulgated thereunder, upon the effectiveness of
such provisions.

2.22 Forward-Looking Statements. The information contained in the SEC Documents
regarding the Company’s expectations, plans and intentions, and any other
information that constitutes “forward-looking” information within the meaning of
the Securities Act and the Exchange Act were made by the Company on a reasonable
basis and reflected the Company’s good faith belief and/or estimate of the
matters described therein, in each case as of the date of the SEC Document
containing such information.

2.23 Use of Proceeds. The Company’s proceeds from the sale of the Securities
will be used by the Company (a) to repay a portion of the amounts due under the
Company’s revolving credit facility, (b) to pay amounts owing to Hotel
Restaurant Properties, Inc. and affiliated Persons, (c) to fund acquisitions and
new restaurant development, and (d) for general corporate purposes, all as set
forth in the Memorandum, and the amounts actually paid under (a) and (b) will
not be materially different from the amounts set forth in the Memorandum.

 

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2.24 Non-Public Information. The Company confirms that neither it nor any Person
acting on its behalf has provided Investor with any information that the Company
believes constitutes material non-public information, except with respect to the
existence, terms and conditions of this offering.

2.25 ERISA. None of the Company or its Subsidiaries has, or, after giving effect
to the issuance and sale of the Securities, will have, any liability for any
prohibited transaction (as defined in Section 406 of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”), or Section 4975 of the
Internal Revenue Code of 1986, as amended (the “Code”)), accumulated funding
deficiency (as defined in Section 302 of ERISA) or any complete or partial
withdrawal from a multiemployer plan (as defined in Section 4001(a)(3) of
ERISA), with respect to any plan (as defined in Section 3(3) of ERISA) as to
which the Company or any of its Subsidiaries has any liability. With respect to
such plans, the Company and its Subsidiaries are, and, after giving effect to
the issuance and sale of the Securities, will be, in compliance in all material
respects with all applicable provisions of the Code and ERISA.

2.26 S-3 Eligibility. The Company is eligible to use Form S-3 for the resale of
the Shares and Warrant Shares by the Investor or its transferees.

2.27 Title. Each of the Company and its Subsidiaries has good title to all real
and personal property described in the SEC Documents as being owned by it or
which is material to their respective businesses and valid and enforceable
leases for all real and personal property described therein as being leased by
it, free and clear of all liens, charges, encumbrances or restrictions, except,
in each case, as described in the SEC Documents or such as would not,
individually or in the aggregate, have a Material Adverse Effect. All leases,
contracts and agreements, including those referred to in the SEC Documents, to
which the Company or any of the Subsidiaries is a party or by which any of them
is bound are valid and enforceable against the other party or parties thereto,
except where the invalidity or unenforceability would not, individually or in
the aggregate, have a Material Adverse Effect. Neither the Company nor any of
its Subsidiaries (i) is a party to any contract, agreement or instrument, under
which any party thereto is presently in violation thereof or default thereunder
(and the Company has no knowledge of any reasonably foreseeable violation
thereof or default thereunder), other than defaults or violations which could
not reasonably be expected to result in a Material Adverse Effect or (ii) is in
violation of any term of or in default under any contract, agreement or
instrument relating to any indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect. The Company is not, and has never been, a U.S. real property
holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company shall so certify upon the Investor’s
request

2.28 Employees. Except as set forth in the SEC Documents, there is no strike,
labor dispute, slowdown or work stoppage with the employees of the Company or
any of its Subsidiaries which is pending or, to the knowledge of the Company,
threatened. No executive officer (as defined in Rule 501(f) promulgated under
the Securities Act) or other key employee of the Company or any of its
Subsidiaries has notified the Company or any such Subsidiary that such officer
intends to leave the Company or any such Subsidiary or otherwise terminate such
officer’s employment with the Company or any such Subsidiary.

 

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2.29 No Brokerage or Finder’s Fees. Except as described in the engagement letter
dated May 22, 2007 with Oppenheimer, no brokerage or finder’s fees or
commissions are or will be payable by the Company or any of its Subsidiaries to
any broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other third Person with respect to the transactions contemplated
by this Agreement. The Investor shall have no obligation with respect to any
fees or with respect to any claims (other than such fees or commissions owed by
the Investor pursuant to written agreements executed by the Investor which fees
or commissions shall be the sole responsibility of the Investor) made by or on
behalf of other Persons for fees of a type contemplated in this Section 2.29
that may be due in connection with the transactions contemplated by this
Agreement.

2.30 Books and Records. The Company (i) makes and keeps accurate books and
records and (ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with management’s
authorization, (B) transactions are recorded as necessary to permit preparation
of its financial statements in conformity with generally accepted accounting
principles and to maintain accountability for its assets, (C) access to its
assets is permitted only in accordance with management’s authorization and
(D) the reported accountability for its assets is compared with existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Rules 13a-14 and 15d-14 promulgated under the Exchange Act) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s most recently filed period
report under the Exchange Act, as the case may be, is being prepared. The
Company’s certifying officers have evaluated the effectiveness of the Company’s
controls and procedures as of a date within 90 days prior to the filing date of
the most recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in the Company’s internal controls (as such term is
defined in Item 307(b) of Regulation S-K) or, to the Company’s knowledge, in
other factors that could significantly affect the Company’s internal controls.

2.31 Other Transactions. Except as disclosed in the SEC Documents, none of the
Company’s officers, directors, or, to the Company’s knowledge officers, the
employees of the Company or any of its Subsidiaries is presently a party to any
transaction with the Company or any of its Subsidiaries or to a presently
contemplated transaction (other than for services as employees, officers and
directors) that would be required to be disclosed pursuant to Item 404 of
Regulation S-K promulgated under the Securities Act.

2.32 Foreign Corrupt Practices. Neither the Company nor any of its Subsidiaries
nor any director, officer, agent, employee or other Person acting on behalf of
the Company or any of its Subsidiaries has, in the course of its actions for, or
on behalf of, the Company or any of its

 

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Subsidiaries (i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity;
(ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.

2.33 No Undisclosed Events, Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists, or is
reasonably foreseeable to exist or occur with respect to the Company, any of its
Subsidiaries or their respective business, properties, liabilities, prospects,
operations (including results thereof) or condition (financial or otherwise),
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced (other than the existence of the Offering, which
will be disclosed pursuant to Section 5.2 below) or which would have a material
adverse effect on the Investor’s investment in the Company hereunder.

Any certificate signed by any officer of the Company or any of its Subsidiaries
and delivered pursuant to this Agreement shall be deemed a joint and several
representation and warranty by the Company and its Subsidiaries to the Investor
as to the matters covered thereby.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER

The Selling Stockholder represents and warrants to the Investor as follows:

3.1 Due Authorization. This Agreement has been validly executed and delivered by
the Selling Stockholder and, assuming due authorization, execution and delivery
by the other parties hereto, constitutes a valid and legally binding obligation
of the Selling Stockholder enforceable against the Selling Stockholder in
accordance with its terms, except (i) to the extent rights to indemnity and
contribution may be limited by state or federal securities laws or the public
policy underlying such laws, (ii) enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar laws affecting creditors’ and contracting parties’ rights generally and
(iii) enforceability may be limited by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).

