AGREEMENT FOR PURCHASE AND SALE OF ASSETS
 
among
 
HOTEL RESTAURANT PROPERTIES, INC.,
 
HOTEL RESTAURANT PROPERTIES II, INC.,
 
HOTEL RESTAURANT PROPERTIES II MANAGEMENT, INC.,
 
KEITH WOLFF
 
and
 
ADAM KELLER,
 
as Sellers,
 
and
 
GRILL CONCEPTS, INC.
 
and
 
GRILL CONCEPTS MANAGEMENT, INC.,
 
as Purchasers
 
Effective as of June 30, 2006
 

 

 
 

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AGREEMENT FOR PURCHASE AND SALE OF ASSETS
 
THIS AGREEMENT FOR PURCHASE AND SALE OF ASSETS (this “Agreement”) is executed on
this 1st day of September 2006 (the “Execution Date”), but made with effect as
of the 30th day of June 2006 (the “Effective Date”), by and among Hotel
Restaurant Properties, Inc., a California corporation (“HRP”), Hotel Restaurant
Properties II, Inc., a California corporation (“HRP II”), Hotel Restaurant
Properties II Management, Inc., a California corporation (“HRP Management”),
Keith Wolff, an individual (“Wolff”), Adam Keller, an individual (“Keller” and,
together with HRP, HRP II, HRP Management and Wolff, “Sellers”), Grill Concepts,
Inc., a Delaware corporation (“GCI”), and Grill Concepts Management, Inc., a
California corporation (“GCM” and, together with GCI, “Purchasers”).
 
RECITALS
 
WHEREAS, Sellers are engaged in the business of obtaining, and have the
exclusive right to obtain, new locations for certain restaurants operated by
Purchasers (the “Daily Grill Restaurants”) in hotels (the “Business”) pursuant
to, and subject to the terms and conditions set forth in, the Agreement dated as
of August 27, 1998 between GCI and HRP (the “Original Agreement”), as amended by
(i) the Letter Agreement dated as of August 10 [sic], 1998 between GCI and HRP
(the “1998 Amendment”), (ii) the Letter Agreement dated as of May 11, 1999 among
Wolff, Keller and GCI (the “1999 Amendment”), (iii) the Amendment to Agreement
dated as of July 25, 2001 among HRP, HRP II and GCI (the “2001 Amendment”),
(iv) the Amendment to Agreement dated as of November 10, 2002 among HRP, HRP II
and GCI (the “Houston Amendment”), (v) the Amendment to Agreement dated as of
November 11, 2002 among HRP, HRP II and GCI (the “San Francisco Amendment”), and
(vi) the Amendment to Agreement dated as of June 29, 2003 among HRP, HRP II and
GCI (the “2003 Amendment”) (the Original Agreement as amended by the amendments
referred to in clauses (i) through (vi) are referred to collectively as the “HRP
Agreement”);
 
WHEREAS, in accordance the terms of the HRP Agreement, Purchasers and/or their
affiliates, on the one hand, and Sellers, on the other hand, have entered into
certain license, lease and/or management agreements (collectively, the “Hotel
Agreements”) which provide for the current operation of Daily Grill Restaurants
in hotels located in each of the following locations: (i) Skokie, Illinois,
(ii) San Francisco, California, (iii) Houston, Texas, (iv) Portland, Oregon,
(v) Washington, D.C., (vi) Burbank, California and (vii) Long Beach, California;
 
WHEREAS, Sellers and Purchasers desire that Sellers sell to Purchasers, and
Purchasers purchase from Sellers, all of Sellers’ rights, title and interest in
and to certain of the Hotel Agreements and certain other assets of Sellers
related to the Business; and
 
WHEREAS, in connection with the foregoing, Purchasers and Sellers desire to
amend the HRP Agreement and to enter into certain agreements with respect
thereto, as more fully set forth herein.
 
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby mutually covenant and agree as
follows:
 

 
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ARTICLE I.
 
PURCHASE AND SALE OF ASSETS;
ASSUMPTION OF ASSUMED LIABILITIES
 
1.1 Purchase and Sale of Assets. Subject to the terms and conditions set forth
herein, at the Closing (as hereinafter defined), Sellers agree to sell to
Purchasers, and Purchasers agree to purchase from Sellers, free and clear of any
and all liens, mortgages, charges, security interests, claims, restrictions,
easements and encumbrances of any kind or nature whatsoever (collectively,
“Liens”) (other than the Assumed Liabilities), all of Sellers’ right, title and
interest in and to the following assets of Sellers used or usable in connection
with the Business (collectively, the “Assets”). Sellers shall retain, and
Purchasers shall have no right or interest in or to, any of the Excluded Assets
(as hereinafter defined).
 
(a) that certain Daily Grill Restaurant Management Agreement, dated as of
July 30, 1998, among CapStar Georgetown Company, L.L.C., a Delaware limited
liability company, HRP and GCI (the “Georgetown Management Agreement”);
 
(b) that certain Daily Grill Restaurant Management Agreement, dated as of
February 5, 2001, among Handlery Hotel, Inc., a California corporation, HRP
Management and GCM (the “SF Management Agreement”);
 
(c) that certain Daily Grill Restaurant Management Agreement, dated as of
June 13, 2002, among Post Oak Westin Hotel Company, HRP Management and GCM (the
“Houston Management Agreement”);
 
(d) that certain Daily Grill Restaurant Management Agreement, dated as of
May 13, 2003, among Portland Hotel, LLC, an Oregon limited liability company,
HRP Management and GCM (the “Portland Management Agreement” and, together with
the Georgetown Management Agreement, the SF Management Agreement and the Houston
Management Agreement, the “Purchased Agreements”);
 
(e) all of the issued and outstanding capital stock of Daily Grill Houston
Beverage, Inc., a Texas corporation (“Beverage Co.”);
 
(f) all accounts receivable, notes receivable and other rights to the payment of
money relating to the Purchased Agreements which accrue after the Effective
Date, whether or not evidenced by a writing or reflected on the balance sheet of
Sellers;
 
(g) copies of all records and books of account relating to the Business;
 
(h) all goodwill associated with the Business; and
 
(i) all other tangible and intangible property used in the operation of the
Business (other than as set forth in Section 1.2 below) not specifically listed
above, whether now existing or hereafter acquired.
 

 
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1.2 Excluded Assets. Except as otherwise expressly provided herein, the Assets
shall not include, and Seller shall retain ownership of, the following assets of
the Business (collectively, the “Excluded Assets”):
 
(a) The HRP Agreement, as amended by Section 1.7 and, once applicable,
Section 1.10 hereof.
 
(b) The Daily Grill Hotel Management Agreement dated as of May 13, 1998 between
SCH Burbank, LLC (“SCH”) and HRP (the “Burbank Management Agreement”);
 
(c) The Daily Grill Restaurant Management Agreement dated as of August 12, 2004
among HRP Management, GCM and LBTWC Real Estate Partners LLC, a Delaware limited
liability company (“LBTWC”), and subsequently assigned by LBTWC to Merritt
Hospitality, LLC, a Delaware limited liability company (the “Long Beach
Management Agreement”);
 
(d) The License Agreement dated as of October 4, 2000 between HRP II, GCI and
Hilton Hotel Corporation (“Hilton”), as assigned by Hilton to PHF Skokie LLC, a
Delaware limited liability company (“PHF”), on December __ [sic], 2005 (the
“Skokie Management Agreement” and, together with the Burbank Management
Agreement and the Long Beach Management Agreement, the “Continuing Agreements”);
and
 
(e) All rights to the payment of monies relating to the Continuing Agreements
pursuant to and in accordance with the HRP Agreement, as amended by Section 1.7
and, once applicable, Section 1.10 hereof.
 
1.3 Limited Assumption of Liabilities. On the terms and subject to the
conditions set forth herein, at the Closing, Purchasers shall assume, and agree
to pay, perform and discharge in due course, those liabilities and obligations
of Sellers with respect to the Purchased Agreements, but in each case only to
the extent that such obligations under the Purchased Agreements accrue and
relate to periods beginning on or after the Closing Date (as hereinafter
defined) (such obligations, the “Assumed Liabilities”). Except for the Assumed
Liabilities, Purchasers shall not assume or have any responsibility for any
debt, liability, obligation or commitment of any nature, whether now or
hereafter existing, absolute, contingent or otherwise, known or unknown,
relating to Sellers, the Assets or the Business, including, without limitation,
the following liabilities and obligations, all of which shall be retained by
Sellers: (i) any liability of Sellers for any federal, state or local taxes with
respect to the Assets or the Business for any period prior to the Closing Date;
(ii) any liability of Sellers to third parties resulting from the negotiation of
this Agreement and the consummation of the transactions contemplated hereby;
(iii) any liability of Sellers or any shareholder of any Seller to any other
Seller or shareholder of any Seller, including, without limitation any Damages,
Actions or Third-Party Claims (as such terms are hereinafter defined)
(“Shareholder Liabilities”); (iv) any liability of Sellers with respect to the
Continuing Agreements; and (v) any liability of Sellers with respect to the
Assets or the Business to the extent such liabilities accrue or relate to a
period prior to the Closing Date (collectively, the “Excluded Liabilities”).
Nothing in this Section 1.3 is intended to or shall have any effect whatsoever
on Purchasers’ obligations under any of the Hotel Agreements or the HRP
Agreement, and the term “Excluded Liabilities” shall refer only to liabilities
which would otherwise have been Sellers’ obligations in accordance with the
Hotel Agreements and the HRP Agreement.
 

