DEVELOPMENT AGREEMENT

                  DEVELOPMENT  AGREEMENT,   dated  as  of  June  ___,  2001  (as
hereafter amended,  supplemented,  or otherwise modified from time to time, this
"Agreement"), between GRILL CONCEPTS, INC., a corporation organized and existing
under the laws of the State of Delaware ("GCI"); and STARWOOD HOTELS AND RESORTS
WORLDWIDE,  INC., a  corporation  organized  and existing  under the laws of the
State of Maryland ("Starwood");

                              W I T N E S S E T H:

                  WHEREAS,  pursuant to the subscription agreement,  dated as of
May 16,  2001 (the  "Subscription  Agreement"),  between GCI and  Starwood,  GCI
issued to Starwood 666,667 shares of common stock of GCI, par value $0.00004 per
share (the "Common  Stock"),  and warrants to purchase  666,667 shares of Common
Stock;

                  WHEREAS,  GCI  is  principally  engaged  in  the  business  of
developing,  managing,  operating,  and licensing  restaurants under the "Grill"
(the "Grill"),  the "Daily Grill" (the "Daily"), and the "City Bar & Grill" (the
"City") trademarks and business concepts;

                  WHEREAS,  GCI and Starwood wish to consider jointly developing
Grill-,  Daily-, and City-branded  restaurants in certain hotels  (collectively,
the "Starwood  Properties") owned,  managed, or franchised by Starwood (any such
restaurant  developed in any Starwood Property,  a "GCI Concept Facility"),  all
upon the terms and subject to the conditions set forth herein; and

                  WHEREAS, it is a condition precedent to Starwood's willingness
to consummate the transactions  contemplated by the Subscription  Agreement that
GCI shall have executed and delivered this Agreement;

                  NOW,  THEREFORE,  in  consideration  of the  foregoing and the
representations,  warranties,  covenants,  and agreements set forth herein,  and
other good and  valuable  consideration,  the receipt and  adequacy of which are
hereby  acknowledged,  and  intending to be legally  bound  hereby,  the parties
hereto hereby covenant and agree as follows:

                  SECTION 1.  Certain Defined Terms.  Capitalized terms used and
not  otherwise  defined  in  the  body  hereof are used herein as defined in the
Subscription Agreement.

                  SECTION 2). Development Proposals;  Negotiation in Good Faith.
Either party hereto may at any time in its sole discretion  propose to develop a
new GCI Concept Facility in any Starwood  Property.  Upon the making of any such
proposal,  each  party  hereto  shall  negotiate  in good  faith  with a view to
agreeing on the terms and conditions applicable to such development; but neither
party hereto shall have any legal or binding  obligation  or commitment to enter
into any  agreement  with  respect to any such  proposed  development.  Whenever
Starwood  and GCI agree to develop a new GCI Concept  Facility  in any  Starwood
Property,  they shall,  among other  things,  enter into a management  agreement
which shall be negotiated on a  property-by-property  basis using, as a starting
point, the management agreement term sheet attached as Exhibit A hereto (each, a
"Management Agreement"),  in the case of any Grill- or Daily-branded restaurant,
or a license agreement which shall be negotiated on a property-by-property basis
using, as a starting point, the template  agreement attached as Exhibit B hereto
(each, a "License Agreement"), in the case of any City-branded restaurant.
<PAGE>

     SECTION  3.  Exclusivity.  a) GCI  shall  not,  and shall  not  permit  any
controlled  Affiliate  thereof  to,  develop,  manage,  operate,  or license any
Grill-,  Daily-,  or  City-branded  restaurant  in any  hotel or  resort  owned,
managed,  or  franchised  by any Person that owns the rights to be a licensor or
franchisor of a hotel brand name (a "Flag") whereby there are greater than fifty
(50)  hotels or resorts  operating  under such Flag (any such  Person,  a "Major
Hotel Operator");  provided that this restriction shall not apply to the Grill-,
Daily-  and  City-branded   restaurants  listed  on  Exhibit  C  hereto,   which
restaurants  GCI hereby  represents  to Starwood are the only Grill-,  Daily- or
City-branded  restaurants that GCI develops,  manages,  operates or licenses (or
with respect to which GCI is in the process of negotiating Management Agreements
or License Agreements) in any hotel or resort owned, managed, or franchised by a
Major Hotel  Operator  (other than  Starwood)  as of the date  hereof;  provided
further that this  restriction  shall not restrict GCI from  engaging in branded
operations with non-Major Hotel Operators.