3.2 Non-Contravention. The execution and delivery of this Agreement, the
transfer and sale of the Common Stock to be sold by the Selling Stockholder
under this Agreement, the performance by the Selling Stockholder of its
obligations under this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or constitute a violation of, or
default (with or without the giving of notice or the passage of time or both)
under, (i) any bond, debenture, note or other evidence of indebtedness, or under
any lease, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Selling Stockholder is a party or by
which it or its properties are bound, or (ii) any law, administrative
regulation, ordinance or order of any court or governmental

 

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agency, arbitration panel or authority applicable to the Selling Stockholder or
the Selling Stockholder’s properties. No consent, approval, authorization or
other order of, or registration, qualification or filing with, any regulatory
body, administrative agency, self-regulatory organization, stock exchange or
market, or other governmental body in the United States is required for the
execution and delivery of this Agreement and the sale of the Common Stock to be
sold pursuant to this Agreements by the Selling Stockholder, other than such as
have been made or obtained.

3.3 Title. The Selling Stockholder holds good and marketable title to all of the
Common Stock to be sold by the Selling Stockholder under this Agreement, free
and clear of any liens, encumbrances, claims, security interests or other
restrictions. The Selling Stockholder possesses full authority and legal right
to sell, transfer and assign to Investor the shares of Common Stock to be sold
by the Selling Stockholder under this Agreement. At the time of transfer to
Investor by the Selling Stockholder of such shares of Common Stock, Investor
will own such shares of Common Stock free and clear of any liens, encumbrances,
claims, security interests or other restrictions. There are no claims pending
or, to the Selling Stockholder’s knowledge, threatened against the Company or
the Selling Stockholder that concern or affect title to any of the shares of
Common Stock to be sold by the Selling Stockholder under this Agreement, or that
seek to compel the transfer or issuance of such Common Stock.

3.4 Legal Proceedings. There is no action, suit or proceeding before any court,
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of the Selling Stockholder, threatened against the Selling Stockholder
wherein an unfavorable decision, ruling or finding would reasonably be expected
to adversely affect the validity or enforceability of, or the authority or
ability of the Selling Stockholder to perform its obligations under, this
Agreement.

3.5 No Broker. Other than the fee to be paid by the Selling Stockholder to the
Placement Agents, the Selling Stockholder has not incurred any liability for any
finder’s or broker’s fee, or agent’s commission in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.

ARTICLE IV

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR

The Investor represents and warrants to the Sellers (and covenants with the
Company with respect to Sections 4.5 and 4.6 below) as follows:

4.1 Securities Law Representations and Warranties.

(a) The Investor is an “accredited investor” as defined in Regulation D under
the Securities Act and the Investor has the knowledge, sophistication and
experience necessary to make, and is qualified to make decisions with respect
to, investments in shares presenting an investment decision like that involved
in the purchase of the Securities, including investments in securities issued by
the Company and investments in comparable companies, can bear the economic risk
of a total loss of its investment in the Securities and has requested, received,
reviewed and considered all information it deemed relevant in making an informed
decision to purchase the Securities. Such Investor is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act and such
Investor is not a broker-dealer;

 

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(b) The Investor is acquiring the Securities for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof; provided, however, that by making the
representations herein, the Investor does not agree, or make any representation
or warranty (except as set forth in Section 5.9), to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act;

(c) The Investor was not organized for the specific purpose of acquiring the
Securities (or if the Investor was organized for the specific purpose of
acquiring the Securities, then all of its equity owners are “accredited
investors” as defined in Regulation D under the Securities Act);

(d) The Investor will not, directly or indirectly, offer, sell, pledge, transfer
or otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of the Securities except in compliance with the
Securities Act, applicable state securities laws and the respective rules and
regulations promulgated thereunder;

(e) The Investor understands that the Securities are being offered and sold to
it in reliance on specific exemptions from the registration requirements of the
United States federal and state securities laws and that the Sellers are relying
upon the truth and accuracy of, and the Investor’s compliance with,
representations, warranties, agreements, acknowledgements and understandings of
the Investor set forth herein and in the applicable Warrant in order to
determine the availability of such exemptions and the eligibility of the
Investor to acquire the Securities;

(f) The Investor understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability
of an investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities; and

(g) The Investor acknowledges that the Sellers have represented that no action
has been or will be taken in any jurisdiction outside the United States by the
Sellers that would permit an offering of the Securities, or possession or
distribution of offering materials in connection with the issue of the
Securities, in any jurisdiction outside the United States where action for that
purpose is required. If the Investor is located or domiciled outside the United
States it agrees to comply with all applicable laws and regulations in each
foreign jurisdiction in which it purchases, offers, sells or delivers Securities
or has in its possession or distributes any offering material, in all cases at
its own expense.

4.2 No Change of Control. The purchase by such Investor of the Units issuable to
it at the Closing will not result in such Investor (individually or together
with other Person with whom such Investor has identified, or will have
identified, itself as part of a “group” in a public filing made with the
Commission involving the Company’s securities) acquiring, or obtaining

 

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the right to acquire, in excess of 19.9% of the Common Stock or the voting power
of the Company immediately following the Closing (assuming that the Closing
shall have occurred). Such Investor does not presently intend to, alone or
together with others, make a public filing with the Commission to disclose that
it has (or that it together with such other Persons have) acquired, or obtained
the right to acquire, as a result of the transactions contemplated hereby (when
added to any other securities of the Company that it or they then own or have
the right to acquire), in excess of 19.9% of the Common Stock or the voting
power of the Company immediately following the Closing (assuming that the
transactions contemplated hereby shall have occurred). The Investor does not as
of the date hereof, and will not immediately following the Closing (assuming
that the Closing occurs), own 10% or more of the Company’s issued and
outstanding shares of Common Stock (calculated based on the assumption that all
Equivalents owned by the Investor, whether or not presently exercisable or
convertible, have been fully exercised or converted (as the case may be) but
taking into account any limitations on exercise or conversion (including
“blockers”) contained therein).

4.3 [Intentionally Omitted]

4.4 Authorization; Enforcement; Validity. The Investor has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement. This Agreement
constitutes a valid and binding obligation of the Investor enforceable against
the Investor in accordance with its terms, except (i) to the extent rights to
indemnity and contribution may be limited by state or federal securities laws or
the public policy underlying such laws, (ii) enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors’ and contracting parties’ rights
generally and (iii) enforceability may be limited by general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).

4.5 Certain Trading Limitations. The Investor (i) represents that on and from
the date the Investor first became aware of the Offering until the date hereof
he, she or it has not and (ii) covenants that for the period commencing on the
date hereof and ending on the day the Offering is publicly announced as
contemplated by Section 5.2 below, he, she or it will not, engage in any hedging
or other transaction which is designed to or could reasonably be expected to
lead to or result in, or be characterized as, a sale, an offer to sell, a
solicitation of offers to buy, disposition of, loan, pledge or grant of any
right with respect to (collectively, a “Disposition”) Common Stock of the
Company by the Investor or any other Person in violation of the Securities Act.
Such prohibited hedging or other transactions would include without limitation
effecting any short sale or having in effect any short position (whether or not
such sale or position is against the box and regardless of when such position
was entered into) or any purchase, sale or grant of any right (including without
limitation any put or call option) with respect to the Common Stock of the
Company or with respect to any security (other than a broad-based market basket
or index) that includes, relates to or derives any significant part of its value
from the Common Stock of the Company.

