STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of June __, 2001 (as
hereafter amended, supplemented, or otherwise modified from time to time, this
"Agreement"), between GRILL CONCEPTS, INC., a corporation organized and existing
under the laws of the State of Delaware ("Issuer"); STARWOOD HOTELS AND RESORTS
WORLDWIDE, INC., a corporation organized and existing under the laws of the
State of Maryland ("Investor"); and THE STOCKHOLDERS OF ISSUER LISTED IN
SCHEDULE I HERETO (the "Stockholders");
W I T N E S S E T H:
WHEREAS, pursuant to the subscription agreement, dated as of
May 16, 2001 (the "Subscription Agreement"), between Issuer and Investor, Issuer
issued to Investor 666,667 shares (the "Shares") of common stock of Issuer, par
value $0.00004 per share (the "Common Stock"), and warrants to purchase 666,667
shares of Common Stock (the "Initial Warrants");
WHEREAS, pursuant to the development agreement, dated as of
June __, 2001 (the "Development Agreement"), between Issuer and Investor, Issuer
has agreed to issue to Investor additional warrants to purchase shares of Common
Stock based on: (i) certain development thresholds (the "Development Warrants")
and (ii) certain incentive thresholds (the "Incentive Warrants" and together
with the Initial Warrants and the Development Warrants, the "Warrants"); and
WHEREAS, it is a condition precedent to Investor's willingness
to consummate the transactions contemplated by the Subscription Agreement and
the Development Agreement that Issuer and each Stockholder shall have executed
and delivered this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants, and agreements set forth herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby covenant and agree as follows:
SECTION 1. Certain Defined Terms. Capitalized terms used and
not otherwise defined in the body hereof are used herein as defined in the
Subscription Agreement.
SECTION 2. Board of Directors Representation. Issuer and each
Stockholder (whether in its capacity as a stockholder, director, or officer of
Issuer or otherwise) shall take or cause to be taken all actions, do or cause to
be done all things, and execute and deliver or cause to be executed and
delivered all documents, instruments, certificates, further assurances, or other
papers, that may be necessary, appropriate, or desirable (including, without
limitation, in the case of each Stockholder: (x) by attending stockholder and
board of directors meetings in person or by proxy for purposes of obtaining a
quorum at such meetings, and executing written consents in lieu of meetings; and
(y) by voting at every annual or special meeting of the stockholders of Issuer
and at every continuation or adjournment thereof, and on every action or
approval by written consent of the stockholders of Issuer in lieu of any such
meeting, all voting Securities then owned or controlled, directly or indirectly,
thereby) in order to ensure that, so long as Investor holds, directly or
indirectly by an Affiliate, not fewer than 333,333 shares of Common Stock (as
adjusted for stock splits, stock dividends, recapitalizations, and the like):
(i) not fewer than one nominee of Investor is at
all times duly elected or appointed as a director of Issuer;
(ii) if the aggregate number of GCI Concept
Facilities (as defined in the Development Agreement) equals or exceeds
ten, not fewer than two nominees of Investor are at all times duly
elected or appointed as directors of Issuer;
(iii) if the number of individuals Investor is
entitled pursuant to this Section 2(a) to nominate to the board of
directors of Issuer is one, the number of individuals comprising the
entire board of directors of Issuer shall not exceed seven;
(iv) if the number of individuals Investor is
entitled pursuant to this Section 2(a) to nominate to the board of
directors of Issuer is two, the number of individuals comprising the
entire board of directors of Issuer shall not exceed eight; and
(v) for a period of no less than three years, unless
Xxxxxx Xxxxxx is physically unable to perform under the conditions of
his current Employment Agreement as provided in the Disclosure
Schedule, no new employment agreement will be entered into by Issuer
with the chief executive officer of Issuer; and no employment agreement
with the chief executive officer of Issuer will be unreasonably amended
or otherwise modified during such three-year period.
