AGREEMENT
1. Identification and Parties.
--------------------------
This Agreement ("Agreement") is entered into by and between HOTEL
RESTAURANT PROPERTIES, INC., a California corporation ("Owner"), and GRILL
CONCEPTS, INC., a Delaware corporation ("Manager"), as of this 27th day of
August 1998.
2. Recitals.
---------
2.1. Owner is a newly-formed company whose shareholders are Xxxxx Xxxxx and
Xxxx Xxxxxx. Xxxxx and Xxxxxx have substantial experience in the operation of
hotels and have formed Owner for the purpose of obtaining locations in hotels in
which a Grill or Daily Grill can be located as a restaurant. Owner may also
obtain non-hotel Grill and Daily Grill locations from time to time subject to
Manager's prior approval. Owner is knowledgeable about the unique requirements
for the operation of the food service in a hotel and a restaurant in a hotel.
2.2. Manager owns and operates, among other restaurants, the Grill
("Grill") and Daily Grill ("Daily Grill") restaurant chains and has substantial
experience in the management and operation of such restaurants.
2.3. Manager owns the uniform restaurant operating system necessary for the
establishment and operation of the Grill and 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 Systems are identified by
the service and trademarks "Grill" and "Daily Grill" and related words and
symbols (collectively, "Existing Marks") identifying the Grill and Daily Grill
restaurants and their goods and services.
2.4. Owner and Manager desire to enter into this Agreement to provide for
the obtaining of locations for the Grill and Daily Grill restaurants by Owner,
and the management of those locations acquired by Manager as Grill or Daily
Grill restaurants, as the case may be, including a license of the Operating
System and Existing Marks for such locations, all on the terms and conditions
hereinafter set forth.
3. Certain Definitions.
--------------------
In addition to the definitions set forth elsewhere herein, the terms set
forth in this Article 3 will have the meanings set forth herein:
3.1. License Rights. License Rights mean collectively the Operating System
(defined in Section 2.3), the Existing Marks (also defined in Section 2.3), and
the Marks.
3.2. Marks. Marks includes the Existing Marks and such other tradenames,
service marks, logo types, trade symbols, emblems, signs, logos, insignias,
trademarks, designs, patents and copyrights as Manager owns or may hereafter
acquire, develop, or adopt or designate for use in conjunction with the
Operating System.
3.3. Managed Outlet. Managed Outlet means each hotel's or approved
location's restaurant, bar, room service, and/or banquet operations, which Owner
and Manager agree to lease or manage pursuant to this Agreement.
1
3.4. Owner Tax Deficiency. Owner Tax Deficiency means the extent that
federal, state and local income taxes due by Owner or its shareholders on
Owner's income if it is an S Corporation, are greater than Net Income After
Manager Loan Payback before Owner Tax Deficiency and after Incentive Fee in each
quarterly period, payable on a quarterly basis.
3.5. Manager Loan Manager Loan shall mean the amounts loaned to Owner
pursuant to this Agreement. The Manager Loan shall bear an interest rate of nine
percent (9%) per year, simple interest The principal balance of the Manager Loan
shall be repaid in full out of Net Income prior to any payment of Incentive Fee
(defined in Section 9.2) or retention of cash by Owner. The Manager Loan
principal balance shall be payable in full on the fifteenth (l5th) anniversary
of this Agreement unless paid sooner at the election of Owner.
3.6. Manager Loan Debt Service. Manager Loan Debt Service shall be
calculated monthly as follows: the Manager Loan amount outstanding at the
beginning of the month times nine percent (9%) interest divided by twelve (12).
3.7. Required Capital Contribution. Required Capital Contribution for the
purpose of this Agreement shall mean any Owner and/or Manager expenditure
required by the agreement with the hotel, but not funded by the hotel, to (i)
acquire such lease or management agreement, or (ii) for the expenditure of any
sums for capital improvements to the Managed Outlet. The Required Capital
Contribution shall not include Operating Expenses, Pre-opening Costs, or the
Overhead Base Fee as defined herein. To the extent not paid for by the hotel,
Manager shall be solely obligated to obtain the funds for the Required Capital
Contribution through Manager Loans or loans or other financial arrangements to
Owner by others ('Third Party Loan"). Third Party Loan interest payments shall
be called "Third Party Loan Debt Service" for the purpose of this Agreement
Third Party Loan principal payments shall be called "Third Party Loan Principal
Payments" for the purpose of this Agreement. The Manager shall be obligated to
guarantee Third Party Loans if required by the Lender.
3.8. Start-up Period. Start-up Period means the period commencing with the
investigation of any proposed Managed Outlet and ending with either the
termination of such proposal or the date two (2) months after the opening to the
public of such Managed Outlet.
3.9. Pre-opening Costs. For the purpose of this Agreement, Pre-opening
Costs shall include all Manager's and/or Owner's actual expenses, not including
the Required Capital Contribution, incurred by Owner and/or Manager and not
funded by the hotel, during the Start-up Period for any Managed Outlet. These
Pre-opening Costs shall be accounted for in a manner consistent with Manager's
non-hotel locations and consistent with generally accepted restaurant accounting
principles except as otherwise specified herein. Preopening Costs shall not
include allocations for overhead or home office expenes of Manager or the
compensation of corporate salaried employees of the Owner or Manager.