4.6 No Sale of Securities. The Investor hereby covenants with the Company not to
make any sale of the Securities without (i) complying with the provisions of
this Agreement, or

 

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(ii) without satisfying the requirements of the Securities Act and the rules and
regulations promulgated thereunder, including, without limitation, causing the
prospectus delivery requirement under the Securities Act to be satisfied, if
applicable.

4.7 Investor Suitability Questionnaire. The information contained in the
Investor Suitability Questionnaire in the form attached hereto as Exhibit D
delivered by the Investor in connection with this Agreement is complete and
accurate in all material respects.

4.8 No Advice. The Investor understands that nothing in this Agreement or any
other materials presented to the Investor in connection with the purchase and
sale of the Units constitutes legal, tax or investment advice. The Investor has
consulted such legal, tax and investment advisors as it, in its sole discretion,
has deemed necessary or appropriate in connection with its purchase of the
Units.

4.9 Independent Investment. Unless a Schedule 4.9 is attached hereto and then
only as otherwise set forth thereon, the Investor has not agreed to act with any
Other Investor for the purpose of acquiring, holding, voting or disposing of the
Securities hereunder for purposes of Section 13(d) under the Exchange Act, and
the Investor is acting independently with respect to its investment in the
Securities.

The Sellers acknowledge and agree that the Investor does make or has not made
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Article IV and
Section 5.9.

ARTICLE V

COVENANTS

5.1 Form D. The Company agrees to file one or more Forms D with respect to the
Securities on a timely basis as required under Regulation D under the Securities
Act to perfect its claim to the exemption provided by Rule 506 of Regulation D.

5.2 Form 8-K; Press Release. The Company shall, on or before 8:30 a.m., New York
City Time, on the fourth (4th) business day after the date of this Agreement,
issue a press release (the “Press Release”) reasonably acceptable to the
Investor and the Placement Agents disclosing all the material terms of the
transactions contemplated by this Agreement and the agreements contemplated
hereby and the Other Agreements. On or before 8:30 a.m., New York City Time, on
the fourth (4th) business day following the date of this Agreement, the Company
shall file a Current Report on Form 8-K describing all the material terms of the
transactions contemplated by this Agreement and the other Transaction Documents
and the Other Agreements in the form required by the Exchange Act and attaching
all the material agreements (including, without limitation, this Agreement (and
all schedules to this Agreement), and the form of Warrant and the Registration
Rights Agreement). The Company agrees, as soon as practicable after the Closing
Date, but in no event later than one business day after the Closing Date, to
issue a press release and to file with the SEC a Current Report on Form 8-K
disclosing the sale of the Units to the Investor under this Agreement and to the
Other Investors under the Other Agreements (and contain all of the information
and disclosure contemplated above if the Closing Date occurs on or prior to the
fourth (4th) business day after the date of this Agreement), which such press

 

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release and Current Report shall be subject to prior review and comment by the
Placement Agents and the Investor. Upon the issuance of the Press Release, to
the knowledge of the Company, the Investor will not be in possession of any
material, nonpublic information regarding the Company or its Common Stock. The
Company agrees that, after the execution of this Agreement, none of the
Company’s communications to the Investor will include (and the Company shall not
and shall cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents, not to provide to the Investor) any
material, nonpublic information regarding the Company or any of its
Subsidiaries, unless otherwise agreed in writing by the Company and the Investor
or except as contemplated by Section 5.10. In the event of a breach of the
foregoing covenant by the Company, or any of its Subsidiaries, or any of its or
their respective officers, directors, employees and agents (as determined in the
reasonable good faith judgment of the Investor), in addition to any other remedy
provided herein or in any other agreement contemplated hereby, the Investor
shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material, nonpublic
information without the prior approval by the Company, any of its Subsidiaries,
or any of its or their respective officers, directors, employees or agents. The
Investor shall not have any liability to the Company, any of its Subsidiaries,
or any of its or their respective officers, directors, employees, stockholders
or agents, for any such disclosure. The Company shall not publicly disclose the
name of the Investor, or include the name of the Investor in any filing with the
Commission (other than in the Shelf Registration Statement and any exhibits to
filings made in respect of this transaction in accordance with periodic filing
requirements under the Exchange Act) or any regulatory agency or Nasdaq, without
the prior written consent of such Investor, except to the extent such disclosure
is required by law or trading market regulations, in which case the Company
shall provide the Investor with prior notice of such disclosure.

5.3 Certain Future Financings and Related Actions. Commencing on the date hereof
and for a period of one hundred and twenty (120) days following the effective
date of the Shelf Registration Statement which covers all of the securities
required to be covered thereunder, the Company shall not, without the prior
written consent of the holders of at least 70% in interest of the shares of
Common Stock issued or sold in connection with the Offering on the Closing Date,
directly or indirectly offer, sell, issue, contract to sell or issue, grant any
option to purchase, or otherwise dispose of (or announce any issuance, offer,
sale, contract, grant or any option to purchase or other disposition of) (or
engage any Person to assist the Company in taking any such action) any capital
stock of the Company or securities convertible into, exchangeable for or
otherwise entitling the holder to acquire, any capital stock of the Company,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time and under any circumstances
convertible into or exchangeable for, or otherwise entitles the holder thereof
to receive, capital stock and other securities of the Company (collectively with
such capital stock or other securities of the Company, “Equivalents”) (any such
issuance, offer, sale, grant, contract, disposition or announcement being
referred to as a “Subsequent Placement”); provided, however, that nothing in
this Section 5.3 shall prohibit the Company from issuing (i) Common Stock upon
exercise or conversion, exchange, purchase or similar rights issued, granted or
given by the Company that are outstanding as of the date of this Agreement
(provided that none of the foregoing shall be amended to increase the number of
shares issuable thereunder or to lower the exercise or conversion price thereof
and the Company shall not otherwise materially change the terms or conditions
thereof in any manner that adversely affects the Investor) or (ii) Common Stock
or standard options to purchase Common

 

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Stock issued to directors, officers, employees or consultants of the Company in
connection with their service as directors or officers of the Company, their
employment by the Company or their retention as consultants by the Company
pursuant to an equity compensation program approved by the Board of Directors of
the Company (or the compensation committee of the Board of Directors of the
Company), provided that all such issuances after the date hereof pursuant to
this clause (ii) do not, in the aggregate, exceed the number shares of Common
Stock authorized and reserved for issuance under such equity compensation
program as of the date hereof (each of the foregoing in clauses (i) and (ii),
collectively the “Excluded Securities”). For clarification purposes and without
implication that the contrary would otherwise be true, any Subsequent Placement
which has been consented to as contemplated above shall still be subject to the
provisions of Section 5.10 below.