 
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1.4 Houston Liquor License. Sellers shall execute (and shall each use his or its
commercially reasonable efforts to cause any necessary third parties to execute)
any and all instruments and take any and all other actions necessary to cause
the transfer of the issued and outstanding capital stock of Beverage Co. from
HRP Management to GCM with effect on, or as promptly as practicable after, the
Closing, including without limitation executing the Stock Purchase Agreement in
the form attached hereto as Exhibit 1.4 (the “Beverage Co. Purchase Agreement”)
on the Execution Date. The costs associated with notifying the Texas Alcohol &
Beverage Commission with respect to the foregoing transfer as it applies to the
liquor license maintained by Beverage Co. shall be borne by Purchasers.
 
1.5 Purchase Price. Subject to the terms and conditions of this Agreement, the
aggregate purchase price to be paid by Purchasers to Sellers for the Assets
shall be Two Million Seven Hundred Seventy One Thousand One Hundred Thirty Three
Dollars ($2,771,133) (the “Purchase Price”). The Purchase Price shall be payable
in United States Dollars by wire transfer of immediately available funds to the
account or accounts designated by Sellers on Schedule 1.5.
 
1.6 Purchase Price Allocation. The Purchase Price shall be allocated among the
Assets as set forth in Schedule 1.6. Such allocation shall be adopted for all
purposes related to the sale of the Assets hereunder, and Sellers and Purchasers
agree not to file any tax return or otherwise take a position for tax purposes,
or otherwise, inconsistent with this allocation. Sellers and Purchasers further
agree to file Internal Revenue Service Form 8594 consistent with the foregoing
allocation and in accordance with Section 1060 of the Code.
 
1.7 Amendment of HRP Agreement on Effective Date. Sellers and Purchasers agree
that, effective as of the Effective Date, and notwithstanding anything to the
contrary in the HRP Agreement, the HRP Agreement is hereby amended to delete
Section 8.1, the second sentence of Section 8.2, Section 8.3, Article 10 and
Section 13.1(d) of the Original Agreement. Further, subject to Section 1.8
hereof, each Seller hereby waives and relinquishes any and all rights to
participate in any arrangements, including, without limitation, all rights to be
paid any fees or other compensation, relating to the operation of a Grill or a
Daily Grill restaurant in any hotel property pursuant to any management, lease
or license agreement executed on or after March 29, 2006 by Purchasers or their
affiliates. Each Seller acknowledges that GCM has entered into (i) a Daily Grill
Restaurant Management Agreement dated as of March 29, 2006 with Senate Hotel
Partners Memphis, L.P. (the “Memphis Management Agreement”); and (ii) a Daily
Grill Restaurant Management Agreement dated as of June 27, 2006 with Seattle
Union Street Associates, a Washington general partnership (as amended by the
Addendum thereto dated June 27, 2006, the “Seattle Management Agreement” and,
together with the Memphis Management Agreement, the “Waived Agreements”).
Subject to Section 1.8 hereof, each Seller hereby waives any and all rights and
claims under the HRP Agreement to participate as a party in either of the Waived
Agreements and further waives any and all rights under the HRP Agreement to
receive any compensation in respect of or pursuant to either of the Waived
Agreements.
 

 
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1.8 Reinstatement. Notwithstanding anything to the contrary set forth in
Section 1.7 or elsewhere in this Agreement, in the event the Closing has not
occurred on or prior to the Outside Date and this Agreement is terminated in
accordance with Section 7.1:
 
(i) The amendments to the HRP Agreement set forth in Section 1.7 shall be
terminated and of no further force or effect, and the HRP Agreement shall be
reinstated to read as if such amendments were never effected;
 
(ii) Sellers’ rights to receive amounts pursuant to the HRP Agreement in respect
of any arrangements entered into on or after March 29, 2006 by Purchasers or
their affiliates relating to the operation of a Grill or a Daily Grill
Restaurant in any hotel property pursuant to any management, lease or license
arrangement shall be reinstated, including, without limitation, Sellers’ rights
to receive amounts in respect of the Waived Agreements; and
 
(iii) Amounts payable to Sellers in accordance with the HRP Agreement for the
period from March 29, 2006 until the date of termination of this Agreement (the
“Termination Date”) with respect to the Waived Agreements and with respect to
any arrangements entered into on or after March 29, 2006 by Purchasers or their
affiliates relating to the operation of a Grill or a Daily Grill Restaurant in
any hotel property pursuant to any management, lease or license arrangement
shall be calculated and paid to Sellers in accordance with the HRP Agreement
within forty five (45) business days after the Termination Date.
 
1.9 Continuing Agreements.
 
(a) Each Seller acknowledges and agrees that Purchasers operate the Managed
Outlets (as defined in the HRP Agreement) which are the subject of the
Continuing Agreements and that Purchasers shall continue to perform under the
Continuing Agreements in the ordinary course consistent with past practice
except with respect to the termination of the Long Beach Management Agreement
and the Skokie Management Agreement (collectively, the “Terminated Agreements”)
as reflected in Section 1.9(c). Notwithstanding anything to the contrary herein,
after the Closing, no Seller shall have any rights under the Continuing
Agreements other than the right to receive the amounts payable to Sellers in
respect thereof in accordance with the HRP Agreement.
 

 
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(b) Sellers shall (i) execute (and shall use their commercially reasonable
efforts to cause any necessary third parties to execute) any and all instruments
and take any and all other action necessary to cause the amounts payable under
the Burbank Management Agreement and the Skokie Management Agreement to be
delivered directly to Purchasers from SCH and PHF, respectively, for
dissemination in accordance with the HRP Agreement, (ii) transfer to Purchasers
copies of any and all books of account and other records (including, without
limitation, financial and accounting records) necessary to enable Purchasers to
comply with the record-keeping requirements set forth in any Continuing
Agreements, and (iii) reasonably cooperate with Purchasers in their assumption
of accounting oversight with respect to the Continuing Agreements. Purchasers
shall provide Sellers with monthly distribution calculations and reports and all
relevant data and information used to determine such distribution calculations.
 
(c) Each Seller acknowledges that Purchasers have informed Sellers of
Purchasers’ intent to close the Managed Outlets in Long Beach, California and in
Skokie, Illinois and to terminate the Terminated Agreements. Sellers confirm
that Sellers do not object to such intended closures and terminations and hereby
waive and relinquish any and all rights Sellers may have (if any), to require
Purchasers to continue to operate such Managed Outlets pursuant to the
Terminated Agreements or the HRP Agreement.
 
1.10 Amendment of HRP Agreement at Closing. Each Seller acknowledges and agrees
that effective as of the Closing Date, the HRP Agreement shall be amended as
follows:
 
(a) Section 7 and the first and third sentences of Section 8.2 of the Original
Agreement shall be deleted and of no further force or effect.
 
(b) In accordance with the 1998 Amendment, for purposes of computing the Net
Income After Manager Loan Payback, there shall be no concept of “Owner Tax
Deficiency” since Sellers shall thereafter only be taxed on actual cash
distributions to them pursuant to the Continuing Agreements, except as it
applies to the Burbank Management Agreement. Accordingly, Section 3.4 and all
other references to Owner Tax Deficiency, except as it and they apply to the
Burbank Management Agreement, shall be deleted from the HRP Agreement.
 
(c) Sections 2 through 5 of the 1999 Amendment shall be terminated and of no
further force or effect.
 
(d) The Houston Amendment, the San Francisco Amendment and the 2003 Amendment
shall be terminated and of no further force or effect.
 
(e) Sections 3, 6 and 7 of the 2001 Amendment shall be deleted and have no
further force or effect.

 
 
ARTICLE II.
 
