Document:

THIS WARRANT AND THE SHARES OF COMMON STOCK OF GRILL CONCEPTS, INC. TO BE ISSUED
UPON ANY  EXERCISE  OF THE  WARRANT  HAVE NOT BEEN  REGISTERED  UNDER THE UNITED
STATES  SECURITIES  ACT OF 1933,  AS AMENDED (THE  "SECURITIES  ACT"),  AND THIS
WARRANT AND THE UNDERLYING  SHARES OF COMMON STOCK MAY NOT BE SOLD,  TRANSFERRED
OR ASSIGNED UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.

                                 WARRANT NO. __
                               to Purchase Shares
                                       of

                         Common Stock (.00004 par value)
                                       of
                              GRILL CONCEPTS, INC.
                                October 16, 2000

         This certifies that, for value received, Michael Grayson("Holder"),  is
entitled to purchase,  subject to the  provisions  of this  Warrant,  from Grill
Concepts,  Inc., a Delaware corporation (the "Issuer"), at any time or from time
to time on or  before  four (4)  years  from the date  hereof  (the  "Expiration
Date"),  fifty thousand (50,000) fully paid and  nonassessable  shares of common
stock,  $.00004  par value (the  "Common  Stock"),  of the Issuer at an exercise
price equal to $1.53125 per share,  subject to adjustment  pursuant to the terms
hereunder  (the  "Exercise  Price")  (such  shares  of  Common  Stock  and other
securities  issued and  issuable  upon  exercise of this  Warrant,  the "Warrant
Shares").

         Section 1.  Exercise of Warrant.
                     -------------------

                  (a)  Subject to the  provisions  hereof,  this  Warrant may be
         exercised,  in whole or in part, but not as to a fractional  share,  at
         any time or from  time to time on or after  the date  hereof  and on or
         before the Expiration Date, by presentation and surrender hereof to the
         Issuer at the address  which,  in  accordance  with the  provisions  of
         Section 9 hereof, is then effective for notices to the Issuer, with the
         Election  to  Purchase  Form  annexed  hereto  as  Schedule  One,  duly
         executed,  for the account of the Issuer, of the Exercise Price for the
         number of Warrant Shares specified in such form. If this Warrant should
         be exercised in part only,  the Issuer  shall,  upon  surrender of this
         Warrant, execute and deliver a new Warrant evidencing the rights of the
         Holder hereof to purchase the balance of the Warrant Shares purchasable
         hereunder. The Issuer shall maintain at its principal place of business
         a register for the  registration  of this Warrant and  registration  of
         transfer of the Warrant.
<PAGE>

                  (b) The  Exercise  Price  for the  number  of  Warrant  Shares
         specified in the  Election to Purchase  Form shall be payable in United
         States  Dollars by (1)  certified or official bank check payable to the
         order of the Issuer or by wire transfer of immediately  available funds
         to an account specified by the Issuer for that purpose, (2) an election
         by the  Holder to have the  Issuer  withhold  shares  of  Common  Stock
         issuable  upon  exercise  (a  "Cashless  Exercise"),  (3)  certificates
         representing  shares of Common  Stock  theretofore  owned by the Holder
         duly endorsed for transfer to the Issuer, or (4) any combination of the
         preceding, equal in value to the aggregate Exercise Price. For purposes
         hereof,  a Cashless  Exercise  shall be  effected by  surrendering  the
         Warrant,  in part or in whole,  in  exchange  for a number  of  Warrant
         Shares  equal to the product of (x) the number of Warrant  Shares as to
         which the Warrant is being exercised multiplied by (y) a fraction,  the
         numerator of which is the Market  Price of the Warrant  Shares less the
         Exercise  Price  and the  denominator  of which is such  Market  Price.
         Solely  for  purposes  of this  paragraph,  Market  Price  shall be the
         average closing bid price of the Common Stock over the five (5) trading
         day period preceding the date on which the Election to Purchase is sent
         to the Company.

                  (c)      Certificates  representing  Warrant Shares shall bear
         the following restrictive legend:

                  THE  SHARES  REPRESENTED  BY THIS  CERTIFICATE  HAVE  NOT BEEN
                  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THE
                  SHARES HAVE BEEN ACQUIRED FOR  INVESTMENT AND MAY NOT BE SOLD,
                  TRANSFERRED  OR ASSIGNED IN THE ABSENCE OF EITHER AN EFFECTIVE
                  REGISTRATION  STATEMENT FOR THESE SHARES UNDER THE  SECURITIES
                  ACT OF  1933,  AS  AMENDED,  OR AN  OPINION  OF  COUNSEL  THAT
                  REGISTRATION IS NOT REQUIRED UNDER SAID ACT.

        Section 2. Reservation of Shares; Preservation of Rights of Holder. The
Issuer hereby agrees that there shall be reserved for issuance  and/or  delivery
upon  exercise  of this  Warrant,  such  number  of  Warrant  Shares as shall be
required for issuance or delivery  upon  exercise of this  Warrant.  The Warrant
surrendered upon exercise shall be canceled by the Issuer.  After the Expiration
Date no shares of Common  Stock  shall be subject to  reservation  in respect of
this Warrant.  The Issuer  further  agrees (i) that it will not, by amendment of
its Articles of Incorporation or through reorganization,  consolidation, merger,
dissolution or sale of assets,  or by any other  voluntary act, avoid or seek to
avoid the  observation or performance of any of the covenants,  stipulations  or
conditions  to be  observed  or  performed  hereunder  by the  Issuer,  and (ii)
promptly  to take all  action as may from time to time be  required  in order to
permit the Holder to exercise  this Warrant and the Issuer duly and  effectively
to issue shares of its Common Stock or other  securities as provided herein upon
the exercise hereof.  Without  limiting the generality of the foregoing,  should
the Warrant  Shares at any time consist in whole or in part of shares of capital
stock having a par value,  the Issuer agrees that before taking any action which
would cause an adjustment  of the Exercise  Price so that the same would be less
than the then par  value of such  Warrant  Shares,  the  Issuer  shall  take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Issuer may  validly  and  legally  issue  fully paid and  nonassessable
shares of such Common  Stock at the Exercise  Price as so  adjusted.  The Issuer
further agrees that it will not establish a par value for its Common Stock while
this Warrant is outstanding in an amount greater than the Exercise Price.
<PAGE>

         Section 3.  Exchange,   Transfer,   Assignment  or  Loss  of   Warrant.
This  Warrant is not  transferable   or assignable except with the prior written
consent of the Issuer.

         Upon receipt by the Issuer of evidence reasonably satisfactory to it of
the loss, theft,  destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender  and  cancellation  of this  Warrant,  if  mutilated,  the Issuer will
execute and  deliver a new Warrant of like tenor and date.  Any such new Warrant
executed and delivered shall constitute a separate contractual obligation on the
part of the Issuer,  whether or not the  Warrant so lost,  stolen  destroyed  or
mutilated shall be at any time enforceable by anyone.

         Section 4. Rights of Holder. Neither a Holder nor his transferee by the
laws of descent and  distribution  or otherwise  shall be, or have any rights or
privileges of, a shareholder  of the Issuer with respect to any Warrant  Shares,
unless and until this Warrant has been exercised.

         Section 5.  Adjustments  in  Exercise  Price and  Warrant  Shares.  The
Exercise  Price and Warrant  Shares shall be subject to adjustment  from time to
time as provided in this Section 5.

                  (a) If the Issuer is recapitalized  through the subdivision or
         combination of its outstanding  shares of Common Stock into a larger or
         smaller  number of  shares,  the  number of shares of Common  Stock for
         which this Warrant may be exercised  shall be increased or reduced,  as
         of the record date for such recapitalization, in the same proportion as
         the increase or decrease in the outstanding shares of Common Stock, and
         the  Exercise  Price  shall be adjusted  so that the  aggregate  amount
         payable  for the  purchase  of all Warrant  Shares  issuable  hereunder
         immediately after the record date for such recapitalization shall equal
         the aggregate amount so payable immediately before such record date.
<PAGE>

                  (b) If the  Issuer  declares a dividend  on Common  Stock,  or
         makes a distribution  to holders of Common Stock,  and such dividend or
         distribution   is  payable  or  made  in  Common  Stock  or  securities
         convertible  into or  exchangeable  for  Common  Stock,  or  rights  to
         purchase  Common Stock or securities  convertible  into or exchangeable
         for Common  Stock,  the number of shares of Common Stock for which this
         Warrant may be exercised shall be increased,  as of the record date for
         determining  which holders of Common Stock shall be entitled to receive
         such  dividend or  distribution,  in  proportion to the increase in the
         number of outstanding  shares (and shares of Common Stock issuable upon
         conversion  of all such  securities  convertible  into Common Stock) of
         Common  Stock as a result of such  dividend  or  distribution,  and the
         Exercise  Price shall be adjusted so that the aggregate  Exercise Price
         for  the  purchase  of  all  the  Warrant  Shares  issuable   hereunder
         immediately  after the record date for such  dividend  or  distribution
         shall equal the aggregate Exercise Price so payable  immediately before
         such record date.

                  (c) If the Issuer  declares a dividend on Common  Stock (other
         than a dividend  covered by  subsection  (b) above) or  distributes  to
         holders of its Common Stock,  other than as part of its  dissolution or
         liquidation or the winding up of its affairs, any shares of its capital
         stock,  any evidence of indebtedness or any cash or other of its assets
         (other than for Common Stock),  the Holder shall receive notice of such
         event as set forth in Section 7 below.

                  (d) In case of any consolidation of the Issuer with, or merger
         of the Issuer into, any other  corporation  (other than a consolidation
         or merger in which the  Issuer  is the  continuing  corporation  and in
         which no change occurs in its outstanding  Common Stock), or in case of
         any sale or transfer of all or  substantially  all of the assets of the
         Issuer,  or in the case of any statutory  exchange of  securities  with
         another corporation (including any exchange effected in connection with
         a merger  of a third  corporation  into the  Issuer,  except  where the
         Issuer is the surviving  entity and no change occurs in its outstanding
         Common Stock),  the  corporation  formed by such  consolidation  or the
         corporation  resulting from such merger or the corporation  which shall
         have acquired such assets or securities of the Issuer,  as the case may
         be, shall execute and deliver to the Holder simultaneously  therewith a
         new Warrant, satisfactory in form and substance to the Holder, together
         with  such  other  documents  as the  Holder  may  reasonably  request,
         entitling  the Holder  thereof to receive upon exercise of such Warrant
         the kind and  amount  of  shares  of stock  and  other  securities  and
         property receivable upon such consolidation, merger, sale, transfer, or
         exchange of securities,  or upon the dissolution following such sale or
         other  transfer,  by a holder of the  number of shares of Common  Stock
         purchasable  upon  exercise of this Warrant  immediately  prior to such
         consolidation,  merger, sale, transfer,  or exchange.  Such new Warrant
         shall contain the same basic other terms and conditions as this Warrant
         and shall provide for adjustments  which, for events  subsequent to the
         effective  date  of  such  written  instrument,   shall  be  as  nearly
         equivalent as may be  practicable  to the  adjustments  provided for in
         this  Section  5. The  above  provisions  of this  paragraph  (d) shall
         similarly apply to successive consolidations, mergers, exchanges, sales
         or other transfers covered hereby.
<PAGE>

                  (e) If the Issuer shall,  at any time before the expiration of
         this Warrant  dissolve,  liquidate or wind up its affairs other than as
         covered by  Section  5(d),  the Holder  shall,  upon  exercise  of this
         Warrant  have the  right to  receive,  in lieu of the  shares of Common
         Stock of the Issuer that the Holder  otherwise would have been entitled
         to  receive,  the same kind and  amount  of  assets as would  have been
         issued,  distributed  or paid to the Holder upon any such  dissolution,
         liquidation  or winding up with  respect to such shares of Common Stock
         of the Issuer had the Holder  been the holder of record of such  shares
         of Common Stock  receivable  upon  exercise of this Warrant on the date
         for determining those entitled to receive any such distribution. If any
         such  dissolution,  liquidation  or  winding  up  results  in any  cash
         distribution in excess of the aggregate Exercise Price provided by this
         Warrant for the shares of Common Stock receivable upon exercise of this
         Warrant, the Holder may, at the Holder's option,  exercise this Warrant
         without  making  payment of the Exercise  Price and, in such case,  the
         Issuer shall,  upon  distribution to the Holder,  consider the Exercise
         Price to have  been  paid in full  and,  in  making  settlement  to the
         Holder,  shall  obtain  receipt of the  Exercise  Price by deducting an
         amount  equal to the  Exercise  Price for the  shares  of Common  Stock
         receivable upon exercise of this Warrant from the amount payable to the
         Holder. For purposes of this paragraph, at Holder's option, the sale of
         all or  substantially  all of the assets of the Issuer and distribution
         of the proceeds  thereof to the Issuer's  shareholders  shall be deemed
         liquidation.
<PAGE>
                  (f) If an event  occurs  which is  similar  in  nature  to the
         events  described  in this  Section  5,  but is not  expressly  covered
         hereby,  the Board of Directors of the Issuer shall make or arrange for
         an  equitable  adjustment  to the  number  of  Warrant  Shares  and the
         Exercise Price.

                  (g) The term  "Common  Stock"  shall  mean the  Common  Stock,
         $.00004  par  value,  of the  Issuer as the same  exists at the date of
         issuance of this Warrant or as such stock may be constituted  from time
         to  time,  except  that for the  purpose  of this  Section  5, the term
         "Common Stock" shall include any stock of any class of the Issuer which
         has no preference in respect of dividends or of amounts  payable in the
         event of any  voluntary  or  involuntary  liquidation,  dissolution  or
         winding up of the Issuer and which is not subject to  redemption by the
         Issuer.

                  (h) The  Issuer  shall  retain  a firm of  independent  public
         accountants of recognized  standing (who may be any such firm regularly
         employed by the  Issuer) to make any  computation  required  under this
         Section 5, and a  certificate  signed by such firm shall be  conclusive
         evidence of the correctness of any computation  made under this Section
         5 absent manifest error.

                  (i)  Whenever  the  number of Warrant  Shares or the  Exercise
         Price shall be adjusted as required by the  provisions  of this Section
         5, the Issuer  forthwith  shall file in the custody of its secretary or
         an assistant  secretary,  at its principal office,  and furnish to each
         Holder hereof, a certificate  prepared in accordance with paragraph (h)
         above,  showing the adjusted  number of Warrant Shares and the Exercise
         Price  and  setting  forth  in  reasonable   detail  the  circumstances
         requiring the adjustments.

                  (j) Notwithstanding any other provision, this Warrant shall be
         binding upon and inure to the benefit of any  successors and assigns of
         the Issuer.

                  (k) No adjustment in the Exercise Price in accordance with the
         provisions  of this  Section  5 need be made if such  adjustment  would
         amount to a change in such  Exercise  Price of less than $.01  provided
         however,  that the amount by which any adjustment is not made by reason
         of the  provisions of this  paragraph (k) shall be carried  forward and
         taken into  account  at the time of any  subsequent  adjustment  in the
         Exercise Price.

                  (l) If an  adjustment  is made  under  this  Section 5 and the
         event  to  which  the  adjustment  relates  does  not  occur,  then any
         adjustments  in  accordance  with this Section 5 shall be readjusted to
         the Exercise  Price and the number of Warrant  Shares which would be in
         effect had the earlier adjustment not been made.
<PAGE>

         Section 6. Taxes on Issue or Transfer of Common Stock and Warrant.  The
Issuer  shall pay any and all  documentary  stamp or similar  issue or  transfer
taxes  payable  solely in respect of the issue or  delivery  of shares of Common
Stock or other securities on the exercise of this Warrant.  The Issuer shall not
be  required  to pay any tax which may be payable in respect of any  transfer of
this Warrant or in respect of any transfers involved in the issue or delivery of
shares or the  exercise of this  Warrant in a name other than that of the Holder
and the person requesting such transfer,  issue or delivery shall be responsible
for the  payment of any such tax (and the Issuer  shall not be required to issue
or deliver said shares until such tax has been paid or provided for).

         Section  7.  Notice of  Adjustment.  So long as this  Warrant  shall be
outstanding,  (a) if the Issuer shall  propose to pay any  dividends or make any
distribution  upon the Common Stock,  or (b) if the Issuer shall offer generally
to the holder of Common  Stock the right to  subscribe to or purchase any shares
of any class of Common Stock or securities  convertible into Common Stock or any
other  similar  rights,   or  (c)  if  there  shall  be  any  proposed   capital
reorganization  of the Issuer in which the Issuer is not the  surviving  entity,
recapitalization of the capital stock of the Issuer,  consolidation or merger of
the Issuer with or into another  corporation,  sale,  lease or other transfer of
all or substantially  all of the property and assets of the Issuer, or voluntary
or involuntary  dissolution,  liquidation or winding up of the Issuer, or (d) if
the  Issuer  shall  give  to its  stockholders  any  notices,  report  or  other
communication  respecting any  significant  or special action or event,  then in
such event, the Issuer shall give to the Holder, at least twenty (20) days prior
to the relevant date  described  below (or such shorter  period as is reasonably
possible if twenty (20) days is not  reasonably  possible due to no fault of the
Issuer),  a notice  containing a description of the proposed action or event and
stating the date or expected date on which a record of the Issuer's stockholders
is to be taken for any of the foregoing purposes,  and the date or expected date
on  which  any  such  dividend,  distribution,  subscription,  reclassification,
reorganization,  consolidation,  combination, merger, conveyance, sale, lease or
transfer,  dissolution,  liquidation or winding up is to take place and the date
or expected date, if any is to be fixed, as of which the holders of Common Stock
for securities or other property deliverable upon such event.