     b) All of GCI's  covenants  under this Section 3, including  Sections 3(a),
3(b),  3(c) and  3(d),  shall  expire  and be of no  further  force or effect at
midnight on any anniversary of the Closing Date (each,  an "Anniversary  Date"),
if the  aggregate  number  of  GCI  Concept  Facilities  covered  by  Management
Agreements and/or License  Agreements  entered into during the period commencing
on the Closing Date and ending on such Anniversary  Date;  divided by the number
of full  calendar  years that have  elapsed  between the  Closing  Date and such
Anniversary  Date;  is less than  3.0.  Solely  by way of  illustration,  if the
aggregate  number of GCI Concept  Facilities  covered by  Management  Agreements
and/or  License  Agreements  entered into during the first  twelve-month  period
following the Closing Date is nine (9),  GCI's covenant under Section 3(a) shall
remain in effect until at least the fourth  anniversary  of the Closing Date (as
of which date it will expire if the aggregate  number of GCI Concept  Facilities
covered by Management  Agreements and/or License  Agreements entered into during
such four-year period is less than twelve (12)).

     c) Subject to the  provisions of Section 3(b) above,  GCI's  covenant under
Section 3(a) with respect to Daily-branded  restaurants only shall expire and be
of no  further  force or effect at  midnight  on any  Anniversary  Date,  if the
aggregate number of Daily-branded GCI Concept  Facilities  covered by Management
Agreements  entered  into during the period  commencing  on the Closing Date and
ending on such  Anniversary  Date;  divided by the number of full calendar years
that have elapsed  between the Closing Date and such  Anniversary  Date; is less
than  1.0.  Solely  by  way  of   illustration,   if  the  aggregate  number  of
Daily-branded GCI Concept  Facilities  covered by Management  Agreements entered
into during the first  twelve-month  period  following the Closing Date is three
(3),  and  provided  GCI's  covenant  has not  expired  pursuant to the terms of
Section 3(b),  GCI's covenant  under Section 3(a) with respect to  Daily-branded
restaurants shall remain in effect until at least the fourth  anniversary of the
Closing  Date  (as of which  date it will  expire  if the  aggregate  number  of
Daily-branded GCI Concept  Facilities  covered by Management  Agreements entered
into during such four-year period is less than four (4)).
<PAGE>

     d) Subject to the  provisions of Section 3(b) above,  GCI's  covenant under
Section 3(a) with respect to Grill-branded  restaurants only shall expire and be
of no  further  force or effect at  midnight  on the second  anniversary  of the
Closing  Date  or on  any  consecutive  two-year  anniversary  thereof,  if  the
aggregate number of Grill-branded GCI Concept  Facilities  covered by Management
Agreements  entered into during the two-year  period ending on such date is less
than  one  (1).  Solely  by way of  illustration,  if the  aggregate  number  of
Grill-branded GCI Concept  Facilities  covered by Management  Agreements entered
into during the first twelve-month period following the Closing Date is two (2),
and provided  GCI's  covenant  has not expired  pursuant to the terms of Section
3(b),   GCI's  covenant  under  Section  3(a)  with  respect  to   Grill-branded
restaurants  shall remain in effect until at least the sixth  anniversary of the
Closing  Date  (as of which  date it will  expire  if the  aggregate  number  of
Grill-branded GCI Concept  Facilities  covered by Management  Agreements entered
into during such six-year period is less than three (3)).

     SECTION 4.  Development  Warrants.  GCI shall issue to  Starwood,  promptly
after  the date as of which  the  aggregate  number  of GCI  Concept  Facilities
covered by Management  Agreements and/or License  Agreements  entered into on or
after  the  date  hereof  reaches  five,  ten,  fifteen,  and  twenty  (each,  a
"Development  Threshold Date"), a warrant  substantially in the form attached as
Exhibit D hereto (each, a "Development  Warrant") to purchase a number of shares
of Common Stock  representing,  four percent (4%) of the then outstanding shares
of Capital  Stock of GCI (for  purposes  of this  Agreement,  the term  "Capital
Stock"  shall refer to the  aggregate of the then  outstanding  shares of Common
Stock and the then outstanding  shares of any class or series of preferred stock
of GCI).

     (a) If the Fair  Market  Value  of the  Common  Stock as of the  applicable
Development  Threshold  Date is greater than the Fair Market Value of the Common
Stock as of the Closing Date (the "Closing Date Share Price"),  the  Development
Warrants  will have an  exercise  price  equal to the  greater  of  seventy-five
percent (75%) of the Fair Market Value of the Common Stock as of the  applicable
Development Threshold Date; and the Closing Date Share Price; or

     (b) If the Fair  Market  Value  of the  Common  Stock as of the  applicable
Development  Threshold  Date is less than the  Closing  Date  Share  Price,  the
Development  Warrants will have an exercise price equal to the Fair Market Value
of the Common Stock as of the applicable Development Threshold Date.