Pre-opening Costs shall not be included as Operating Expenses or in determining
the amount of the Actual Monthly Overhead defined herein.
3.10. Gross Receipts. Gross Receipts means for any time period all
revenues, fees, and payments received by Owner and/or Manager in connection with
or resulting from the Operations at all Managed Outlets, not including items
specifically excluded from Gross Receipts as specified within each of the
individual Managed Outlet Agreements with a hotel.
2
3.11. Operating Expenses. Operating Expenses means the sum of the Managed
Outlet Operating Expenses, Owner Operating Expenses, and Manager's Base Overhead
Fee as defined herein. Managed Outlet Operating Expenses shall mean all expenses
incurred in connection with the operation of all Managed Outlets as defined
within the Managed Outlet Agreements, or if not defined within the Managed
Outlet Agreements, then as is customary with Manager's non-hotel locations and
consistent with generally accepted restaurant accounting procedures except as
otherwise specified herein ("Managed Outlet Operating Expenses"). In addition,
Operating Expenses shall include all bonafide expenses incurred by Owner in
performing Owners obligations under this Agreement other than Pre-opening Costs
("Owner Operating Expenses"). However, no Owner shareholder salaries and or
Owner shareholder distributions shall be deemed as Owner Operating Expenses for
the purpose of this Agreement. The Manager Base Overhead Fee pursuant to this
Agreement shall be deemed as Operating Expenses for the purpose of this
Agreement but no other overhead or administrative allocation of Manager shall be
allowed. For the purpose of this Agreement, Operating Expenses shall not
include, Pre-opening Costs, Manager Loan Debt Service, Manager Loan Principal
Payments, Third Party Debt Service, Third Party Loan Principal Payments,
Required Capital Contribution, depreciation, amortization, goodwill, and Owner
income taxes or Shareholder's of Owner income taxes.
3.12 Operating Income. Operating Income means for any time period Gross
Receipts less Operating Expenses.
3.13. Net Income. Net Income for the purpose of this Agreement shall mean
Operating Income less (i) Third Party Loan Debt Service and Third Party Loan
Principal Payments due (including any final principal balance) and (ii) Manager
Loan Debt Service due and (iii) Owner Tax Deficiency, if any.
3.14. Operating Losses. Operating Losses shall mean if Net Income is less
than zero in any month.
3.15 Net Income After Manager Loan Payback. Net Income After Manager Loan
Payback shall mean the remaining Net Income after the principal balance of the
Manager Loan is repaid in full from Net Income.
4. Owner Duties.
------------
4.1. Owner shall seek locations in hotels (or elsewhere if approved by
Manager) which require restaurants of the nature and quality of the Daily Grill
or Grill and shall attempt to arrange with such hotels for the lease or
management of the restaurant space in such hotels, which will normally include
operating the food service for the hotel, including its restaurant, bar, room
service, and, in some instances, banquet operations. Owner shall be responsible
for negotiating such arrangement with the hotel and presenting such arrangement
to Manager for its approval.
5. Manager's Duties.
----------------
5.1. Manager shall be obligated to consult with Owner with respect to
potential locations with respect to the design and operation of a restaurant in
such location and to approve or disapprove the terms and conditions of the
agreement with respect to any location in its sole and absolute discretion. In
the event Owner and Manager agree on the terms and conditions of an arrangement
with a hotel, Owner will enter into a lease or management agreement with respect
to such Managed Outlet, and Manager will enter into a management agreement with
respect to such Managed Outlet with Owner and hotel, if required, on the terms
and conditions set forth herein. At the execution of the agreement for each
Managed Outlet, Manager and Owner shall execute an exhibit hereto agreeing to
perform all the terms and conditions with respect to such agreement.
3
5.2. In connection with all Managed Outlets, Manager shall manage and
supervise all day to day operations of the Managed Outlet so that the Managed
Outlets are operated to the same standards as Manager owned Grill's and Daily
Grills. Manager shall provide, at its own expense, supervisory personnel as it
deems necessary at its corporate offices to oversee management of the Managed
Outlet. This shall include, but not be limited to, supervision of all of the
following functions pertinent to the Managed Outlet: purchasing, facility
maintenance, advertising and public relations, risk management, payroll
processing, human resources, training of personnel, and all accounting functions
such as accounts payable, cash management, sales tax returns, and periodic
financial statements for each Managed Outlet as set forth herein. Manager shall
be responsible for supervising all Managed Outlet design and construction and
the retraining of all Managed Outlet employees and staff. Except for the Base
Overhead Fee and Pre-opening Costs of home office personnel at the Managed
Outlet as set forth herein, Manager shall be solely responsible for paying its
own corporate overhead without further compensation, including its office
expenses and wages and salaries and fringe benefits of its corporate personnel.
5.3. During the Term, Manager shall be obligated to loan Owner any and all
Pre-opening Costs and Operating Losses (including Owner Tax Deficiency) in the
form of a Manager Loan as specified herein. In addition, Manager shall be
obligated to loan any and all Required Capital Contribution in the form of a
Manager Loan or Third Party Loan as specified herein. There can be no default by
Owner under this Agreement for the failure to pay the Manager Loan until its
final due date as it is the obligation of Manager to fund all Operating Losses.
