INVESTOR RIGHTS AGREEMENT
INVESTOR RIGHTS 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"); and STARWOOD HOTELS AND RESORTS
WORLDWIDE, INC., a corporation organized and existing under the laws of the
State of Maryland ("Investor");
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 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. Preemptive Rights. If at any time prior to the third anniversary
of the date first above written, Issuer wishes to issue or otherwise Transfer
additional Securities which, after giving effect to such Transfer, would
constitute less than fifty percent (50%) of the Adjusted Diluted Shares (for
purposes of this section, the "Proposed Transaction"), and as of the Issue Date
(as defined below) Investor holds no less than 333,333 shares of Common Stock
(as adjusted for stock splits, stock dividends, recapitalizations and the like),
Issuer shall give Investor and each transferee of Investor of not fewer than
100,000 shares of Common Stock or Securities convertible into or exercisable or
exchangeable for not fewer than 100,000 shares of Common Stock (together with
Investor, the "Rights Holders") written notice thereof (for purposes of this
section, an "Offer Notice") not fewer than sixty days prior to the date (for
purposes of this section, the "Issue Date") on which Issuer wishes to consummate
the Proposed Transaction. The Offer Notice shall describe in reasonable detail:
(iii) the voting powers, designations, preferences, and rights of, and
qualifications, limitations, and restrictions with respect to, the Securities
Issuer wishes to issue or otherwise Transfer; and (iv) 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 Issue Date) upon which, Issuer wishes to
issue or otherwise Transfer such Securities. The Offer Notice shall constitute
an offer by Issuer to each Rights Holder to issue and sell to such Rights Holder
the number of shares or units or the face amount, as the case may be, of the
Securities Issuer wishes to issue or otherwise Transfer (for purposes of this
section, the "Offered Securities"), equal to the product of: (A) the aggregate
number of shares or units or the aggregate face amount, as the case may be, of
Securities proposed to be issued in the Proposed Transaction; multiplied by (B)
the quotient of: (1) the number of Fully-Diluted Shares held by such Rights
Holder as of the date of the Offer Notice; divided by (2) the total number of
Fully-Diluted Shares outstanding as of the date of the Offer Notice.
(b) During the fifteen-day period immediately following its receipt of the
Offer Notice (for purposes of this section, the "Notice Period"), each Rights
Holder (and any successors or assigns thereof) may accept the offer made
thereby, in whole or in part, by giving Issuer 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 Offered
Securities with respect to which such Rights Holder accepts Issuer's offer. An
Acceptance Notice shall constitute an irrevocable agreement by such Rights
Holder to purchase the number of shares or units or the face amount, as the case
may be, of Offered 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 Offer Notice. Notwithstanding the delivery of an Acceptance Notice by any
Rights Holder, Issuer may revoke its offer pursuant to the corresponding Offer
Notice at any time prior to consummation of the Proposed Transaction; provided
that Issuer shall not thereafter: (i) issue or Transfer any of the Securities
with respect to which it gave such Offer Notice unless it again complies with
the requirements of Sections 2(a), (b), and (c); or (ii) deliver another Offer
Notice for a period of ninety days after the effective date of such revocation.
Immediately after expiration of the Notice Period, Issuer shall offer to
Investor (or any successor thereto) any Offered Securities not subscribed for by
any other Rights Holder, and the Notice Period shall be extended for a period of
ten days after delivery of such offer in order for Investor (or any such
successor) to amend its (or give an) Acceptance Notice with respect to such
Offered Securities.
(c) During the thirty-day period immediately following the expiration of
the Notice Period (as it may be extended as provided above) (for purposes of
this section, the "Closing Period"), Issuer and each accepting Rights Holder
shall consummate the issuance, sale, and purchase of the Offered Securities with
respect to which Issuer's offer was accepted. At the closing of such issuance,
sale, and purchase: (i) Issuer shall deliver to each Rights Holder certificates
evidencing the Offered Securities purchased thereby; and (ii) each Rights Holder
shall deliver to Issuer the purchase price for the Offered Securities purchased
thereby.
(d) During the ninety-day period immediately following the expiration of
the Closing Period, Issuer may issue or Transfer to any Third Party all of the
Securities with respect to which it gave an Offer Notice and which were not
otherwise timely purchased by the Rights Holders in accordance herewith, upon
terms and subject to conditions no more favorable to such Third Party than the
terms and conditions set forth in the Offer Notice. If the Proposed Transaction
contemplated by such Offer Notice is not consummated within such ninety-day
period, or Issuer proposes to consummate such transaction upon terms or subject
to conditions less favorable to Issuer than those set forth in the Offer Notice,
Issuer may not consummate such transaction unless it again complies with the
requirements of Sections 2(a), (b), and (c).