         Section 8.        Registration Rights.
                           -------------------
<PAGE>

                  (a) Piggyback  Registration  Rights.  The Issuer covenants and
agrees with any holder of the Warrants  and Warrant  Shares that if, at any time
within the period  commencing on the date hereof and ending on the date which is
one year after the Expiration Date, it proposes to file a registration statement
with respect to any class of equity or  equity-related  security  (other than in
connection  with an offering to the Issuer's  employees or in connection with an
acquisition,  merger  or  similar  transaction)  under the  Securities  Act in a
primary registration on behalf of the Issuer and/or in a secondary  registration
on behalf of holders of such securities and the registration form to be used may
be used for  registration  of the  Warrant  Shares,  the Issuer will give prompt
written notice (which, in the case of a registration  statement  pursuant to the
exercise of demand  registration  rights shall be within ten (10)  business days
after the Issuer's  receipt of notice of such exercise and, in any event,  shall
be at least 30 days prior to such filing) to the holders of Warrants and Warrant
Shares at the addresses  appearing on the records of the Issuer of its intention
to file a registration  statement and will offer to include in such registration
statement,  subject to  paragraphs  i and ii of this Section 8(b) such number of
Warrant  Shares with respect to which the Issuer has received  written  requests
for inclusion  therein within twenty (20) days after the giving of notice by the
Issuer.  All registrations  requested pursuant to this Section 8(b) are referred
to herein as "Piggyback Registrations".  All Piggyback Registrations pursuant to
this Section 8 will be made solely at the Issuer's expense.  This Section is not
applicable to a registration  statement  filed by the Issuer on Forms S-4 or S-8
or any successor forms.

                  i.   Priority  on  Primary   Registrations.   If  a  Piggyback
         Registration includes an underwritten primary registration on behalf of
         the Issuer and the underwriter(s) for such offering  determines in good
         faith and advises the Issuer in writing that in  its/their  opinion the
         number of Warrant Shares requested to be included in such  registration
         exceeds the number that can be sold in such offering without materially
         adversely  affecting the distribution of such securities by the Issuer,
         the Issuer will include in such  registration (A) first, the securities
         that the Issuer  proposes  to sell and (B) second,  the Warrant  Shares
         requested  to be included in such  registration,  apportioned  pro rata
         among the holders of the Warrant Shares and holders of other securities
         requesting registration.

                  ii.  Priority  on  Secondary  Registrations.  If  a  Piggyback
         Registration consists only of an underwritten secondary registration on
         behalf of holders of securities of the Issuer,  and the  underwriter(s)
         for such  offering  advises  the  Issuer in writing  that in  its/their
         opinion the number of Warrant  Shares  requested to be included in such
         registration  exceeds  the  number  which can be sold in such  offering
         without  materially   adversely  affecting  the  distribution  of  such
         securities, the Issuer will include in such registration (A) first, the
         securities  requested to be included therein by the holders  requesting
         such  registration,  and (B) second, the Warrant Shares requested to be
         included  in such  registration  and  securities  of  holder  of  other
         securities requested to be included in such registration statement, pro
         rata  among  all such  holders  on the  basis of the  number  of shares
         requested to be included by each such holder,  provided,  however,  the
         Issuer  will use its best  efforts to include  not less than 20% of the
         Warrant Shares.

<PAGE>
         Notwithstanding the foregoing,  if any such underwriter shall determine
in good faith and advise the  Issuer in  writing  that the  distribution  of the
Warrant Shares  requested to be included in the registration  concurrently  with
the securities being registered by the Issuer would materially  adversely affect
the  distribution  of such  securities  by the Issuer,  then the holders of such
Warrant Shares shall delay their offering and sale for such period ending on the
earliest  of  (1)  90  days   following  the  effective  date  of  the  Issuer's
registration  statement,  (2) the day upon which the underwriting  syndicate, if
any,  for such  offering  shall  have been  disbanded  or,  (3) such date as the
Issuer,  managing  underwriter  and holders of Warrant  Shares  shall  otherwise
agree.  In the event of such  delay,  the Issuer  shall  file such  supplements,
post-effective  amendments  and take any such other steps as may be necessary to
permit such holders to make their proposed offering and sale for a period of 120
days  immediately  following  the end of any such period of delay.  If any party
disapproves  the  terms  of any such  underwriting,  it may  elect  to  withdraw
therefrom  at any  time  prior to the  effective  date of such  underwriting  by
written notice to the Issuer, the underwriter,  and the holder.  Notwithstanding
the foregoing, the Issuer shall not be required to file a registration statement
to include shares pursuant to this Section 8 if independent counsel,  reasonably
satisfactory to the Issuer and the Holder,  renders an opinion to the Issuer and
the Holder  that all of the  Warrant  Shares  proposed  to be disposed of may be
transferred  pursuant to the  provisions of Rule 144 under the Securities Act or
otherwise  without  registration  under the  Securities  Act. The Issuer  hereby
undertakes  and covenants to take all steps  reasonably  necessary to facilitate
the resale of Warrant  Shares  pursuant to Rule 144.  Neither the failure of the
Holder to exercise its  Piggyback  Registration  Rights  hereunder on any one or
more occasions nor the Holder's election to withdraw from an underwriting  shall
be  deemed  to  waive or  modify  the  Holder's  Piggyback  Registration  Rights
hereunder in the future.

<PAGE>

                  (b) Actions to be taken by the Issuer.  In connection with the
registration  of Warrant  Shares  hereunder,  the Issuer  agrees to (i) bear the
expenses  of any  registration;  provided,  however,  that in no event shall the
Issuer be  obligated  to pay (A) any fees and  disbursements  of any  special or
other counsel for holders of Warrant Shares,  (B) any underwriters'  discount or
commission in respect of such Warrant  Shares,  and (C) any stock transfer taxes
attributable  to the sale of the Warrant  Shares;  (ii) use its best  efforts to
register or qualify the Warrant Shares for offer or sale under state  securities
or Blue Sky laws of such  jurisdictions  in which such holders shall  reasonably
request,  provided,  however,  that no  qualification  shall be  required in any
jurisdiction where, as a result thereof,  the Issuer would be subject to service
of general  process or to taxation as a foreign  corporation  doing  business in
such  jurisdiction  to which it is not then  subject;  and  (iii)  enter  into a
cross-indemnity agreement, in customary form, with each underwriter, if any, and
each holder of securities included in such registration statement;  (iv) prepare
and file with the SEC a  registration  statement  with  respect to such  Warrant
Shares  and use  commercially  reasonable  efforts  to cause  such  registration
statement to become  effective  as soon  thereafter  as  possible,  and promptly
notify  Holder  in  writing,  (a)  when  such  registration   statement  becomes
effective,  (b) when any post-effective amendment to such registration statement
becomes  effective,  and (c) of any  request  by the SEC  for any  amendment  or
supplement  to such  registration  statement  or any final  prospectus  relating
thereto or for  additional  information;  (v) prepare and file with the SEC such
amendments  and  supplements  to  such  registration  statement  and  the  final
prospectus  used in  connection  therewith  as may be  necessary  to  keep  such
registration  statement  effective for at least 120 days or until the Holder has
completed the  distribution  described in the  registration  statement  relating
thereto,  whichever  occurs  first,  and to comply  with the  provisions  of the
Securities Act with respect to the disposition of all securities covered by such
registration  statement  during  such  period in  accordance  with the  intended
methods of disposition by Holders set forth in such registration statement; (vi)
furnish to Holder such number of copies of such  registration  statement  and of
each such amendment and supplement  thereto, as well as such number of copies of
the  prospectus  included  in  such  registration   statement   (including  each
preliminary   prospectus  and  summary  prospectus),   in  conformity  with  the
requirements  of the  Securities  Act,  and such other  documents  as Holder may
reasonably  request  in order to  facilitate  the  sale or  distribution  of the
Warrant Shares by Holder;  and (vii) promptly notify Holder,  at any time when a
prospectus  relating  thereto is required to be delivered  under the  Securities
Act, of Issuer becoming aware that the prospectus  included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material  fact  required to be stated  therein or  necessary to
make the  statements  therein not  misleading in the light of the  circumstances
then existing;  and, at the request of Holder,  promptly  prepare and furnish to
Holder a reasonable number of copies of an amended or supplemental prospectus as
may be necessary so that,  as  thereafter  delivered to the  purchasers  of such
Warrant  Shares,  such  prospectus  shall not include an untrue  statement  of a
material fact or omit to state a material fact required to be stated  therein or
necessary  to make the  statements  therein not  misleading  in the light of the
circumstances then existing.
<PAGE>

                  (c)  Action  to  be  Taken  by  the   Holders.   The  Issuer's
obligations  under this Section 8 shall be conditioned  upon a timely receipt by
the  Issuer in  writing  of:  (i)  information  as to the  terms of such  public
offering furnished by or on behalf of each holder of Warrant Shares intending to
make a public  offering of his, her or its Warrant  Shares,  and (ii) such other
information  as the Issuer may  reasonably  require  from such  holders,  or any
underwriter for any of them, for inclusion in such registration statement.

                  (d) Exclusive  Rights.  The Holder shall have no  registration
rights  except as expressly set forth herein.

         Section 9.   Notices. All communications hereunder shall be in writing,
and, if sent to the Holder shall be  sufficient in all  respects  if  delivered,
sent by registered  mail, or by facsimile and confirmed to the Holder at:

                  Michael A. Grayson
                  Fifth Floor
                  9450 Wilshire Boulevard
                  Beverly Hills, CA  90212
                  Telephone:  (310) 278-4300
                  Telecopier: (310) 278-5430

or if to any other Holder,  addressed to such Holder at such address as it shall
have  specified  to the Issuer in writing,  or, if sent to the Issuer,  shall be
delivered,  sent by registered  mail or by facsimile and confirmed to the Issuer
at:

                  Grill Concepts, Inc.
                  11661 San Vicente Blvd.
                  Suite 404
                  Los Angeles, CA  90019
                  Attention:  Robert Spivak, President
                  Telephone:  (310) 820-5559
                  Facsimile:  (310) 820-6530
<PAGE>

         Section 10.  Governing  Law. This Warrant  shall  be  governed  by, and
interpreted  in accordance  with, the laws of the State of California.

         Dated:  October 16, 2000

                                                          GRILL CONCEPTS, INC.

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

<PAGE>
                                                                    Schedule One

                                                            ELECTION TO PURCHASE

         The undersigned  hereby irrevocably elects to exercise this Warrant and
to purchase  shares of Grill  Concepts,  Inc.  Common  Stock  issuable  upon the
exercise of this  Warrant,  and requests  that  certificates  for such shares be
issued in the name of:

       ------------------------------------------------------------------
                                     (Name)

       ------------------------------------------------------------------
                                    (Address)

       ------------------------------------------------------------------
                (United States Social Security or other taxpayer
                       identifying number, if applicable)

and, if different from above, be delivered to:

       ------------------------------------------------------------------
                                     (Name)

       ------------------------------------------------------------------
                                    (Address)

and,  if the number of Warrant  Shares so  purchased  are not all of the Warrant
Shares  issuable upon  exercise of this Warrant,  that a Warrant to purchase the
balance of such Warrant  Shares be  registered in the name of, and delivered to,
the undersigned at the address stated below.

Date:                          , 2000
     --------------------------

Name of Registered Owner:
                           --------------------------------------

Address:
          -------------------------------------------------------

Signature:
            -----------------------------------------------------DAILY GRILL RESTAURANT MANAGEMENT AGREEMENT

         DAILY GRILL RESTAURANT  MANAGEMENT AGREEMENT (this "Agreement") made as
of February 5, 2001, between Hotel Restaurants  Properties II Management,  Inc.,
California  corporation  ("Operator"),   Grill  Concepts  Management,   Inc.,  a
California  corporation  ("Affiliate"),  and Handlery Hotel,  Inc., a California
corporation  ("Owner").  The  parties  each  acknowledge  that  throughout  this
Agreement,  all  references  to  Operator  shall be deemed to  include  both the
Operator and Affiliate and that Operator and Affiliate shall each be jointly and
severally liable for all obligations of Operator under this Agreement.

                                    RECITALS

     A. Owner is the owner of a  full-service  hotel (the "Hotel")  known as the
Handlery Union Square Hotel at 351 Geary Street, San Francisco, CA 94102.

     B. Operator's  affiliated  parent,  Grill Concepts,  Inc.  ("GCI") owns and
operates,  among other  restaurants,  The Daily Grill  restaurant  chain ("Daily
Grill"), and has substantial  experience in the management and operation of such
restaurants.

     D. GCI owns the  uniform  restaurant  operating  system  necessary  for the
establishment   and  operation  of  Daily  Grill  restaurants  with  distinctive
features,  equipment,  equipment  design,  menus,  food  formulas,  inventories,
manuals, training systems, and accounting systems (collectively,  the "Operating
System") which restaurant and Operating System are identified by the service and
trademarks "Daily Grill" and related words and symbols (collectively,  "Existing
Marks")  identifying  the Daily Grill  restaurants and their goods and services.
GCI has licensed the Operating System and the Existing Marks to Operator.

     E. Subject to the terms and  conditions  set forth in this  Agreement,  (i)
Owner wishes to retain Operator to act as its exclusive operator of a restaurant
located in space at 347 Geary Street, San Francisco,  California, as hereinafter
more particularly  described (the "Managed Outlet") and (ii) Operator desires to
accept such retention.

     F. Owner and Operator  desire to evidence  their  agreement with respect to
the operation,  direction,  management, and supervision of the Managed Outlet as
more particularly set forth below.

     NOW,  THEREFORE,  for and in consideration of the premises,  and other good
and valuable consideration, Owner and Operator agree as follows:

                                    ARTICLE I
                               THE MANAGED OUTLET

         1. Description of Managed Outlet.  Owner and Operator  acknowledge that
the Managed  Outlet means the space located at 347 Geary Street,  San Francisco,
CA 94102, consisting of the ground level and the portion of the basement, all as
outlined  in Exhibit A  attached  hereto,  including,  without  limitation,  the
following:

                                       1
<PAGE>

     A.  The  non-structural  portions  of the  Managed  Outlet,  including  the
interior walls, ceiling and floor (the "Restaurant");

     B.  Mechanical  systems and built-in  installations  (the  "Installations")
serving the Restaurant exclusively or primarily,  including, but not limited to,
heating,  ventilation,  air  conditioning,   electrical  and  plumbing  systems,
elevators  and lifts,  and built-in  refrigeration  and kitchen  equipment to be
installed by Operator as provided in Exhibit B attached hereto;

     C. Restaurant  furniture,  furnishings,  wall coverings,  floor  coverings,
window treatments, fixtures and other equipment (the "FF&E")

     D. Chinaware,  glassware,  silverware, linens, and other items of a similar
nature used in the operation of the Managed Outlet (the "Operating  Equipment");
and

     E. Stock and inventories of paper supplies,  cleaning materials and similar
consumable  items and food and  beverage  used in the  operation  of the Managed
Outlet (the "Operating Supplies").

                                   ARTICLE II
                                 OPERATING TERM

         2.1 Term. For purposes hereof, the "Start-up Period" shall be deemed to
be the period commencing at the signing of this Agreement and terminating thirty
(30) days after the construction of the "Initial Remodel" (as defined in Exhibit
B attached  hereto) is completed (as provided in Section 7 of Exhibit B) whereby
training of the opening  staff for the Managed  Outlet can commence  ("Effective
Date").  The operating  term shall  commence on the Effective Date and terminate
ten (10) years after the Effective Date ("Initial Term").  All references to the
"Term" shall mean the Initial Term and if exercised, the Option Term (as defined
below).

         2.2 Option to  Extend.  Operator  will have the  option to extend  this
Agreement for an additional  five (5) years  following the Initial Term ("Option
Term") by giving  written notice of exercise of such option  ("Extension  Option
Notice")  at least two  hundred  seventy  (270)  days,  but not more than  three
hundred  sixty-five (365) days, prior to the expiration of the Initial Term. The
Option  Term shall be upon all of the terms and  provisions  of this  Agreement.
Operator's  option to extend as provided above is conditioned upon  satisfaction
of the following  condition  precedents  which are for the sole benefit of Owner
and may be waived by Owner only in a written notice to Operator:

                           (1) During the twelve month period  immediately prior
         the delivery of the  Extension  Option  Notice the total amount paid to
         Owner for "Owner's Priority" and "Owner's  Additional Payment" (as such
         terms  are  hereinafter  defined)  solely  out  of the  Total  Revenues
         (hereinafter  defined)  from  the  Managed  Outlet  must  be  at  least
         $600,000.00;  provided,  however,  that if the Managed Outlet is closed
         during  such  twelve  month  period  due to a force  majeure  event  as
         provided in Section 16.4 hereof,  then the $600,000.00  threshold shall
         be  adjusted  and  prorated  on a daily  basis to exclude  the days the
         Managed Outlet was closed for such purpose (for example, if the Managed
         Outlet is closed for one month to perform  seismic  work as required by
         law during such twelve month  period,  the  $600,000  would be prorated
         over the twelve month period and reduced to $550,000); and

                                       2
<PAGE>

                           (2) Tenant  must not be in default  under any term or
         provision of this  Agreement on the date of giving an Extension  Option
         Notice,  or be in default under any term or provision of this Agreement
         on the date of the applicable Extension Period is to commence.

                                   ARTICLE III
                     GENERAL OPERATION OF THE MANAGED OUTLET

         3.1.  Engagement.  Owner engages Operator as an independent  contractor
for the sole purpose of performing the services described in this Agreement with
respect  to the  Managed  Outlet  during  the  Start-Up  Period and the Term and
Operator  agrees to perform the Services on the terms and conditions set in this
Agreement.  Operator is an independent contractor, and nothing in this Agreement
or in the  relationship  of Owner and Operator  shall  constitute a partnership,
joint venture,  agency, or any other similar relationship.  Subject to the terms
of this  Agreement and the applicable  Budgets,  Operator shall have control and
discretion  in the  operation,  direction,  management  and  supervision  of the
Managed Outlet.

         3.2.  Standards.  Operator shall operate the Managed Outlet in the same
manner as is customary and usual in Operator's other Daily Grill restaurants as
of the date hereof and otherwise in conformity with the operation of the Hotel.