5.4 Legends.

The Company shall cause the Securities to bear (and all securities issued in
exchange therefor or in substitution thereof, including the Warrant Shares,
shall bear) a legend in substantially the following form:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN EXEMPTION THEREFROM. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a new
certificate evidencing the applicable Security of like tenor and aggregate
number of shares and which shall not bear the restrictive legends required by
this Section 5.4: (i) with respect to Common Stock (which for clarification
purposes shall include Warrant Shares), if Common Stock has been resold or
transferred pursuant to any registration statement effective at the time of such
transfer, (ii) while a registration statement (including the Shelf Registration
Statement) covering the resale of such Security is effective under the
Securities Act, (iii) if such Security is eligible to be sold, assigned or
transferred under Rule 144(k) (promulgated under the Securities Act) or (iv) if,
in connection with a sale transaction, such holder provides the Company with an
opinion of counsel reasonably acceptable to the Company to the effect that a
public sale, assignment or transfer of the applicable Securities may be made
without registration under the Securities Act. The Company shall not require
such opinion of counsel for the sale of the Securities in accordance with
Rule 144(k) of the Securities Act in the event that the Investor provides such
representations that the Company shall reasonably request confirming compliance
with the requirements of Rule 144(k). If the Investor requests that the legend
on a Security be removed pursuant to clause (ii) above, the Investor hereby
agrees to indemnify the Company against all losses incurred by the Company as a
result of the sale of such unlegended Security by

 

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the Investor without such legend while the registration statement covering such
Security is not effective or the prospectus contained therein is not available
for use, but only to the extent that such sale was in violation of applicable
law, the Company informed the Investor prior to such sale that such registration
statement is not effective or the prospectus contained therein is not available
for use, and the Investor was required under the Registration Rights Agreement
to cease using such prospectus prior to such sale.

The Company acknowledges and agrees that the Investor may from time to time
pledge, and/or grant a security interest in some or all of the Units pursuant to
a bona fide margin agreement in connection with a bona fide margin account and,
if required under the terms of such agreement or account, such Investor may
transfer pledged or secured Shares or Warrant Shares to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval or consent
of the Company and no legal opinion of legal counsel to the pledgee, secured
party or pledgor shall be required in connection with the pledge, but such legal
opinion may be required in connection with a subsequent transfer following
default by the Investor transferee of the pledge. No notice shall be required of
such pledge. At the Investor’s expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of such securities.

If a legend is not required pursuant to the foregoing, the Company shall no
later than two (2) trading days following the delivery by the Investor to the
Company or the transfer agent (with notice to the Company) of a legended
certificate representing such Securities (endorsed or with stock powers
attached, signatures guaranteed, and otherwise in form necessary to affect the
reissuance and/or transfer, if applicable), together with any other deliveries
from the Investor as may be required above in this Section 5.4, as directed by
the Investor, either: (A) deliver (or cause to be delivered to) the Investor a
certificate representing such Securities that is free from all restrictive and
other legends or (B) credit the balance account of the Investor’s or the
Investor’s nominee with DTC with a number of shares of Common Stock equal to the
number of shares of Common Stock or Warrant Shares (as the case may be)
represented by the certificate so delivered by the Investor (the date by which
such certificate is required to be delivered to the Investor or such shares are
required to be so credited pursuant to the foregoing is referred to herein as
the “Required Delivery Date”). If the Company fails to (i) issue and deliver (or
cause to be delivered) to the Investor by the Required Delivery Date a
certificate representing the Securities so delivered to the Company or transfer
agent (as the case may be) by the Investor that is free from all restrictive and
other legends or (ii) credit the balance account of the Investor or the
Investor’s nominee with DTC for such number of shares of Common Stock or Warrant
Shares so delivered to the Company, and if on or after the Required Delivery
Date the Investor purchases (in an open market transaction or otherwise) shares
of Common Stock to deliver in satisfaction of a sale by the Investor of shares
of Common Stock that the Investor anticipated receiving from the Company without
any restrictive legend (a “Buy-In”), then, in addition to all other remedies
available to the Investor, the Company shall, within three (3) trading days
after the Investor’s request and in the Investor’s sole discretion, either
(i) pay cash to the Investor in an amount equal to the Investor’s total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased (the “Buy-In Price”), at which point the Company’s obligation to
deliver such certificate or credit the Investor’s balance account shall
terminate and such shares shall be cancelled, or (ii) promptly honor its
obligation to deliver to

 

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the Investor a certificate or certificates or credit the Investor’s DTC account
representing such number of shares of Common Stock that would have been issued
if the Company timely complied with its obligations hereunder and pay cash to
the Investor in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of shares of Common Stock or Warrant Shares (as
the case may be) that the Company was required to deliver to the Investor by the
Required Delivery Date times (B) the VWAP of the Common Stock for the five
(5) trading day period immediately preceding the Required Delivery Date.

For purposes of this Section 5.4, “VWAP” means, for any security as of any date,
the dollar volume-weighted average price for such security on the Principal
Market (or, if the Principal Market is not the principal trading market for the
Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded) during the period beginning at 9:30:01
a.m., New York City Time, and ending at 4:00:00 p.m., New York City Time, as
reported by Bloomberg through its “Volume at Price” function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York City Time,
and ending at 4:00:00 p.m., New York City Time, as reported by Bloomberg, or, if
no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and the
lowest closing ask price of any of the market makers for such security as
reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If VWAP cannot be calculated for such security on such
date on any of the foregoing bases, the VWAP of such security on such date shall
be the fair market value as mutually determined by the Company and the Investor.
If the Company and the Investor are unable to agree upon the fair market value
of such security, then they shall agree in good faith on a reputable investment
bank to make such determination of fair market value, whose determination shall
be final and binding and whose fees and expenses shall be borne by the Company.
All such determinations shall be appropriately adjusted for any share dividend,
share split or other similar transaction during such period.

The Company shall issue irrevocable instructions to its transfer agent in form
reasonably acceptable to the Investor (the “Irrevocable Transfer Agent
Instructions”), and any subsequent transfer agent, to issue certificates or
credit shares to the applicable balance accounts at The Depository Trust Company
(“DTC”), registered in the name of the Investor or its respective nominee(s),
for the shares of Common Stock and the Warrant Shares in such amounts as
specified from time to time by the Investor to the Company upon delivery of the
Common Stock or the exercise of the Warrant. The Company represents and warrants
that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5.4 will be given by the Company to its transfer
agent with respect to the Securities, and that the Securities shall otherwise be
freely transferable on the books and records of the Company, as applicable, to
the extent provided in this Agreement and the other Transaction Documents. If
the Investor effects a sale, assignment or transfer of the Securities in
accordance with this Agreement, the Company shall permit the transfer and shall
promptly instruct its transfer agent to issue one or more certificates or credit
shares to the applicable balance accounts at DTC in such name and in such
denominations as specified by the Investor to effect such sale, transfer or
assignment. In the event that such sale, assignment or transfer involves Common
Stock or Warrant Shares sold, assigned or transferred pursuant to an effective
registration statement or in compliance with Rule

 

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144 (promulgated under the Securities Act), the transfer agent shall issue such
shares to the Investor, assignee or transferee (as the case may be) without any
restrictive legend in accordance with this Section 5.4. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Investor. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5.4 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 5.4, that the Investor shall be entitled, in addition to all
other available remedies, to an order and/or injunction restraining any breach
and requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required. The Company
shall cause its counsel to issue the legal opinion referred to in the
Irrevocable Transfer Agent Instructions to the Company’s transfer agent on each
Effective Date. Any fees (with respect to the transfer agent, counsel to the
Company or otherwise) associated with the issuance of such opinion or the
removal of any legends on any of the Securities shall be borne by the Company.