THE CLOSING
 
2.1 Closing. The consummation of the transactions contemplated by this Agreement
(the “Closing”) shall occur on the date (the “Closing Date”) which is the
earlier of (i) June 30, 2007 (the “Outside Date”) and (ii) that date which is
mutually acceptable to the parties which is no more than ten (10) days after the
date on which the “Income Stream Payments” equal or exceed the “Differential”
(as such terms are defined in Section 2.4); provided that, in each case, all of
the other conditions to Closing have been satisfied or waived by the party or
parties for whose benefit the condition exists.
 
2.2 Conditions of Purchasers. Notwithstanding any other provision of this
Agreement, the obligations of Purchasers to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, at or prior
to the Closing, of each of the following conditions precedent, and if Purchasers
terminate this Agreement prior to the Closing because any such condition is not
so satisfied on or prior to the Outside Date, Purchasers shall have no liability
hereunder except as otherwise set forth in Article VII:
 
 
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(a) There shall not have been instituted or pending or threatened any Action (as
hereinafter defined) by or before any court, arbitrator or governmental agency
challenging Purchasers’ acquisition or Sellers’ sale of the Assets or the
Business or otherwise seeking to restrain, prohibit or invalidate the
consummation of the transactions contemplated hereby or seeking damages in
connection therewith;
 
(b) The representations and warranties of Sellers in this Agreement shall be
true and correct on and as of the Closing Date with the same effect as if made
on the Closing Date and Sellers shall have complied with all covenants and
agreements and satisfied all conditions to be performed or satisfied by Sellers
on or prior to the Closing Date;
 
(c) Any approval, consent or waiting period required by any governmental agency
or authority necessary or material to the consummation of the transactions
contemplated hereby shall have been obtained or expired, including, without
limitation, any consents required from the Texas Alcoholic Beverage Commission
in connection with the sale of the outstanding capital stock of Beverage Co. to
Purchasers and of the California Department of Alcoholic Beverage Control in
connection with the termination of HRP as a licensee under the San Francisco
liquor license in connection with the SF Management Agreement;
 
(d) All necessary consents, assignments, approvals and authorizations from third
parties or other persons, including, without limitation consents of the third
parties to the Purchased Agreements, necessary for the consummation of the
transactions contemplated hereby, shall have been obtained;
 
(e) All Liens on any of the Assets shall have been released;
 
(f) Sellers shall deliver to Purchasers each of the following:
 
(i) one or more stock certificates representing all of the issued and
outstanding capital stock of Beverage Co., together with an executed stock power
and assignment related thereto

 
(ii) an executed Assignment and Assumption Agreement, substantially in the form
attached hereto as Exhibit 2.2(f)(ii) with respect to the transfer of the
Purchased Agreements;
 
(iii) a separate Consent to Assignment and Assumption (each, a “Consent”),
substantially in the form attached hereto as Exhibit 2.2(f)(iii), with respect
to each of the Purchased Agreements, in each case executed by the applicable
Seller and the third party to such Purchased Agreement; provided, however, that
each Seller agrees to consummate the transactions contemplated hereby and
execute a Consent in a form which does not include the release contained in
Section C thereof if required by the third party to such Purchased Agreement;
and
 
 
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(iv) evidence of Sellers’ compliance with the matters contemplated by
Section 1.9(b) above;
 
(g) Sellers shall have executed and delivered to Purchasers a Bill of Sale
substantially in the form attached as Exhibit 2.2(g));
 
(h) Sellers (excluding Keller) shall have executed and delivered to Purchasers a
Non-Competition Agreement substantially in the form attached hereto as
Exhibit 2.2(h);
 
(i) Sellers shall have executed and delivered to Purchasers the Beverage Co.
Purchase Agreement substantially in the form attached hereto as Exhibit 1.4; and
 
(j) Sellers shall have executed a Release substantially in the form attached
hereto as Exhibit 2.2(j).
 
2.3 Conditions of Sellers. Notwithstanding any other provision of this
Agreement, the obligations of Sellers to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, at or prior
to the Closing, of each of the following conditions precedent, and if Sellers
terminate this Agreement prior to the Closing because any such condition is not
so satisfied on or prior to the Outside Date, Sellers shall have no liability
hereunder except as set forth in Article VII:
 
(a) There shall not have been instituted or pending or threatened any Action by
or before any court, arbitrator or governmental agency challenging Purchasers’
acquisition or Sellers’ sale of the Assets or the Business or otherwise seeking
to restrain, prohibit or invalidate the consummation of the transactions
contemplated hereby or seeking damages in connection therewith;
 
(b) The representations and warranties of Purchasers in this Agreement shall be
true and correct on and as of the Closing Date with the same effect as if made
on the Closing Date, and Purchasers shall have complied with all covenants and
agreements and satisfied all conditions to be performed or satisfied by
Purchasers on or prior to the Closing Date;
 
(c) Any approval, consent or waiting period required by any governmental agency
or authority necessary or material to the consummation of the transactions
contemplated hereby shall have been obtained or expired, including, without
limitation, any consents required of the Texas Alcoholic Beverage Commission in
connection with the sale of the outstanding capital stock of Beverage Co. to
Purchasers and of the California Department of Alcoholic Beverage Control in
connection with the termination of HRP as a licensee under the San Francisco
liquor license in connection with the SF Management Agreement;
 
(d) All necessary consents, assignments, approvals and authorizations from third
parties or other persons, including, without limitation consents of the third
parties to the Purchased Agreements, necessary for the consummation of the
transaction contemplated hereby, shall have been obtained;
 
 
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(e) Purchasers shall execute and deliver to Sellers each of the following:
 
(i) an Assignment and Assumption Agreement, substantially in the form attached
hereto as Exhibit 2.2(f)(ii), with respect to the transfer of the Purchased
Agreements;
 
(ii) a separate Consent, substantially in the form attached hereto as
Exhibit 2.2(f)(iii), with respect to each of the Purchased Agreements, executed
by the applicable Purchaser; provided, however, that each Purchaser agrees to
consummate the transactions contemplated hereby and execute each Consent in a
form which does not include the release contained in Section C thereof if
required by the third party to such Purchased Agreement;
 
(iii) a Non-Competition Agreement, substantially in the form attached hereto as
Exhibit 2.2(h); and
 
(iv) a Release, substantially in the form attached hereto as Exhibit 2.2(j); and
 
(f) Purchasers shall deliver the Purchase Price as set forth in Section 1.5 to
Sellers.
 
2.4 Payment Amount. Sellers and Purchasers have agreed that the Closing shall
not occur prior to the Outside Date unless Sellers have received, in the
aggregate, an amount equal to Two Hundred Ninety Four Thousand One Hundred Fifty
One Dollars ($294,151) (the “Additional Payment Amount”) from payments under the
Purchased Agreements during the period from and after the Effective Date of this
Agreement through the Closing (such payments are hereinafter referred to
collectively as the “Income Stream Payments”). If the Income Stream Payments
have not equaled the Additional Payment Amount prior to the Outside Date, so
long as the other conditions to Closing have been satisfied or waived by the
parties for whose benefit the condition was made, the Closing shall occur on the
Outside Date and the Purchase Price shall be increased by an amount equal to the
remainder obtained when the aggregate amount of the Income Stream Payments
received by Sellers is subtracted from the Additional Payment Amount. Further,
and notwithstanding anything to the contrary set forth in this Agreement, in no
event shall the Income Stream Payments made to Sellers exceed, in the aggregate,
the amount of the Additional Payment Amount. Accordingly, once the Income Stream
Payments collectively equal the Additional Payment Amount, no further payments
shall be made to Sellers under the Purchased Agreement and the parties hereto
shall act in good faith to achieve the Closing as soon as possible thereafter.
 
2.5 Closing Costs and Expenses. Except as otherwise provided in this Agreement,
Purchasers and Sellers shall each pay their respective legal and accounting
fees, costs and expenses incurred in connection with this Agreement, the
consummation of the transactions contemplated hereby and the negotiation and
execution of the documents and instruments contemplated hereby. Except as set
forth in Section 1.4, Purchasers shall pay seventy-five percent (75%) and
Sellers shall pay twenty-five percent (25%) of any sales taxes, documentary
transfer fees and taxes and any other recordation and/or filing charges and fees
incurred in connection with the transactions contemplated hereunder. If
applicable, Purchasers and Sellers shall reimburse the other party for each
party’s respective share of the costs referenced in this Section 2.5 previously
advanced by the other party as of the Closing.
 