5.4. During the Term, Manager shall retain such employees and other
personnel as are required in Manager's sole judgment for the Managed Outlet
operations. All such on-site employees will be employees of Manager. Manager
shall prepare the payroll for all employees of the Managed Outlet, and shall be
solely responsible for all salaries, fringe benefits, bonuses (including store
management bonuses), health insurance and disability insurance programs,
employee taxes and worker's compensation insurance of the employees of the
Managed Outlets. Manager shall be solely responsible for the determination of
the employees' salaries, benefits and bonuses, which shall be reasonably set.
Manager shall have the sole responsibility to supervise, hire, fire and
discipline, if necessary, all on-site employees.
5.5. Manager shall have control and signature power over the bank accounts
of the Managed Outlets and the full power and authority to disburse the funds
necessary to operate the Managed Outlets. Manager shall promptly deposit in a
bank or banks designated by Manager and approved by Owner in accounts
established in Manager's name, any and all Gross Receipts received by Manager
from the operations of the Managed Outlets. In no event will any moneys received
from the operation of the Managed Outlets be commingled with any other funds. To
the extent that Net Income After Manager Loan Payback is greater than zero (in
accordance with sections 3.5 and 3.6 herein), Manager shall disburse the Net
Income After Manager Loan Payback twenty-five percent (25%) to Owner and
seventy-five percent (75%) to Manager for the Incentive Fee hereinafter defined)
after maintaining reasonable reserves for the operation of the Managed Outlets.
5.6. Manager shall, within fifteen (15) days of the end of each of its
accounting periods, and thirty (30) days of the end of each calendar year,
prepare a Statement of Operations for the Managed Outlets indicating the fiscal
status of the Managed Outlets. Such Statement shall be consistent with the
Statements provided by Manager for its other restaurant locations. Owner shall
have the rights, at its expense, to audit all such Statements. Manager shall
maintain complete books and records of all costs and expenses incurred and all
income and receipts received in connection with the operation of the Managed
Outlets at its office at 00000 Xxx Xxxxxxx Xxxxxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx
00000. The books and records regarding the Managed Outlets shall be kept in a
manner consistent with that maintained for its other restaurants unless
otherwise specified herein. All such books and records, as well as all other
books and records of Manager which relate to the Managed Outlets shall be
available for inspection and audit by Owner or any of its officers, employees or
agents at all reasonable times during normal business hours.
4
5.7. During the term of the Agreement, Manager shall obtain, as an
Operating Expense, insurance for the Managed Outlets of the same type and amount
as it maintains for its own restaurant locations and as required by Owner's
leases.
6. Omitted
7. Grant of License.
----------------
7.1. Upon the terms and conditions set forth herein, Manager grants to
Owner, and Owner accepts from Manager, the right, license, and privilege of
utilizing the License Rights during the Term, solely and only in connection with
operation of the Managed Outlets and only in such manner as Manager approves in
writing. The License Rights extend only to the Managed Outlet. 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 only in
such manner as Manager approves in writing. 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. Manager may, from time
to time, institute promotional and advertising material in connection with the
Managed Outlets. All such promotion and advertising expenditures will be deemed
Operating Expenses only to the extent such advertising is exclusively for the
Managed Outlet unless otherwise approved by Owner in writing.
7.2. Owner acknowledges and agrees that the License Rights shall at all
times during the Term be the sole and exclusive property of Manager. Manager
expressly retains and reserves all rights in and to each of the License Rights,
subject only to the rights specifically granted to Owner herein. Owner further
acknowledges and agrees that Owner has been granted the use of the License
Rights solely for the duration of the Term and only in conjunction with the
Managed Outlets, and that this Agreement is not intended as Manager's transfer
or sale to Owner of any of the License Rights. Nothing contained in this
Agreement shall be construed to prevent Manager 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 except as otherwise
specified herein. Owner acknowledges that it will not acquire any rights
whatsoever in any of Manager's goodwill and/or proprietary marks, including any
of the License Rights, as a result of Owner's use thereof. Owner agrees that it
shall not, during the Term or thereafter, take any actions which affect
Manager's ownership of its proprietary marks, including License Rights or the
validity thereof.
8. Exclusivity.
-----------
8.1. During the term hereof, Manager shall directly or indirectly pursue
the location of its Grill and Daily Grill restaurants in any hotel only through
the arrangement with Owner as set forth herein, except as follows. In the event
that Manager desires to locate a Grill or Daily Grill restaurant in a hotel and
the Manager's capital investrnent, excluding any improvement allowance provided
to Manager by the hotel or other third- party entity directly affiliated with
the hotel, in that location will exceed the sum of One Million Dollars
($1,000,000) adjusted by the cost of living from January 1, 1998, using the Cost
of Living Index of the Department of Labor for the area in which the hotel is
located, then Manager may arrange for the location of the Grill or Daily Grill
in such hotel free of any obligation under this Agreement. In the event anyone
approaches Manager to locate a restaurant in a hotel and the Manager's capital
investment, excluding any improvement allowance provided to Manager by the hotel
and/or other third-party entity directly affiliated with the hotel, is less than
the sum of One Million Dollars ($1,000,000) adjusted by the cost of living from
January 1, 1998, using the Cost of Living Index of the Department of Labor for
the area in which the hotel is located, Manager shall refer such party to Owner
and such location may only be obtained through the arrangement set forth herein
with Owner so long as Owner desires to acquire the lease or management agreement
with respect to such location. In the event Manager presents a location for
management agreement or lease to Owner, and Owner determines that it does not
want to enter into a mangagement agreement or lease for such location, Manager
may enter into a management agreement or lease for such location only if the
management agreement or lease which Manager enters into for such location is on
the same terms and conditions which have been rejected by Owner. Notwithstanding
anything herein to the contrary, Manager may, as its sole discretion, reject any
proposed location for an outlet of the Grill and/or Daily Grill.