         3.3 Consultation. Operator will be available to consult with and advise
Owner,  at Owner's  reasonable  request,  concerning all policies and procedures
affecting all phases of the conduct of business at the Managed Outlet.  Operator
shall in all  events  consult  with and  obtain  the  approval  of Owner  before
implementing  any material  changes in policies and  procedures  relating to the
Managed Outlet.

         3.4  Parking.  At no  cost or  liability  to  Owner,  Owner  agrees  to
cooperate  with  Operator in  Operator's  efforts to arrange for parking for its
customers.  Owner  agrees to arrange for three (3)  parking  spaces at the Hotel
parking  garage at the market rate charged by the operator of the parking garage
and the cost  thereof  shall be  considered  an  Operating  Expense  under  this
Agreement.  Except for the three  parking  spaces  referred  to above,  Operator
acknowledges  and agrees that Owner has not committed nor is it obligated in the
future to commit any  parking  spaces in the Hotel's  parking  garage for use by
customers  or  employees  of the  Operator.  All  parking  expenses  incurred by
Operator for its customers at the Managed  Outlet shall be included in Operating
Expenses  for the  Managed  Outlet,  if  provided  in the  applicable  Budget or
otherwise in accordance with a written policy  reasonably  approved by Owner and
Operator.

3.5 Service  Exclusivity.  Unless otherwise expressly set forth herein,
Operator  shall  have the  exclusive  right  to  service  all food and  beverage
operations for guest room service and pool side service for guests of the Hotel,
provided  Operator is not in default of this Agreement and is open and operating
under its  permitted  trade name at the Managed  Outlet and  provided  that this
provision does not violate any federal, state or local law.

         3.6 Restaurant Exclusivity. Provided Operator is not in default of this
Agreement  and is open and  operating  under  its  permitted  trade  name at the
Managed  Outlet and provided that this  provision  does not violate any federal,
state or local law,  (i) Owner  shall not lease any portion of the Hotel for the
operation  of a  restaurant  and bar. The  following  shall not be  considered a
breach of the exclusivity provisions:  (1) any coffee, tea or specialty shop, or
(2) any bagel or bakery type shop. Owner also owns other real property  adjacent
to and in the  vicinity of the Hotel,  including,  without  limitation,  Lefty's
O'Douls  where  a  full  service  restaurant  and  bar  are  operated.  Operator
acknowledges  and agrees that this exclusivity only applies to the Hotel but not
to  such  other  property.  Owner  shall  not be in  breach  of the  exclusivity
provisions of this Section 3.6 until after Operator has provided  written notice
of such  breach to Owner and Owner does not cure such breach  within  sixty (60)
days after receipt of such notice.  After notice of a breach by Owner under this
Section 3.6 and the  expiration of the  applicable  cure period,  Operator shall
have the right to injunctive relief against Owner for such breach.

                                       3
<PAGE>

         3.7 Owner Services.  At its expense,  Owner agrees to provide  periodic
inspection and to the extent necessary repair and maintenance to the roof of the
Building  containing  the  Managed  Outlet and to the  foundation  and  exterior
structural  load bearing walls to the Building  containing  the Managed  Outlet,
except for the  storefront  of the Managed  Outlet which shall be  maintained by
Operator as an  Operating  Expense.  Owner will  perform  such  services at such
intervals  and in such  manner  as Owner  determines  in its  sole and  absolute
discretion to be appropriate under the circumstances.

                                   ARTICLE IV
                          GENERAL SERVICES BY OPERATOR

         4.1   General Services.  During the Term, Operator covenants and agrees
to provide the following services in accordance with the Budgets (as defined in
Section 9.4) and the other applicable provisions of this Agreement:

                  A. Meals.  Provide first class  breakfast,  lunch,  dinner and
         banquet  operations,  same  to  be  comparable  to  other  Daily  Grill
         operations  seven (7) days each week,  three hundred  sixty-five  (365)
         days a year  during  the hours  from 7:00 a.m.  to at least  10:00 p.m.
         Operator shall be permitted,  but not obligated,  to increase the hours
         of operation  comparable to other  comparable full service  restaurants
         within  1.0 mile of the Hotel.  The menu and  pricing  for the  Managed
         Outlet and banquets shall be at prices  comparable to other Daily Grill
         locations,  adjusted  for local market  conditions,  and subject to the
         prior reasonable approval of Owner.

                  B. Banquets  and  Catering.  Provide first  class  food  and
         beverage service for banquet and catering events at Operator's standard
         menu pricing, subject  to  the  reasonable prior approval of Owner, for
         any events scheduled by the Hotel.  Operator shall add a fixed eighteen
         percent (18%) service charge to all banquet checks.

                           1. Booking.  Owner shall book all banquets,  meetings
         and special  events for the Hotel,  provided that Operator may, as long
         as there are no scheduling  conflicts with then existing  bookings made
         by Owner,  book an event 30 days or less in advance  (unless  otherwise
         mutually  agreed in writing by the parties) for the banquet room in the
         Hotel. In such event and upon Owner's request,  within five (5) days of
         such request, Operator must provide Owner with a professionally written
         proposal  specifying  the pricing and banquet menu items to be provided
         to the Hotel  client.  If Owner does not accept  such  proposal  in the
         exercise of its reasonable judgment,  Operator will not have to provide
         such  banquet  service for such Hotel  client and Owner will be free to
         contract for such service with any other party.  Operator shall provide
         such  service  at a cost to the  Hotel  guest  that is  reasonable  and
         competitive for comparable service, quality and appearance.

                           2. Owner's  Termination  Right.  Owner may  terminate
         Operator's right to provide banquet services or use or book banquets if
         Operator fails to perform or provide room service, poolside service, or
         banquet service as and when required under this Agreement (an "Operator
         Failure") on three or more occasions. Owner must provide written notice
         to  Operator  of each  Operator  Failure  within  ten (10)  days of the
         occurrence of same.

                                       4
<PAGE>

                           3. Union Activity. Owner's employees at the Hotel are
         members  of  and   represented  by  various  unions  under   collective
         bargaining  agreements affecting Owner and its operations at the Hotel.
         If picket lines or boycotts are established or conducted or carried out
         against Operator or its employees for more than thirty (30) consecutive
         days in an effort to compel  Operator  to hire union  employees  at the
         Managed Outlet or have Restaurant  Employees  (hereinafter  defined) at
         the  Managed  Outlet  be  represented  by a  union,  due to  Restaurant
         Employees  delivering food and beverages to guests of the Hotel as part
         of the room or poolside service or banquet service for the banquet room
         in the Hotel, Owner and Operator each reserves the right after at least
         sixty (60) days prior written notice to the other to  discontinue  such
         service; however, Operator shall still be obligated to prepare food and
         beverage  for such  service and Owner will  arrange for delivery to the
         particular guest at the Hotel or banquet room. If such delivery service
         is discontinued, then Operator shall not be entitled to the gratuity or
         delivery  charges  referred to in Section  4.1C  below.  In such event,
         Owner  reserves the right to charge the guest(s)  gratuity and delivery
         charges in such amount as Owner deems appropriate,  which charges shall
         be retained by Owner but shall not be considered  an Operating  Expense
         or part of Total Revenues or Net Operating Income.

                  C. Room Service Hours.  Commencing  thirty (30) days after the
         initially  opening of business to the general  public,  Operator  shall
         provide first class room service  operations for  breakfast,  lunch and
         dinner  between  the hours of 7:00am and  10:00pm,  seven (7) days each
         week,  three hundred  sixty-five  (365) days a year.  Room service menu
         prices shall be based on local market conditions,  but not greater than
         fifteen  percent  (15%) above the prices for similar items in the Hotel
         dining room menu without the prior  written  consent of Owner.  A fixed
         gratuity  based on local  market  conditions,  not to  exceed  eighteen
         percent (18%),  plus a $1.50 delivery charge may be charged on all room
         service orders and will be clearly  indicated on the Hotel guest check.
         The delivery charge may be increased annually by an amount equal to the
         Consumer  Price Index [All Urban  Consumers]  (base year 1993-95 = 100)
         for the San  Francisco-Oakland-San  Jose CMSA  published  by the United
         States Department of Labor, Bureau of Labor Statistics ("CPI") increase
         for such period.  If such index is  discontinued  or revised during the
         term of this Agreement,  such other  governmental  index or computation
         with  which  it  is   replaced   shall  be  used  in  order  to  obtain
         substantially  the same  result as would be  obtained if such index had
         not be discontinued or revised.  The room service  operation shall also
         include servicing the poolside area.

                           1. Room  Service  Menu.  The room service menu may be
         changed as Operator  determines to be  appropriate,  but only after any
         change is approved  in writing by Owner,  which  approval  shall not be
         unreasonably withheld. The cost of printing the room service menus will
         be charged as an Operating Expense to the Managed Outlet.

                           2. Door Hangers. Breakfast door hangers shall be of a
         type and design reasonably approved by Owner and Operator.  The cost of
         printing the door hangers shall be paid by the Hotel for the  first two
         printings each year; any  additional  printings  shall  be an Operating
         Expense to the Managed Outlet.

                                       5
<PAGE>

                           3.   Scope  of  the   Service.   Operator   shall  be
         responsible  for  delivering and retrieving all room service items when
         the guest is  finished  with the meal in a  reasonable  timely  fashion
         customary in a hotel operation. Room service trays will be picked-up no
         later than 30 minutes  after  notification  to Operator.  No plastic or
         disposable utensils, condiments or paper napkins may be used except for
         "to go" or poolside service unless otherwise specified herein.

               D.  Poolside  Service.  Provide food and beverage  service to the
          poolside  lounge in the Hotel.  Operator  shall utilize the same china
          and silver,  except as may be prescribed by law, with the exception of
          glassware  and  bottles  which are  prohibited  in the pool  area.  If
          requested  by Owner,  the cost of  installing a phone line in the pool
          area will be included in the Initial Remodel of the Managed Outlet.

               E.  Training.  Recruit,  train,  direct,  supervise,  employ  and
          dismiss on-site staff Restaurant  Employees (as defined in Section 5.2
          hereof) for the  operation  of the Managed  Outlet,  and provide  such
          corporate supervisory personnel as it deems necessary at its corporate
          offices to oversee management of the Managed Outlet.

               F.  Marketing.  Develop  and  implement  advertising,  marketing,
          promotion,  publicity  and  other  similar  programs  for the  Managed
          Outlet,  in  accordance  with this  Agreement  and the  Budgets  or as
          otherwise approved by Owner.

               G.  Service  and  Supply  Contracts.  Negotiate  and  enter  into
          contracts for the provision of services to the Managed  Outlet similar
          to the contracts of other Daily Grill restaurant locations;

               H. Licenses.  Apply for,  process and take all necessary steps to
          procure and keep in effect in Operator's name all licenses and permits
          required for the operation of the Managed Outlet.

               I.  Purchases.   Coordinate  the  purchase  all  FF&E,  Operating
          Equipment  and Operating  Supplies  necessary for the operation of the
          Managed Outlet.

               J.   Miscellaneous   Service.   Provide  routine  accounting  and
          purchasing  services as required in the ordinary course of business of
          the Managed Outlet.

               K. Maintenance Standards.  Maintain the Restaurant in first class
          condition and state of repair comparable with other Daily Grills as of
          the  date  hereof  and  in  compliance   with  all  applicable   laws,
          ordinances,   regulations,   rulings   and   orders  of   governmental
          authorities  and  the   requirements  of  all  permits  and  licenses,
          including without limitation liquor licenses.

               L.  Construction  Work.  Represent  Owner in connection  with the
          making  of  any  capital   improvements   to  the  Restaurant  or  the
          renovation,  refurbishment,   re-fixturing  and  re-equipping  of  the
          Restaurant,  including  without  limitation  the  Initial  Remodel (as
          defined in Exhibit B to this  Agreement),  and to that end and subject
          to the prior written approval of Owner in each instance, negotiate and
          enter  into  agreements  for  architectural,   engineering,   testing,
          consulting and construction services.

                                       6
<PAGE>

               M. Other  Services.  Provide such other  services as are required
          under the terms of this Agreement.

               N. Discounts.  Provide a 20% discount from applicable menu prices
          to  employees  of Owner dining at the Managed  Outlet,  provided  this
          discount  shall only  apply to a maximum  of $3,000 of Owner  employee
          expenditures per month (i.e., a maximum discount of $600 per month).

               O. Customer Dispute Resolution.  Resolve customer complaints,  in
          its  reasonable  discretion,  in accordance  with its  customary  good
          business practices with an emphasis on customer  satisfaction.  Should
          customer  complaints  occur  frequently,  Operator agrees to develop a
          satisfactory policy to resolve complaints.

               P.  Rules  and  Regulations.  Abide  by  the  Owner's  Rules  and
          Regulations as described in Exhibit D.

               Q. Discharge of Duties. Discharge its duties under this Agreement
          using a standard  of  diligence  customary  for  operators  of similar
          properties  with  the  objective  of  maximizing  Total  Revenues  (as
          hereinafter defined) and Net Operating Income (as hereinafter defined)
          consistent with the requirements of the Budgets.

               R. Hotel Coupons.  Honor food and beverage  coupons  sponsored by
          the  Hotel,  subject  to  reimbursement  by  Owner  to  Operator  at a
          redemption value reasonably  determined by written  agreement  between
          Owner and Operator.

               S.  Cooperation.  Cooperate  with Owner in resolving any disputes
          with  guests of the Hotel  regarding  charges  for food,  beverage  or
          service  provided by Operator,  whether for room,  poolside or banquet
          service.  Owner  shall  have the right to settle  any such  dispute by
          discharging,  writing-off or crediting such guest with all any part of
          the cost of such service,  not to exceed  $500.00 in the aggregate for
          all such  disputes  each  month.  Owner  agrees to use its good  faith
          efforts to notify  Operator of any such settlement on a daily basis if
          reasonably  practicable,  which  notice  may  be  done  verbally  with
          Operator  at the  Managed  Outlet.  Operator  must check with Owner to
          ascertain whether a guest of the Hotel has room charging rights (which
          check may be done through the computer  interface  between the Managed
          Outlet and the Hotel). If Operator accepts a room charge by a guest of
          the Hotel that was not granted room charging  rights,  Owner shall not
          be responsible  for the payment of any room charge by such party,  the
          amount of the room charge shall not be included in Total Revenues, but
          the cost thereof will be an Operating Expense.

                                       7
<PAGE>

     4.2. Hotel Room Discounts. Owner agrees to provide to employees of Operator
with  Hotel  guest  rooms at the then  applicable  discount  rate  available  to
employees of Owner, as such rate may change from time to time, if Owner confirms
that rooms are available or are not projected or  anticipated to be sold out for
the desired evening.

     4.3  Reconciliation  of Charges.  All charges for food and beverage service
under this Agreement (including, but not limited to, guest room charges, banquet
charges, Owner charges,  coupons,  programs and vouchers) sponsored by the Owner
and  honored  by the  Operator  shall be  reconciled  daily.  All room  service,
poolside service,  and other non-cash purchases shall be reported by Operator to
Owner on a daily  basis.  Within  five (5) days after the end of every  calendar
month,  Operator  shall report all charges for the prior month for room service,
poolside  service,  banquets,  Owner charges and other special services for food
and  beverage  provided to guests of the Hotel which  report shall be subject to
review and  confirmation  by Owner.  Within seven (7) days after receipt of such
written  statement,  Owner shall provide a reconciliation  statement of all such
charges and the net amount  that is due to  Operator  along with a check for the
payment  due to the  Operator.  Operator  shall  have the  right  to  audit  any
reductions to such charges as presented by Owner. Owner shall reimburse Operator
on a  monthly  basis for  Operator's  provision  of  non-cash  charges  for room
service,  poolside  service,   corporate  lounge,  banquet  services  and  other
services;  provided, however, that if there is insufficient Net Operating Income
(before  payment of Operator  Fees) from the Managed  Outlet to pay the Operator
Fees  each  month,  then the  parties  agree to  cooperate  with  each  other in
structuring  such a payment  every  two weeks  until  there are  sufficient  Net
Operating  Income  (before  payment  of  Operator  Fees) to at least pay for the
Operator Fees.

     4.4 Computer  Interfacing.  Owner and Operator  shall  cooperate  with each
other so that all of Owner and Operator's  hardware and software shall interface
with each other.  The cost to interface the Managed  Outlet point of sale system
with the Hotel  property  management  system  shall be  included  in the Initial
Remodel.  If a party makes a change to its system that will  require  changes to
the  interface,  the party making the change shall bear the cost.  If both Owner
and Operator  make a change to its system,  the parties  shall share the cost of
such  change.  Operator's  cost shall be an  Operating  Expense  to the  Managed
Outlet.

     4.5  Operator  Representative.  Operator  shall  identify  a member  of the
Operator  management team to communicate  with Owner and coordinate  agreed upon
services at such times as shall be convenient to both parties.

     4.6 Hotel  Operations.  Operator  agrees to allow Owner the  opportunity to
familiarize  and  inform  the  Restaurant  Employees  and  staff of the  Hotel's
operations at times convenient to Operator and Owner.

     4.7  Marketing  Cooperation.  Operator  shall  cooperate  with Owner in the
marketing and promotion of the  restaurant in the Owner's  marketing  materials.
The cost of  Owner's  marketing  materials  will not be  included  as  Operating
Expenses to the Managed Outlet.

     4.8. Pre-Opening Services.  The parties acknowledge and agree that in order
to position the Managed Outlet to function in an orderly and appropriate  manner
from and after the  commencement of the Initial Term,  Operator shall during the
Start-Up  Period perform the services set forth in Sections 4.1A through 4.1S to
the extent necessary or desirable to prepare and organize the Managed Outlet for
its opening (collectively, "Pre-Opening Services"), including without limitation
preparing for Owner's  approval an operating budget and a capital budget for the
Managed  Outlet  during the Start-Up  Period (the  "Initial  Budgets").  Initial
Budgets shall  include  without  limitation  FF&E  expenditures  and the Initial
Remodel,  which  Initial  Budgets  shall be initially  prepared and delivered to
Owner for Owner's review.

     4.9 Sidewalk Elevator.  There currently exists a freight elevator providing
elevator  service  from  the  sidewalk  in front of the  Managed  Outlet  to the
basement  which should be used by Operator for delivery of goods and  materials.
At its expense,  Operator  covenants and agrees to repair,  maintain and replace
(as  necessary)  such  elevator  and  related  equipment   (including,   without
limitation,  the cover on the  sidewalk) and elevator  shaft in good  condition,
which costs shall be included as an Operating  Expense.  Operator  covenants and
agrees to have such elevator and equipment  inspected and obtain all permits and
licenses  for the  operation  thereof,  including  any and all  inspections  and
licenses required from any governmental authority. Operator shall deliver a copy
of all  such  inspections  and  licenses  to Owner  promptly  after  receipt  by
Operator.  Operator shall have the exclusive  right to use such elevator for its
business at the  Premises.  Owner shall have the right  inspect such elevator at
any time.  The street  elevator shall remain in a down position when not in use,
except due to repairs,  deliveries or causes beyond the Operator's  control.  As
soon as is  commercially  reasonable  after  the date  this  Agreement  is fully
executed  and  delivered  by the  parties,  Owner  will make all  repairs to the
sidewalk elevator so that it is in good working condition and in compliance with
all applicable laws as of the date hereof.

                                       8
<PAGE>

         4.10 Opening.  Operator  agrees to perform the services  required of it
under  Exhibit B to cause the  Initial  Remodel  to be  completed  as soon as is
commercially reasonable after the date of this Agreement.

         4.11  Alterations.  After completion of the Initial  Remodel,  Operator
shall  not  make  any  alterations,  additions  or  improvements  (collectively,
"alterations") to the Managed Outlet,  or any part thereof,  without the written
consent of Owner,  which  shall not be  unreasonably  withheld,  unless any such
alteration  may  trigger or require  any other work in the Hotel in which  case,
Owner  may  withhold   its  approval  in  its  sole  and  absolute   discretion.
Notwithstanding  the  foregoing,  Operator shall be permitted,  without  Owner's
prior  written  consent  but  only to the  extent  the cost is  included  in the
applicable  Budget approved by Owner,  to construct a minor  alteration that (a)
will be done and  affects  only the inside of the Managed  Outlet,  (b) does not
affect or alter any  structural  parts of the Managed  Outlet or the building or
the storefront of the Managed  Outlet,  (c) does not alter or affect the roof of
the building  containing  the Managed  Outlet or any alarm,  life safety,  HVAC,
electrical or mechanical  system for any portion of the Hotel, (c) does not cost
for any  individual  alteration  more than  $30,000.00;  (e) does not  require a
building permit; and (f) will not trigger or require any other work at the Hotel
to comply with any law nor or  hereinafter  in effect  (herein  referred to as a
"Minor Alterations").  Any alterations shall be completed in accordance with the
such  reasonable  rules,  regulations  and  requirements  of Owner at the  time,
including, without limitation, the following:

          (a) Prior to  commencement  of any work of alteration,  Operator shall
     submit  detailed  plans  and  specifications,  including  working  drawings
     (hereinafter referred to as "Plans"),  of the proposed  alterations,  which
     shall be subject to the consent of Owner;

          (b)  No  alterations   shall  be  commenced  without  Operator  having
     previously  obtained all appropriate  permits and approvals required by and
     of governmental agencies;

          (c) All  alterations  shall be performed in a skillful and workmanlike
     manner and pursued with diligence in accordance  with the Plans  previously
     approved  by  Owner  and in  full  accord  with  all  applicable  laws  and
     ordinances.  All  material,  equipment,  and articles  incorporated  in the
     alterations  are  to be new  and  of  recent  manufacture  and of the  most
     suitable grade for the purpose intended;

          (d) Operator  must obtain the prior written  reasonable  approval from
     Owner  for  Operator  contractor  before  the  commencement  of  the  work.
     Operator's  contractor  shall  maintain  all  of the  insurance  reasonably
     required by Operator,  including,  without  limitation,  commercial general
     liability and workers' compensation; and

          (h) The alterations  must be performed in a manner such that they will
     not interfere with the quiet  enjoyment of the other guests,  occupants and
     tenants in the Hotel. No construction  work may be done before 9:00 a.m. or
     after 8:00 p.m., except that certain preparatory work that will not disrupt
     guests or cause excessive noise, such as taping or covering walls, ceilings
     and floors, may be done before 9:00 a.m. but not before 7:30 a.m.

                                       9
<PAGE>

         4.12  Hotel  Work.  Owner  agrees  to use its  commercially  reasonable
efforts not to materially and  unreasonably  interfere with the operation of the
restaurant  in the Managed  Outlet when making  repairs and  maintenance  to the
Hotel to the  extent  practicable  given the nature and extent of the work to be
done, except in cases of an emergency;  however, Owner shall not be obligated to
incur any additional expense in connection therewith or schedule work outside of
the normal hours when work would be done at the Hotel.

                                    ARTICLE V
                             AGENCY; HOTEL EMPLOYEES

         5.1.  Independent  Contractor.  In the  performance  of its  duties  as
operator  of the Managed  Outlet,  Operator  shall act solely as an  independent
contractor,  and not as agent or  employee of Owner.  Nothing in this  Agreement
shall  constitute or be construed to be or create a partnership or joint venture
between  Owner and  Operator.  Except as  otherwise  expressly  provided in this
Agreement, (a) all debts liabilities,  and/or obligations of any nature to third
persons  incurred by Operator in the course of its operation  and  management of
the Managed Outlet in accordance  with the provisions of this Agreement shall be
the debts and liabilities of Operator only and (b) Owner shall not be liable for
any such debts, liabilities and/or obligations,  except as expressly provided in
Section 8.1 for maintenance of Working Capital.

         5.2.  Employees.  Notwithstanding  anything contained in Section 5.1 to
the contrary, all employees at the Managed Outlet shall be employees of Operator
or its Affiliate ("Restaurant  Employees").  Operator or its Affiliate shall pay
all wages and benefits of Restaurant  Employees directly and all compensation of
Restaurant Employees shall be an Operating Expense (as defined in Section 11.2).
All matters pertaining to the employment, supervision,  compensation, promotion,
and discharge of such employees are the  responsibility of Operator,  who is, in
all respects,  the employer of such  employees.  All employment  arrangements of
Operator or its Affiliate are therefore solely its concern, and Owner shall have
no liability with respect thereto, including,  without limitation, any liability
to any party for any unpaid, unfunded, or accrued liabilities under any pension,
profit sharing or other plan covering the employees of Operator. Operator or its
Affiliate will arrange to obtain and maintain employer liability  insurance,  as
provided in Article XIII, with a deductible of not more than $25,000.00.

         5.3. Employee Benefits. Operator may enroll the Restaurant Employees in
pension,  medical and health,  life insurance and similar employee benefit plans
substantially  similar to corresponding  plans implemented in other Daily Grills
and/or other first class  restaurants  located within the same geographical area
of the Hotel. Such plans may be joint plans for the benefit of employees at more
than one facility  owned,  leased or managed by Operator  and/or its  respective
affiliates.  Employer  contributions  to such plans  (including  any  withdrawal
liability   incurred  upon   termination  of  this   Agreement)  and  reasonable
administrative  fees which Operator may expend in connection  therewith shall be
deemed an  Operating  Expense to the extent  provided in the Budget  approved by
Owner and  Operator.  The  administrative  expenses  of any joint  plans will be
equitably  apportioned by Operator among others of Operator's properties covered
by such plan.

                                       10
<PAGE>

     5.4. Hotel Rooms.  Owner agrees to provide Operator at no cost to Operator,
with a maximum of ninety (90) room nights  (including  only room and  applicable
tax),  at the Hotel  during  the  Start-up  Period  for the  purpose  of housing
Operator's representatives who are responsible for supervising the construction,
opening, and training of employees of the Managed Outlet, if Owner confirms that
rooms are available for the desired  evening.  Following the end of the Start-up
Period, Hotel agrees to provide Operator twenty (20) room nights (including only
room and  applicable  tax) at the Hotel  during each  twelve  (12) month  period
during the Term,  if Owner  confirms  that rooms are  available  for the desired
evening,  solely for use by  employees  of Operator  for the purpose of enabling
such representatives to monitor continuing employee training and supervision.

     5.5.  Compliance with Laws.  During the Term and the period of the Start-up
Period when Operator is using the Managed Outlet for the training of the opening
staff,  Operator,  but not Owner, shall be liable for any failure of the Managed
Outlet to comply with any  federal,  state,  local and foreign  statutes,  laws,
ordinances, regulations, rules, permits, judgments, orders and decrees affecting
labor  union  activities,  civil  rights or  employment  in the  United  States,
including,  without limitation,  the Civil Rights Act of 1870, 42 U.S.C.ss.1981,
the Civil Rights Acts of 1871, 42 U.S.C.ss.  1983 the Fair Labor  Standards Act,
29 U.S.C.ss.201,  et seq., the Civil Rights Act of 1964, 42  U.S.C.ss.2000e,  et
seq.,  as  amended,  the  Age  Discrimination  in  Employment  Act of  1967,  29
U.S.C.ss.621,  et seq.,the  Rehabilitation  Act, 29  U.S.C.ss.701,  et seq., the
Americans With Disabilities Act of 1990, 29 U.S.C.ss.706, 42 U.S.C.ss.12101,  et
seq., the Employee Retirement Income Security Act of 1974, 29 U.S.C.  ss.301, et
seq., the Equal Pay Act, 29 U.S.C.ss. 201, et seq., the National Labor Relations
Act, 29 U.S.C.ss.151,  et seq., and any regulations promulgated pursuant to such
statutes  (collectively,  as amended from time to time,  and  together  with any
similar laws now or hereafter enacted, the "Employment Laws").

     5.6.  Employment  Policies.  Operator  shall from time to time  develop and
implement   policies,   procedures   and   programs   for  the  Managed   Outlet
(collectively,   the  "Employment   Policies")  reasonably  designed  to  effect
compliance with the Employment Laws. The Employment Policies shall be consistent
with  industry  standards  from  time to time  for  reputable  hotel  management
companies.

    5.7.  Employment  Insurance.  Operator shall make all  determinations  with
respect  to the  desirability  of  maintaining  Employment  Practices  Liability
Insurance  ("Employment  Insurance")  for the benefit of Owner and/or  Operator,
subject to the requirements that Operator must maintain the insurance  specified
in Article XIII hereof.  The premium for such insurance (or an allocable  amount
in the event  that more than one hotel is covered  by such  policy)  shall be an
Operating  Expense to the extent  such type of  insurance  is  contained  in the
approved Budget with changes in the premium as may occur from time to time.

                                   ARTICLE VI
                               PROVISION OF FUNDS

     6.1.  Funding.  Operator  shall  not  be  deemed  to be in  default  of its
obligations  under this  Agreement  to the  extent it is unable to  perform  any
obligation due to the lack of available  funds from the operation of the Managed
Outlet,  except as provided  to the  contrary  for the parties to make  payments
required under this Agreement,  including,  without  limitation,  in section 8.1
hereof

     6.2. No Obligation.  Unless otherwise  expressly  specified  herein,  Owner
shall in no event be required to advance any of its funds for the  operation  of
the Managed Outlet, except as provided in section 8.1 hereof.

                                       11
<PAGE>

                                   ARTICLE VII
                               DAILY GRILL LICENSE

         7.1  Definitions.  In addition to the  definitions  set forth elsewhere
herein, the terms set forth in this Article VII will have the meanings set forth
below:

          A. "License  Rights" mean,  collectively,  the Operating  System,  the
     Existing Marks, and the Marks defined in B below.

          B.  "Marks"  mean,  collectively,  the  Existing  Marks and such other
     tradenames,  service  marks,  logo types,  trade symbols,  emblems,  signs,
     logos, insignias,  trademarks, designs, patents and copyrights as Operator,
     Affiliate and/or GCI owns or may hereafter  acquire,  develop,  or adopt or
     designate for use in conjunction with the Operating System.

         7.2.  License and Use. Upon the terms and  conditions set forth herein,
Operator grants to Owner, and Owner accepts from Operator,  the right,  license,
and privilege of utilizing the License Rights during the Term solely and only in
connection with operation of the Managed Outlet and the Hotel and with reference
to any use of the License  Rights not in the ordinary  course of business of the
Hotel, only in such manner as Operator approves in writing.  Owner will not make
or authorize any direct or indirect use of any of the License  Rights other than
directly in connection  with operation of the Managed Outlet and the Hotel,  and
with  reference to any use of the License  Rights not in the ordinary  course of
business of the Hotel, only in such manner as Operator approves in writing.  The
Operator  hereby  approves the use by Owner in the Hotel of signs,  pictures and
posters  advertising  the presence of the Managed  Outlet in the Hotel,  and the
inclusion in Hotel  advertising  and  promotional  materials of reference to the
Managed  Outlet,   provided  such  signs,  pictures,   posters  advertising  and
promotional  material  is in keeping  with the quality of a Daily Grill and have
been  approved in writing in advance by Operator,  which  approval  shall not be
unreasonably  withheld or delayed. The license granted hereby shall be effective
only  during  the Term of this  Agreement  and  shall  automatically  end on the
expiration or earlier termination of this Agreement.

         7.3.  Reservation  of Rights.  Owner  acknowledges  and agrees that the
License  Rights  shall at all times  during  the Term be the sole and  exclusive
property of Operator, except for any equipment, equipment design and inventories
falling  within the  definition of Existing Marks (as defined in Recital D) that
belongs  to Owner  as long as all  noticeable  physical  proprietary  Marks  are
removed by Owner when this Agreement is terminated.  Operator  expressly retains
and  reserves all rights in and to each of the License  Rights,  subject only to
the  rights  specifically  granted  to Owner in this  Agreement.  Owner  further
acknowledges  and agrees that it has been granted the use of the License  Rights
solely for the  duration  of the Term and only in  conjunction  with the Managed
Outlet and the Hotel, and that nothing in this Agreement is intended nor does it
convey  any  transfer  or sale to Hotel of any of the  License  Rights.  Nothing
contained in this Agreement shall be construed to prevent Operator from granting
any other  licenses for the use of any or all of the License Rights at any other
location, or from utilizing any of the License Rights in any manner, whatsoever;
provided,  however,  that (a)  Operator  shall not  license or operate any Daily
Grill  restaurant  located within 0.5 miles of the Hotel,  or (b) Operator shall
not use the  License  Rights  in such a way as could  materially  and  adversely
affect  Owner or the Hotel.  Owner  acknowledges  that it will not  acquire  any
rights  whatsoever in any goodwill and/or  proprietary  marks of Operator and/or
GCI,  including  any of the  License  Rights,  as a result  of the  Hotel's  use
thereof,  except as  specifically  set forth herein.  Owner agrees that it shall
not,  during the Term or thereafter,  take any actions that encumber or transfer
the ownership by Operator and/or GCI of such  proprietary  marks,  including the
License  Rights or the  validity  thereof;  provided,  however,  that  Owner may
encumber its interest under this Agreement without the consent of Operator.

                                       12
<PAGE>

         7.4 Limitation on Use. Owner agrees at all times during the Term to use
the License Rights only in conjunction  with the Hotel and Managed Outlet and in
the specific manner provided herein.

                                  ARTICLE VIII
                        WORKING CAPITAL AND BANK ACCOUNTS

         8.1.  Working  Capital.  Operator shall provide a sufficient  amount of
initial working capital for the Managed Outlet,  as determined in the reasonable
discretion  of Owner and Operator  (the  "Initial  Working  Capital"),  which is
included in Pre-Opening Costs and which may include opening inventory purchases,
and such Initial  Working  Capital may be funded from the initial Total Revenues
from the  Managed  Outlet  to the  extent  not paid  out of  Pre-Opening  Costs.
Thereafter,  funds sufficient in amount to constitute normal working capital for
the  uninterrupted  and efficient  operation of the Managed Outlet, in an amount
approved by the parties and contained in the Budget,  shall be  maintained  from
Total Revenues.  If during a month there is insufficient  Working Capital to pay
for Operating  Expenses,  excluding the Operator Fees,  Owner Priority and other
deferred  fees and payments to Operator or Owner,  then each party agrees to pay
for one-half of the required Working Capital to pay for such Operating  Expenses
and such payment  shall be made by each party within ten (10) days after request
by Operator and approved by Owner (such  payment by each party shall be referred
to herein as the "Working  Capital  Advance").  Notwithstanding  anything to the
contrary in this Agreement,  all Working  Capital  Advances shall be repaid on a
prorata  basis to each party out of Total  Revenues as an Operating  Expense and
such payment  shall be made prior to the payment of the  Operator  Fees or Owner
Priority and other deferred fees and payments to Operator or Owner.

         8.2.  Agency  Account and FF&E Reserve  Account.  All funds received by
Operator in the  operation  of the Managed  Outlet,  including  working  capital
furnished by Owner,  shall be deposited in a special account or accounts bearing
the name of the Managed Outlet (the "Agency  Account") in such federally insured
bank,  savings and loan or trust  company as may be  selected  by  Operator  and
reasonably approved by Owner. Any successor or substitute bank, savings and loan
or trust company shall be selected in the same manner.  From the Agency Account,
Operator  shall pay all Operating  Expenses (as  hereinafter  defined) and other
amounts required to be paid by Operator under this Agreement. In addition to the
Agency  Account,  an account shall be established  at the same  institution as a
reserve for  replacements,  substitutions  and  additions to the FF&E (the "FF&E
Reserve Account") as provided in Article XII hereof.

         8.3 Use of the  Accounts.  The  Agency  Account  and the  FF&E  Reserve
Account  shall be in the name of  Operator as agent for Owner and shall be under
the control of Operator. Checks or other documents of withdrawal shall be signed
only by representatives of Operator, provided that such representatives shall be
bonded or otherwise  insured in a manner  reasonably  satisfactory to Owner. The
premiums for bonding or other insurance shall be an Operating Expense except for
premiums  for  bonding  off-site  executive  employees  of  Operator.  Upon  the
expiration or termination of this Agreement, all remaining amounts in the Agency
Account and the FF&E Reserve Account after satisfying the obligations  hereunder
to Operator shall be transferred to Owner.

                                       13
<PAGE>
                                   ARTICLE IX
                     BOOKS, RECORDS AND STATEMENTS; BUDGETS

     9.1.  Books and Records.  Operator  shall keep full and  accurate  books of
account and other records reflecting the results of the operation of the Managed
Outlet in accordance  with GAAP, or in such other method approved by each party.
Except for the books and records which may be kept in Operator's  home office or
other  suitable  location to each party  pursuant  to the  adoption of a central
billing system or other centralized  service, the books of account and all other
records  relating to or reflecting  the operation of the Managed Outlet shall be
kept  at  the  Managed   Outlet  and  shall  be   available  to  Owner  and  its
representatives,  at Owner's  expense,  at all reasonable times for examination,
audit, copy,  inspection and transcription.  All of such books and records shall
be the property of Owner.  Upon any termination of this  Agreement,  all of such
books and records shall  thereafter  be available to Operator at all  reasonable
times for inspection, audit, examination and transcription for a period of three
(3) years.

     9.2.  Monthly  Reports.  Operator shall deliver to Owner within thirty (30)
days  after  the end of each  period  the  following  items  (collectively,  the
"Monthly Reports"):

                  A.       An income and expense statement for such month; and

                  B. Such other monthly reports as Owner may reasonably  request
         and as are  customarily  provided  by  managers  of similar  restaurant
         facilities in the area of the Hotel or if not  customarily  provided by
         managers of similar restaurant  facilities,  Operator will provide such
         additional  reports at Owner's  expense  (not to exceed the actual cost
         incurred by Operator to provide such report).

The Monthly  Reports shall be prepared in accordance with the GAAP or such other
method  approved by each  party.  Owner  agrees that the Monthly  Reports may be
prepared on a consistent  basis for periods other than one month (an "Operator's
Reporting Period").

     9.3. Annual Reports.  Year-end financial  statements for the Managed Outlet
shall be prepared  by  Operator  and, if  requested  by Owner,  certified  by an
independent  certified  public  accountant  selected by Operator and approved by
Owner as an  Operating  Expense;  however,  Owner may require  that the year end
financial  statements be certified by an  independent  certified  public account
selected by Owner without Operator's approval and the cost of such certification
shall be at Owner's expense.  Operator shall cooperate in all respects with such
accountant in the preparation of such statements.

     9.4.  Budgets.  On or  before  December  1 of each  year  during  the Term,
Operator  shall  submit to Owner for the next  fiscal year the  following  items
(collectively, the "Budgets"):

          A. An  operating  budget (the  "Operating  Budget")  setting  forth in
     reasonable  line-item  detail the projected income from and expenses of all
     aspects of the operations of the Managed Outlet;

          B. A capital budget (the "Capital Budget") setting forth in reasonable
     line-item detail proposed capital projects and expenditures for the Managed
     Outlet including but not limited to FF&E expenditures;

          C. A cash flow  forecast (the "Cash Flow  Forecast")  setting forth in
     reasonable  line-item detail, the proposed cash flow for the managed Outlet
     for the next year;

                                       14
<PAGE>

          D. Such other reports or projections  as Owner may reasonably  request
     and  as  are  customarily   provided  by  managers  of  similar  restaurant
     facilities in the geographical location of the Hotel.

The Budgets shall be prepared in accordance  with standard  financial  reporting
and  budgeting  practices  consistent  with other  Daily Grill  operations,  but
subject to the reasonable approval of Owner.

     9.5.  Budget  Operation.  Upon  approval of the Budgets by Owner,  Operator
shall cause the Managed Outlet to be operated  substantially  in accordance with
the Budgets. Nothing in this Section 9.5 shall be deemed in any way to limit the
provisions of Article VI above.

     9.6.  Temporary Budget  Operation.  If the Budgets (or any component of the
Budgets),  have  not  been  approved  by Owner  prior  to the  first  day of any
applicable fiscal year, then, until approval of the Budgets (or such components)
by Owner,  Operator shall cause the Managed Outlet to be operated  substantially
in accordance  with the such prior year's Budgets except for, or as modified by,
(a) those components of such Budgets for the applicable  fiscal year approved by
Owner, (b) the mandatory  Operating Expenses which shall be paid as required and
(c) the emergency Operating Expenses which shall be paid as required.

                                    ARTICLE X
                           MANAGEMENT AND LICENSE FEES
                       AND PAYMENTS TO OPERATOR AND OWNER

         10.1.  Operator Fees.  Subject to the repayment of all Working  Capital
Advances made by each party, Operator shall receive, on a monthly basis from and
after the  completion  of the  Initial  Remodel and the date that  Operator  has
opened for business to the general public and continuing until the expiration or
earlier  termination of the Term, the following fees to be distributed  from the
Agency Account for services rendered under this Agreement:  (i) a management fee
(the  "Management  Fee") equal to 4% of Total  Revenues,  and (ii) a license fee
(the  "License  Fee")  equal to 2% of Total  Revenues.  For the  purpose of this
Agreement,  the  combined  Management  Fee and  License  Fee shall be defined as
"Operator  Fees".  If there is not sufficient  Net Operating  Income (as defined
herein) to pay the Operator Fees, the unpaid fees will not be then paid and will
be deferred for future payment without  interest  ("Deferred  Operator Fees") as
provided for herein.

         10.2 Owner Priority. Subsequent to the payment of the Operator Fees and
any Deferred  Operator Fees (if any),  Owner shall receive  $27,125 per month or
$325,500 per year ("Owner  Priority").  If there is not sufficient Net Operating
Income to pay the Owner  Priority  in any  month,  the  unpaid  amount  shall be
deferred for future payment  without  interest  ("Deferred  Owner  Priority") as
provided for herein.

         If at any time  following  completion  of the first year of  operation,
there is not  sufficient  Net  Operating  Income  (before  payment  of the Owner
Priority)  in any  month to pay the  Owner  Priority,  Operator  will  defer its
Management  Fee for that month to the extent of any  shortfall in Net  Operating
Income available to pay the Owner Priority ("Operator Shortfall  Payment").  The
Operator  Shortfall  Payment  shall be added to the then current  balance of the
Deferred Operator Fees, same to be paid as provided for herein.

                                       15
<PAGE>

         10.3.  Incentive Fee and Additional  Payment.  Out of the Net Operating
Income for each month,  Operator  (in  addition to the  Operator  Fees) shall be
entitled to 25%  ("Operator  Incentive  Fee") and Owner shall be entitled to 75%
("Owner Additional  Payment") of the Net Operating Income (as defined in Section
10.3) for such monthly  basis.  The payments  hereunder  shall not be made until
there is $50,000.00  in working  capital  maintained  in the Agency  Account and
after payments are made to the FF&E Reserve Account.  The payments to each party
hereunder  will be made  within 30 days after the end of each month based on the
Net  Operating  Income and payments  referred to above for the prior month.  The
payments under this section are subject to an annual  reconciliation as provided
in Section 10.5 below.

                  As long as there is any Owner Additional  Development Cost (as
defined  within  Exhibit B of this  Agreement)  outstanding,  then the  Operator
Incentive  Fee will be reduced from 25% to 20%; the 5% reduction in the Operator
Incentive  Fee will be applied to repay the then  outstanding  Owner  Additional
Development  Cost  without  interest.  Once the entire  then  outstanding  Owner
Additional  Development  Cost is  repaid,  the  Operator  Incentive  Fee will be
increased to 25% of Net Operating Income.

         10.4.  Payments.  In each month during the Term, Operator shall be paid
out of the Agency Account the Operator Fees and any Deferred  Operator Fees, and
Owner shall be paid out of the Agency  Account the Owner  Priority and any Owner
Deferred Priority for the preceding month, as determined from the monthly income
and expense  statement  approved by each party.  The  foregoing  payments are in
addition to the payments  payable under Section 10.3 above.  Such Payments shall
be made by Operator upon  delivery of the income and expense  statement for such
month showing the computation of Total Revenues and Operating  Expenses for such
month.  Such statement and payments due the parties hereunder shall be delivered
by  Operator  within  thirty  (30) days after the end of each month and shall be
based on the Net Operating  Income and payments  referred to above for the prior
month.

         10.5. Annual Adjustments.  Within sixty (60) days after the end of each
fiscal  year and  following  receipt by Owner of the  annual  audit set forth in
Section 9.3 (which must be done within said 60 day period),  an adjustment  will
be made,  if  necessary,  based on the audit such that  Operator and Owner shall
have received the accurate amount due under this Agreement for such fiscal year.
Within  thirty (30) days of receipt by Owner and  Operator of such audit,  Owner
and  Operator  shall either (a) place in the Agency  Account any excess  amounts
Operator or Owner may have received  during such calendar year or (b) pay out of
the Agency Account any amount due a party for such period.  At the expiration or
earlier termination of this Agreement, all remaining funds in the Agency Account
shall be promptly  transferred  to or as  directed by Owner after all  Operating
Expenses and sums due the Operator and Owner have been paid.

                                   ARTICLE XI
                               CERTAIN DEFINITIONS

For purposes of this  Agreement,  the following  terms shall have the meaning as
described below:

         11.1.    Definitions.
                  -----------

                                       16
<PAGE>

                  A. Total  Revenues.  The term "Total  Revenues" shall mean all
income, revenue and proceeds in the broadest sense, resulting from the operation
of the Managed  Outlet and all of its  facilities  (net of rebates,  refunds and
overcharges  of revenues  not known at the time of sale but  adjusted at a later
date) which are properly  attributable under the Uniform System to the period in
question.  Subject to Section  11.1B,  Total  Revenues  shall  include,  without
limitation, all amounts derived from:

          (i) The rentals of banquet or other facilities of the Managed Outlet;

          (ii) The sale of food and beverage  whether  sold in a bar,  lounge or
     restaurant,  delivered to a guest room, sold through an in-room facility in
     the Managed Outlet or vending  machines in the Managed Outlet,  provided by
     Operator in the banquet room or sold through catering operations;

          (iii) Charges for other Managed Outlet services or amenities;

          (iv) The  proceeds  of  business  interruption  or  similar  insurance
     calculated upon income or similar revenue;

          (v) the gross amount  received by Operator  from all  catering  either
     prepared at the Managed  Outlet or  prepared  elsewhere  pursuant to orders
     received at the Managed Outlet, including, without limitation, all deposits
     to the extent not refunded to customers; and

          (vi) all orders  taken in or from the Managed  Outlet  which  Operator
     would in the normal course of operations credit or attribute to the sale of
     food, beverages, goods, merchandise and other items and services sold in or
     at the Managed Outlet even though such orders may be filled elsewhere.

          B. Exclusions from Total Revenues. Total Revenues shall not include:

          (i) Sales or use taxes or similar governmental  impositions  collected
     by Owner or Operator;

          (ii) Tips, service charges and other gratuities received by Restaurant
     Employees;

          (iii)  Proceeds of insurance  except for  fidelity  bonds and business
     interruption insurance;

          (iv)  Proceeds  of the sale or  condemnation  of the Hotel or  Managed
     Outlet,  any interest  therein or any other  asset,  or the proceeds of any
     loans or financing;

          (v) Capital contributed to Owner or the Managed Outlet;

          (vi) The  repayment  of any loans or  interest  thereon  made by Owner
     other than in the ordinary course of Hotel operations;

          (vii) amounts attributed to complimentary  meals served or provided to
     employees  of the Managed  Outlet or Hotel,  but nothing  contained in this
     paragraph  shall  obligate  Operator to provide such  complimentary  meals,
     except for meals at a discount as provided in Section 4.1N; or

                                       17
<PAGE>

          (viii)  the  proceeds  from the sale of any  equipment,  furniture  or
     personal property in the Managed Outlet.

     11.2. A. Operating Expenses.  The term "Operating  Expenses" shall mean all
costs and expenses of  maintaining,  conducting and supervising the operation of
the Managed  Outlet and all of its  facilities  which are properly  attributable
under the Uniform  System to the period in question.  Operating  Expenses  shall
include, without limitation:

     (i) The cost of all Operating Equipment and Operating Supplies;

     (ii) Salaries and wages of Restaurant Employees, including costs of payroll
taxes and  employee  benefits.  All  benefits,  including,  without  limitation,
vacation time,  sick leave,  personal  leave,  paid medical and other  benefits,
shall be limited to the actual cost of such  fringe  benefits to the extent such
fringe  benefits  actually  accrue and are then due to such  employees  that are
working at the Managed  Outlet.  The salaries or wages of off-site  employees or
executives of Operator  shall not be an Operating  Expense,  provided that if it
becomes  necessary  for  an  off-site  employee  or  executive  of  Operator  to
temporarily  perform  services  at  the  Managed  Outlet  of a  nature  normally
performed by  Restaurant  Employees,  his salary  (including  payroll  taxes and
employee  benefits) for such period only as well as his traveling expenses shall
be an Operating Expense;

     (iii) The cost of all other goods and services  obtained in connection with
the operation of the Managed  Outlet  including,  without  limitation,  heat and
utilities, laundry, landscaping and exterminating services and office supplies;

     (iv) The cost of all repairs to and maintenance of the Managed Outlet;

     (v)  Insurance  premiums (or the allocable  portion  thereof in the case of
blanket  policies) for all insurance  maintained  under Article XIII (other than
insurance  covering  physical  damage to the Hotel) and losses  incurred  on any
self-insured risks including the amount of any "deductible" payments,  except as
provided in Article XV hereof  regarding  the costs of  restoration  paid by any
party;

     (vi) All taxes,  assessments,  permit fees,  inspection fees, and water and
sewer charges and other charges  (other than income or franchise  taxes) payable
by or  assessed  against  Owner with  respect to the  operation  of the  Managed
Outlet,  excluding  Property Taxes (as defined in Section 14.1),  but including,
without limitation, all personal property taxes;

     (vii) Fees of any  independent  certified  public  accountant  for services
directly  related to the operation of the Managed Outlet and its facilities,  to
the extent such services are required under this Agreement;

     (viii) All actual  expenses  for  advertising  the  Managed  Outlet and all
expenses of sales promotion and public relations activities;

     (ix) All out-of-pocket  expenses and disbursements  reasonably  incurred by
Operator, pursuant to, in the course of, and directly related to, the management
and operation of the Managed Outlet under this Agreement.  Without  limiting the
generality of the  foregoing,  such charges may include all  reasonable  travel,
telephone,  telegram, facsimile, air express and other incidental expenses, but,
except as  otherwise  provided in this  Agreement,  shall not include any of the
regular  expenses of the corporate  offices  maintained by Operator,  other than
offices  maintained  at the  Managed  Outlet for the  management  of the Managed
Outlet.  Operator  shall  maintain and make available to Owner invoices or other
evidence supporting such charges;

                                       18
<PAGE>

     (x) The License Fee payable to Operator;

     (xi) The Management Fee payable to Operator;

     (xii) Any Deferred Operator Fees;

     (xii) The Owner Priority payable to Owner;

     (xiii) Any Deferred Owner Priority payable to Owner;

     (xiv) Any other item specified as an Operating Expense in this Agreement;

     (xv) and payments to the FF&E Reserve Account; and

     (xvi) Any other cost or charge  classified  as an  Operating  Expense or an
Administrative and General Expense under the Uniform System unless  specifically
excluded under the provisions of this Agreement.

     B.   Exclusions  from  Operating  Expenses.  Operating  Expenses  shall not
          include:

     (i) Amortization and depreciation;

     (ii) the making of or the repayment of any loans or any interest thereon;

     (iii) The costs of any  alterations,  additions or  improvements  which for
Federal income tax purposes must be  capitalized  and amortized over the life of
such alteration addition or improvement.

     (iv) federal,  state and local income taxes,  franchise  taxes,  franchise,
estate,  gift,  inheritance,  successorship,  capital  levy,  capital  stock  or
transfer taxes, excess profits or other similar tax, and any fines, interest and
penalties thereon for failure or late payment;

     (v) Except for  violations  under  Section  11.2B(vi)  below which shall be
governed by said section,  costs or expenses (including legal fees) incurred due
to the violation by Operator, its employees,  agents and/or contractors,  of any
terms and conditions of this Agreement;

 (vi) costs or  expenses  (including  fines,  penalties  and legal  fees) in
excess of $25,000.00  in the aggregate  each calendar year that are incurred due
to the violation by Operator or any of its employees,  agents and/or contractors
of any applicable law, rule, regulation and code of any federal,  state, county,
municipal or other governmental  authority having  jurisdiction over the Managed
Outlet that would not have  incurred but for such  violation  by  Operator,  its
employees  agents and/or  contractors;  it being intended that Operator shall be
responsible  for the costs in excess of  $25,000.00 in the aggregate of all such
costs and expenses  each calendar year  resulting  from its own violation  laws,
rules,  regulations and codes as same shall pertain to the Managed Outlet or the
operation of the business therein; however, up to $25,000.00 in the aggregate of
all such  costs  and  expenses  each  calendar  year  shall be  included  in the
Operating Expenses for the particular year in question; the $25,000.00 threshold
may be used by payment of the applicable  deductible under an employer liability
insurance policy, but subject to the foregoing annual limitation;

                                       19
<PAGE>

     (vii)  payments  of  principal,  finance  charges  or  interest  on debt or
amortization  on any line of credit,  financing or other  indebtedness  or lease
with Operator or any of its affiliates with any other party;

     (viii) costs to the extent for which  Operator is actually  paid through or
reimbursed by insurance or other means of recovery;

     (ix)  contributions to charitable  organizations not to exceed $10,000 each
fiscal year;

     (x) any other cost or expense which,  under generally  accepted  accounting
principles,  consistently  applied,  would  not  be  considered  to be a  normal
maintenance or operating  expense of the Premises in the Uniform System,  or not
otherwise included within the definition of Operating Expenses above.

     11.3.  Fiscal Year.  "Fiscal year" shall mean each calendar year or partial
calendar  year  within the Term unless  Owner and  Operator  otherwise  agree in
writing.

     11.4. Net Operating  Income.  "Net  Operating  Income" for any period shall
mean the amount,  if any, by which Total Revenues for such period exceed the sum
of the Operating Expenses as defined above.

     11.5 Uniform  System.  "Uniform  System" shall mean the Uniform  System for
Accounts for Restaurants.

                                   ARTICLE XII
                           FF&E RESERVE AND SURRENDER

         12.1.  Payments for FF&E Reserve  Account.  During each calendar  year,
Operator shall,  for each calendar month included in each such year and from the
Total Revenues, pay into the FF&E Reserve Account one-half of one percent (1/2%)
of the applicable Total Revenues for such period.

         12.2.  Use of FF&E  Funds.  All  funds  in the  FF&E  Reserve  Account,
together with any interest  earned  thereon and the proceeds of any sale of FF&E
(which  proceeds  shall be deposited in the FF&E Reserve  Account) shall be used
solely for purposes of replacing or refurbishing the FF&E in accordance with the
applicable  Capital Budget. The moneys in such FF&E Reserve Account shall be the
property of Owner.  Interest  or other  income  earned  during any period on the
amounts in such FF&E Reserve  Account shall remain part of the funds for FF&E in
the FF&E  Reserve  Account.  To the extent  that Owner  shall be required to pay
income  taxes on such  interest,  the same  shall be  payable  out of such  FF&E
Reserve  Account as a reimbursement  but not as part of the Owner  Priority.  In
addition to the monthly payments into the FF&E Reserve Account during each year,
all  proceeds  from the sale of  furniture,  fixtures,  and  equipment no longer
needed for the operation of the  restaurant at the Managed  Outlet shall also be
paid into FF&E Reserve  Account.  Operator  may  withdraw  from the FF&E Reserve
Account only the amounts required to make all replacements of, and additions to,
the furniture,  fixtures, and equipment to the extent included in the applicable
approved  Budget or  otherwise  approved  in writing by Owner,  and the items of
furniture,  fixtures,  and  equipment  so replaced or added shall be and become,
forthwith upon acquisition and installation,  and without further act or action,
the property of Owner and part of the Managed Outlet.  Any amounts  remaining in
such FF&E Reserve  Account at the termination or expiration of the Term shall be
paid by Operator to Owner.

                                       20
<PAGE>

         12.3  Personal  Property.  Except for the  License  Rights,  all of the
furniture, fixtures, equipment, supplies, trade fixtures, consumable items, food
and beverage inventory, kitchen equipment and other personal property located in
or about the Managed Outlet from time to time,  including,  without  limitation,
all additions to, and replacements of, such personal property, shall be the sole
property of Owner (the  "Personal  Property").  Operator shall not remove any of
the Owner's Personal  Property from the Managed Outlet without the prior written
approval of Owner,  except for the purpose of repair or replacement,  and in the
event of repair,  upon completion of said repair,  the same shall be immediately
returned to the Managed  Outlet.  Operator  shall, at all times during the Term,
keep and maintain the Owner's  Personal  Property in at least the same condition
as when received from Owner,  reasonable wear and tear excepted.  If any item of
such Owner's  Personal  Property becomes no longer fit for the purpose for which
it was originally  intended,  then Operator shall replace such Personal Property
with property of at least  equivalent value and function to the extent funds are
available in the FF&E Reserve Account,  and any such replacement  property shall
thereafter  constitute Owner's Personal Property. In addition, if at any time it
becomes  necessary to purchase any additional  furniture,  fixtures,  equipment,
supplies, trade fixtures, consumable items, food and beverage inventory, kitchen
equipment  or other  personal  property  to  permit  the  continued  first-class
operation  of the  Managed  Outlet in  accordance  with the  provisions  of this
Agreement,  then  Operator  shall  purchase  such  items  free of all  liens and
security interests,  and such items shall thereafter constitute Owner's Personal
Property.  At the expiration or termination  of this  Agreement,  Operator shall
cooperate with Owner to cause the Liquor  License to be transferred  exclusively
to Owner or Owner's designee.

                                  ARTICLE XIII
                                    INSURANCE

     13.1.  Types of Insurance.  Operator shall arrange for and maintain  during
the Term, the following  insurance in connection  with the Managed  Outlet,  the
cost of which shall be an Operating Expense:

                  A. Insurance  covering the Restaurant,  the  Installations and
         the FF&E on an  all-risk,  broad form basis,  against such risks as are
         customarily covered by such insurance  (including,  without limitation,
         boiler and machinery  insurance,  but excluding  damage  resulting from
         earthquake  (unless required by Owner),  war, and nuclear  energy),  in
         aggregate  amounts  which  shall be not less than the full  replacement
         cost of the Restaurant, the Installations and the FF&E

                  B. Commercial  general  liability  insurance  (including broad
         form  endorsement)  with a  combined  single  limit  of not  less  than
         $10,000,000  for each  occurrence  for liability for (i) bodily injury,
         (ii) death, (iii) property damage, (iv) assault and battery,  (v) false
         arrest, detention or imprisonment or malicious prosecution, (vi) libel,
         slander,  defamation  or  violation  of the  right  of  privacy,  (vii)
         wrongful  entry  or  eviction,  or  (viii)  liquor  law  or  dram  shop
         liability;

                                       21
<PAGE>

          C. Worker's  compensation  insurance or insurance  required by similar
     employee benefit acts,  including employers liability and minimum limits of
     $1,000,000;

          D. Fidelity bonds covering Restaurant  Employees at the Managed Outlet
     (other than  executive  employees of  Operator)  or in job  classifications
     normally  bonded in other  restaurants  it manages in the United  States or
     otherwise required by law, but in any event providing coverage in an amount
     approved by Owner;

          E.  Business  interruption  insurance  covering  loss of income  for a
     minimum period of six (6) months  resulting from  interruption  of business
     caused  by  the  occurrence  of  any of the  risks  insured  against  under
     "all-risk" policy referred to in Section 13.1A; provided, however, that for
     such  insurance to constitute an Operating  Expense,  such  insurance  must
     provide coverage for the amount of the Operator Fees,  Owner's Priority and
     Owner's Additional Payment;

          G. Such other or additional insurance as may be (i) required under the
     provisions  of any  applicable  mortgage,  deed of trust or ground lease or
     franchise  agreement  (collectively,  "Major  Agreements") now or hereafter
     encumbering  the Hotel to the  extent  such  insurance  is  allocable  to a
     restaurant in the Hotel or (ii) customarily carried by prudent operators of
     first-class  restaurants in the geographic area of the Managed Outlet,  but
     in any event approved by Owner.

         13.2.  Named Insureds.  All insurance  policies other than the property
damage  insurance  under  Section 13.1A above shall name Operator as the insured
party. The property damage insurance policy under Section 13.1A above shall name
Owner as the  insured  party  and all other  insurance  policies  shall  name as
additional  insures Owner and such other parties as may be required by the terms
of the Major Agreements as appropriate.

         13.3.  Requirements.  All insurance  policies shall be in such form and
with  such  companies  as shall be  reasonably  satisfactory  to Owner and shall
comply with the requirements of any Major  Agreement.  Insurance may be provided
under blanket or master policies covering one or more other restaurants operated
by Operator or owned by Owner,  subject to the approval of Owner. The portion of
the premium for any blanket or master  policy  which is allocated to the Managed
Outlet  as an  Operating  Expense  or Fixed  Charge  shall be  determined  in an
equitable manner by Operator and reasonably approved by Owner.

         13.4.  Notice and  Certificates.  All insurance  policies shall specify
that they  cannot be  canceled  or  modified on less than thirty (30) days prior
written  notice to both Owner and Operator and any  additional  insures (or such
longer period as may be required under a Major Agreement),  except ten (10) days
for  non-payment  of premium.  Certificates  of insurance  shall be delivered by
Operator to Owner at  commencement  of the Term and  certificates  of renewal at
least thirty (30) days prior to the expiration of each policy. If Operator fails
to obtain any insurance required of it under the terms of this Agreement,  Owner
may, at its option,  but is not obligated to, obtain such insurance and the cost
thereof  shall be  immediately  paid out of the  Agency  Account  to Owner as an
Operating Expense.

         13.5. Waiver of Subrogation.  All insurance policies shall provide that
the insurance company will have no right of subrogation against Owner,  Operator
or any party to a Major Agreement or any of their respective agents,  employees,
partners, members, officers,  directors or beneficial owners. Owner and Operator
release each other, and their respective  authorized  representatives,  from any
claims for damage to the Managed Outlet and the Hotel and other  improvements in
which the Managed Outlet are located, and to the furniture,  fixtures, and other
business personal  property,  Operator's  improvements and alterations of either
Owner or Operator, in or on the Managed Outlet and the Hotel,  including loss of
income,  that are caused by or result from risks  insured or required  under the
terms of this  Agreement  to be insured  against  under any  property  insurance
policies  carried or required to be carried by Operator  under this Agreement or
carried  by Owner for the  Hotel.  Each party  shall  cause each such  insurance
policy obtained by it to provide that the insurance company waives all rights of
recovery by way of subrogation  against either party in connection with any such
damage covered by such policy.

                                       22
<PAGE>

         13.6.  Proceeds.  The  proceeds  of any  insurance  claim  (other  than
proceeds  payable to third  parties  under the terms of the  applicable  policy)
shall be paid into the Agency Account unless otherwise  required by the terms of
a Major  Agreement;  except that the proceeds from any claim for property damage
to the Managed Outlet or any furnishings, equipment or property therein shall be
held by Owner and be made  available for  restoration  of the Managed  Outlet so
long as this Agreement is not terminated as provided in Article XV below.

                                   ARTICLE XIV
                                 PROPERTY TAXES

         14.1.  Property  Taxes.  Owner  shall  pay all real  estate  taxes  and
assessments  with respect to the Hotel without  allocation to the Managed Outlet
("Property Taxes").  However,  any Property Taxes attributed to the improvements
of the  Managed  Outlet  and any  personal  property  taxes  for any  furniture,
fixtures,  equipment  and  personal  property  in the  Managed  Outlet  will  be
considered  as an Operating  Expense of the Managed  Outlet.  To the extent that
Owner and not  Operator is billed for such taxes  referred  to in the  preceding
sentient,  Operator  shall  pay to Owner the  amount of the tax as an  Operating
Expense

         14.2.  Contests.  Owner  may  contest  the  validity  or  amount of any
Property Tax (a "Tax Contest"), and Operator agrees to cooperate with Owner in a
Tax Contest and execute any  documents or pleadings  required for such  purpose,
provided  that the facts set forth in such  documents or pleadings  are accurate
and that  such  cooperation  or  execution  does not  impose  any  liability  on
Operator.  All costs and expenses  incurred by Owner and Operator in  connection
with a Tax Contest to the extent same are  attributable  to the  improvements of
the Managed Outlet shall be Operating Expenses.

                                   ARTICLE XV
                       DAMAGE OR DESTRUCTION; CONDEMNATION

         15.1.  (A)  Damage to the  Managed  Outlet.  If the  Managed  Outlet is
damaged and suffers (i) an "uninsured  property loss" (as  hereinafter  defined)
that in Owner's  opinion  will cost more than  $300,000 to restore and  Operator
does not agree to pay for the costs in excess of  $300,000  that are not covered
by Operator's or Owner's  insurance as hereinafter  provided in Section 15.1(C),
or (ii) a  property  loss  where such  reconstruction  or repair to the  Managed
Outlet  cannot  be made  under  then  existing  laws,  ordinances,  statutes  or
regulations of any governmental  authority  applicable  thereto (or cannot be so
made with minor and non-material changes to the former condition and form of the
property undamaged or undestroyed,  which for purposes hereof shall mean changes
that will cost in excess of $300,000 to make),  Owner or Operator may  terminate
this Agreement upon written notice to Operator within thirty (30) days following
the casualty. If the Managed Outlet is damaged and suffers an uninsured property
loss equal to or less than  $300,000.00  to  restore or a property  loss that is
fully covered by insurance,  and the  restoration  may proceed under  applicable
law,  then this  Agreement  shall not be  terminated.  . In all events,  a total
destruction of the Managed Outlet by an uninsured  casualty shall terminate this
Agreement.

                                       23
<PAGE>

                  For purposes of this Agreement,  the term "uninsured  property
loss"  shall  mean any  damage or loss  arising  from a peril to the  extent not
covered by the  standard  form of "Special  Causes of Loss" or fire and extended
coverage property insurance policy then carried by Owner or Operator or required
to be carried by Operator under this Agreement.

                  If this Agreement is not  terminated,  Owner agrees to pay for
the first  $300,000.00  of an uninsured  property loss and the amount so paid by
Owner  shall be repaid out of the Total  Revenues  after  payment  of  Operating
Expenses but before any payment of the Operator  Incentive Fee. If the amount of
the uninsured  property loss is more than $300,000.00,  then Operator may elect,
upon  written  notice to Owner  within  thirty  (30) days after the date of such
casualty causing the damage, to pay for such excess uninsured property losses in
which case this Agreement  shall not be  terminated,  but any such payment shall
not be entitled to special  repayment or priority  out of Total  Revenues or Net
Operating  Income.  If Operator  elects to make such  payment,  it shall provide
collateral  or  other  evidence   reasonably   satisfactory   to  Owner  of  the
availability  of such funds within thirty (30) days after  delivering the notice
to Owner of Operator's election to pay such payment.

                  (B)  Damage to the  Hotel.  If the Hotel  (whether  or not the
Managed Outlet is damaged) suffers (a) an uninsured  property loss that in Owner
opinion will cost more than $500,000.00 to restore, or (b) a property loss which
cannot be repaired  within 270 days from the date of the casualty under the laws
and  regulations  of any  governmental  authority,  and in  either  case,  Owner
determines  in its  sole  discretion  that  termination  of  this  Agreement  is
necessary or desirable to facilitate  the  restoration of the Hotel or to pursue
other  development or investment  plans,  then Owner may elect to terminate this
Agreement upon written notice to Operator within ninety (90) days after the date
of such  casualty,  but is such  event,  Owner  shall pay to  Operator  an Early
Termination  Payment  computed in the same manner  provided  under  Section 17.3
hereof unless Owner offers to relocate  Operator to space of comparable size and
with  comparable  frontage on Geary Street,  between Powell and Mason Streets in
San Francisco,  California,  in which case such Early Termination  Payment shall
not be due even if Operator does not elect to manage in such relocated space. In
all events,  a total  destruction  of the Hotel by an uninsured  casualty  shall
terminate  this  Agreement  without  Owner  being  obligated  to pay such  Early
Termination Payment.

                  (C) Abatement and  Restoration.  In the event of a casualty to
the Managed  Outlet or Hotel and this  Agreement is not  terminated  as provided
under Sections 15.1(A) or (B) above,  then this Agreement shall continue in full
force and effect  without any  abatement in the payment of the fees and payments
to the parties  under this  Agreement to the extent such payments are covered by
Operator's  business  interruption or other insurance  carried or required to be
carried under this Agreement.

         To the  extent  there  are  sufficient  insurance  proceeds  and  other
proceeds made by the parties as required  under  Section  15.1(A)  above,  Owner
shall forthwith  undertake to make such repairs to reconstitute the shell of the
Managed Outlet to as near the condition as existed prior to  installation of the
Initial  Remodel and Operator shall undertake to restore and install the Initial
Remodel and subsequent  alterations.  Owner's  restoration  obligation shall not
include  the  repair,   restoration  or   replacement  of  any   alterations  or
improvements  not covered under Owner's  casualty  policy (except as provided in
Section 15.1(A) above) or any of the personal property,  which Operator shall be
solely  responsible  to complete  all work and pay for all costs to restore such
property.  The restoration  obligation of each party is limited to the amount of
the available insurance proceeds plus the applicable  deductible and in the case
of damage to the Managed Outlet, the applicable payments required of the parties
under Section 15.1(A) above.

                                       24
<PAGE>

         15.2.  Taking.  If all or any portion of the Managed Outlet becomes the
subject  of a  condemnation  proceeding  or if  Operator  learns  that  any such
proceeding may be commenced,  Operator shall promptly notify Owner. Either party
may  terminate  this  Agreement on thirty (30) days notice to the other party if
(a) all or substantially all of the Managed Outlet is taken through condemnation
or (b) less than all or substantially  all of the Managed Outlet is taken,  but,
in the  reasonable  judgment of the party  giving the  termination  notice,  the
Managed  Outlet  cannot,  after  giving  effect to any  restoration  as might be
reasonably  accomplished through available funds from the condemnation award, be
profitably operated as a first-class restaurant.

         15.3.   Condemnation   Award.   Any   condemnation   award  or  similar
compensation  shall be the property of Owner,  provided that Operator shall have
the right to bring a separate  proceeding  against the condemning  authority for
any loss, damages and expenses  specifically incurred by Operator as a result of
such condemnation.

                                   ARTICLE XVI
                                EVENTS OF DEFAULT

     16.1. Events of Default. The following shall constitute events of default:

          A. If either  party  shall be in default in the  payment of any amount
     required  to be paid under the terms of this  Agreement,  and such  default
     continues for a period of ten (10) days after written notice from the other
     party;

          B. If either party shall be in default in the performance of its other
     obligations  under this Agreement,  and such default continues for a period
     of thirty (30) days after  written  notice from the other  party,  provided
     that if such default  cannot by its nature  reasonably be cured within such
     thirty-day  period,  an event of default  shall not occur if and so long as
     the defaulting party promptly  commences and diligently  pursues the curing
     of such default;

          C. If either  party  shall (i) make an  assignment  for the benefit of
     creditors,  (ii) institute any proceeding  seeking relief under any federal
     or state  bankruptcy or insolvency  laws,  (iii)  institute any  proceeding
     seeking  the  appointment  of a  receiver,  trustee,  custodian  or similar
     official  for its  business  or assets or (iv)  consent to the  institution
     against  it of any such  proceeding  by any  other  person  or  entity  (an
     "Involuntary Proceeding");

          D. If an  Involuntary  Proceeding  shall be commenced  against  either
     party and shall remain undismissed for a period of sixty (60) days; or

          E. The failure of Operator to observe the minimum  hours of  operation
     required  under this  Agreement,  where such failure  shall  continue for a
     period of one (1) day after written  notice thereof from Owner to Operator.
     For purposes of this subsection  (E),  Operator shall not be deemed to have
     cured a default  resulting from  Operator's  failure to observe the minimum
     hours of operation  if Operator  shall,  within  thirty (30) days after any
     purported  cure,  again fail to observe  such minimum  hours of  operation.
     Notwithstanding   the  foregoing,   Operator  shall  have  the  ability  to
     temporarily  cease  operations,  in  whole  or in  part,  due to any of the
     following  and such  closures  shall not  constitute  a default  under this
     Section  16.1E:  (1) any damage or  destruction  due to a  casualty  of the
     Managed  Outlet that  prevents the  operation of the  business;  or (2) any
     event beyond the reasonable  control of Operator  (except for any financing
     contingency)  that prevents the  operation of the business,  in whole or in
     part, provided that Operator provides written notice to Owner of such event
     and the length of the closure  promptly  following  the  occurrence of such
     event,  which shall be subject to the reasonable  approval of Owner. To the
     extent any of the foregoing  events occur,  Operator  shall use  reasonable
     efforts to continue operating on a limited basis.

                                       25
<PAGE>

     16.2. Termination.  If any event of default shall occur, the non-defaulting
party  may  terminate  this  Agreement  on five (5)  days  prior  notice  to the
defaulting party. In the event of any default by Operator, Operator acknowledges
and agrees that Owner shall have the right, but not the obligation,  to elect to
treat the  relationship  hereunder  as a  tenancy,  in Owner  sole and  absolute
discretion, and seek to regain possession of the Managed Outlet through unlawful
detainer proceedings in accordance with applicable law.

     16.3.  Cumulative  Remedies.  The right of termination set forth in Section
16.2 shall not be in substitution  for, but shall be in addition to, any and all
rights and remedies for breach of contract available in law or at equity.

     16.4. Force Majeure.  Neither party shall be deemed to be in default of its
obligations  under this Agreement if and to the extent that such party is unable
to perform such  obligation as a result of fire,  earthquake or other  casualty,
act of God, strike or other labor unrest, unavailability of materials, war, riot
or other civil  commotion  or any other  cause  beyond the control of such party
(which  shall not  include  the  inability  of such party to meet its  financial
obligations).  Any party  claiming  an  inability  to perform  due to any of the
causes  referred to in this paragraph  shall notify the other party of the event
causing such inability to perform promptly after such event occurs.

                                       26
<PAGE>

                                  ARTICLE XVII
                                   TERMINATION

         17.1.  Minimum  Payments to Owner.  For the purpose of this  Agreement,
Reference Year shall mean each successive twelve (12) month period subsequent to
the first anniversary of the Effective Date. Owner shall have the right, but not
the  obligation,  to terminate this Agreement upon sixty (60) days prior written
notice to Operator  (a  "Termination  Notice"),  such  Termination  Notice to be
delivered  within  fifteen (15) days after the delivery of the annual report for
such Reference Year (as hereinafter  defined)  prepared  pursuant to Section 9.3
above,  if Owner did not receive  the full Owner  Priority  with  respect to any
Reference Year; provided,  however,  that such Termination Notice shall be of no
force or effect if (i) prior to the  expiration  of such fifteen (15) day period
Operator  delivers to Owner a written  notice  stating that Operator will pay to
Owner within thirty (30) days an amount (the "Cure  Payment")  equal to the full
Owner  Priority for such  Reference  Year less any amounts  received by Owner on
account of such Owner  Priority  with  respect to such  Reference  Year and (ii)
within thirty (30) days  thereafter  Operator  actually pays the Cure Payment to
Owner.  Any Cure Payment made by the Operator to Owner shall not be added to the
balance of the  Deferred  Operator  Fees for the  purpose of this  Agreement  or
otherwise paid as an Operating  Expense or from Total Revenues.  Notwithstanding
the foregoing, after the end of the second anniversary of the Effective Date, if
during any two consecutive Referenced Years, Operator has made a Cure Payment to
Owner, then if during the following Referenced Year a Cure Payment is offered to
be made by  Operator,  Owner  may elect not to  accept  such  Cure  Payment  and
terminate this Agreement  after  providing at least 30 days prior written notice
to Operator,  in which case a termination payment of $250,000.00 will be paid by
Owner to Operator within 30 days after Operator vacates and delivers  possession
of the Managed Outlet and all applicable operating and liquor licenses to Owner.

         17.2 Union  Activity.  If picket lines or boycotts are  established  or
conducted or carried out against  Operator or its employees for more than thirty
(30) consecutive days in an effort to compel Operator to hire union employees at
the  Managed  Outlet  or have  Restaurant  Employees  at the  Managed  Outlet be
represented  by a union,  Operator  shall  have  the  right  to  terminate  this
Agreement  upon  written  notice  to  Owner  and  the  effective  date  of  such
termination  shall be 270 days after  Owner's  receipt of such  written  notice.
Owner  shall  have the right to  accelerate  the  effective  date of such  early
termination after providing at least 30 days prior written notice to Operator.

        17.3  Redevelopment.  The  Managed  Outlet is part of a building  where
Owner owns and operates the Hotel.  Owner also owns the building adjacent to the
Hotel by the  corner of Powell  and Geary  Streets  commonly  known as the Gunst
Building, and the building adjacent to the Gunst Building, commonly known as the
Crane Hotel. The Hotel, Gunst Building and the Crane Hotel shall collectively be
referred  to as the  "Project."  If Owner  elects in the future to  demolish  or
substantially  renovate or rehabilitate the Project,  Owner shall have the right
to terminate  this  Agreement  at any time upon giving  Operator at least twelve
(12) months prior written notice of such termination ("Redevelopment Termination
Notice").

                  A. Relocation.  If Owner elects to terminate early as provided
  above,  Owner shall have the right,  in its sole and absolute  discretion,  to
  propose  to  relocate  Operator  within the  Project  to a mutually  agreeable
  location of comparable size to the Managed  Outlet.  If Owner elects to pursue
  such a relocation,  Owner will notify  Operator  within ninety (90) days after
  the  date  Operator  receives  the  Redevelopment  Termination  Notice  of the
  proposed  location  and  size  of  the  relocated   premises  (the  "Relocated
  Premises")  and Operator  shall notify Owner in writing within (60) days after
  receipt of such relocation  notice whether Operator will accept such Relocated
  Premises.  The failure of Operator to provide  such notice  shall be deemed an
  election by Operator not to accept the Relocated Premises.

                                       27
<PAGE>

     (1)  Acceptance.  If Operator  accepts such Relocated  Premises as provided
above, then this Agreement shall be amended by substituting the new location for
the present  Managed  Outlet.  In addition,  Operator shall be  responsible  for
constructing  the  interior  improvements  and moving and  installing  its trade
fixtures to open for  business  at the  Relocated  Premises,  but Owner shall be
responsible  for all  reasonable  and actual costs to complete  such work (which
shall include all equipment, fixtures and sign(s) that cannot be relocated or do
not fit) in the new space,  to move its trade  fixtures to the new space to open
for business at the  Relocated  Premises.  During the time that Operator must be
closed at the original Managed Outlet until it opens at the Relocated  Premises,
all  payments to each party under this  Agreement  to the parties  shall  abate.
Owner will advise  Operator when it must close and vacate the Managed Outlet and
when the  Relocated  Premises  will be  available  to Operator  for  purposes of
preparing the Relocated Premises for opening to the general public.

     (2) Rejection.  If Owner does not propose to relocate  Operator or Operator
does not accept the Relocated  Premises as provided  above,  then this Agreement
shall  terminate  effective  as of  the  effective  date  in  the  Redevelopment
Termination  Notice  and Owner  shall pay to  Operator  the  payment as and when
required in section 17.3B below.

                  B. Early  Termination  Payment.  If Operator is not  relocated
within  the  Project  and this  Agreement  is  terminated,  then  Owner will pay
Operator the Early  Termination  Payment (as hereinafter  defined) within thirty
(30) days  after the  effective  date of such  early  termination  and  provided
Operator has vacated and  surrendered the Managed Outlet and is not otherwise in
default (after notice and the  expiration of the  applicable  cure period) under
this Agreement.  The "Early  Termination  Payment" shall equal the amount of the
(i)  Operator  Fees and  Operator  Incentive  Payment  that would be received by
Operator as projected over the period  following the effective date of the early
termination  until the end of the  Initial  Term (or Option  Term if the minimum
payments of at least  $600,000  have been paid to Owner during each twelve month
period in the 24 month period prior to the date of the Redevelopment Termination
Notice) of this Agreement without such early  termination,  which payments shall
be calculated  based on the average annual Net Operating Income received for the
24 month period  immediately prior to the date of the Redevelopment  Termination
Notice and;  (ii)  discounted  to establish the net present value of future cash
flow over the remaining term of this Agreement at an annual discount rate of 18%
per annum,  which the parties  acknowledge and agree is deemed the discount rate
to reflect the uncertain  nature of future Net Operating Income from the Managed
Outlet.

         17.4  Delays.  Owner  shall  have the right,  in its sole and  absolute
discretion,  to terminate this Agreement upon written notice to Operator without
any liability or obligation to Operator or Owner if any of the following  occur,
and  Operator  shall have the right,  in its sole and  absolute  discretion,  to
terminate  this  Agreement upon written notice to Owner without any liability or
obligation to Owner or Operator only if in cases under subparagraphs (c) and (d)
below :

                  (a) Delivery of Plans.  Operator fails to deliver to Owner for
         its initial  review the Remodel  Plans within sixty (60) days after the
         date this  Agreement  has been  executed by Owner,  as evidenced by the
         date below Owner's signature to this Agreement;

                  (b)      Plan  Check.  Operator  fails  to submit  the Remodel
         Plans to the City of San  Francisco for plan check  within  ninety (90)
         days after the date this  Agreement  has been  executed  by Owner,  as
         evidenced by the date below Owner's signature to this Agreement;

                                       28
<PAGE>

                  (c) Permits.  Operator fails to obtain all applicable building
         permits and other  approvals to construct the Initial  Remodel from the
         City of San  Francisco  within one hundred  eighty (180) days after the
         date this  Agreement  has been  executed by Owner,  as evidenced by the
         date below Owner's signature to this Agreement; or

                  (d)  Liquor  License.  Operator  fails to  obtain  conditional
         approval from the State for  Operator's  liquor  license at the Managed
         Outlet within  ninety (90) days after the date this  Agreement has been
         executed by Owner, as evidenced by the date below Owner's  signature to
         this Agreement.

         17.5  Duties  on  Termination.  Upon  termination  of  this  Agreement,
Operator shall promptly deliver to Owner all books, records,  files,  contracts,
and other documents  relating to the performance of Operator services under this
Agreement and all funds in Operator's  possession belonging to Owner. At no cost
to  Owner,  Operator  shall  also  assign,  transfer,  or  deliver  to Owner all
operating  licenses  and  liquor  licenses  to the  extent  requested  by Owner.
Operator shall,  for a period of ninety (90) days after such  termination,  make
itself  available to consult with and advise Owner  regarding  the operation and
maintenance  of the Managed  Outlet and the transfer of accounts and  accounting
systems at no additional cost or expense to Owner.

                                  ARTICLE XVIII
                                   ASSIGNMENT

         18.1. Consent Required.  Neither entity comprising Operator may suffer,
cause or enter into a Transfer (hereinafter defined),  whether voluntarily or by
operation  of law,  without  the prior  written  consent of Owner,  which may be
denied or  exercised  in  Owner's  sole and  absolute  discretion,  except for a
Permitted  Transfer  (as defined in Section  18.1(b)(1)  below and Transfer to a
Qualified  Operator (as defined in Section  18.1(b)(2) below. Any consent to one
Transfer  shall not be deemed to be a consent to any  subsequent  Transfer.  Any
Transfer  without such consent shall (i) be voidable,  and (ii)  terminate  this
Agreement, in either case, at the option of Owner.

                  (a)  "Transfer"  Defined.  The term  "Transfer" as used herein
shall  include any  assignment of all or any part this  Agreement  (including an
assignment  by operation of law), an assignment or subletting of all or any part
the  Managed  Outlet  or  transfer  of  possession,  or right of  possession  or
contingent  right of  possession  of all or any  portion of the  Managed  Outlet
including,  without limitation,  concession,  mortgage,  deed of trust,  devise,
hypothecation,  agency,  franchise,  concession or management agreement,  or the
occupancy  or use by any other  person  (the  agents and  servants  of  Operator
excepted) of any portion of the Managed  Outlet.  The  transfer,  assignment  or
hypothecation  of any stock or interest in either  entity  comprising  Operator,
whether in a single  transaction  or in a series of  transactions,  of fifty-one
percent  (51%)  or  more  to  a  single  purchaser  individually  including  its
affiliates,  shall be  deemed  a  Transfer  of this  Agreement,  except  that if
Operator is a publicly  owned  entity  whose stock or  interests  are  regularly
traded in a nationally recognized exchange or regularly traded  over-the-counter
market and quoted on NASDAQ,  the normal and  customary  sales and  transfer  of
stock or interests in such publicly  traded entity will not be deemed a Transfer
so long as such sales and transfers are effected through such national  exchange
or over the counter  market and do not involve a change in control or management
of Operator. The transfer,  assignment or hypothecation of any stock or interest
in either  entity  comprising  Operator,  whether in a single  transaction  or a
series  of  transactions,  of less  than  fifty-one  percent  (51%)  to a single
purchaser individually including its affiliates,  shall not be deemed a Transfer
of this Agreement.

                                       29
<PAGE>

     (b)  Permitted Transfer and Qualified Operator Transfer.

     (1)  Permitted  Transfer.  Operator  shall have the right to enter into the
following  types of Transfers  without  Owner's prior written  consent but after
providing  at least  thirty  (30)  days  prior  written  notice  to Owner of the
transaction  (the  "Transfer  Notice"),   together  with  reasonable  supporting
information  confirming  that such a Transfer  falls within one of the following
categories (herein referred to as a "Permitted Transfer":

          (i)  Affiliated  Transfer:  Operator  may assign this  Agreement to an
     "affiliate"  of Operator.  An "affiliate" of Operator shall mean any trust,
     corporation,  entity or  partnership  (i) which  owns the  majority  of the
     ownership interests of either entity comprising Operator, (ii) the majority
     of whose ownership interests is owned by either entity comprising Operator,
     or (iii) the majority of whose  ownership  interests is owned by the parent
     corporation of either entity comprising Operator.

          (ii)   Reincorporation.   Operator   may   reincorporate   in  another
     jurisdiction  or  reconstitute  and  convert to a different  form,  such as
     converting from a corporation to a limited liability company so long as the
     effective  ownership  interests  remain unchanged and there is no change in
     the management or control of Operator.

          (iii) Family Transfers.  A shareholder of Operator may transfer his or
     her  shares  of  stock  in  Operator  to a  living  trust  created  by such
     shareholder for estate planning purposes for such  shareholder's  immediate
     family,  provided that such  shareholder is the trustee of such trust while
     such shareholder is alive and legally competent.

     (2) Qualified  Operator  Transfer.  Operator may assign this Agreement to a
"Qualified Operator"  (hereinafter defined) in connection with (a) the merger or
consolidation  of  Operator  where  the  surviving  entity  will be a  Qualified
Operator,  or (b) the sale in one transaction of substantially all of Operator's
assets as a going concern to a Qualified Operator.  A "Qualified Operator" shall
mean a party that meets the following qualifications:

          (i) a party with a Net Worth (for the purpose of this  Agreement,  Net
     Worth shall mean the difference  between Total Liabilities and Total Assets
     as reflected in its most recent audited  financial  statements  prepared in
     accordance with generally accepted accounting  principles) of not less than
     Operator's Net Worth as of the date Owner receives the Transfer Notice (the
     "Transfer Notice Date"); and

          (ii) a party (and/or its  principle  owners and  operators)  which has
     demonstrated  experience in the  ownership and operation of qualified  full
     service sit down  restaurants  with a bar,  which at a minimum must include
     prior to the Transfer  Notice Date, the ownership and operation of at least
     ten (10) full service sit down  restaurants of the same or greater  quality
     of Operator's at the Managed Outlet.

     If the proposed party meets the Net Worth  requirements in Section 2(i) but
does not meet the  requirements  in Section 2(ii) and Owner does not approve the
proposed  party,  Operator may elect to terminate this Agreement and Owner shall
pay Operator an amount equal to the Early Termination Payment in Section 17.3(B)
concurrently with the effectiveness of such termination.

     Operator  shall  provide  the  written   evidence  to  demonstrate  that  a
transferee  meets the foregoing  requirements  of a Qualified  Operator at least
thirty (30) days prior to the effective  date of the proposed  Transfer in order
to afford Owner a reasonable opportunity to review such information. Owner shall
act reasonably in its review of such information.  Owner's evaluation of such in
determining  whether  or not it is a  Qualified  Operator  shall be  limited  to
confirming  that such  transferee has meet the standards for being  classified a
Qualified Operator as expressly provided in (i) and (ii) above.

                                       30
<PAGE>

     Notwithstanding  anything to the contrary in this Agreement, the provisions
of Section  18.1(b)(2)  regarding the rights to Transfer to a Qualified Operator
(i) shall only be applicable  after the Initial  Remodel has been  completed and
Operator has opened the Managed  Outlet for  business to the general  public and
has been  operating the Managed  Outlet for not less than two (2) years from the
date it opened  provided  that the  foregoing  shall not apply if Bob  Spivak is
retained during such two (2) year period pursuant to an employment or consulting
agreement  with the Qualified  Operator (an  employment  agreement or consulting
agreement between the Qualified Operator and Bob Spivak shall not be required if
Bob Spivak is unable to enter into an employment or  consulting  agreement  with
the Qualified Operator due to bone fide health reasons),  and (ii) shall only be
applicable  to the original  party  signing  this  Agreement as Operator and one
other assignee (that is a Qualified Operator) of Operator,  but not to any other
or subsequent  transferee  under a Transfer  regardless  whether such transferee
would be considered a Qualified Operator.

                  (c) Procedure for Obtaining  Consent.  Owner need not commence
its review of any proposed Transfer,  or respond to any request by Operator with
respect  to such  Transfer,  unless  and  until it has  received  from  Operator
adequate descriptive  information concerning the business to be conducted by the
proposed  transferee,  the  transferee's  financial  capacity,  the transferee's
experience  in  operating a full  service  sit down  restaurant  (including  the
number,  type and location of all  restaurants  it owns and  operates)  and such
other  financial  information  as may  reasonably be required in order to form a
prudent judgment as to the  acceptability of the proposed  Transfer,  including,
without limitation, the following:

          (1) The  past two full  calendar  or  fiscal  years'  and the  current
     calendar or fiscal year's year to date audited  annual  Balance  Sheets and
     Profit  and  Loss  statements,  certified  correct  by a  Certified  Public
     Accountant,  or if  such  audited  statements  are  unavailable,  the  such
     unaudited  statements  certified  by the chief  financial  officer  of such
     proposed  transferee  and the last two year  federal  income tax returns of
     such transferee); and

          (2) Banking references of the proposed transferee.

     (d) Effect of Transfer. The following conditions shall apply to a Transfer:

          (1) Each and every  covenant,  condition  or  obligation  imposed upon
     Operator  by this  Agreement  and each and every  right,  remedy or benefit
     afforded Owner by this  Agreement  shall not be impaired or diminished as a
     result of such Transfer.

          (2)  No  Transfer,  whether  or  not  consent  of  Owner  is  required
     hereunder, shall relieve Operator of its primary obligation to pay all sums
     and to perform all other obligations to be performed by Operator hereunder.

     (e) Costs.  Operator shall reimburse Owner for Owner's reasonable costs and
attorneys' fees incurred in conjunction with the processing and documentation of
any  proposed  Transfer,  whether or not consent is granted,  up to a maximum of
$1,000.00  unless Operator or its transferee  requests  material changes to this
Lease or the form of Owner's consent.

                                       31
<PAGE>

     (f) Qualified  Operator Standards  Requirement.  If a Transfer is made to a
Qualified Operator, the following provisions shall apply during the Initial Term
of this Agreement:

     (1) Owner  shall have the right to request  in writing  that the  Qualified
Operator  obtains  a  monthly   "mystery   shopper"  report  ("Audit")  from  an
independent  service ("Audit Service").  The Audit Service shall be a bonded (if
possible), reputable company used by restaurants of similar quality to the Daily
Grill Restaurant in the San Francisco area. The Audit criteria and scoring shall
be also be consistent  with that of restaurants of similar  quality to the Daily
Grill  Restaurant  in the San  Francisco  area.  The Audit Service and the Audit
criteria  used to evaluate  the  Restaurant  shall be mutually  agreed to by the
Owner and Operator.  For purposes of example  only, a copy of an existing  Daily
Grill Audit is included in Exhibit D. If the  Restaurant  receives a Audit score
of less than  sixty  percent  (60%) of the total  possible  score,  this will be
deemed a "Quality Violation Point" for the purpose of this Agreement.

     (2) If the  City  of  San  Francisco  or  other  quasi-governmental  agency
establishes a mandatory restaurant grading system whereby the grade is displayed
to the  general  public,  and the  Restaurant  receives  a grade  lower than the
highest grade  possible  that is required to be displayed to the general  public
for a period of time  greater  than  five (5)  days,  this also will be deemed a
"Quality  Violation Point" for the purpose of this Agreement.  Also, if the City
of San  Francisco or other quasi  governmental  agency  establishes  a different
point or grading  system to measure  the  health  and safety  and/or  quality of
performance of restaurants in the San Francisco area and the Restaurant receives
a score of less then sixty percent (60%) of the total  possible  score (with 60%
being a score out of a  maximum  of 100% or  equivalent  if some  other  scoring
system is adopted) or a failing  score  according to such adopted  system,  then
this  also will be deemed a  "Quality  Violation  Point"  for  purposes  of this
Agreement.

     (3)  Notwithstanding  anything to the  contrary in this  Agreement,  if the
Restaurant  receives  more than three (3) Quality  Violation  Points  during any
twelve (12) month period ("Quality Default"),  Owner shall have the right in its
sole and  absolute  discretion,  within  sixty (60) days of  Owner's  receipt of
actual knowledge of the Quality Default,  elect to cancel Operator's right under
Section 2.2 to extend this Agreement beyond the Initial Term.

     18.2.  Owner.  Owner  shall not assign  this  Agreement  without  the prior
consent of  Operator,  provided  that Owner may assign  this  Agreement  without
Operator's consent to any person or entity (i) acquiring Owner's fee interest in
the Hotel, or (ii) to whom Owner leases the Hotel,  including without limitation
the Managed Outlet, provided that in either case such assignee agrees in writing
to be bound by this  Agreement  and to assume all of Owner's  obligations  under
this Agreement (other than any obligation Owner may specifically agree to retain
in connection  with such  assignment)  from and after the effective date of such
assignment.  After any such assignment by Owner,  Owner shall be relieved of any
obligation or liability under this Agreement arising after the effective date of
the assignment.

                                       32
<PAGE>
                                   ARTICLE XIX
                                     NOTICES

         19.1.  Method.  Any notice,  statement  or demand  required to be given
under this  Agreement  shall be in  writing,  sent by  certified  mail,  postage
prepaid,  return  receipt  requested,  or  by  facsimile  transmission,  receipt
electronically  or verbally  confirmed,  or by  nationally-recognized  overnight
courier, receipt confirmed, addressed if to:

                  Owner:       Handlery Hotel Union Square
                               351 Geary Street
                               San Francisco, CA  94102
                               Attention:  Mr. Jon Handlery
                               Phone: (415) 781-7800
                               Fax: (415) 362-1157

                               With a copy to:

                               Handlery Hotels, Inc.
                               180 Geary Street
                               San Francisco, CA 94108
                               Attention: Mr. Arthur John Pekrul
                               Phone: (415)-781-4550
                               Fax: (415)-291-9155

                  Operator:    Hotel Restaurant Properties II Management, Inc.
                               11828 La Grange Ave.
                               Los Angeles, CA  90025
                               Attn:  Keith M. Wolff, President
                               Phone: (310) 966-2367
                               Fax: (310) 477-2522

                  Affiliate:   Grill Concepts Management, Inc.
                               11626 San Vicente Blvd.
                               Suite 404
                               Los Angeles, CA  90049
                               Attn: Bob Spivak, CEO
                               Phone: (310) 820-5559 ext. 240
                               Fax: (310) 820-6530

or to such other  addresses as Operator and Owner shall  designate in the manner
provided in this Section 19.1. Any notice or other communication shall be deemed
given (a) on the date three (3)  business  days after it shall have been mailed,
if sent by  certified  mail,  (b) on the business day it shall have been sent by
facsimile  transmission  (unless sent on a  non-business  day or after  business
hours in which event it shall be deemed given on the following business day), or
(c) on the date received if it shall have been given to a  nationally-recognized
overnight courier service.

                                       33
<PAGE>

                                   ARTICLE XX
                         ESTOPPELS AND LENDER PROVISIONS

         20.1. Estoppel Certificate.  Owner and Operator agree that from time to
time upon the request of the other party,  it shall  execute and deliver  within
ten (10) days after the request a certificate  confirming that this Agreement is
in full force and effect,  stating  whether this Agreement has been modified and
supplying such other information as the requesting party may reasonably require.

         20.2  Subordination.  This Agreement shall be subordinate to any ground
lease,  mortgage,  deed of trust or any other  hypothecation for security now or
hereafter  placed upon the real  property of which the Managed  Outlet is a part
and to any and all advances  made on the security  thereof and to all  renewals,
modifications,    consolidations,    replacements   and   extensions    thereof.
Notwithstanding  such  subordination,  Operator's  right to operate  the Managed
Outlet  shall not be  disturbed  if  Operator  is not in default  and so long as
Operator shall observe and perform all the provisions of this Agreement,  unless
this Agreement is otherwise  terminated pursuant to its terms. If any mortgagee,
trustee or ground lessor shall elect to have this Agreement prior to the lien of
its  mortgage,  deed of trust or ground  lease,  and shall give  written  notice
thereof to Operator, this Agreement shall be deemed prior to such mortgage, deed
of trust or ground lease, whether this Agreement is dated prior or subsequent to
the  date of said  mortgage,  deed of  trust  or  ground  lease  or the  date of
recording thereof.

         20.3 Documents.  Operator  agrees to execute any documents  required to
effectuate such subordination or to make this Agreement prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be, within fifteen (15)
days after written demand;  provided that any subordination agreement shall also
contain a  non-disturbance  agreement  by the lender in a form  required by such
lender and which is reasonably acceptable to Operator (but Operator acknowledges
and agrees that it must work with such  lender's  form).  If  Operator  does not
execute and  deliver any such  document  within said time  period,  Owner or its
lender or  successor  may provide a second  written  request to execute any such
document. If Operator fails to execute and deliver any such document within five
(5) days after  receipt of such second  request,  then the  information  in such
document  conclusively  shall be deemed  true,  correct and accurate and binding
against Operator.

         20.4 Attornment.  If the holder of any ground lease, mortgage,  deed of
trust or security described above (or its  successor-in-interest),  enforces its
remedies  provided  by law or under  the  pertinent  mortgage,  deed of trust or
security  instrument  and  succeeds to Owner's  interest in the Managed  Outlet,
Operator  shall,  upon request of any person  succeeding to the interest of such
lender as result of such enforcement,  automatically become the Operator of said
successor-in-interest  without  change in the terms or other  provisions of this
Agreement,  provided,  however, that said successor-in-interest shall not be (i)
bound by any payment for more than thirty (30) days in advance,  (ii) liable for
any act or omission of any previous Owner (including Owner), or (iii) subject to
any offset, defense,  recoupment or counterclaim that Operator may have given to
any previous  Owner  (including  Owner).  Within ten (10) days after  receipt of
request by said  successor-in-interest,  Operator  shall  execute and deliver an
instrument   or   instruments   confirming   such   attornment,    including   a
non-disturbance,  attornment and  subordination  agreement in a form required by
any such  successor-in-interest  and which is reasonably  acceptable to Operator
(but Operator acknowledges and agrees that it must work with such holder's form.

         20.5 Notice and Cure Rights.  Operator agrees to give any  mortgagee(s)
and/or trust deed holders,  by registered  mail, a copy of any notice of default
served  upon  Owner,  provided  that  prior  to such  notice  Operator  has been
notified,  in  writing,  of the  address of such  mortgagees  and/or  trust deed
holders.  Operator  further  agrees that if Owner shall have failed to cure such
default  within the time  provided for in this  Agreement,  then the  mortgagees
and/or trust deed holders shall have an additional thirty (30) days within which
to cure such default or, if such default cannot be cured within that time,  then
such  additional  time as may be necessary if, within such thirty (30) days, any
mortgagee and/or trust deed holder has commenced and is diligently  pursuing the
remedies   necessary  to  cure  such  default  (including  but  not  limited  to
commencement of foreclosure  proceedings,  if necessary to effect such cure), in
which event this Agreement shall not be terminated while such remedies are being
so diligently pursued.

                                       34
<PAGE>

                                   ARTICLE XXI
                                 INDEMNIFICATION

         21.1.  Operator.  Operator shall  indemnify and hold Owner (and Owner's
agents,  principals,   shareholders,   partners,  trustees,  partners,  members,
officers,  directors and employees)  harmless from and against all  liabilities,
losses,  claims,  damages,  costs and expenses  (including,  but not limited to,
reasonable  attorneys'  fees and  expenses)  that may be incurred by or asserted
against any such party and that arise from (a) the fraud,  willful misconduct or
negligence of Operator or any of its employees,  officers,  directors, agents or
contractors,  (b) the default, after notice and the expiration of the applicable
cure  period,  by Operator of any  provision of this  Agreement,  (c) any action
taken by Operator which is beyond the scope of Operator's  authority  under this
Agreement,  or (d) the performance of Operator's  services under this Agreement.
Owner shall promptly  provide  Operator with written notice of any claim or suit
brought  against it by a third party which might result in such  indemnification
and  Operator  shall  have the  option of  defending  any claim or suit  brought
against the Owner with counsel  selected by Operator and reasonably  approved by
Owner. Owner shall cooperate with the Operator or its counsel in the preparation
and conduct of any defense to any such claim or suit.

         21.2. Owner.  Except as expressly provided in Section 21.1, Owner shall
indemnify and hold Operator (and Operator's  agents,  principals,  shareholders,
partners,  members, officers,  trustees,  directors and employees) harmless from
and  against  all  liabilities,  losses,  claims,  damages,  costs and  expenses
(including,  but not limited to,  reasonable  attorneys' fees and expenses) that
may be  incurred  by or  asserted  against  such party and that arise from or in
connection  with (a) the negligence or willful  misconduct of Owner,  or (b) the
default, after notice and the expiration of the applicable cure period, by Owner
of any provision of this Agreement.  Operator shall promptly  provide Owner with
written  notice of any claim or suit  brought  against it by a third party which
might  result  in such  indemnification  and  Owner  shall  have the  option  of
defending any claim or suit brought  against  Operator with counsel  selected by
Owner and reasonably satisfactory to Operator. Operator shall cooperate with the
Owner or its counsel in the  preparation  and conduct of any defense to any such
claim or suit.

         21.3.  Operator  Employment  Claim.  Supplementing  the  provisions  of
Sections 21.1 and 21.2, if any claim shall be made against Owner and/or Operator
which is based upon a violation or alleged  violation of the Employment Laws (an
"Employment  Claim")  at or  relating  to the  Managed  Outlet  or the  business
conducted at or for the Managed Outlet,  the Employment  Claim shall be the sole
obligation  of Operator  and be within the scope of  Operator's  indemnification
obligation  unless the claim is based solely upon (a) the willful  misconduct or
gross negligence of Owner.

         21.4.  Survival.  The  provisions of this Article  shall  survive  the
termination  of this Agreement with respect to acts, omissions  and  occurrences
arising during the Term.

                                       35
<PAGE>
                                  ARTICLE XXII
                                  MISCELLANEOUS

     22.1. Further Assurances.  Owner and Operator shall execute and deliver all
other appropriate  supplemental  agreements and other instruments,  and take any
other  action  necessary  to make this  Agreement  fully and legally  effective,
binding, and enforceable as between them and as against third parties.

     22.2.  Entire  Agreement.  This Agreement  constitutes the entire agreement
between the parties relating to the subject matter hereof, superseding all prior
agreements or undertakings, oral or written. Owner acknowledges that in entering
into  this  Agreement  Owner  has not  relied  on any  projection  of  earnings,
statements as to the possibility of future success or other similar matter which
may have been prepared by Operator.

     22.3. Headings.  The headings of the titles to the several articles of this
Agreement are inserted for  convenience  only and are not intended to affect the
meaning of any of the provisions hereof.

     22.4.  Non-Waiver.  A waiver  of any of the terms  and  conditions  of this
Agreement  may be made only in writing  and shall not be deemed a waiver of such
terms and conditions on any future occasion.

     22.5.  Successors  and Assigns.  This  Agreement  shall be binding upon and
inure to the benefit of Owner and Operator and their  respective  successors and
permitted assigns.

     22.6.  Governing  Law. This  Agreement  shall be construed,  both as to its
validity and as to the  performance of the parties,  in accordance with the laws
of the State of  California.  All  disputes  among the parties  hereto  shall be
resolved  by binding  arbitration  pursuant  to the then  existing  rules of the
American Arbitration Association applicable to such dispute and conducted at San
Francisco,  California.  The prevailing party in any such  arbitration  shall be
entitled to  reimbursement  from the losing party of its  reasonable  attorneys'
fees and expenses incurred in connection therewith.

 22.7 Time of the  Essence.  Time is of the essence of this  Agreement  with
respect to each and every article, section and subsection hereof.

     22.8  Authority.  Each party  represents and warrants to the other that the
person  signing this  Agreement on its behalf is duly  authorized to execute and
deliver this Agreement on behalf of such party in accordance with a duly adopted
resolution or other applicable authorization of said organization, and that this
Agreement is binding upon said organization in accordance with its terms.

     22.9 Brokers.  Owner and Operator each represents and warrants to the other
party  that it has not  authorized  or  employed,  or  acted by  implication  to
authorize  or  employ,  any real  estate  broker  or  salesman  to act for it in
connection with this Agreement. Owner and Operator shall each indemnify,  defend
and hold the other  party  harmless  from and  against any and all claims by any
real  estate  broker or  salesman  whom the  indemnifying  party  authorized  or
employed,  or  acted by  implication  to  authorize  or  employ,  to act for the
indemnifying party in connection with this Agreement.

     22.10  Counterparts.  This  Agreement  may  be  executed  in  one  or  more
counterparts,  each of which shall be deemed an original,  but all of which when
taken together shall constitute one agreement.

                                       36
<PAGE>

          [the balance of this page has been intentionally left blank;
                             signature page follows]

<PAGE>

         IN  WITNESS  WHEREOF,  Operator  and  Owner  have  duly  executed  this
Agreement the day and year first above written.

                           HANDLERY HOTELS, INC.

                          By:__________________________

                          Name:_______________________

                          Title:________________________

                          Dated: _______________, 2001

                           HOTEL RESTAURANT PROPERTIES
                                II MANAGEMENT, INC.

                          By:__________________________

                          Name:_______________________

                          Title:________________________

                          Dated: _______________, 2001

                          GRILL CONCEPTS MANAGEMENT, INC.

                          By:__________________________

                          Name:_______________________

                          Title:________________________

                          Dated: _______________, 2001

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