 
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2.6 Proration of Expenses. The parties shall prorate as of 12:01 A.M. on the
Effective Date all operating expenses attributable to the Assets that are
capable of proration on a per diem basis; provided, that, between the Effective
Date and the Closing Date, the Purchaser shall (i) be responsible for all
operating expenses attributable to the Assets and (ii) receive all income (other
than Income Stream Payments) attributable to the Assets. In the event that
Purchasers pay any fees, charges or taxes which they are not required to pay
hereunder, Sellers agree to promptly reimburse Purchasers in the amount of such
fees, charges or taxes paid by Purchasers. In the event that any Seller pays any
fees, charges or taxes which it is not required to pay hereunder, Purchasers
agree to promptly reimburse such Seller in the amount of such fees, charges or
taxes paid by such Seller. In the event that any Seller receives any income
which they are not entitled to receive hereunder, such Seller agrees to promptly
pay Purchasers in the amount of such income received by such Seller. The
prorations to be made hereunder shall be effected by the parties hereto through
an appropriate adjustment in the Purchase Price.
 
 
ARTICLE III.
 
REPRESENTATIONS AND WARRANTIES OF SELLER
 
As an inducement to Purchasers to enter into this Agreement and to consummate
the transactions contemplated hereby, Sellers hereby represent and warrant to
Purchasers as follows:
 
3.1 Organization and Authority; Capitalization.
 
(a) Each of HRP, HRP II and HRP Management (collectively, the “HRP Entities”)
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the State of California and (ii) has full corporate power and
authority to own and lease its respective assets and to carry on its business as
now being conducted. Each of the HRP Entities has full corporate power and
authority to execute, deliver and carry out all the terms and provisions of this
Agreement, to consummate the transactions contemplated hereby and to perform
their respective obligations under this Agreement.
 
(b) Wolff and Keller are the sole shareholders of HRP; Wolff is the sole
shareholder of HRP II; HRP II is the sole shareholder of HRP Management; and HRP
Management is the sole shareholder of Beverage Co. There are no outstanding
shares of capital stock or any options, warrants or other rights convertible
into, or exercisable or exchangeable for, directly or indirectly, or otherwise
entitling any natural person, corporation, business trust, association,
partnership, limited liability company, joint venture, governmental entity or
any other entity (each, a “Person”) to acquire, directly or indirectly, any
shares of the capital stock of Beverage Co., and there are no existing rights,
calls, or commitments of any character relating to, and no Person has any right
of first refusal, pre-emptive right, subscription right or similar right with
respect to any shares of the capital stock of Beverage Co.
 
 
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3.2 Absence of Conflicts. Except as set forth in Schedule 3.2, neither the
execution and delivery of this Agreement by Sellers, the compliance by Sellers
with the terms and conditions hereof nor the consummation by Sellers of the
transactions contemplated hereby will (a) conflict with any of the terms,
conditions or provisions of the articles of incorporation, bylaws or other
organizational documents of any HRP Entity, (b) to the Knowledge of Sellers,
violate any provision of, or require any consent, authorization or approval
under, any law or administrative regulation or any judicial, administrative or
arbitration order, award, judgment, writ, injunction or decree applicable to
Sellers, Beverage Co., the Assets or the Business, or any governmental permit or
license issued to Sellers or Beverage Co., (c) violate or be in conflict with,
result in a breach of or constitute (with or without notice or lapse of time or
both) a default under, or accelerate or permit the acceleration of the
performance required by, or require any consent, authorization or approval
(other than those required to be obtained which have been duly obtained by
Sellers) under, any Hotel Agreement, or any other indenture, Lien, lease,
agreement or instrument to which any Seller is a party or by which any Seller or
the Assets are bound, or (d) result in the creation of any Lien upon any of the
Assets. As used herein, “Knowledge” with respect to Sellers means the actual
knowledge of Wolff and Keller.
 
3.3 Power and Authority.
 
(a) Each Seller has taken all necessary action to authorize such Seller’s
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby.
 
(b) This Agreement, the other agreements between the parties referred to herein
and each instrument and certificate delivered by Sellers pursuant hereto,
constitutes the legal, valid and binding obligation of Sellers, enforceable
against each Seller in accordance with its respective terms, except as such
obligations and enforceability are limited by bankruptcy, insolvency and other
similar laws of general application affecting the enforcement of creditors’
rights and by equitable principles.
 
(c) Except as set forth on Schedule 3.3, no Seller is subject to any restriction
of any kind or character which prohibits such Seller from entering into this
Agreement or would prevent or impede its performance of or compliance with all
or any part of this Agreement or the consummation of the transactions
contemplated hereby.
 
3.4 Title to Property; Liens.
 
(a) Each of the HRP Entities has good, marketable, indefeasible and valid title
to all of its respective Assets, free and clear of all Liens.
 
(b) There are no leases or licenses pursuant to which any Seller leases or
licenses from others real or personal property in connection with the Business.
 
(c) There are no existing agreements pursuant to which any Person has an option
to acquire any interest in any of the Assets.
 
3.5 Litigation. Except as set forth on Schedule 3.5 hereto, there is no suit,
claim, action, arbitration or other legal, administrative or governmental
investigation or proceeding (whether federal, state, local or foreign) (each, an
“Action”) served and pending or, to the Knowledge of Sellers, threatened,
against Sellers, the Business, or the Assets. Except as set forth on
Schedule 3.5, to the Knowledge of Sellers, no Seller is in default with respect
to any order, writ, judgment, injunction, decree, determination or award of any
court or of any governmental agency or instrumentality (whether federal, state,
local or foreign).
 
 
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3.6 Income and Other Taxes. No Seller has any liabilities for any Taxes for any
taxable period ending prior to the Closing Date. Except for Taxes prorated under
Section 2.5 hereof which will be paid in accordance with such Section, each
Seller shall pay all Taxes due in respect of the Business for periods ending
prior to the Closing Date when due. For purpose of this Agreement, the term
“Taxes” means any federal, state, local, or foreign income, payroll, franchise,
property, sales, excise or other tax, tariff, duty, assessment or governmental
charge of any nature whatsoever, including any interest, penalty or addition
thereon or thereto, imposed, assessed, charged or levied by any governmental
authority.
 
3.7 No Undisclosed Liabilities. Except as set forth on Schedule 3.7 hereto, no
HRP Entity has any material liabilities, whether accrued, absolute, contingent
or otherwise, whether due or to become due and whether the amounts thereof are
readily ascertainable or not, or any unrealized or anticipated losses from any
commitments of a contractual nature, including Taxes, with respect to or based
upon the transactions or events occurring prior to the Closing Date. No HRP
Entity employs, or during the preceding five (5) year period has employed, any
Person in an employment or consultancy capacity.
 
3.8 Permits, Licenses, Etc. Each HRP Entity possesses, and each is operating in
compliance with, all zoning and other franchises, licenses, permits (including
conditional use and other similar permits), certificates, authorizations, rights
and other approvals of governmental bodies, agencies and instrumentalities
thereof necessary to conduct the Business as currently conducted (the
“Permits”). Schedule 3.8 hereto contains a true and complete list of all
Permits. Each Permit has been lawfully and validly issued, and no proceeding is
pending or, to the Knowledge of Sellers, threatened, involving the revocation,
suspension or limitation of any Permit. The consummation of the transactions
contemplated by this Agreement will not result in the revocation, suspension or
limitation of any Permit and, except as set forth in Schedule 3.8, no Permit
will require the consent of its issuing authority to, or as a result of, the
consummation of the transactions contemplated hereby.
 
3.9 Consents
 
. All consents, authorizations and approvals of any court, arbitrator or any
other Person that are required to be obtained by Sellers in connection with the
consummation of the transactions contemplated by this Agreement or that are
necessary in connection with the Business as currently conducted, or for which
the failure to obtain the same would have, individually or in the aggregate, a
material adverse effect on any Seller or the financial condition, properties or
operations of the Business, or on any Seller’s ability to consummate the
transactions contemplated herein, have been obtained by Sellers, except as
described in Schedule 3.9 hereto.
 
3.10 Contracts. Except for the Purchased Agreements, the Continuing Agreements
and the HRP Agreement, there is no contract, agreement, lease, permit,
commitment, arrangement or other instrument to which any Seller is a party which
is necessary to conduct the Business as presently conducted, or that otherwise
affects the Business in any material way. There has not been any default in any
obligation to be performed by any Seller or, to the Knowledge of Sellers, any
third party, under any Purchased Agreement, and no Seller has waived any right
thereunder or with respect thereto. Each of the Purchased Agreements is in full
force and effect and has not been modified by the parties thereto through any
agreement, understanding or course of conduct. No Seller has received any notice
from any party to any of the Purchased Agreements or the Continuing Agreements
(other than Purchasers) of such party’s intent to terminate, amend or declare a
default under any of such agreements.
 