5
8.2. Owner and its shareholders shall not engage in the business of finding
locations in hotels other than for Manager, except as set forth herein. In the
event that Owner presents a location to Manager for an outlet of the Grill or
Daily Grill, and Manager determines that it does not want to locate a Grill or
Daily Grill at such location, then Owner's shareholders in another entity, may
attempt to locate a restaurant in such location. Owner hereby agrees that it
shall not own, lease or manage any assets except Managed Outlets for the Grill
or Daily Grill due to the potential future combination of Manager and Owner as
set forth herein.
8.3. Wherever in Article 8 a proposal is made by Manager or Owner, it shall
be made in writing, and a response shall be required within fifteen (15) days.
The failure to respond shall be deemed a disapproval.
9. Fees and Royalties.
------------------
9.1. Base Overhead Fee. In consideration of Manager's agreement to perform
its duties set forth herein, and in consideration of the license granted herein,
Owner shall pay to Manager a Base Overhead Fee per outlet eqnal to $4,167
($50,000 divided by 12) per monthly period.
9.2. Owner shall pay to Manager, in addition to the Base Overhead Fee, an
Incentive Fee equal to 75% of Net Income After Manager Loan Payback (as provided
for in Sections 3.5 and 3.6 herein) for any period. The Incentive Fee shall be
payable, on a monthly basis, upon the submission of the Statement of Operations.
10. Corporate Acquisition.
---------------------
10.1. At any time from and after five (5) years and nine (9) months from
the date hereof, and subject to the Owner's prior rights pursuant to Section
10.2, the Owner shall have the right to cause the Manager to acquire all but not
less than all, of the stock or assets of the Owner for the Agreed Purchase Price
as defined below (such reorganization shall be referred to as an "Owner
Reorganization"), and the Manager shall have the right to acquire all, but not
less than all, of the stock or assets of the Owner for the Agreed Purchase
Price (such reorganization being referred to as a "Manager Reorganization")
(collectively, an Owner Reorganization and a Manager Reorganization are referred
to as a "Reorganization"), on the terms and subject to the conditions set forth
in this Section 10.
10.1(a) In the event of a Reorganiation, Manager shall have the option of
determining the form of Reorganization so long as the Manager uses commercially
reasonable efforts to cause such Reorganization to qualify as a tax free
reorganization under Section 368 of the Internal Revenue Code. Notwithstsnding
the foregoing, the Owner, or Owner's shareholders shall be solely responsible
for any tax liability payable by the Owner or Owner's Shareholders which may
arise from the Reorganization should Manager be unable, for any reason, to
structure the Reorganization as a tax free Reorganization.
6
l0.l (b) (i) For purposes hereof, the Agreed Purchase Price shall be
determined according to the following formula:
AOP=25%x[(OIx 10)-L]
AGP Agreed Purchase Price
OI Operating Income of Owner for the twelve (12) month period ending on
the Manager Reorganization Date, if the Reorganization is a Manager
Reorganization, or the Owner Reorganization Date if the Reorganization
is an Owner Reorganization.
L The principal balance of any Manager Loans or Third Party Loans on the
Manager Reorganization Date, if the Reorganization is a Manager
Reorganization, or the Owner Reorganization Date if the Reorganization
is an Owner Reorganization.
(ii) For the purposes of determining the Agreed Purchase Price all
Operating Income and any principal balance of Manager Loans and Third Party
Loans relating to the Excluded Outlets, as defined herein, shall be excluded
from the calculation of the Agreed Purchase Price. "Excluded Outlets" shall
include the Burbank Airport Hilton Daily Grill and San Xxxx Xxxxxx Daily and/or
City Grill. If the San Xxxx Managed Outlet Agreement is renegotiated into a
twenty (20) year agreement (including Owner option periods), the San Xxxx
Managed Outlet will no longer be considered an Excluded Outlet and shall be
included in the calculation of the Agreed Purchase Price at the time of
Reorganization.
(iii) For the purposes of determining the Operating Income, annual Owner
Operating Expenses shall be averaged over the five (5) year period prior to the
Reorganization by taking the sum of all Owners Operating Expenses over the five
(5) year period ending on the Manager Reorganization Date or Owner
Reorganization Date, as appropriate, and dividing by five (5).
(iv) As an example only, assuning that at the time of Reorganization,
Operating Income for the prior twelve (12) month period, excluding the Operating
Income of the Excluded Outlets, is $1,000,000, and the principal balance of all
Manager Loans and Third Party Loans, excluding any outstanding loan balance for
the Excluded Outlets, is $500,000, the Agreed Purchase Price shall be $2,375,000
[{($1,000,000 x 10) - $500,000} x 25%].