(e) During the three year period following the date hereof, Issuer shall
not grant to any Person any rights to participate in any issuances or Transfers
of additional Securities which rights are more favorable than the rights granted
to the Rights Holders pursuant to this section.
(f) Notwithstanding the provisions of Sections 2(a) through (e) of this
section, no Rights Holder shall have the right to participate pursuant to this
Section 2 in issuances or other Transfers of any Securities: (i) issued or
issuable on a pro rata basis to all holders of Securities then outstanding
(based on such holders' respective ownership of such Securities); (ii) issued or
issuable to any employee of Issuer pursuant to any employee equity incentive
plan approved by the board of directors of Issuer; provided, however, that such
exclusion shall only apply with respect to the issuance of Securities that do
not exceed fifteen percent (15%) in the aggregate of the then total outstanding
Securities on a fully-diluted basis; (iii) issued or issuable upon the exercise,
conversion, or exchange of any options, warrants, or other convertible or
exchangeable Securities; (iv) issued in connection with any merger,
consolidation, combination, acquisition of securities, acquisition of any
business or assets, or similar extraordinary transaction between Issuer and any
Third Party approved by the board of directors of Issuer; provided that the
board of directors of Issuer has determined that the consideration to be
received by Issuer in connection with any such transaction is not less than the
fair market value of the Securities to be issued in such transaction; or (v)
issued to any other strategic partner approved by the board of directors of
Issuer; provided that Issuer has obtained Investor's prior written consent to
such issuance, which consent shall not be unreasonably withheld or delayed;
provided further that not more than an incidental portion of such strategic
partner's business is the ownership, management, or franchising of hotels.
SECTION 3. Registration Rights. Request for Registration. On and after the
first anniversary of the date first above written, Rights Holders (the
"Initiating Holders") holding a majority of the then outstanding Registrable
Securities (as defined below) may request in a written notice that Issuer file a
registration statement under the Securities Act (or a similar document pursuant
to any other statute then in effect corresponding to the Securities Act)
covering the registration of any or all Registrable Securities held by such
Initiating Holders in the manner specified in such notice; provided that there
must be included in such registration Registrable Securities with an anticipated
aggregate offering price of not less than $250,000. Following receipt of any
notice under this Section 3(a)(i), Issuer shall: give written notice of such
request to all other Rights Holders within ten Business Days; and (B) use its
best efforts to cause to be registered under the Securities Act all Registrable
Securities that the Initiating Holders and such other Rights Holders have,
within ten Business Days after Issuer has given such notice, requested be
registered in accordance with the manner of disposition specified in such notice
by the Initiating Holders. Without limiting the foregoing, at the request of the
Initiating Holders, Issuer shall take all such actions (including, without
limitation, filing and maintaining in effect a registration statement under the
Securities Act) as are necessary, appropriate, or desirable in order to permit
the Initiating Holders to dispose of Registrable Securities held thereby in an
orderly and controlled manner (so as, among other things, to not unduly affect
in the sole judgment of the Initiating Holders the market price of such
Registrable Securities) over such period of time as the Initiating Holders may
deem appropriate pursuant to a publicly announced disposition program. For
purposes of this Agreement: (A) "register", "registered", and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act and the
declaration or ordering of effectiveness of such registration statement or
document; and (B) "Registrable Securities" means: the Shares and the Common
Stock or other Securities issued upon exercise of the Warrants; any other Common
Stock hereafter acquired by Investor; any Common Stock issued as (or issuable
upon the conversion or exercise of any warrant, right, option, or other
convertible security which is issued as) a dividend or other distribution with
respect to, in exchange for, or in replacement of, any Securities referred to in
clause (1) or (2) of this definition; and (4) any Common Stock issued by way of
a stock split of any Securities referred to in clause (1), (2), or (3) of this
definition. For purposes of this Agreement, any Registrable Securities shall
cease to be Registrable Securities when: (A) a registration statement covering
such Registrable Securities has been declared effective and such Registrable
Securities have been disposed of pursuant to such effective registration
statement; (B) such Registrable Securities are sold by a person in a transaction
in which the rights under the provisions of this Agreement are not assigned; or
(C) such Registrable Securities may be sold by the Rights Holder thereof
pursuant to Rule 144(k) (or any similar provision then in force, but not Rule
144A) under the Securities Act without registration under the Securities Act.