(b) Concurrently with the execution of this Agreement, each Stockholder
shall deliver to Investor a proxy in the form attached hereto as Exhibit A,
which proxy shall be irrevocable to the fullest extent permitted by law and
shall state the total number of shares of capital stock of Issuer beneficially
owned by such Stockholder.
SECTION 3. Stockholder Transfer Restrictions. (a) During the one-year
period commencing on the Closing Date and ending immediately prior to the first
anniversary of the Closing Date, neither Investor nor any of the Stockholders
shall Transfer, or take any action which could reasonably be expected to result
in any Transfer of, any Securities held thereby.
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(b) Without limiting the applicability of the foregoing,
neither Investor nor any Stockholder shall Transfer, or take any action which
could reasonably be expected to result in any Transfer of, any Securities held
thereby, except in compliance with all applicable securities Laws and the other
terms and conditions of this Agreement.
(c) Notwithstanding anything to the contrary contained herein,
Investor and any Stockholder may at any time Transfer any or all Securities held
thereby to any Permitted Transferee; provided that, prior to the consummation of
any Transfer to any Permitted Transferee, such Permitted Transferee shall: (i)
execute and deliver to Issuer and each Stockholder a counterpart to this
Agreement; and (ii) deliver to Issuer and each Stockholder an opinion of
counsel, in form and substance reasonably satisfactory to Issuer, to the effect
that the agreements executed and delivered by such Permitted Transferee in
accordance with the immediately preceding clause (i) are legal, valid, and
binding obligations of such Permitted Transferee, enforceable against such
Permitted Transferee in accordance with their terms.
SECTION 4. Right to Participate in Certain Dispositions. If at
any time prior to the third anniversary of the date first above written and
subject to any applicable restriction in Section 3, any Stockholder (for
purposes of this section, the "Selling Holder") wishes to sell for cash more
than 50,000 shares (which number shall be adjusted for stock splits, stock
dividends, recapitalizations and the like) held thereby to a Third Party in a
bona fide, fully financed transaction the terms of which have been negotiated
directly between the Selling Holder (or its agent) and one or more prospective
purchasers (or its/their agent), rather than through an open-market transaction
with an unidentified purchaser executed over a securities exchange or quotation
service (for purposes of this section, the "Proposed Transaction"), the Selling
Holder shall give Investor and each transferee of Investor of not fewer than
100,000 shares (which number shall be adjusted for stock splits, stock
dividends, recapitalizations and the like) of Common Stock or Securities
convertible into or exercisable or exchangeable for not fewer than 100,000
shares (which number shall be adjusted for stock splits, stock dividends,
recapitalizations and the like) of Common Stock (together with Investor, the
"Rights Holders") written notice thereof (for purposes of this section, a
"Tag-Along Notice") not fewer than forty-five days prior to the date (for
purposes of this section, the "Sale Date") on which the Selling Holder wishes to
consummate the Proposed Transaction; provided that Xxxxxxx Xxxxxxxxx shall not
be subject to this Section 4 from the first date as of which he is neither a
member of the board of directors of Issuer nor an employee of Issuer. The
Tag-Along Notice shall describe in reasonable detail: (i) the class of
Securities, and the number of shares or units or the face amount, as the case
may be, of such Securities, the Selling Holder wishes to sell (for purposes of
this section, the "Tag-Along Securities"); and (ii) the price per share, unit,
or face amount, as the case may be, at which, and all other material terms and
conditions (including the expected Sale Date) upon which, the Selling Holder
wishes to sell the Tag-Along Securities. The Tag-Along Notice shall constitute
an offer by the Selling Holder to permit each Rights Holder to sell in the
Proposed Transaction, upon the terms and subject to the conditions set forth in
the Tag-Along Notice, the number of shares or units or the face amount, as the
case may be, of Securities equal to the product of: (i) the aggregate number of
shares or units or the aggregate face amount, as the case may be, of Tag-Along
Securities proposed to be sold in the Proposed Transaction; multiplied by (ii)
the quotient of: (A) the number of Fully Diluted Shares held by such Rights
Holder as of the date of the Tag-Along Notice; divided by (B) the total number
of Fully Diluted Shares outstanding as of the date of the Tag-Along Notice.