10.1(c) Owner's right to cause an Owner Reorganizafion may be exercised by
giving written notice ("Owner Reorganization Notice") to the Manager of such
election effective on the last day of any month ("Owner Reorganization Date"),
provided however, that if at the time of such notice Manager's common stock is
traded on an established exchange or on Nasdaq or is quoted on the OTC Bulletin
Board or the National Ouotation Bureau's "pink sheets" (collectively, an
exchange"), (i) notice of the exercise of such option may only be given within
thirty (30) days after the release of earnings by Manager for the latest fiscal
quarter, and (ii) the closing price of Manager's common stock on such Exchange
shall not be less than ten times (lOx) cash flow per share for the five
consecutive trading days ending on the date of notice from the Owner.
Notwithstanding the existence of a trading market in Manager's common stock on
an Exchange, in the event of a "change of control", as defined hereinafter, the
provisions of Section 10. l(c)(i) and (ji) shall not apply. For the purposes
hereof; "cash flow per share" shall be defined as Manager's reported net income
over last four completed fiscal quarters before all non-cash and non-recurring
items including, but not limited to, such items as depreciation, amortization,
new restaurant start-up costs and extraordinary items, divided by the weighted
average of shares outstanding over such period.
7
10.1(d) Manager's right to cause a Manager Reorganization may be exercised
by giving written notice ("Manager Reorganization Notice") to the Owner of such
election effective on the last day of any month, provided however, that such
notice shall not become effective until the last business day of the fifteenth
(15th) calendar month after all Managed Outlets contracted on or before the
Manager Reorganization Notice have been open for business to the public
("Manager Reorganization Date") and provided, further, that Manager may only
cause a Manager Reorganization if (i) the Manager has received an opinion of
counsel that the Manager Reorganization qualifies as a tax free transaction to
the Owner, and/or its shareholders, under the Internal Revenue Code, or (ii) at
the time of closing, there is a Liquid Market in the Manager's common stock, or
(iii) Manager agrees to adjust the Agreed Purchase Price in the manner described
in Section l0.l(h)(ii) whereby the number of shares of common stock issuable by
the Manager is reduced and cash is paid in lieu of such shares in an amount
sufficient to pay the amount of federal, state and local income taxes on the
Agreed Purchase Price. For purposes of this Section 10.1(d), a "Liquid Market"
shall be deemed to exist if; and only it, there is adequate trading volume in
the common stock of the Manager (based on the closing bid price of the Manager's
common stock at Closing and the average daily trading volume of the Manager's
common stock over the ten trading days immediately preceding the Closing, as
reported by an Exchange) such that a sufficient number of shares may be sold
over a thirty trading day period to pay the estimated federal, state and local
income tax liability of the Owner, or the Owner's shareholders. Upon the giving
of the Manager Reorganization Notice, Owner will no longer be allowed to enter
into any new Managed Outlet agreements without the prior written consent of the
Manager.
10.1(e) Notwithstanding the receipt of a Manager Reorganization Notice
exercising Manager's right to cause a Manager Reorganization, Owner may provide
an Owner reorganization Notice exercising Owner's right to cause an Owner
Reorganization in which case the Manager's Reorganization Notice shall be of no
force or effect provided that the Owner Reorganization Date occurs prior to the
Manager Reorganization Date.
10.1(f) Upon receipt of a notice of Reorganization, the auditors for Owner
shall compute the Agreed Purchase Price within thirty (30) days following
delivery of an Owner Reorganization Notice or within thirty (30) days following
the Manager Reorganization Date, as appropriate.
10.1(g) Closing of the Reorganization ("Closing") shall occur within thirty
(30) calendar days after determination of the Agreed Purchase Price pursuant to
section 10.1(f).
10.1(h) At Closing:
(i) Owner, and/or Owner's shareholders, shall transfer to Manager all
of the Outstanding securities, or all of the assets of Owner, as
appropriate based on the structure of the Reorganization as determined
pursuant to Section 10.1(a).
(ii) Manager shall issue to Owner or Owner's shareholders, as
appropriate, common stock of Manager ("Acquisition Stock") equal in value
to the Agreed Purchase Price based on the average closing price of
Manager's common stock for the ten (10) trading days prior to closing;
provided however, that should Manager's stock not be listed on an Exchange
at Closing, Manager shall pay the Agreed Purchase Price in common stock of
the Manager based on the appraised value per share of the Manager's common
stock as determined by an independent appraiser mutually acceptable to both
Owner and Manager, provided that (other than in a Change of Control) the
appraised value per share shall be no less than ten times (lOx) cash flow
per share as determined in accordance with Section 10.1(c), and, provided
further, that if the reorganization is not tax free to Owner's
stockholders, the amount of Common Stock of the Manager shall be reduced
and cash shall be substituted therefor in the amount of the federal, state,
and local income taxes on the Agreed Purchase Price. For example, if the
Agreed Purchase Price is $1,000,000, and the combined effective tax rate is
30%, $700,000 shall be in stock and $300,000 in cash.
(iii) Manager shall assume all of the liabilities of the Owner,
including the then outstanding principal amounts of any Manager Loans and
Third Party Loans at the time of Closing.