(ii) If the Initiating Holders intend to have the Registrable Securities
distributed by means of an underwritten offering, Issuer shall include such
information in the written notice referred to in Section 3(a)(i)(A). In such
event, the right of any Rights Holder to include its Registrable Securities in
such registration shall be conditioned upon such Rights Holder's participation
in such underwritten offering and the inclusion of such Rights Holder's
Registrable Securities in the underwritten offering (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Rights
Holder) to the extent provided below. All Rights Holders proposing to distribute
Registrable Securities through such underwritten offering shall enter into an
underwriting agreement in customary form with the underwriter or underwriters.
Such underwriter or underwriters shall be selected by a majority in interest of
the Initiating Holders and shall be approved by Issuer, which approval shall not
be unreasonably withheld; provided that: (A) all of the representations and
warranties by, and the other agreements on the part of, Issuer to and for the
benefit of such underwriters shall also be made to and for the benefit of such
Rights Holders; (B) any or all of the conditions precedent to the obligations of
such underwriters under such underwriting agreement shall be conditions
precedent to the obligations of such Rights Holders; and (C) no Rights Holder
shall be required to make any representations or warranties to or agreements
with Issuer or the underwriters other than representations, warranties, or
agreements regarding such Rights Holder, the Registrable Securities of such
Rights Holder, and such Rights Holder's intended method of distribution, and any
other representations required by law. If any Rights Holder disapproves of the
terms of the underwriting, such Rights Holder may elect to withdraw all its
Registrable Securities by written notice to Issuer, the managing underwriter,
and the Initiating Holders. The securities so withdrawn shall also be withdrawn
from registration.
(iii) Notwithstanding anything to the contrary contained herein, Issuer
shall not be required to effect a registration pursuant to this Section 3(a)
during the period starting with the date of filing by Issuer of, and ending on a
date ninety days following the effective date of, a registration statement
pertaining to a public offering of securities for the account of Issuer or on
behalf of the selling stockholders under any other registration rights
agreement, which registration the Rights Holders have been entitled to join
pursuant to Section 3(b); provided that Issuer shall actively employ in good
faith all reasonable efforts to cause such registration statement filed pursuant
to this Section 3(a) to become effective as soon as possible; provided further
that Issuer may not delay any registration requested pursuant to this Section
3(a) more than once during any twelve-month period.
(iv) Issuer shall not be obligated to effect and pay for more than two
registrations pursuant to this Section 3(a); provided that a registration
requested pursuant to this Section 3(a) shall not be deemed to have been
effected for purposes of this Section 3(a) unless: (A) it has been declared
effective by the Commission; (B) it has remained effective for the period set
forth in Section 3(d)(i); (C) Rights Holders included in such registration have
not withdrawn sufficient shares from such registration such that the remaining
holders requesting registration would not have been able to request registration
under the provisions of Section 3(a)(i); and (D) the offering of Registrable
Securities pursuant to such registration is not subject to any stop order,
injunction, or other order or requirement of the Commission (other than any such
stop order, injunction, or other requirement of the Commission prompted by any
act or omission of any Rights Holders).
(b) Incidental Registration. Subject to Section 3(g), if at any time Issuer
determines to file a registration statement under the Securities Act (other than
a registration statement on a Form S-4 or S-8 or filed in connection with an
exchange offer or an offering of securities solely to Issuer's existing
stockholders) on any form that would also permit the registration of the
Registrable Securities and such filing is to be on its behalf and/or on behalf
of selling holders of its Securities for the general registration of Common
Stock to be sold for cash, Issuer shall each such time promptly give each Rights
Holder written notice of such determination setting forth the date on which
Issuer proposes to file such registration statement, which date shall be no
earlier than thirty days from the date of such notice, and advising each Rights
Holder of its right to have Registrable Securities included in such
registration. Upon the written request of any Rights Holder received by Issuer
no later than twenty days after the date of Issuer's notice, Issuer shall use
its best efforts to cause to be registered under the Securities Act all of the
Registrable Securities that each such Rights Holder has so requested to be
registered. If, in the written opinion of the managing underwriter (or, in the
case of a non-underwritten offering, in the written opinion of Issuer), the
total amount of such securities to be so registered, including such Registrable
Securities, will exceed the maximum amount of Issuer's securities which can be
marketed: (i) at a price reasonably related to the then current market value of
such securities; or (ii) without otherwise materially and adversely affecting
the entire offering; then Issuer shall be entitled to reduce the number of
shares of Registrable Securities to not less than one-third of the total number
of shares in such offering; provided that in any such case the number of shares
of Securities to be registered on behalf of all other selling stockholders is
reduced on a pro rata basis based on the aggregate number of Securities owned by
each selling stockholder at the time of filing the registration statement. Such
reduction shall be allocated among all such Rights Holders in proportion (as
nearly as practicable) to the amount of Registrable Securities owned by each
Rights Holder at the time of filing the registration statement.