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(b) During the fifteen-day period immediately following its receipt of the
Tag-Along Notice (for purposes of this section, the "Notice Period"), each
Rights Holder may accept the offer made thereby, in whole or in part, by giving
the Selling Holder written notice of acceptance (for purposes of this section,
an "Acceptance Notice"), which notice shall state the number of shares or units
or the face amount, as the case may be, of Securities which such Rights Holder
wishes to sell in the Proposed Transaction, and delivering to the Selling Holder
in trust for the benefit of such Rights Holder: (i) certificates evidencing the
Securities which such Rights Holder wishes to sell in the Proposed Transaction
(for purposes of this section, the "Participating Securities"), duly endorsed in
blank or accompanied by written instruments of transfer in form reasonably
satisfactory to the Selling Holder duly executed by such Rights Holder; (ii) an
instrument of assignment assigning such Rights Holder's rights and delegating
its obligations hereunder in respect of the Participating Securities; and (iii)
a special irrevocable power-of-attorney authorizing the Selling Holder, on
behalf of such Rights Holder, to sell the Participating Securities upon the
terms and subject to the conditions set forth in the Tag-Along Notice. An
Acceptance Notice shall constitute an irrevocable agreement by such Rights
Holder to sell the number of shares or units or the face amount, as the case may
be, of Securities with respect to which such notice was given, at the price and
upon the other terms and subject to the conditions set forth in the Tag-Along
Notice. Notwithstanding the delivery of an Acceptance Notice by any Rights
Holder, the Selling Holder may revoke its offer pursuant to the corresponding
Tag-Along Notice at any time prior to consummation of the Proposed Transaction;
provided that the Selling Holder shall not thereafter: (i) sell any of the
Tag-Along Securities with respect to which it gave such Tag-Along Notice unless
it again complies with the requirements of Sections 4(a), (b), and (c); or (ii)
deliver another Tag-Along Notice for a period of ninety days after the effective
date of such revocation.
(c) The Selling Holder shall consummate the Proposed Transaction within
sixty days after the expiration of the Notice Period. Immediately after the
closing of the Proposed Transaction the Selling Holder shall deliver to each
Rights Holder, by wire transfer of immediately available fund to the bank
account or accounts specified in the Acceptance Notice, the purchase price for
the Participating Securities, if any, sold thereby.
(d) During the ninety-day period immediately following the expiration of
the Notice Period, the Selling Holder may consummate the Proposed Transaction
without the participation of any particular Rights Holder if such Rights Holder
did not timely deliver an Acceptance Notice in accordance herewith or otherwise
timely comply with the requirements hereof, upon terms and subject to conditions
no less favorable to the Third Party purchaser than the terms and conditions set
forth in the Tag-Along Notice. If the Proposed Transaction contemplated by such
Tag-Along Notice is not consummated within such ninety-day period, or the
Selling Holder proposes to consummate such transaction upon terms or subject to
conditions more favorable to the Selling Holder than those set forth in the
Tag-Along Notice, the Selling Holder may not consummate such transaction unless
it again complies with the requirements of Sections 4(a), (b), and (c), and the
Selling Holder shall immediately return to each Rights Holder all certificates
evidencing the unsold Participating Securities that such Rights Holder delivered
for sale pursuant to this Section 4, and the related instruments of assignment
and power-of-attorney.