 
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3.11 Compliance with Law
 
. The Business has not been conducted and is not being conducted, and no Seller
is or has been, in violation of, nor received any notice of any alleged
violation of, or any citation for noncompliance with, any applicable federal,
state or local statute, law, rule, regulation, ordinance, permit, order, decree
of, or other lawful obligation imposed by, any court or governmental authority
or instrumentality. Each Seller has made all required registrations and filings
with all applicable federal, state and local government authorities relating to
the Business as currently conducted. All such registrations, filings and
submissions were in compliance in all material respects with all legal
requirements and other requirements when filed, and no material deficiencies
have been asserted by any applicable governmental entities with respect to such
registrations, filings or submissions.
 
3.12 Financial Records. The books of account and financial and accounting
records that are maintained by Sellers with respect to the operations or
financial performance of any Daily Grill Restaurant which is the subject of a
Hotel Agreement (the “Financial Records”) (a) present fairly in all material
respects the financial condition of each Daily Grill Restaurant which is the
subject of such Financial Records as of the dates indicated therein and the
results of operations and changes in financial position of such Daily Grill
Restaurants for the periods specified therein, and (b) have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis during the periods covered thereby, have been derived from the accounting
records of Sellers, and represent only actual, bona fide transactions. Sellers
have delivered true, correct and complete copies of the Financial Records to
Purchasers prior to the date hereof.
 
3.13 Absence of Certain Changes. Since December 31, 2005, there has been no
material adverse change in the Business or financial condition, assets, or
operations of any HRP Entity.
 
3.14 Affiliations. Except as set forth on Schedule 3.14, no Seller and no
shareholder, officer, director, employee or affiliate of any Seller or any
associate or affiliate of such Persons has, directly or indirectly, a beneficial
interest in any contract or agreement to which any Seller is a party or by which
any Assets or the Business are bound or affected.
 
3.15 Brokers’ Fees. No broker, finder or similar agent (“Broker”) has been
employed by or on behalf of Sellers in connection with this Agreement or the
transactions contemplated hereby, and no Seller has entered into any agreement
or understanding of any kind with any person or entity for the payment of any
brokerage commission, finder’s fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
 
 
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3.16 Disclosure. No representation or warranty of Sellers in this Agreement and
no information contained in any Schedule delivered by Sellers pursuant to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact required to make the statements herein or therein not misleading.
 
 
ARTICLE IV.
 
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
 
Purchasers hereby represent and warrant to Sellers as follows:
 
4.1 Organization and Good Standing. GCI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. GCM is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. Each Purchaser has full corporate power and
authority to (i) execute, deliver and carry out all the terms and provisions of
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations under this Agreement, and (ii) own and lease its assets
and real property and to carry on its business as now conducted.
 
4.2 Absence of Conflicts. Neither the execution and delivery of this Agreement
by Purchasers, the compliance by Purchasers with the terms and conditions hereof
nor the consummation by Purchasers of the transactions contemplated hereby will
(a) conflict with any of the terms, conditions or provisions of the certificate
of incorporation, bylaws or other charter documents of any Purchaser, (b) to the
Knowledge of Purchasers, violate any provision of, or require any consent,
authorization or approval under, any law or administrative regulation or any
judicial, administrative or arbitration order, award, judgment, writ, injunction
or decree applicable to, or any governmental permit or license issued to,
Purchasers, or (c) violate or be in conflict with or result in a breach of or
constitute (with or without notice or lapse of time or both) a default under, or
accelerate or permit the acceleration of the performance required by, or require
any consent, authorization or approval (other than those required to be obtained
which have been duly obtained by Purchaser) under, any indenture, Lien, lease,
agreement or instrument to which any Purchaser is a party or by which it is
bound, except, in the case of clauses (b) and (c), those violations which would
not have a material adverse effect on Purchasers, or on Purchasers’ ability to
consummate the transactions contemplated herein. As used herein, “Knowledge”
with respect to Purchasers means the actual knowledge of Michael Weinstock,
Robert Spivak and Philip Gay.
 
4.3 Corporate Power and Authority.
 
(a) Each Purchaser has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby.
 
(b) This Agreement, each of the other agreements between the parties referred to
herein and each instrument and certificate delivered by any Purchaser pursuant
hereto, constitutes the legal, valid and binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its respective terms,
except as such obligations and enforceability are limited by bankruptcy,
insolvency and other similar laws of general application affecting the
enforcement of creditors’ rights and by equitable principles.
 

 
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(c) No Purchaser is subject to any restriction of any kind or character which
prevents such Purchaser from entering into this Agreement or would prevent or
impede its performance of or compliance with all or any part of the Agreement,
or the consummation of the transactions contemplated hereby.
 
4.4 Consents
 
. All consents, authorizations and approvals of any court, arbitrator or any
other Person that are required to be obtained by Purchasers in connection with
the payment of the Purchase Price to Sellers or the consummation of the
transactions contemplated by this Agreement shall have been obtained by
Purchasers on or prior to the Closing Date.
 
4.5 Brokers’ Fees
 
. No Broker has been employed by or on behalf of Purchasers in connection with
this Agreement or the transactions contemplated hereby, and Purchasers have not
entered into any agreement or understanding of any kind with any person or
entity for the payment of any brokerage commission, finder’s fee or any similar
compensation in connection with this Agreement or the transactions contemplated
hereby.
 
 
ARTICLE V.
 
CONDUCT OF SELLERS PENDING CLOSING
 
During the period commencing on the Execution Date and ending on the Closing
Date, Sellers agree (except as expressly contemplated by this Agreement or to
the extent that Purchasers shall otherwise consent in writing) that:
 
5.1 Good Standing. Sellers shall remain in good standing in their states and
jurisdictions of organization and qualification.
 
5.2 Ordinary Course. Sellers shall use their best efforts to preserve intact
their current business organization and to maintain their books, records and
accounts in accordance with GAAP applied on a basis consistent with past
practice.
 
5.3 Indebtedness. Sellers shall not incur any indebtedness and shall pay all
indebtedness with respect to the Assets incurred by Sellers such that there are
no liabilities with respect to the Assets as of the Closing Date other than the
Assumed Liabilities. Sellers shall cause all holders of Liens with respect to
any of the Assets to release their Liens prior to or upon the Closing.
 
 
5.4 Compliance with Legal Requirements. Sellers shall comply promptly with all
requirements that applicable law may impose upon them and their operations and
with respect to the transactions contemplated by this Agreement, and shall
cooperate promptly with, and furnish information to, Purchasers in connection
with any such requirements imposed upon Purchasers, or upon any of their
affiliates, in connection therewith or herewith.
 
 
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5.5 Disposition of Assets. Sellers shall not sell, transfer, license, lease or
otherwise dispose of, or suffer or cause the encumbrance by any Lien upon any of
the Assets, tangible or intangible, or any interest therein.
 
5.6 Modification or Breach of Agreements; New Agreements. Sellers shall not
terminate or modify, or commit or cause or suffer to be committed any act that
will result in any breach or violation of any term of or (with or without notice
or passage of time, or both) constitute a default under or otherwise give any
Person a basis for nonperformance under, any of the Purchased Agreements or the
Continuing Agreements. Sellers shall meet all of their contractual obligations
under the Purchased Agreements and the Continuing Agreements.
 
5.7 Inconsistent Action. Sellers shall not take any action that would cause any
of their representations or warranties in this Agreement to be untrue,
incorrect, incomplete or misleading.
 
 
ARTICLE VI.
 
CONDUCT OF PURCHASERS PENDING CLOSING
 
During the period commencing on the Execution Date and ending on the Closing
Date, Purchasers agree (except as expressly contemplated by this Agreement or to
the extent that Sellers shall otherwise consent in writing) that:
 
6.1 Good Standing. Purchasers shall remain in good standing in their states and
jurisdictions of organization and qualification.
 
6.2 Ordinary Course. Purchasers shall use their best efforts to preserve intact
their current business organization and to maintain their books, records and
accounts in accordance with GAAP applied on a basis consistent with past
practice.

 
6.3 Compliance with Legal Requirements. Purchasers shall comply promptly with
all requirements that applicable law may impose upon them and their operations
and with respect to the transactions contemplated by this Agreement, and shall
cooperate promptly with, and furnish information to, Sellers in connection with
any such requirements imposed upon Sellers, or upon any of their affiliates, in
connection therewith or herewith.
 
6.4 Modification or Breach of Agreements; New Agreements. Except in connection
with the termination of the Terminated Agreements: (i) Purchasers shall not
terminate or modify, or commit, or cause or suffer to be committed, any act that
will result in any breach or violation of any term of or (with or without notice
or passage of time, or both) constitute a default under or otherwise give any
Person a basis for nonperformance under, any of the Purchased Agreements or the
Continuing Agreements; and (ii) Purchasers shall meet all of their contractual
obligations under the Purchased Agreements and the Continuing Agreements.
 