5.5 Additional Registration Statements. Until the Effective Date (as defined in
the Registration Rights Agreement) of the initial Shelf Registration Statement
required to be filed by the Company pursuant to Section 2(a) of the Registration
Rights Agreement which covers all of the securities required to be covered
thereunder, the Company shall not file a registration statement under the
Securities Act (other than on Form S-8) relating to securities that are not the
Registrable Shares (as defined in the Registration Rights Agreement).

5.6 Reporting Status. Until the date on which the Investor and all Other
Investors shall have sold all of the Securities issued and sold by the Sellers
in connection with this Agreement and the securities issued and sold by the
Sellers in connection with the Other Agreements (as the case may be) (the
“Reporting Period”), the Company shall timely file all reports required to be
filed with the SEC pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would no
longer require or otherwise permit such termination.

5.7 Listing. The Company shall promptly secure the listing of all of the
Registrable Shares upon each national securities exchange and automated
quotation system, if any, upon which the Common Stock is then listed (subject to
official notice of issuance) and shall maintain such listing of all Registrable
Securities from time to time issuable under the terms of this Agreement and the
other Transaction Documents on such national securities exchange or automated
quotation system. The Company shall maintain the Common Stock’s authorization
for quotation on the Principal Market, the New York Stock Exchange, the Nasdaq
Global Select Market or the Nasdaq Global Market (each, an “Eligible Market”).
Neither the Company nor any of its Subsidiaries shall take any action which
could be reasonably expected to result in the delisting or suspension of the
Common Stock on an Eligible Market. The Company shall pay all fees and expenses
in connection with satisfying its obligations under this Section 5.7.

5.8 Variable Rate Transaction. From the date hereof until 18 months after the
Effective Date of the initial Shelf Registration Statement required to be filed
by the Company pursuant to Section 2(a) of the Registration Rights Agreement
which covers all of the securities required to be covered thereunder, the
Company shall be prohibited from effecting or entering

 

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into an agreement to effect any Subsequent Placement involving a Variable Rate
Transaction. “Variable Rate Transaction” shall mean a transaction in which the
Company directly or indirectly (i) issues or sells any Equivalents either (A) at
a conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such Equivalents, or (B) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such Equivalents or upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock, other than
pursuant to a customary “weighted average” anti-dilution provision or
(ii) enters into any agreement (including, but not limited to, an equity line of
credit) whereby the Company may sell securities at a future determined price
(other than standard and customary “preemptive” or “participation” rights). The
Investor shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any right to
collect damages. Notwithstanding the foregoing, the Company may effect a
Subsequent Placement involving a Variable Rate Transaction with the prior
written consent of the holders of at least 70% in interest of the shares of
Common Stock issued or sold in connection with the Offering on the Closing Date
(it being understood and agreed for clarification purposes that if such consent
is obtained then such Subsequent Placement shall be subject to Section 5.10
below).

5.9 Trading Restrictions. The Investor represents and warrants to, and covenants
with, the Company that it will not (and its affiliates acting on its behalf or
pursuant to any understanding with it will not) engage in or effect, directly or
indirectly, any transactions in any securities of the Company (including,
without limitation, any short sales, “locking-up” borrow or hedging activities
involving the Company’s securities) during the period commencing on the date
hereof and ending on the earlier to occur of (i) one (1) year after the
Effective Date (as defined in the Registration Rights Agreement) of the initial
Shelf Registration Statement covering all the Registrable Shares to be filed by
the Company pursuant to Section 2(a) of the Registration Rights Agreement,
(ii) two years from the Closing Date and (iii) the date this Agreement is
terminated pursuant to Section 1.4. In furtherance (and without limitation) of
the foregoing, during such restricted period, neither the Investor nor any of
such affiliates, (a) will directly or indirectly, sell, agree to sell, grant any
call option or purchase any put option with respect to, pledge, borrow or
otherwise dispose of any securities of the Company, or (b) will establish or
increase any “put equivalent position” or liquidate or decrease any “call
equivalent position” with respect to any such securities (in each case within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder), or otherwise enter into any swap, derivative or other
transaction or arrangement that transfers to another, in whole or in part, any
economic consequence of ownership of any such securities, whether or not such
transaction is to be settled by delivery of any such securities, other
securities, cash or other consideration. Notwithstanding the foregoing, it is
understood and agreed that nothing contained in this Section 5.9 shall prohibit
the Investor (or such affiliates) from (1) purchasing or agreeing to purchase
unrestricted securities of the Company or securities which are covered by an
effective registration statement and the prospectus included therein is
available for use on the date of such purchase (including through block trades
or privately negotiated transactions), (2) purchasing or agreeing to purchase
(A) securities of the Company pursuant to Section 5.10 or otherwise from the
Company, (B) securities of the Company from affiliates of the Company or
(C) securities of the Company from affiliates of the Investor, (3) exercising
any or all of the

 

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Warrant to acquire Warrant Shares or otherwise acting under or enforcing, or
receiving any right or benefit or adjustment under, the Warrant, (4) selling or
agreeing to sell “long” securities of the Company (because the Investor or such
affiliate is “deemed to own such securities” pursuant to paragraph (b) of Rule
200 under Regulation SHO), including, without limitation, (I) any Common Stock,
Warrant or Warrant Shares acquired hereunder or pursuant to the transactions
contemplated hereby or any of the agreement contemplated hereby, (II) securities
acquired after the date hereof in accordance with this paragraph or (III)
securities of the Company acquired prior to the date hereof, (5) pledging or
hypothecating any securities of the Company in connection with leverage
arrangements engaged in by the Investor (or such affiliates) without the purpose
of transferring economic risk relating to such securities, (6) from transferring
any of the Securities to any affiliate who agrees in writing to be bound by this
Section 5.9, in each case, provided such sale is in compliance with all
applicable securities laws and following the public announcement of the
transaction contemplated hereby pursuant to Section 5.2, or (7) selling, or
receiving securities, of the Company pursuant to the terms of a Fundamental
Transaction (as defined in the Warrant) or purchasing securities of the Company
in a Fundamental Transaction in accordance with applicable law.

5.10 Participation Right. From the date hereof until the two year anniversary of
the Closing Date, neither the Company nor any of its Subsidiaries shall,
directly or indirectly, effect any Subsequent Placement unless the Company shall
have first complied with this Section 5.10. The Company acknowledges and agrees
that the right set forth in this Section 5.10 is a right granted by the Company,
separately, to the Investor.