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SECTION 5. Notice of Certain Developments. If Issuer or any Stockholder
receives from any Third Party any offer, proposal, or other indication of
interest (a "Transaction Proposal") relating to: (i) any issuance or other
Transfer of shares of Common Stock or any other Securities; (ii) any merger,
consolidation, or other business combination with or into Issuer; (iii) any
acquisition of all or any substantial portion of the assets of Issuer; or (iv)
any other extraordinary business transaction involving or otherwise relating to
Issuer; Issuer or such Stockholder, as the case may be, shall promptly give each
Rights Holder written notice of its receipt of such Transaction Proposal, which
notice shall describe in reasonable detail: (A) the identity of the Third Party
making such Transaction Proposal; and (B) all material terms and conditions of
such Transaction Proposal.
SECTION 6. Improper Transfer. Any attempt by any Stockholder to make any
Transfer other than in accordance with this Agreement shall be null and void,
and neither Issuer nor any transfer agent thereof shall give any effect in
Issuer's share records to such attempted Transfer.
SECTION 7. Certain Interests. Except as described in the Disclosure
Schedule, neither Issuer nor any Subsidiary shall knowingly cause or permit any
stockholder, director, officer, employee of Issuer or any Subsidiary, or
relative or spouse (or relative of such spouse) who resides with, or is a
dependent of, any such stockholder, director, officer, or employee, or any
Affiliate of any such Person: (i) to have any direct or indirect financial
interest in any competitor, customer, or supplier of Issuer or any Subsidiary;
provided, however, that the ownership of securities representing no more than
one percent of the outstanding voting power of any competitor, supplier, or
customer, and which are also listed on any national securities exchange or
traded actively in the national over-the-counter market, shall not be deemed to
be a "financial interest" so long as the person owning such securities has no
other connection or relationship with such competitor, supplier or customer;
(ii) to own, directly or indirectly, in whole or in part, or to have any other
interest in, any tangible or intangible property belonging to or used, held for
use, or intended to be used by Issuer or any Subsidiary or forming a part of or
used, held for use, or intended to be used in connection with, necessary for, or
otherwise material to the conduct of, the business and operations of Issuer or
any Subsidiary; or (iii) to have outstanding at any time any Indebtedness to
Issuer or any Subsidiary. Neither Issuer nor any Subsidiary shall knowingly
undertake or assume any liability or any other obligation of any kind, nature,
or description whatsoever to or on behalf of any stockholder, director, officer,
or employee of Issuer or any Subsidiary, to any relative or spouse (or relative
of such spouse) who resides with, or is a dependent of, any such stockholder,
director, officer, or employee, or to any Affiliate of any such Person; except
for liabilities relating to: (A) the payment of salary for services rendered;
(B) the reimbursement of reasonable and necessary business expenses incurred on
behalf of Issuer or any Subsidiary; and (C) the payment or grant of other
standard employee benefits made generally available to all employees of Issuer
or such Subsidiary (including stock option agreements outstanding under any
employee stock option plan approved by the board of directors of Issuer or such
Subsidiary).
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SECTION 8. Miscellaneous. The terms and provisions set forth in Sections 16
and 17 of the Subscription Agreement are incorporated in this Agreement by
reference and made a part hereof mutatis mutandis.
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IN WITNESS WHEREOF, each party hereto has executed and
delivered this Agreement as of the date first written above.
GRILL CONCEPTS, INC.
By:
---------------------------------------
Name:
Title:
STARWOOD HOTELS AND RESORTS WORLDWIDE, INC.
By:
----------------------------------------
Name:
Title:
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XXXXXX XXXXXX
--------------------------------
XXXXXXX XXXXXXXXX
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XXXXX XXXXX
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XXXXX XXXXX
XXXXX REVOCABLE TRUST OF 1993
By:
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Name:
Title:
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SCHEDULE I
STOCKHOLDERS
Name Address
--------- ------------
Xxxxxx Xxxxxx 00000 Xxx Xxxxxxx Xxxx.
Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Xxxxxxx Xxxxxxxxx 00000 Xxx Xxxxxxx Xxxx.
Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Xxxxx Xxxxx 00000 Xx Xxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Xxxxx Xxxxx 00000 Xx Xxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Xxxxx Revocable Trust of 1993 00000 Xx Xxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