 
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6.5 Inconsistent Action. Purchasers shall not take any action that would cause
any of its representations or warranties in this Agreement to be untrue,
incorrect, incomplete or misleading.
 
 
ARTICLE VII.
 
TERMINATION
 
7.1 Termination. This Agreement may be terminated as set forth below by written
notice from the terminating party, delivered in accordance with Section 8.5
hereof, specifying the reason therefor:
 
(a) by mutual agreement of the parties hereto;
 
(b) by Purchasers if (i) any condition precedent to the Closing set forth in
Section 2.2 hereof has not been satisfied or waived on or before the Outside
Date or (ii) the Closing has not occurred on or before the Outside Date for any
reason other than a material default by Purchasers in their obligations
hereunder; and
 
(c) by Sellers if (i) any condition precedent to the Closing set forth in
Section 2.3 has not been satisfied or waived on or before the Outside Date, or
(ii) the Closing has not occurred on or before the Outside Date for any reason
other than a material default by Sellers in their obligations hereunder.
 
7.2 Effect.
 
(a) In the event of termination of this Agreement (i) as provided in
Section 7.1(a), or (ii) by Purchasers or Sellers as provided in Section 7.1(b)
or 7.1(c) for any reason other than the default of the other party or the
failure of the other party to satisfy a condition to Closing required to be
satisfied by such party, then this Agreement shall forthwith become void and
there shall be no liability hereunder on the part of any party hereto, or any
officer, director, employee, agent or representative of any party hereto or any
person who controls a party hereto within the meaning of the Securities Act of
1933, as amended (the “Securities Act”), except that the agreements with respect
to expenses and publicity contained in Sections 2.5 and 8.7, respectively, shall
survive the termination of this Agreement.
 
(b) In the event of any breach or default by Sellers under the terms of this
Agreement, Purchasers shall have the right to terminate this Agreement and/or
exercise any other remedy available to it at law or in equity, including, but
not limited to, specific performance, and any termination (or lack of
termination) shall be without prejudice to such other remedies.
 
(c) In the event of any breach or default by Purchasers under the terms of this
Agreement, Sellers shall have the right to terminate this Agreement and/or
exercise any other remedy available to it at law or in equity, including, but
not limited to, specific performance, and any termination (or lack of
termination) shall be without prejudice to such other remedies.
 
 
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7.3 Amendment and Waiver. This Agreement may be amended at any time only by a
written instrument executed by Purchasers and Sellers. Any amendment effected
pursuant to this Section 7.3 shall be binding upon the parties hereto.
Compliance with or performance under any term, provision or condition of this
Agreement may only be waived in writing by Purchasers, if the waiver of the
term, provision or condition of this Agreement is sought against Purchasers, or
by Sellers, if the waiver of the term, provision or condition of this Agreement
is sought against Sellers.
 
 
ARTICLE VIII.
 
GENERAL PROVISIONS
 
8.1 Survival of Representations and Warranties. The representations and
warranties, of the parties hereto contained in this Agreement or in any writing
delivered pursuant to the provisions of this Agreement or on the Closing Date
shall survive any examination by or on behalf of any party hereto and shall
survive the Closing Date and the consummation of the transactions contemplated
hereby for a period of two (2) years; provided, however, that the
representations and warranties set forth in Sections 3.1, 3.3, 3.4, 4.1 and 4.3
shall survive the Closing Date and shall continue in full force and effect
without limit as to time.
 
8.2 Indemnification.
 
(a) Sellers hereby covenant and agree to defend, indemnify and save and hold
harmless Purchasers, together with Purchasers’ respective subsidiaries,
affiliates, officers, directors, members, employees, shareholders, attorneys and
representatives and each Person who controls any Purchaser within the meaning of
the Securities Act, from and against any loss, cost, expense, liability, claim
or legal damages (including, without limitation, reasonable fees and
disbursements of counsel and accountants and other costs and expenses incident
to any actual or threatened Action and all costs of investigation)
(collectively, the “Damages”) arising out of or resulting from: (i) any
inaccuracy in or breach of any representation, warranty, covenant or agreement
made by any Seller in this Agreement or in any Schedule or Exhibit delivered by
any Seller pursuant to this Agreement; (ii) the failure of any Seller to perform
or observe fully any covenant, agreement or condition required to be performed
or observed by such Seller pursuant to this Agreement or any Schedule or Exhibit
delivered by any Seller pursuant to this Agreement; (iii) the Excluded
Liabilities, including, without limitation the Shareholder Liabilities; (iv) any
claims of third parties claiming compensation, commissions or expenses for
services as a Broker or finder based upon obligations incurred by any Seller; or
(v) any actual or threatened Action arising out of or resulting from any
Seller’s acts or omissions in connection with or pursuant to any Purchased
Agreement or Continuing Agreement.
 
(b) Purchasers covenant and agree to indemnify and save and hold harmless
Sellers, together with Sellers’ respective officers, employees, directors,
members, employees, shareholders, attorneys and representatives and each Person
who controls any Seller within the meaning of the Securities Act, from and
against any Damages arising out of or resulting from: (i) any inaccuracy in or
breach of any representation, warranty, covenant or agreement made by any
Purchaser in this Agreement or in any Exhibit delivered by any Purchaser
pursuant to this Agreement; (ii) the failure of any Purchaser to perform or
observe fully any covenant, agreement or condition required to be performed or
observed by such Purchaser pursuant to this Agreement or any Exhibit delivered
by any Purchaser pursuant to this Agreement; (iii) the Assumed Liabilities;
(iv) any claims of third parties claiming compensation, commissions or expenses
for services as a Broker or finder based upon obligations incurred by any
Purchaser; or (v) any actual or threatened Action arising out of or resulting
from any Purchaser’s acts or omissions in connection with or pursuant to any
Purchased Agreement or Continuing Agreement.
 

 
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(c) In the event that any indemnified party is made a defendant in or party to
any Action instituted by any third party for Damages (any such third party
action, suit, proceeding or claim being referred to as a “Third-Party Claim”),
the indemnified party (referred to in this clause (c) as the “notifying party”)
shall give notice thereof as soon as practicable and in any event within
thirty (30) days after the indemnified party receives notice thereof (but, in
all events, at least twenty (20) business days prior to the date that an answer
to such Third-Party Claim is due to be filed). The failure to give such notice
shall not affect whether an indemnifying party is liable to provide
indemnification hereunder unless such failure has resulted in the loss of
material, substantive rights with respect to the indemnifying party’s ability to
defend such Third-Party Claim, and then only to the extent of such loss. The
indemnifying party may contest and defend such Third-Party Claim so long as the
indemnifying party: (i) diligently contests and defends such Third-Party Claim,
and (ii) acknowledges in writing that it is obligated to provide indemnification
with respect to such Third-Party Claim. Notice of the intention so to contest
and defend shall be given by the indemnifying party to the notifying party
within twenty (20) business days after the notifying party delivers notice of a
Third-Party Claim (but, in all events, at least ten (10) business days prior to
the date that an answer to such Third-Party Claim is due to be filed). Such
contest and defense shall be conducted by reputable attorneys employed by the
indemnifying party and approved by the indemnified party (which approval will
not be unreasonably withheld or delayed). The notifying party shall be entitled,
at its own cost and expense (which expense shall not constitute Damages unless
the notifying party reasonably determines that the indemnifying party is not
adequately representing or, because of a conflict of interest, may not
adequately represent, the interests of the indemnified parties, and has provided
the indemnifying party with timely notice of such determination, and then only
to the extent that such expenses are reasonable), to participate in such contest
and defense and to be represented by attorneys of its or their own choosing. If
the notifying party elects to participate in such defense, the notifying party
will cooperate with the indemnifying party in the conduct of such defense.
Neither the notifying party nor the indemnifying party may concede, settle or
compromise any Third-Party Claim without the consent of the other party, which
consent will not be unreasonably withheld or delayed in light of all factors of
importance to such party. Notwithstanding the foregoing, if the indemnifying
party fails to acknowledge in writing its obligation to provide indemnification
in respect of such Third-Party Claim, to assume the defense thereof with counsel
reasonably satisfactory to the notifying party or to diligently contest and
defend such Third-Party Claim, then the notifying party alone shall be entitled
to contest, defend and settle such Third-Party Claim in the first instance (in
which case, all expenses incurred in connection therewith shall constitute
Damages) and, only if the notifying party chooses not to contest, defend or
settle such Third-Party Claim, shall the indemnifying party then have the right
to contest and defend (but not settle) such Third-Party Claim.
 