(a) The Company shall deliver to the Investor a written notice (the “Offer
Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”)
of the securities being offered (the “Offered Securities”) in a Subsequent
Placement, which Offer Notice shall (w) identify and describe the Offered
Securities, (x) describe the price and other terms upon which they are to be
issued, sold or exchanged, and the number or amount of the Offered Securities to
be issued, sold or exchanged, (y) identify the Persons (if known) to which or
with which the Offered Securities are to be offered, issued, sold or exchanged
and (z) offer to issue and sell to or exchange with the Investor in accordance
with the terms of the Offer at least 33% of the Offered Securities, provided
that the number of Offered Securities which the Investor shall have the right to
subscribe for under this Section 5.10 shall be (a) based on the Investor’s pro
rata portion of the aggregate number of Units purchased hereunder by the
Investor and by all Other Investors under the Other Agreements (but not any
Other Investor who does not have similar participation rights thereunder for at
least 33% of the Offered Securities) (each such Other Investor, if any, who has
similar participation rights thereunder for at least 33% of the Offered
Securities is referred to herein as an “Other Eligible Investor” and
collectively as the “Other Eligible Investors”) (the “Basic Amount”), and (b) if
the Investor elects to purchase its Basic Amount, any additional portion of the
Offered Securities attributable to the Basic Amounts of Other Eligible Investors
as the Investor shall indicate it will purchase or acquire should the Other
Eligible Investors subscribe for less than their Basic Amounts (the
“Undersubscription Amount”).

(b) To accept an Offer, in whole or in part, the Investor must deliver a written
notice to the Company prior to the end of the fifth (5th) business day after the
Investor’s receipt of the Offer Notice (the “Offer Period”), setting forth the
portion of the Investor’s Basic

 

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Amount that the Investor elects to purchase and, if the Investor shall elect to
purchase all of its Basic Amount, the Undersubscription Amount, if any, that the
Investor elects to purchase (in either case, the “Notice of Acceptance”). If the
Basic Amounts subscribed for by the Investor and all Other Eligible Investors
are less than the total of all of the Basic Amounts (under this Agreement and
all applicable Other Agreements), then if the Investor has set forth an
Undersubscription Amount in its Notice of Acceptance, the Investor shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all the Basic Amounts and the Basic Amounts subscribed for (the “Available
Undersubscription Amount”), and if the Investor has subscribed for any
Undersubscription Amount, then the Investor shall be entitled to purchase only
that portion of the Available Undersubscription Amount as the Basic Amount of
the Investor bears to the total Basic Amounts of the Investor and all Other
Eligible Investors that have subscribed for Undersubscription Amounts, subject
to rounding by the Company to the extent its deems reasonably necessary.
Notwithstanding the foregoing, if the Company desires to modify or amend the
terms and conditions of the Offer in any material respect prior to the
expiration of the Offer Period, the Company may deliver to the Investor a new
Offer Notice and the Offer Period shall expire on the fifth (5th) business day
after the Investor’s receipt of such new Offer Notice.

(c) The Company shall have ten (10) business days from the expiration of the
Offer Period above (i) to offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by the
Investor (the “Refused Securities”) pursuant to a definitive agreement(s) (the
“Subsequent Placement Agreement”), but only to the offerees described in the
Offer Notice (if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that are not
materially more favorable to the acquiring Person or Persons or materially less
favorable to the Company than those set forth in the Offer Notice and (ii) to
publicly announce (a) the execution of such Subsequent Placement Agreement, and
(b) either (x) the consummation of the transactions contemplated by such
Subsequent Placement Agreement or (y) the termination of such Subsequent
Placement Agreement, which shall be filed with the SEC on a Current Report on
Form 8-K with such Subsequent Placement Agreement and any documents contemplated
therein filed as exhibits thereto.

(d) In the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in
Section 5.10(c) above), then the Investor may, at its sole option and in its
sole discretion, reduce the number or amount of the Offered Securities specified
in its Notice of Acceptance to an amount that shall be not less than the number
or amount of the Offered Securities that the Investor elected to purchase
pursuant to Section 5.10(b) above multiplied by a fraction, (i) the numerator of
which shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to the Investor pursuant to this Section 5.10 prior to such reduction)
and (ii) the denominator of which shall be the original amount of the Offered
Securities. In the event that the Investor so elects to reduce the number or
amount of Offered Securities specified in its Notice of Acceptance, the Company
may not issue, sell or exchange more than the reduced number or amount of the
Offered Securities unless and until such securities have again been offered to
the Investor in accordance with Section 5.10(a) above.

 

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(e) Upon the closing of the issuance, sale or exchange of all or less than all
of the Refused Securities, the Investor shall acquire from the Company, and the
Company shall issue to the Investor, the number or amount of Offered Securities
specified in the Notice of Acceptance. The purchase by the Investor of any
Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Investor of a separate purchase agreement
relating to such Offered Securities reasonably satisfactory in form and
substance to the Investor and its counsel.

(f) Any Offered Securities not acquired by the Investor or other Persons in
accordance with this Section 5.10 may not be issued, sold or exchanged until
they are again offered to the Investor under the procedures specified in this
Agreement.

(g) The Company and the Investor agree that if the Investor elects to
participate in the Offer, neither the Subsequent Placement Agreement with
respect to such Offer nor any other transaction documents related thereto
(collectively, the “Subsequent Placement Documents”) shall include any term or
provision whereby the Investor shall be required to agree to any restrictions on
trading as to any securities of the Company owned by the Investor prior to such
Subsequent Placement more restrictive in any material respect than the
restrictions contained in the this Agreement and the other Transaction
Documents.

(h) Notwithstanding anything to the contrary in this Section 5.10 and unless
otherwise agreed to by the Investor, the Company shall either confirm in writing
to the Investor that the transaction with respect to the Subsequent Placement
has been abandoned or shall publicly disclose its intention to issue the Offered
Securities, in either case in such a manner such that the Investor will not be
in possession of any material, non-public information, by the tenth (10th) day
following delivery of the Offer Notice. If by such tenth (10th) day, no public
disclosure regarding a transaction with respect to the Offered Securities has
been made, and no notice regarding the abandonment of such transaction has been
received by the Investor, such transaction shall be deemed to have been
abandoned and the Investor shall not be deemed to be in possession of any
material, non-public information with respect to the Company or any of its
Subsidiaries. Should the Company decide to pursue such transaction with respect
to the Offered Securities, the Company shall provide the Investor with another
Offer Notice and the Investor will again have the right of participation set
forth in this Section 5.10. The Company shall not be permitted to deliver more
than one such Offer Notice to the Investor in any sixty (60) day period.

The Company shall not circumvent the provisions of this Section 5.10 by
providing terms or conditions to any Other Eligible Investors that are not
provided to the Investor. The restrictions contained in this Section 5.10 shall
not apply in connection with the issuance of any Excluded Securities.