10.2. The following provisions regulate a change in control:
10.2 (a) If at any time during the term of this Agreement, a Change in
Control of Manager (as hereinalter defined in this Article 10), is contemplated
or occurs, the provisions of this Article 10 shall become effective to allow
Owner within thirty days after Manager notifies owner in writing of the Change
in Control, to exercise its option to cause a corporate reorganization on, or
after, the date on which such Change in Control occurs (the "Change in Control
Date").
10.2.(b) For the purpose of this Agreement, a "Change in Control" shall
mean:
(i) 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") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of the lesser of the
aggregate percentage holders of Xxxxxx Xxxxxx, Xxxxxxx Xxxxxxxxx, Xxxxxxx
Xxxxxxx, and Xxxxx Xxxxx or fifty percent (50%), but not less than twenty-five
percent (25%) or more 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 puruant to a transaction of which complies with clauses (A)
and (B) of clause (iii) of this Section l0.4.(b); or
(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Manager
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than tile Board; or
(iii) consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of Manager (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the Persons who were the beneficial
owners, respectively, of the outstanding Manager Common Stock and Outstanding
Manager Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50%, respectively, of the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns Manager or all or substantially all of Manager's assets
either directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination
of the Outstanding Manager Common Stock and Outstanding Manager Voting
Securities, as the case may be, and (B) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
8
(iv) approval by the stockholders of Manager of a complete liquidation
or dissolution of Manager.
10.3. Acquisition Stock shall be issued as follows:
10.3.(a) Shareholders acknowledge that the Acquisition Stock delivered to
the Shareholders at Closing will not be registered, but will be issued pursuant
to appropriate exemptions from the Securities Act of 1933. Shareholders
represent and warrant that they will be acquiring the Acquisition Stock for
investment and not for distribution. The Shareholders will execute such
documents and provide such information as may be required to enable the issuance
of such stock by Manager to qualify for the applicable exemptions. Shareholders
further acknowledge that the Acquisition Stock may be sold only pursuant to an
effective registration statement under the Securities Act or an exemption
therefrom.
10.3 (b) Each certificate for the Restricted Securities shall be stamped
or otherwise imprinted with a legend substantially in the following manner:
The securities represented by this Certificate have not been
registered under the Securities Act of 1933, nor under applicable
State Securities Laws and may not be sold, transferred, or otherwise
disposed of unless they have been registered under such laws or such
disposition is in compliance with an available exemption from
registration.
10.3 .(c) Manager agrees, pursuant to the specific terms of the
Registration Rights Agreement attached hereto as Exhibit to file a registration
statement for the Acquisition Stock as soon as practical afler Closing on a Form
S-3 Registration Statement, and to use its best efforts to cause such
registration statement to become effective as soon as possible.
10.4. Notwithstanding anything else in this Section 10, in the event the
Manager or its shareholders sell substantially all of their assets or stock, as
the case may be, causing a Change in Control and an exercise by Owner of its
rights under Article 10, to a hotel or restaurant operator introduced to Manager
by Owner, specifically including but not limited to Hilton Hotels Corporation,
Starwood Hotels, Sunstone Hotels, CapStar Hotels, and Promus Hotels
(collectively, the "Existing Introductions") then the minimum purchase price for
Owner under this Article 10 which shall be paid to Owner's shareholders in stock
of Manager or the acquiring company in the reorganization or for cash shall be
the greater of: (i) Three Million Dollars ($3,000,000) and (ii) the Agreed
Purchase Price. For the purpose of this section, any hotel and/or restaurant
operators other than the Existing Introductions, shall be deemed introduced to
Manager by Owner only upon the written acknowledgement for Manager to Owner to
confirm same not to be unreasonably withheld.
11. Termination.
-----------
Manager and Owner acknowledge that the decision to acquire and manage a
Managed Outlet requires the commitment of both parties which may be given or
refused in their sole and absolute discretion. However, it is their agreement
that the terms and conditions of this agreement, specifically the exclusivity
provisions, shall not terminate until fifteen (15) years from and after the date
hereof (the "Term"). After fifteen (15) years from and after the date hereof,
the terms and provisions of this agreement shall be terminated with respect to
any future actions of either of the parties except as to any Managed Outlet
which the parties have agreed to acquire and manage prior to the end of such
fifteen (15) year period. For such Managed Outlets this agreement shall continue
until such time as the lease or management agreement with respect to such
Managed Outlet terminates, and each party shall be obligated to perform all of
its obligations hereunder and under any such lease and management agreement for
a Managed Outlet until the termination date of such lease or management
agreement with respect to such Managed Outlet.
9
12. Assignment.
----------
Neither Manager nor Owner shall assign its rights or obligations under this
Agreement without the prior written approval of the other party which approval
may be granted or withheld in the sole and absolute discretion of the other
party. Notwithstanding the foregoing, in the event that Manager disposes of all
or substantially all of its assets in a sale or reorganization transaction, the
transferee who continues to operate the company owned Daily Grill and Grill
operations must assume the rights and obligations of Manager hereunder without
releasing the Manager therefrom.