 
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(d) In the event any indemnified party shall have a claim against any
indemnifying party that does not involve a Third-Party Claim (an
“Indemnification Claim”), the indemnified party shall deliver a written notice
of such Indemnification Claim (a “Claims Notice”) to the indemnifying party with
reasonable promptness. The Claims Notice shall set forth with reasonable
specificity the amount claimed and the underlying facts supporting such
Indemnification Claim and enclose any relevant material documentation in the
indemnified party’s possession, such as petitions or subpoenas received by the
indemnified party. The failure to deliver such Claims Notice shall not affect
whether an indemnifying party is liable for reimbursement unless such failure
has resulted in the loss of material, substantive rights with respect to the
indemnifying party’s ability to defend such Indemnification Claim, and then only
to the extent of such loss
 
(e) The indemnifying party shall have fifteen (15) days from receipt of any
Claims Notice to accept or dispute such Indemnification Claim. In the event that
an indemnifying party elects to dispute such Indemnification Claim, the
indemnifying party shall deliver a written notice to the indemnified party
within such fifteen (15) day period which sets forth in reasonable detail the
indemnifying party’s grounds for disputing such Indemnification Claim (such
notice, a “Dispute Notice”). If the indemnifying party notifies the indemnified
party that it does not intend to dispute the Indemnification Claim described in
the Claims Notice or fails to deliver a Dispute Notice to the indemnified party
within fifteen (15) days after receipt of such Claims Notice, the Damages in the
amount specified in the Claims Notice will be conclusively deemed a liability of
the indemnifying party and the indemnifying party shall pay the amount of such
Damages to the indemnified party on demand.
 
(f) If any indemnified party is entitled to receive any amount from any
indemnifying party pursuant to this Section 8.2, including, without limitation,
Damages (an “Indemnification Payment”), the indemnifying parties shall remit
such amount to the indemnified party within ten (10) days after the indemnified
party makes written demand therefore (a “Demand”). The indemnifying party shall
have fifteen (15) days from receipt of any Demand to accept or dispute such
Demand. In the event that an indemnifying party elects to dispute a Demand
(provided that to the extent such Demand relates to an Indemnification Claim,
such party had previously delivered a Dispute Notice with respect thereto), the
indemnifying party shall deliver a written notice to the indemnified party
setting forth in reasonable detail the indemnifying party’s grounds for
disputing the Demand (such notice, a “Demand Dispute”). If the indemnifying
party notifies the indemnified party that it does not intend to dispute the
Demand or fails to properly deliver a Demand Dispute to the indemnified party
within fifteen (15) days after receipt of the Demand, the amount set forth in
the Demand will be conclusively deemed a liability of the indemnifying party. If
Sellers or Purchasers properly deliver a Dispute Notice and/or Demand Dispute
within the time periods specified above, the parties shall attempt to resolve
such dispute in good faith for a period of sixty (60) days. If, at the end of
such period, the parties have not resolved the dispute, either party may seek
relief from a court of competent jurisdiction in Los Angeles County
notwithstanding the mediation provisions set forth in Section 8.8 below.
 
(g) The foregoing indemnification provisions are in addition to, and not in
derogation of, any statutory, equitable or common law remedy, including, without
limitation, injunctive relief and specific performance, each party may have for
the breach of any representation, warranty, covenant or agreement set forth in
this Agreement or in any other agreement entered into by the parties pursuant
hereto or the enforcement thereof.
 

 
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8.3 Goodwill Reduction Indemnification
 
(a) In the event that there is a Goodwill Reduction Event (as defined below),
Purchasers covenant and agree to indemnify Sellers by making the Indemnity
Payments to Sellers specified in Section 8.3(d) within thirty (30) days
following the Final Determination (as defined in Section 8.3(b)).
 
(b) A “Goodwill Reduction Event” shall mean any Final Determination which
results in a reduction of the amount of the Purchase Price allocated to goodwill
when compared with the allocations set forth on Schedule 1.6 hereof. For
purposes of the foregoing, a “Final Determination” means the earliest to occur
of (i) the date on which the applicable statute of limitations for raising an
issue regarding a federal income tax matter with respect to Sellers has expired,
(ii) the date on which a decision, judgment, decree or other order has been
issued by any court of competent jurisdiction, which decision, judgment, decree
or other order has become final (i.e., all allowable appeals requested by the
parties to the action have been exhausted), (iii) the date on which a
concession, settlement or compromise of the Proposed Tax Adjustment reached in
accordance with Section 8.3(c) has been fully executed by all parties, or
(iv) the date on which the time for instituting a claim for refund has expired
or, if a claim was filed, the time for instituting suit with respect thereto has
expired.
 
(c) Each party to this Agreement shall promptly notify the other parties in
writing and in any event within ten (10) days after its receipt of notice of any
communication from any taxing authority regarding an audit or assessment or any
other event that could give rise to a Goodwill Reduction Event and/or any
proposed adjustment arising therefrom (a “Proposed Tax Adjustment”). Purchasers
may elect to contest and defend such Proposed Tax Adjustment so long as
Purchasers: (i) diligently contest and defend such Proposed Tax Adjustment, and
(ii) acknowledge in writing that they are obligated to indemnify Sellers from
any Goodwill Reduction Event. Purchasers shall give Sellers notice of the
intention to contest and defend the Proposed Tax Adjustment within twenty (20)
days after the notifying party delivers notice of a Proposed Tax Adjustment
(but, in all events, at least ten (10) business days prior to the date that an
answer to such Proposed Tax Adjustment is due to be filed). Upon receipt of such
notice, Sellers shall appoint Purchasers as attorneys in fact to represent
Sellers in connection with the Proposed Tax Adjustment. Purchasers shall have
the right to concede, settle or compromise the Proposed Tax Adjustment at any
time during the proceedings provided that Purchasers give Sellers ten (10)
business days advance written notice of such intention and tender payment in
full of the amounts owed pursuant to Section 8.3(d). Sellers shall be entitled,
at their own cost and expense, to participate in such contest and defense and to
be represented by attorneys of its or their own choosing and to participate in
any meetings, hearings or proceedings, provided that such costs shall not be
included in the Indemnity Payments. If Sellers elect to participate in such
defense, Sellers will cooperate with Purchasers in the conduct of such defense.
Sellers and Purchasers acknowledge that the Proposed Tax Adjustment may be
included as part of a broader audit of Sellers and that there may be one or more
other proposed tax adjustments (the “Other Proposed Tax Adjustments”). In such
case, Sellers shall be required, at their own cost and expense, to participate
in such contest and defense with respect to the Other Proposed Tax Adjustments.
Sellers shall have the right to concede, settle or compromise the Other Proposed
Tax Adjustments at any time during the proceedings provided that Sellers give
Purchasers ten (10) business days advance written notice of such intention.
Notwithstanding the foregoing, if Purchasers fail to acknowledge in writing
their obligation to provide indemnification in respect of such Proposed Tax
Adjustment, to assume the defense thereof with counsel reasonably satisfactory
to Sellers or to diligently contest and defend such Proposed Tax Adjustment,
then Sellers alone shall be entitled to contest, defend and settle such Proposed
Tax Adjustment in the first instance in which case, all expenses incurred in
connection therewith shall be included in the Indemnity Payments.
 

 
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(d) The payments required by Section 8.3(a) (the “Indemnity Payments”) shall be
the sum of the following amounts: (i) (x) the net difference in the federal and
state income tax liability of Sellers for the Purchase Price, taking into
account the deductibility of the state income tax for purposes of calculating
the federal income taxes, resulting from the Goodwill Reduction Event, plus
(y) any and all interest and penalties imposed on Sellers with respect to the
Goodwill Reduction Event, plus (z) Sellers’ expenses specified in the last
sentence of Section 8.3(c); and (ii) an amount sufficient to pay any federal and
state income tax liability owed by Sellers as a result of the receipt of the
amounts specified in clause (i) hereof and this clause (ii) (a fully grossed-up
tax indemnity) assuming the maximum combined state and federal tax rate on such
payments and taking into account the deductibility of state income tax on
federal tax returns for purposes of such calculation.
 
8.4 Complete Agreement. This Agreement, including the Exhibits and Schedules
hereto, constitutes the entire agreement and supersedes all other prior and
contemporaneous agreements and undertakings, both written and oral, between the
parties hereto with regard to the subject matter hereof. This Agreement (a) is
not intended to confer upon any Person any rights or remedies hereunder or with
respect to the subject matter hereof except as specifically provided in this
Agreement; and (b) may be executed in two or more counterparts, each of which
shall be deemed to be an original, but all of which counterparts shall together
constitute a single agreement. Facsimile signatures shall be fully binding and
effective for all purposes as if they were original signatures.
 