ARTICLE VI

6.1 Notices. All notices, requests, consents and other communications hereunder
shall be in writing, shall be mailed (A) if within United States by first-class
registered or certified airmail, or nationally recognized overnight express
courier (with next day delivery specified), postage prepaid, or by facsimile, or
(B) if delivered from outside the United States, by International Federal
Express or facsimile, and shall be deemed given (i) if delivered by first-

 

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class registered or certified mail domestic, three business days after so
mailed, (ii) if delivered by nationally recognized overnight carrier, one
business day after so mailed, (iii) if delivered by International Federal
Express, two business days after so mailed, and (iv) if delivered by facsimile,
upon electric confirmation of receipt, and shall be delivered as addressed as
follows:

if to the Company or the Selling Stockholder to:

Mr. Philip Gay

President and CEO

Grill Concepts, Inc.

11661 San Vicente Blvd., Suite 404

Los Angeles, California 90049

Facsimile: (310) 820-6530

with a copy to:

Michael W. Sanders, Esq.

20333 S.H. 249, Suite 600

Houston, Texas 77070

Facsimile: (832) 446-2424

if to the Investor, at its address on the signature page hereto, or at such
other address or addresses as may have been furnished to the other parties
hereto in writing in accordance with the provisions of this Section 6.1.

6.2 Headings and Terms. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement. The terms “including,” “includes,” “include” and
words of like import shall be construed broadly as if followed by the words
“without limitation.” The terms “herein,” “hereunder,” “hereof” and words of
like import refer to this entire Agreement instead of just the provision in
which they are found.

6.3 Severability. In case any provision contained in this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.

6.4 No Waiver; Modifications in Writing. No failure or delay on the part of the
Company or the Investor in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or the Investor at law or in equity or otherwise. No
waiver of or consent to any departure by the Company or the Investor from any
provision of this Agreement shall be effective unless signed in writing by the
party entitled to the benefit thereof, provided that (i) notice of any such
waiver shall be given to each party hereto as set forth below, (ii) Section 5.9
may not be waived or amended by any party hereto, (iii) Section 5.10 may not be
waived or amended by any party hereto unless such section applies to the
Investor by its terms

 

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and (iv) Section 1.7(k) may not be waived by the Investor. Except as provided in
the immediately preceding sentence, no provision of this Agreement may be
amended except in a written instrument signed by the Company and the Investor.
Any amendment, supplement or modification of or to any provision of this
Agreement, any waiver of any provision of this Agreement, and any consent to any
departure by the Company or the Investor from the terms of any provision of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required by
this Agreement, no notice to or demand on the Company in any case shall entitle
the Company to any other or further notice or demand in similar or other
circumstances. No consideration shall be offered or paid to any Person to amend
or consent to a waiver or modification of any provision of any of the
Transaction Documents or any of the Other Agreements unless the same
consideration also is offered to all of the parties to the Transaction Documents
and the Other Agreements, the holders of Common Stock issued in connection with
the Offering or holders of any warrants issued in connection with the Offering
(as the case may be). No Seller has, directly or indirectly, made any agreements
with any Other Investor relating to the terms or conditions of the transactions
contemplated by the Other Agreements and the Transaction Documents except as set
forth in the Other Agreements and the Transaction Documents, and, without
limiting Section 1.2, no Other Investor has been given terms or conditions that
are more favorable than the terms and conditions set forth in this Agreement and
the other Transaction Documents. If any Other Agreement is amended or modified
by any Seller or Other Investor, then the Investor may, in its sole discretion,
choose to have such amendment or modification apply to this Agreement by
delivering written notice to the Company. Without limiting the foregoing, the
Company confirms that, except as set forth in this Agreement, the Investor has
not made any commitment or promise or has any other obligation to provide any
financing to the Company or otherwise.

6.5 Survival of Representations, Warranties and Agreements. Notwithstanding any
investigation made by any party to this Agreement, all covenants, agreements,
representations and warranties made by the Company, the Selling Stockholder and
the Investor herein shall survive the execution of this Agreement, the delivery
to the Investor of the Units being purchased and the payment therefor.

6.6 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction.

6.7 Consent to Jurisdiction; Waiver of Jury Trial. Each of the parties hereto
irrevocably submits to the exclusive jurisdiction of the courts of the State of
New York located in New York County and the United States District Court for the
Southern District of New York for the purpose of any suit, action, proceeding or
judgment relating to or arising out of this Agreement and the transactions
contemplated hereby. Service of process in connection with any such suit, action
or proceeding may be served on each party hereto anywhere in the world by the
same methods as are specified for the giving of notices under this Agreement.
Each of the parties hereto irrevocably consents to the jurisdiction of any such
court in any such suit, action or proceeding and to the laying of venue in such
court. Each party hereto irrevocably waives any objection to the laying of venue
of any such suit, action or proceeding brought in such courts and irrevocably
waives any claim that any such suit, action or proceeding brought in any such
court

 

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has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY
RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS
AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.

6.8 Entire Agreement. This Agreement, the Registration Rights Agreement, the
Warrant and the other Transaction Documents constitute the entire agreement
among the parties hereto and thereto with respect to the subject matter hereof
and thereof. There are no restrictions, promises, warranties or undertakings,
oral or written, other than those set forth or referred to herein and therein.
This Agreement, the Registration Rights Agreement and the Warrant supersede all
prior agreements and understandings with respect to the subject thereof. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party.

6.9 Finders Fees. Neither the Sellers nor the Investor nor any affiliate thereof
has incurred any obligation which will result in the obligation of the other
party to pay any finder’s fee or commission in connection with this transaction,
except for fees payable by the Sellers to the Placement Agents.

6.10 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument, and shall become effective when
one or more counterparts have been signed by each party hereto and delivered to
the other party. In the event that any executed signature page is delivered by
facsimile transmission or by an e-mail in a .pdf file, such signature page shall
create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such signature
page were an original thereof.

6.11 Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors, heirs, executors and administrators and permitted
assigns of the parties hereto. With respect to transfers that are not made
pursuant to the Shelf Registration Statement, but are otherwise made in
accordance with all applicable laws and the terms of this Agreement, the rights
and obligations of the Investor under this Agreement with respect to the
securities so transferred shall be automatically assigned by the Investor to any
transferee of all or any portion of the Investor’s Securities who is a Permitted
Transferee (as defined below); provided, however, that within five business days
after to the transfer, (i) the Company is provided written notice of the
transfer including the name and address of the transferee and the number of
Securities transferred; and (ii) that such transferee agrees in writing to be
bound by the terms of this Agreement as if such transferee was the Investor. For
purposes of this Agreement, a “Permitted Transferee” shall mean any Person who
(a) is an “accredited investor,” as that term is defined in Rule 501(a) of
Regulation D under the Securities Act and (b) is a transferee of at least 5,000
Common Shares, shares of Common Stock, Warrant and/or Warrant Shares. Upon any
transfer permitted by this Section 6.11, the Company shall be obligated to such
transferee to perform all of its covenants under this Agreement as if such
transferee was the Investor with respect to the securities so transferred.
“Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

 

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6.12 Expenses. The Company shall reimburse the Investor or its designee(s) for
all its expenses incurred in connection with this Agreement and the other
Transaction Documents (including, without limitation, all legal fees and
disbursements in connection therewith) up to a maximum of $50,000, which amount
shall be withheld by the Investor from its Aggregate Purchase Price at the
Closing or paid by the Company upon termination of this Agreement so long as
such termination did not occur as a result of a material breach by the Investor
of any of its obligations hereunder (as the case may be). Except as set forth in
this Section 6.12, each party hereto shall bear its own expenses in connection
with the preparation and negotiation of this Agreement.