13. Miscellaneous
-------------
13.1. The following indemnification provisions will apply:
13.1 .(a) Manager agrees to defend, protect, indemnify, and hold harmless
Owner and its Affiliates, and all of their respective officers, directors,
employees, attorneys, consultants, and agents (collectively called the "Owner
Indemnitees" and individually an "Owner Indemnitee") from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements arising out of any act, event,
transaction, or occurrence which occurred in or about the Managed Outlets
arising or alleged to have arisen out of the acts, omissions or negligence of
Manager or Manager's officers, directors, employee's consultants, consultants,
or agents (collectively, the "Manager Indemnified Matters"), provided that
Manager shall have no obligation to an Owner Indemnitee hereunder with respect
to Manager Indemnified Matters directly caused by or a directly resulting from
the negligence or criminal or willfull misconduct of Owner or any Owner
Indemnitee or from Owner's violation of its obligations under this Agreement. To
the extent that the undertaking to indemnify, pay, and hold harmless set forth
in the preceding sentence may be unenforceable because it violates any law or
public policy, Manager shall contribute the maximum portion that it is permitted
to pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Matters incurred by the Owner Indemnitee,
13.l(b)If any claim is asserted against a Person which, if meritorious,
would be fully or partially covered by any indemnity provided above, the
indemnified party shall immediately notify Owner and Manager of such claim in
writing. The indemnified party agrees not to settle, compromise, or take any
other action in respect of such claim without the prior written approval of the
indemnitor. To the extent that any claim is covered by any indemnity provided
for above, the indemnitor will cause any claim asserted to be defended at the
indemnitor's expense by counsel chosen by Owner who is reasonably acceptable to
the indemnified party. Each indemnified party shall cooperate with the
indemnitor and its counsel in the defense of any such claim.
13. l.(c) Section 13 and all other indemnification provisions of this
Agreement shall survive the expiration or termination of this Agreement and
shall be binding upon, and inure to the benefit of, Owner, Manager, and their
Affiliates, successors and assigns.
10
13.1 .(d)The Owner and the Manager hereby covenant and agree that, except
as required by law, they will not disclose the terms and conditions of this
Agreement obtained in connection with exercising their rights under, or
performing their obligations under, this Agreement, to any other person or
entity without obtaining the prior written consent of the other party hereto to
such a disclosure. Notwithstanding the foregoing, the Owner and the Manager
acknowledge and agree that certain disclosures to their counsel, consultants,
financing sources, partners, governmental authorities and certain other of their
agents will be necessary in order to perform their respective obligations under
this Agreement. The obligations set forth in this Section shall survive the
expiration or termination of this Agreement.
13.2. This Agreement shall inure to the benefit of; and be binding upon,
the parties hereto, their respective permitted heirs, legal representatives,
successors and assigns.
13.3. This document contains the entire agreement between Manager and Owner
with respect to the management of the Managed Outlets and supersedes any and all
prior or contemporaneous agreements or understandings, whether written or oral.
13.4. This Agreement shall be governed by, and construed in accordance with
the internal laws of the State of Califomia.
13.5. This Agreement may be amended or modified only by written instrument
duly executed by Manager and Owner.
13.6. Any notice, demand or request provided for or permitted to be given
pursuant to this Agreement shall be in writing and shall be deemed to have been
properly given: (a) upon receipt, if hand delivered; (b) five (5) days after
deposit thereof at any main or branch United States Post Office, if sent by
United States registered or certified mail, return receipt requested; (c) on the
first business day following deposit thereof at the office of a nationally
recognized overnight delivery service, if sent by such service; or (d) upon
confirmation of receipt, if sent by facsimile, addressed as follows:
To Manager: Grill Concepts, Inc.
00000 Xxx Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
With copies to: Xxxxxx Xxxxxx Xxxxxxx and Xxxxx, X.X.
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
To Owner: Hotel Restaurant Properties, Inc.
c/x Xxxxx XxXxxxxx
00000 Xx Xxxxxx Xxxxxx
Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
With a copy to: Xxxxxxxxx Glusker Fields Claman & Machtinger LLP
1900 Avenue of the Stars
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
11
or at such other address as the party to be served with notice may have
furnished in writing to the party seeking or desiring to serve notice as a place
for the service of notice.
13.7. In the event that any one or more of the provisions, paragraphs,
words, clauses, phrases or sentences contained in this Agreement, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity; legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect, and of the remaining provisions, paragraphs,
words, clauses, phrases or sentences of this Agreement, shall not be in any way
impaired, it being the intention of the parties that this Agreement shall be
enforceable to the fullest extent permitted by law.
13.8. Time is of the essence of this Agreement and each and every provision
hereof. If the performance of any obligation required hereunder or the last day
of any time period as determined in accordance with the terms and provisions
hereof is to occur on a Saturday, Sunday or legal holiday under the laws of the
United States or of the State of California, then the day on which the
performance of any such obligation is to occur or the last day of any such time
period, as the case may be, shall be extended to the next succeeding business
day.
13.9. This Agreement man be executed in any number of counterparts, any or
all of which may contain the signature of any one of the parties and all of
which shall be construed together as a single instrument. A facsimile copy or
photocopy of this Agreement containing a facsimile copy or photocopy of the
signatures or initials of any party shall be deemed to be sufficient evidence of
that party's action or intent
13.10. In connection with any litigation or dispute arising out of this
Agreement, the prevailing party shall be entitled to recover all costs incurred,
including reasonable attorneys' fees and costs.