8.5 Further Action. Sellers hereby agree that, from time to time after the
Closing, at Purchasers’ request and without further consideration, Sellers shall
execute and deliver such other instruments of conveyance, assignment and
transfer and take such other actions as Purchasers reasonably may require to
more effectively convey, transfer to and invest in Purchasers, and to put
Purchasers in possession of, all of the Assets. Each Seller irrevocably appoints
Purchasers as his or its attorneys-in-fact to execute and deliver such
instruments necessary or convenient to convey, transfer to and invest title in
Purchasers, and to put Purchasers in possession of, all of the Assets.
 
8.6 Notices.  All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been received five
business days after having been deposited in the United States mail and enclosed
in a registered or certified post-paid envelope; at the open of business on the
next succeeding business day after having been sent by overnight courier; when
scanned by telegraphic communications equipment of the sending party on a
business day, or otherwise at the open of business on the next succeeding
business day; or when personally delivered on a business day or otherwise at the
open of business on the next succeeding business day; and, in each case,
addressed to the respective parties at the addresses stated below, or to such
other changed addresses that the parties may have fixed by notice in accordance
herewith.
 
 
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If to Sellers:
Hotel Restaurant Properties, Inc.
   
Hotel Restaurant Properties II, Inc.
   
Hotel Restaurant Properties II Management, Inc.
   
11828 La Grange Avenue
   
Los Angeles, CA 90025
   
Attn: Keith Wolff
   
Telephone: (310) 966-2367
   
Facsimile: (603) 720-8057
   
 
Keith Wolff
   
11828 La Grange Avenue
   
Los Angeles, CA 90025
   
Telephone: (310) 966-2367
   
Facsimile: (603) 720-8057
   
 
and
 
   
Adam Keller
   
11828 La Grange Avenue
   
Los Angeles, CA 90025
   
Telephone: (858) 583-4480
   
Facsimile: (858) 777-5379
 

 
with a copy to:
Greenberg Glusker Fields Claman & Machtinger LLP
   
1900 Avenue of the Stars, 21st Floor
   
Los Angeles, CA 90067
   
Attn: C. Bruce Levine
   
Telephone: (310) 201-7440
   
Facsimile: (310) 201-2340
 
 
If to Purchasers:
Grill Concepts, Inc.
   
Grill Concepts Management, Inc.
   
11661 San Vicente Boulevard, Suite 404
   
Los Angeles, CA 90049
   
Attn: Philip Gay
   
Telephone: (310) 820-5559
   
Facsimile: (310) 820-6530

 
 
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with a copy to:
Pillsbury Winthrop Shaw Pitman LLP
   
725 South Figueroa Street, Suite 2800
   
Los Angeles, California 90071-5406
   
Attn: Anna M. Graves, Esq.
   
Telephone: (213) 488-7164
   
Facsimile: (213) 226-4017

 
8.7 Publicity Without the prior consent of the other party, no party shall, and
each party shall cause its directors, officers, shareholders, members,
employees, representatives and agents not to, make any public statement or press
release with respect to the transactions contemplated by this Agreement or
otherwise disclose to any Person the existence, terms, content or effect of this
Agreement; provided, however, that if a disclosure is required by law or
regulation, the party required to make such disclosure shall be permitted to
make such disclosure but shall make a good faith effort to consult with the
other party hereto before making such disclosure; and provided further, however,
that Sellers consent to the disclosure and filing of this Agreement and its
Exhibits by GCI with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder.
 
8.8 Mediation. In the event that any dispute relating to or arising out of this
Agreement, or any document delivered in connection herewith (“Dispute”), cannot
be settled or compromised within twenty (20) days of receipt of the subject
claim, the Dispute shall be submitted to mediation on an expedited basis in Los
Angeles, California, administered by JAMS, or its successor, in accordance with
the JAMS rules and procedures then in effect. Either party may commence
mediation by providing to JAMS and the other party a written request for
mediation, setting forth the subject of the Dispute and the relief requested,
with the expectation that the first mediation shall occur within thirty (30)
days of such written request. Purchasers and Sellers will cooperate with JAMS
and with one another in selecting a neutral mediator from the JAMS panel of
neutrals and in scheduling the mediation proceedings. The mediator must be a
retired judge or an attorney licensed to practice law in Los Angeles, California
and experienced with the subject matter of the Dispute. If the parties are
unable to select the mediator, JAMS shall designate the mediator. Purchasers and
Sellers covenant that they will participate in the mediation in good faith and
that they will share equally in the costs of the mediator and related JAMS
administrative costs. All offers, promises, conduct and statements, whether oral
or written, made in the course of the mediation by any of the parties, their
agents, employees, experts and attorneys, and by the mediator and any JAMS
employees, are confidential, privileged and inadmissible for any purpose,
including impeachment, in any arbitration, litigation or other proceeding
involving the parties, provided that evidence that is otherwise admissible or
discoverable shall not be rendered inadmissible or non-discoverable as a result
of its use in the mediation. Either party may seek equitable relief in the
Superior Court situated in Los Angeles, California prior to the mediation to
preserve the status quo pending the completion of that process. In the event it
is necessary, any party may file a motion in such Superior Court to compel the
other party to participate in the mediation and the prevailing party shall be
awarded its costs and expenses, including reasonable attorneys’ fees in
connection with such motion. If the Dispute is not resolved within ten (10) days
after the first mediation session, either party may (i) give written notice to
JAMS and the other party that the mediation is terminated and (ii) commence a
court action.
 

 
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8.9 Attorneys’ Fees. If any litigation or arbitration shall ensue between the
parties concerning the interpretation of or performance under this Agreement,
the prevailing party shall recover from the nonprevailing party or parties its
reasonable attorneys’ and other fees as fixed by the court or the arbitrator, as
the case may be.
 
8.10 Construction of Agreement Any captions to, or headings of, the paragraphs
of this Agreement are solely for the convenience of the parties hereto, are not
a part of this Agreement, and shall not be used for the interpretation of this
Agreement. Where the context so requires, words used in any gender shall be
deemed to include other genders, and the singular number shall include the
plural and vice versa. The Recitals appearing at the beginning of this
Agreement, and the Exhibits and Schedules attached hereto, are hereby
incorporated into and are deemed to constitute a part of the operative text of
this Agreement. Each party hereto and such party’s counsel have had the full
opportunity to review and comment upon, and have reviewed and commented upon,
this Agreement, and any rule of construction to the effect that ambiguities are
to be resolved against the drafting party shall not apply in the interpretation
of this Agreement or any Exhibits or Schedules attached hereto.
 
8.11 Severability Each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law but if any provision of
this Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
 
8.12 Assignment; Successors and Assigns Neither party may assign its rights
hereunder without the other party’s prior written consent, which consent shall
not be unreasonably withheld; provided, however, that any Purchaser may assign
its rights hereunder without Seller’s consent to any affiliate of any Purchaser.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. Any
purported assignment in violation of this Section 8.12 shall be void and of no
effect.
 
8.13 Time of Essence. Time is of the essence of each and every term, condition,
obligation, and provision hereof. All references herein to a particular time of
day shall be deemed to refer to Pacific Daylight Time.
 
8.14 No Obligations to Third Parties. Except as otherwise expressly provided
herein, the execution and delivery of this Agreement shall not be deemed to
confer any rights upon, nor obligate any of the parties hereto to, any person or
entity other than the parties hereto.
 
8.15 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without reference to any
principles or statutes of conflicts of laws.
 

 

 

 
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or
has caused this Agreement to be executed on its behalf by a representative duly
authorized, all as of the Effective Date.

 
“PURCHASERS”
     
GRILL CONCEPTS, INC., a Delaware corporation
     
By:____________________________________
 
Philip Gay, President and
 
Chief Executive Officer
     
GRILL CONCEPTS MANAGEMENT, INC.,
 
a California corporation
     
By: ____________________________________
 
Philip Gay, President and
 
Chief Executive Officer
     
“SELLERS”
     
HOTEL RESTAURANT PROPERTIES, INC.,
 
a California corporation
     
By: ____________________________________
 
Keith Wolff, President
     
HOTEL RESTAURANT PROPERTIES II, INC.,
 
a California corporation
     
By: ____________________________________
 
Keith Wolff, President
 
 
     
HOTEL RESTAURANT PROPERTIES II MANAGEMENT, INC., a California corporation
     
By: ____________________________________
 
Keith Wolff, President
         
__________________________________________
 
KEITH WOLFF, an individual
     
__________________________________________
 
ADAM KELLER, an individual

 
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