6.13 Exculpation. Each party to this Agreement acknowledges that O’Melveny &
Myers LLP represented the Placement Agents in the Offering contemplated by this
Agreement and has not represented either the Sellers or the Investor or any
other investor who purchases Units in the Offering pursuant to a Subscription
Agreement in substantially the form hereof.

6.14 Further Assurances. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

6.15 Indemnification. In consideration of the Investor’s execution and delivery
of the Transaction Documents and acquiring the Securities thereunder and in
addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless the
Investor and each affiliate of the Investor that holds any Securities and all of
their stockholders, partners, members, officers, directors, employees and direct
or indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
“Indemnitees”) from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to
(a) any misrepresentation or breach of any representation, warranty, covenant or
agreement of any of the Sellers in any of the Transaction Documents or (b) any
cause of action, suit or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action brought on behalf
of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of any of the Transaction Documents,
(ii) any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure properly made by the Investor pursuant to Section 5.2, or (iv) the
status of the Investor or holder of the Securities as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents;
provided, that the Investor shall not be entitled to indemnification to the
extent any of the foregoing is caused by its gross negligence, willful
misconduct, a material breach of its representations and warranties under this
Agreement or a material breach of any of its covenants under this Agreement. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum

 

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contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 6.15 shall be the same as those set forth in
Section 5 of the Registration Rights Agreement.

6.16 No Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, other than the Indemnitees referred to in Section 6.15. Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all of
its obligations under any of the Transaction Documents, any remedy at law may
prove to be inadequate relief to the Investor. The Company therefore agrees that
the Investor shall be entitled to seek specific performance and/or temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.

6.17 Independent Nature of the Investor’s Obligations and Rights. The
obligations of the Investor under the Transaction Documents are several and not
joint with the obligations of any Other Investor under the Transaction Documents
or any Other Agreement, and the Investor shall not be responsible in any way for
the performance of the obligations of any Other Investor under the Transaction
Documents or any Other Agreement. Nothing contained herein or in any other
Transaction Document or any Other Agreement, and no action taken by the Investor
or any Other Investor pursuant hereto or thereto, shall be deemed to constitute
the Investor or any Other Investor as a partnership, an association, a joint
venture or any other kind of group or entity, or create a presumption that the
Investor or any Other Investors are in any way acting in concert or as a group
or entity with respect to such obligations or the transactions contemplated by
the Transaction Documents or any of the Other Agreements or any matters, and the
Company acknowledges that the Investor is not acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents or any Other Agreement. The decision of the Investor to
purchase Securities pursuant to the Transaction Documents has been made by the
Investor independently of any Other Investor. The Investor acknowledges that no
Other Investor has acted as agent for the Investor in connection with the
Investor making its investment hereunder and that no Other Investor will be
acting as agent of the Investor in connection with monitoring the Investor’s
investment in the Securities or enforcing its rights under the Transaction
Documents. The Company and the Investor confirms that the Investor has
independently participated with the Company in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors.
The Investor shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any other Transaction Documents, and it shall not be necessary for any Other
Investor to be joined as an additional party in any proceeding for such purpose.
The use of the same form of agreement to effectuate the purchase and sale of the
Units in the Offering was solely in the control of the Company, not the action
or decision of the Investor, and was done solely for the convenience of the
Company and not because it was required or requested to do so by the Investor.
It is expressly understood and agreed that each provision contained in this
Agreement and in each other Transaction Document is between the Company and the
Investor, solely, and not among the Company, the Investor or any Other Investor
collectively and not between and among the Investor or any Other Investors.

 

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6.18 Delivery of Securities. Notwithstanding anything contained in this
Agreement or any other Transaction Document to the contrary, unless otherwise
directed in writing by the Investor, the Company shall, and shall cause its
agents and representatives to, deliver all of the Investor’s securities
purchased pursuant to this Agreement (and all securities which are issuable to
the Investor pursuant to the terms of this Agreement or any other Transaction
Document) to the address for delivery of securities set forth on the Investor’s
signature page to this Agreement, and copies of the certificates representing
such securities shall be sent to the Investor to the address of the Investor as
set forth on the Investor’s signature page to this Agreement.

[Remainder of Page Intentionally Left Blank]

 

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

 

“COMPANY”   GRILL CONCEPTS, INC.   By:  

 

    Philip Gay     President and CEO

[Signatures of Selling Stockholder on Following Page]

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“SELLING STOCKHOLDER”

 

 

Robert Spivak

[Signatures of Investor on Following Page]

--------------------------------------------------------------------------------

“INVESTOR”

 

(print full legal name of Investor) By:  

 

  (signature of authorized representative) Name:  

 

Its:  

 

Address:  

 

Telephone:  

 

Fax:  

 

Email:  

 

Tax I.D. or SSN:  

 

Address where Units should be sent (if

different from above)

 

 

 

A copy of all notices to the Investor (which shall not constitute notice) shall
be sent to:

 

 

 

 

Fax: (    )         -           Attention:                         

[Signature page to Subscription Agreement]

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Schedule A

Units Purchased

TOTAL NUMBER OF UNITS:

 

Seller

   Shares of Common Stock    Common Stock Warrants   

Grill Concepts, Inc.

        

Robert Spivak

      None   

AGGREGATE PURCHASE PRICE: $            

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Schedule 1.2

Section 1.7(k) shall be omitted from all the Other Agreements of all Other
Investors.

Section 4.2 shall be modified in one Other Agreement with respect to one Other
Investor who, together with such Other Investor’s affiliates, holds greater than
9.9% of the Company’s Common Stock prior to the Offering to substitute, in the
last sentence of that section, 15% in place of 10%.

Section 5.10(a) shall be modified in only two Other Agreements with only two
Other Investors to insert 19.9% in place of 33% in each place where that number
appears.

Section 5.10 shall be deleted, in its entirety, in all Other Agreements, other
than as noted above.

Section 6.12 shall be modified with respect to all Other Investors and all Other
Agreements to read, in whole: “Each party hereto shall bear its own expenses in
connection with the preparation and negotiation of this Agreement.”

Section 2(e) of the form of warrant attached to one Other Agreement shall be
modified with respect to one Other Investor who, together with such Other
Investor’s affiliates, holds greater than 9.90% of the Company’s Common Stock
prior to the Offering to substitute, in the first sentence of that section,
19.90% in place of 4.90% and in the last sentence of that section, 19.90% in
place of 9.90%. In all other respects, all warrants issued in connection with
the Other Agreements shall be the same form as attached to this Agreement as
Exhibit A.