For the avoidance of doubt, the Development  Threshold Date shall be the date of
the opening to the public of the relevant GCI Concept  Facility  that  triggered
GCI's obligation to issue the Development Warrants.

                  SECTION  5. Incentive  Warrants.  (a)  If,  as of the  date of
execution of any Management  Agreement or License Agreement covering any new GCI
Concept Facility (the "Initial Incentive  Threshold Date"), the aggregate number
of GCI  Concept  Facilities  covered by  Management  Agreements  and/or  License
Agreements  entered  into on or  after  the  date  hereof  (the  "Aggregate  New
Facilities") represents more than thirty-five percent (35%) of the then existing
Grill-,  Daily-,  or  City-branded  restaurants  (including all such GCI Concept
Facilities) (the "Incentive Threshold"),  GCI shall issue to Starwood,  promptly
after the Initial Incentive Threshold Date, a warrant  substantially in the form
attached  as  Exhibit D hereto to  purchase  a number of shares of Common  Stock
representing,   0.75  percent  (three-quarters  of  one  percent)  of  the  then
outstanding  shares  of  Capital  Stock of GCI (an  "Incentive  Warrant")  at an
exercise  price in each case equal to the Fair Market  Value of the Common Stock
on the Initial Incentive Threshold Date.
<PAGE>

                  (b)  (i)  If,  as of the  first  anniversary  of  the  Initial
Incentive Threshold Date (the "First Incentive Anniversary Date"), the Aggregate
New  Facilities  exceed the  Incentive  Threshold,  GCI shall issue to Starwood,
promptly thereafter,  an additional Incentive Warrant at an exercise price equal
to the Fair Market Value of the Common Stock on the First Incentive  Anniversary
Date to purchase a number of shares of Common  Stock  representing  0.75 percent
(three-quarters  of one percent) of the then outstanding shares of Capital Stock
of GCI, and GCI shall issue to Starwood an additional  Incentive Warrant on each
subsequent  anniversary of the Initial Incentive  Threshold Date (at an exercise
price in each case equal to the Fair Market  Value of the Common Stock as of the
applicable  anniversary  thereof) to purchase a number of shares of Common Stock
representing  0.75  percent   (three-quarters   of  one  percent)  of  the  then
outstanding shares of Capital Stock of GCI until the Aggregate New Facilities do
not exceed the Incentive Threshold as of any such anniversary date; and (ii) if,
as of  the  First  Incentive  Anniversary  Date  or any  subsequent  anniversary
thereof, the Aggregate New Facilities do not exceed the Incentive Threshold, GCI
shall not be  obligated  to issue to Starwood an  additional  Incentive  Warrant
unless  and until the  Aggregate  New  Facilities  again  exceed  the  Incentive
Threshold  as of the date of  execution  of a  Management  Agreement  or License
Agreement covering a new GCI Concept Facility (a "Subsequent Incentive Threshold
Date"). In such event, GCI shall be obligated to issue to Starwood an additional
Incentive Warrant promptly thereafter and on each subsequent  anniversary of the
Subsequent  Incentive Threshold Date (at an exercise price in each case equal to
the  Fair  Market  Value of the  Common  Stock  as of the  Subsequent  Incentive
Threshold  Date or the applicable  anniversary  thereof) to purchase a number of
shares of Common Stock representing 0.75 percent (three-quarters of one percent)
of the then  outstanding  shares of Capital Stock of GCI until the Aggregate New
Facilities  do not exceed the  Incentive  Threshold  as of any such  anniversary
date. In such event,  GCI's  obligation to issue additional  Incentive  Warrants
will be suspended until the Aggregate New Facilities  again exceed the Incentive
Threshold. The provisions of this Section 5(b) shall apply iteratively until the
expiration or termination of this Agreement.

                  SECTION 6). Account  Management.  Promptly after the execution
and delivery of the first Management  Agreement or License Agreement  hereunder,
GCI shall assign one of its account  managers to Starwood's GCI Concept Facility
development  team. The specific terms of such assignment  shall be negotiated by
the  parties in good  faith,  with the  understanding  that as the number of GCI
Concept Facilities increases it will become a full-time position.
<PAGE>

     SECTION 7).  Miscellaneous.  The terms and provisions set forth in Sections
16 and 17 of the  Subscription  Agreement are  incorporated in this Agreement by
reference and made a part hereof mutatis mutandis.


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<PAGE>

                  IN  WITNESS  WHEREOF,  each  party  hereto  has  executed  and
delivered this Agreement as of the date first written above.

                                                     GRILL CONCEPTS, INC.


                                                       By:
                                                          ----------------------
                                                          Name:
                                                          Title:

                                                     STARWOOD HOTELS AND RESORTS
                                                     WORLDWIDE, INC.

                                                       By:
                                                          ----------------------
                                                          Name:
                                                          Title: