AMENDMENT to
Hotel Restaurant Properties, Inc. Agreement
1. Identification and Parties.
This Amendment ("Amendment") is entered into this 27th day of July,
2001 by and among HOTEL RESTAURANT PROPERTIES, INC., a California corporation
and HOTEL RESTAURANT PROPERTIES II, a California corporation (together "Owner"),
and GRILL CONCEPTS, INC., a Delaware corporation ("Manager").
2. Recitals.
2.1 Hotel Restaurant Properties, Inc., a California corporation, and
Manager entered into that certain agreement for the management, lease,
and/or licensing of Manager's restaurants within hotel locations dated
August 27, 1998, as amended by a certain letter agreement incorrectly dated
August 10, 1998, but entered into August 27, 1998, and as further amended
by that certain letter agreement dated May 11, 1999 (together herein the
"Agreement").
The parties desire to enter into this Amendment to add Hotel Restaurant
Properties II, Inc. as a party to the Agreement, to add the Registration Rights
Agreement, and to modify certain terms of the Agreement due to the investment by
Starwood Hotels and Resorts Worldwide, Inc. ("Starwood") in Manager.
2.2 All defined terms herein shall have the meaning set forth in the
Agreement or this Amendment.
3. Certain Definitions.
The following terms as used in this Amendment have the meaning set
forth below:
3.1 Burbank Fees. Burbank Fees shall mean the sum of the Basic Fee and
Incentive Fee for any calendar year (or if the period is less than a
calendar year, on a prorated basis) as defined within the Daily Grill Hotel
Management Agreement between Hotel Restaurant Properties, Inc. and SCH
Burbank LLC dated May 13, 1998 ("Burbank Agreement").
3.2 Georgetown Fees. Georgetown Fees shall mean the sum of the Basic
Fee and Incentive Fee for any calendar year (or if the period is less than
a calendar year, on a prorated basis) as defined within the Daily Grill
Restaurant Management Agreement between Hotel Restaurant Properties, Inc.
and CapStar Georgetown Company, L.L.C. dated May 13, 1998.
3.3 XX Xxxxxx Fees. XX Xxxxxx Fees shall mean the Management Fees for
any calendar year (or if the period is less than a calendar year, on a
prorated basis) as defined within the Daily Grill Restaurant Management
Agreement between Manager and The Hilton Hotel dated February 20, 1998.
3.4 Development Agreement. The Development Agreement shall mean the
Development Agreement between Manager and Starwood, dated July ____, 2001.
3.5 HRP Maximum. The HRP Maximum shall mean an amount equal to
$400,000 plus (50% x 25% x [Burbank Fees + Georgetown Fees + XX Xxxxxx
Fees]). The HRP Maximum shall not apply to any HRP revenue generated from a
termination fee or similar payment resulting from the early termination of
any Managed Outlet agreement before its full term.
For the purpose of example only, if per Section 8.3 of the Burbank
Agreement, the Termination Payment and other early termination payments were
equal to $500,000 ("Early Termination Income") and HRP Income (as defined in
Section 3.11 below) excluding the Early Termination Income is $300,000, HRP
would receive a total of $800,000 and would not be subject to the HRP Maximum
unless the HRP Income excluding the Early Termination Income exceeded the HRP
Maximum.
3.6 HRP Monthly Maximum. The HRP Monthly Maximum shall mean an amount
equal to $33,333 plus (50% x 25% x [Burbank Fees + Georgetown Fees + XX
Xxxxxx Fees]). The HRP Monthly Maximum shall not apply to any HRP revenue
generated from a termination fee or similar payment resulting from the
early termination of any Managed Outlet agreement before its full term.
3.7 AGP Maximum. The AGP Maximum shall mean an amount equal to
[$400,000 plus (50% x 25% x Georgetown Fees)] times the Multiple.
(1) in the case of an Owner Reorganization, the lesser of: (i) 87.5% multiplied
by [the Closing Price of Manager's Common Stock divided by "EBITDA per
share" (which shall be calculated by Manager in accordance with past
accounting and financial reporting practices)] or (ii) ten (10); or
(2) in the other cases shall mean ten (10).
The reference to "cash flow per share" in Section 10.1(c)(ii) of the
Agreement shall be replaced with "EBITDA per share" as defined above.
3.9 HRP I Managed Outlets. HRP I Managed Outlets shall mean the
following Managed Outlets: the Burbank Hilton, San Xxxx Xxxxxx, and
Georgetown Inn.
3.10 HRP II Managed Outlets. HRP II Managed Outlets shall mean all
Managed Outlets other than the HRP I Managed Outlets.
3.11 HRP Income. Per the terms of the Agreement, HRP Income shall mean
Net Income After Manager Loan Payback after maintaining reasonable reserves
multiplied by 25%.
3.12 Encumbered Outlet. For the purpose of this Amendment, an
Encumbered Outlet shall mean any Managed Outlet with a principle balance
outstanding on a Manager Loan and/or a Third Party Loan related to such
Outlet.
3.13 Owner Included Outlets. Owner Included Outlets shall mean all
Managed Outlets excluding all Encumbered Outlets.
3.14 Owner's Share. Owner's Share shall mean the Operating Income (as
defined within Section 3.12 of the Agreement) multiplied by 25% for all
Owner Included Outlets.
4. Hotel Restaurant Properties II, Inc.
By their execution hereof Hotel Restaurant Properties, Inc., Hotel
Restaurant Properties II, Inc. and Manager hereby amend the Agreement to add
Hotel Restaurant Properties II, Inc. as a party to the Agreement and this
Amendment. Although Hotel Restaurant Properties, Inc. will own the HRP I Managed
Outlets and Hotel Restaurant Properties II, Inc. will own the HRP II Managed
Outlets, for purposes of this agreement, Hotel Restaurant Properties, Inc. and
Hotel Restaurant Properties II, Inc. shall be treated as one entity, and the
terms of this Amendment and the Agreement apply as if they were one entity.
Notwithstanding the foregoing, Manager shall be entitled to treat Hotel
Restaurant Properties, Inc. as the sole "Owner" for all purposes of the
Agreement and this Amendment, including, without limitation, for purposes of
making any payments, issuing stock certificates and delivering notices required
pursuant to the terms of the Agreement and this Amendment. Manager shall not be
responsible for the allocation, as between Hotel Restaurant Properties, Inc. and
Hotel Restaurant Properties II, Inc., of any amounts payable or shares issuable
to the Owner hereunder or under the Agreement.
5. License Agreements.
In recognition of the parties' intent that the Agreement apply to
license agreements in addition to leases and management agreements between
Manager and hotels or other approved locations that Manager and Owner agree to
enter into pursuant to the Agreement, all references throughout the Agreement to
"lease or manage" and "lease or management" shall be amended to read "lease,
license or manage" and "lease, license or management", respectively. By way of
example, and without limitation, references to "lease or manage" in Section 3.3
and to "lease or management" in Sections 3.7, 4.1, 6.1, 8.1 and 11 shall be
amended as provided in the preceding sentence. The phrase "expenditure required
by the agreement" in the first sentence of Section 3.7 shall be amended to read
"expenditure required to be made under the relevant lease, license or management
agreement".
6. Starwood Amendments.
6.1 The amendments in this Section 6 shall be in force and effective at all
times during the period commencing on the date of this Amendment and ending on
the date as of which Manager's exclusivity obligations in Section 3 of the
Development Agreement expire; provided that if such exclusivity obligations
remain in force and effective for a period of five (5) consecutive years after
the date hereof, then the amendments in this Section 6 shall remain in force and
effective until such time as the Agreement (as it may be amended from time to
time) expires or is terminated pursuant to its terms.
6.2 Section 3.12 of the Agreement is hereby amended by adding the
following at the end thereof:
For purposes of any license agreement or management agreement with
Starwood, the parties acknowledge and agree that Owner shall not make any
distributions prior to payment to Manager of the Incentive Fee, other than
payment of the Base Overhead Fee to Manager (as amended in the May 11, 1999
letter to be $20,000 annually per site) and any Owner Operating Expenses
reimbursed to Owner.
6.3 Section 5.1 of the Agreement is hereby amended by adding a new
lead-in sentence thereto that reads as follows:
Manager's duties as specified in this Section 5 are subject in their
entirety to negotiation on a site-by-site basis and to the terms of any
definitive lease, license or management agreement entered into by Manager with
respect to any Managed Outlet.
6.4 Section 9.2 of the Agreement is hereby amended by adding at the
end thereof the following:
Notwithstanding the foregoing, for the purpose of determining Owner's
and Manager's distributions, in any month: (a) if the Owner's Share, as defined
above, is greater than the HRP Monthly Maximum, then the following distributions
shall be made:
(i) Owner shall receive the HRP Monthly Maximum ("Owner Monthly Payment"); and
(ii) Manager shall receive Manager's Incentive Fee with regard to the Owner
Included Outlets plus the Owner's Share less the HRP Monthly Maximum; and
(iii)Manager shall also receive 100% of the Operating Income (as defined within
Section 3.12 of the Agreement) with regard to the Encumbered Outlets. All
distributions of Operating Income to the Manager from any Encumbered Outlet
shall first be applied to the reduction of the Manager Loan and/or Third
Party Loan principal balance outstanding with regard to such Encumbered
Outlet(s); and
(b) if the Owner's Share, as defined above, is less than the HRP Monthly
Maximum, then the following distributions shall be made:
(i) Manager shall receive 75%, and Owner shall receive 25%, of the
Operating Income with regard to the Owner Included Outlets; and
(ii) Manager shall receive 100% of the Operating Income with regard to the
Encumbered Outlets; provided that if all Manager Loans and Third Party
Loans related to any such Encumbered Outlet are fully repaid during
any monthly period, then Manager shall receive 75%, and Owner shall
receive 25%, of the Operating Income received thereafter during such
monthly period with regard to such Encumbered Outlet until the HRP
Maximum is paid to Owner.
At the end of any calendar year, if the Owner's Share calculated for
the calendar year is greater than the sum of the Owner Monthly Payments paid to
Owner during the calendar year ("Owner Annual Payments"), the Manager's
Incentive Fee for current and future months shall be reduced (without repayment)
until Owner receives an amount equal to the lesser of (i) the HRP Maximum less
the Owner Annual Payments, and (ii) the Owner's Share less the Owner Annual
Payments.
For the purpose of example only, if for a given calendar year, each of
the following assumptions were true: the actual Owner Annual Payments equal
$350,000, the calculated Owner's Share for all Owner Included Outlets is
$500,000, and the HRP Maximum is $450,000; then the Owner would be entitled to a
"catch-up" payment equal to the lesser of: (i) $450,000 (HRP Maximum) minus
$350,000 (Owner Annual Payments), and (ii) $500,000 (Owner's Share) minus
$350,000 (Owner Annual Payments). Based on this example, the Manager's Incentive
Fee would be reduced (without repayment) for current and future months until the
Owner receives $100,000 from the reduced Manager Incentive Fee.
6.5 Section l0.l(b)(i) is hereby amended by deleting the formula for AGP
set forth therein and replacing it with the following:
AGP equals 25% x [(OI x Multiple) minus L], except that AGP shall not
exceed the AGP Maximum. The balance of Section 10.1(b)(i) shall remain in full
force and effect.
6.6 Section 10.l(h)(iii) is hereby amended by adding the word "bonafide"
prior to "liabilities" and by adding the words "incurred by Owner in performing
its obligations under this Agreement" after "Owner".
6.7 Section 10.2(a) of the Agreement is hereby amended by deleting the
reference to "If at any time during the term of this Agreement a Change in
Control of Manager (as hereinafter defined in this Article 10) is contemplated
or occurs" and replacing it with the following:
Upon a Change in Control of Manager (as hereinafter defined in this Article
10)
6.8 Section 10.2(b)(i) of the Agreement is hereby amended by deleting it in
its entirety and replacing it with the following:
the acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person"), other than Xxxxxx Xxxxxx,
Xxxxxxx Xxxxxxxxx, Xxxxxxx Xxxxxxx and Xxxxx Xxxxx (and his affiliates,
including Xxxxx Xxxxx and the Xxxxx Revocable Trust of 1993) (whether
individually or as a group) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of not less than twenty-five
percent (25%) (or, if the acquiror is Starwood, 35%) of either (A) the then
outstanding shares of common stock of Manager (the "Outstanding Manager
Common Stock") or (B) the combined voting power of the then outstanding
voting securities of Manager entitled to vote generally in the election of
directors (the "Outstanding Manager Voting Securities"); provided, however,
that for purposes of this clause (i), the following acquisition shall not
constitute a Change in Control: any acquisition by any corporation pursuant
to a transaction which complies with clauses (A) and (B) of clause (iii) of
this Section 10.2(b); or
6.9 Section 10.4 of the Agreement is hereby amended by adding at the end
thereof the following:
The Agreed Purchase Price under Section 10.4(ii) of the Agreement
shall, under no circumstance, be greater than Four Million Five Hundred Thousand
Dollars ($4,500,000).
6.10 For the purposes of determining Operating Income and any other
determination relating to accounting or allocation matters required to be made
under the Agreement, all Manager Loans and/or Third Party Loans shall be
allocated to the Managed Outlet for which they are incurred.
7. Registration Rights Agreement.
The Registration Rights Agreement referred to in Section 10.3(c) of the
Agreement is attached hereto as Exhibit A.
8. No Other Amendments.
Except as set forth herein, the Agreement remains in full force and
effect.
9. Miscellaneous.
The provisions of Sections 13.2, 13.4, 13.7 through 13.12 and 13.14 of
the Agreement are incorporated herein by reference and made a part hereof
mutatis mutandis.
In witness whereof the parties hereto have executed this Amendment as
of the date first above written.
"OWNER"
HOTEL RESTAURANT PROPERTIES, INC.,
a California corporation
By: ___________________________
Xxxxx X. Xxxxx
Its: President
"OWNER"
HOTEL RESTAURANT PROPERTIES, INC.,
a California corporation
By: ___________________________
Xxxx X. Xxxxxx
Its: Secretary
"OWNER"
HOTEL RESTAURANT PROPERTIES II, INC.,
a California corporation
By: ___________________________
Xxxxx X. Xxxxx
Its: President
"MANAGER"
GRILL CONCEPTS, INC.,
a Delaware corporation
By: ___________________________
Xxx Xxxxxx
Its: President