13.11. The Section headings contained herein are for convenience of
reference only and are not intended to define, limit or describe the scope or
intent of any provision of this Agreement.
13.12. None of the obligations hereunder of either party shall run to, or
be enforceable by, any party other than the other party to this Agreement or by
a party deriving rights hereunder as a result of an assignment permitted
pursuant to the terms hereof.
13.13. Manager shall in all respects be deemed to be an agent, whose agency
is coupled with an interest, and nothing contained herein shall be deemed or
construed by the parties hereto nor by any third party, as creating the
relationship of partnership or of joint venture between the parties hereto, it
being understood and agreed that neither the method of computation of Management
Fees nor any other provision contained herein nor any acts of the parties
hereto, shall be deemed to create any relationship between the parties hereto
other than the relationship of Owner and Manager. The agents or employees of
Owner shall not be considered or held out to be agents or employees of Manager,
and Owner may not negotiate or enter into any agreement that purports to bind
Manager or incur any liability in the name of, or on behalf of, Manager.
Manager, as agent of Owner, shall only be allowed to act as such agent to carry
out the purposes of this Agreement and for no other purpose.
13.14. Any controversy, claim or dispute arising out of or in any way
relating to this Agreement or the alleged breach thereof shall be determined by
binding arbitration by a retired California Superior Court or Court of Appeal
Judge selected by the American Arbitration Association under its commercial
arbitration rules ("Rules") which are in effect at the time of the arbitration
or the demand therefor. The Rules are hereby incorporated by reference.
California Code of Civil Procedure Sec. 1283.05, which provides for certain
discovery rights, shall apply to any such arbitration, and said code section is
also hereby incorporated by reference. In reaching a decision, the arbitrator
shall have no authority to change, extend, modify or suspend any of the terms of
this Agreement. The arbitration shall be commenced and heard in Los Angeles
County, California. The arbitrator(s) shall apply the substantive law (and the
law of remedies, if applicable) of California or federal law, or both, as
applicable to the claim(s) asserted. Judgment on the award may be entered in any
court of competent jurisdiction, even if a party who received notice under the
Rules fails to appear at the arbitration hearing(s). The parties may seek, from
a court of competent jurisdiction, provisional remedies or injunctive relief in
support of their respective rights and remedies hereunder without waiving any
right to arbitration. However, the merits of any action that involves such
provisional remedies or injunctive relief, including, without limitation, the
terms of any permanent injunction, shall be determined by arbitration under this
Section 13.14.
12
13.15. The shareholders of Owner shall have no personal liability under any
theory for the Manager Loan or Third Party Loans, unless such shareholders
specifically guarantee such loans in writing.
13.16. The parties acknowledge that Manager has been represented by Xxxxxx
Xxxxxx Xxxxxxx & Xxxxx, Law Corporation ("HFG&W") in connection with this
Agreement and that Xxxxxxxxx Glusker Fields Claman & Machtinger LLP has
represented Owner in connection with this Agreement In view of the fact that
HFG&W (and/or one or more of its individual members) has in the past rendered
legal services to and represented and will continue to render legal services to,
represent and/or be involved with the Owner and Manager and/or with their
representative shareholders, directors and officers in connection with other
matters, there is a potential for conflicts of interest. The parties acknowledge
that they are aware of such conflicts of interest and the potential adverse
effects to them which may result therefrom, and, notwithstanding same, hereby
consent to HFG&W's representation of Manager in conjunction with preparation of
this Agreement and waive any potential conflicts of interest with respect to or
against HFG&W in connection therewith.
IN WlTNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"OWNER"
HOTEL RESTAURANT PROPERTIES, INC.,
a California corporation
By: /s/ Xxxxx X. Xxxxx
-------------------------------------
Xxxxx X. Xxxxx
Its:President
"MANAGER"
GRILL CONCEPTS, INC.,
a Delaware corporation
By:/s/ Xxx Xxxxxx
-------------------------------------
Xxx Xxxxxx
Its: President
13
August 10, 1998
Grill Concepts, Inc.
Xxxxx 000
00000 Xxx Xxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, XX 00000
Re: Excluded Outlets
Gentlemen:
Grill Concepts, Inc. ("Manager") and Hotel Restaurant Properties, Inc.
("Owner") are parties to that Certain Agreement dated concurrently herewith (the
"Agreement"). All defined terms herein are as defined in the Agreement. Pursuant
to the Agreement, in the event an acquisition of Owner by Manager occurs
pursuant to Section 10 of the Agreement, there are certain Excluded Outlets
which are not included for purposes of the calculation of the Agreed Purchase
Price.
This letter will set forth our agreement that in the event such an
acquisition occurs, Manager shall continue to pay to the former shareholders of
Owner 25% of the Net Income After Manager Loan Payback for the Excluded Outlets
for the remaining term of the Manager's occupancy and operation of a restaurant
in those Excluded Outlets. For purposes of computing the Net Income Afier
Manager Loan Payback, the parties will assume that the Agreement applies. Please
indicate your agreement to the foregoing by executing the enclosed copy of this
letter and returning it to the undersigned.
Very truly yours,
HOTEL RESTAURANT PROPERTIES, INC.
By:
---------------------------------
By:
---------------------------------
AGREED AND ACCEPTED:
GRILL CONCEPTS, INC.
By:
-----------------
By: President