(c) Registration on Form S-3. If at any time on or after the first
anniversary of the date first above written: (A) Rights Holders holding a
majority of the then outstanding Registrable Securities request in writing that
Issuer file a registration statement on Form S-3 or any successor thereto for a
public offering of all or any portion of the shares of Registrable Securities
held by such requesting Rights Holders, the reasonably anticipated aggregate
price to the public of which would exceed $250,000; and (B) Issuer is a
registrant entitled to use Form S-3 or any successor thereto to register such
shares; then Issuer shall use its best efforts to register under the Securities
Act on Form S-3 or any successor thereto, for public sale in accordance with the
method of disposition specified in such request, the number of shares of
Registrable Securities specified in such request. Whenever Issuer is required by
this Section 3(c) to use its best efforts to effect the registration of
Registrable Securities, each of the procedures and requirements of Sections
3(a)(ii) and (iii) (including, without limitation, the requirement that Issuer
notify all Rights Holders from whom a request has not been received and provide
them with the opportunity to participate in the offering) shall apply to such
registration mutatis mutandis.
(d) Obligations of Issuer. Whenever required under Section 3(a) or (c) to
use its best efforts to effect the registration of any Registrable Securities,
the Issuer shall, as expeditiously as possible:
(i) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become and remain effective for the period
of the distribution contemplated thereby determined as provided hereafter;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions of
the Securities Act with respect to the disposition of all Registrable
Securities covered by such registration statement;
(iii) furnish to the Rights Holders such numbers of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus and any amendments or supplements thereto in
conformity with the requirements of the Securities Act) and such other
documents and information as they may reasonably request;
(iv) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such securities and
other (i.e., blue sky) laws of such jurisdictions within the United States
of America and Puerto Rico as shall be reasonably appropriate for the
distribution of the Registrable Securities covered by the registration
statement; provided, however, that Issuer shall not be required in
connection therewith or as a condition thereto to qualify to do business in
or to file a general consent to service of process in any jurisdiction
wherein it would not but for the requirements of this Section 3(d)(iv) be
obligated to do so; and provided further that Issuer shall not be required
to qualify such Registrable Securities in any jurisdiction in which the
securities regulatory authority requires that any Rights Holder submit any
shares of its Registrable Securities to the terms, provisions, and
restrictions of any escrow, lockup, or similar agreement for consent to
sell Registrable Securities in such jurisdiction unless such Rights Holder
agrees to do so;
(v) promptly notify each Rights Holder for whom such Registrable
Securities is covered by such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made, and at the request of any such Rights Holder promptly
prepare and furnish to such Rights Holder a reasonable number of copies of
a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, 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
under which they were made;
(vi) furnish, at the request of any Rights Holder requesting
registration of Registrable Securities pursuant to Section 3(a) or (c), if
the method of distribution is by means of an underwriting, on the date that
the shares of Registrable Securities are delivered to the underwriters for
sale pursuant to such registration, or if such Registrable Securities is
not being sold through underwriters, on the date that the registration
statement with respect to such shares of Registrable Securities becomes
effective: (A) a signed opinion, dated such date, of the independent legal
counsel (which counsel shall be reasonably acceptable to a majority in
interest of the Rights Holders) representing Issuer for the purpose of such
registration, addressed to the underwriters, if any, and if such
Registrable Securities is not being sold through underwriters, then to the
Rights Holders making such request, as to such matters as such underwriters
or the Rights Holders holding a majority of the Registrable Securities
included in such registration, as the case may be, may reasonably request
and as would be customary in such a transaction; and (B) letters dated such
date and the date the offering is priced from the independent certified
public accountants of Issuer, addressed to the underwriters, if any, and if
such Registrable Securities is not being sold through underwriters, then to
the Rights Holders making such request and, if such accountants refuse to
deliver such letters to such Rights Holders, then to Issuer: (1) stating
that they are independent certified public accountants within the meaning
of the Securities Act and that, in the opinion of such accountants, the
financial statements and other financial data of Issuer included in the
registration statement or the prospectus, or any amendment or supplement
thereto, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act; and (2) covering such other
financial matters (including information as to the period ending not more
than five Business Days prior to the date of such letters) with respect to
the registration in respect of which such letter is being given as such
underwriters or the Rights Holders holding a majority of the Registrable
Securities included in such registration, as the case may be, may
reasonably request and as would be customary in such a transaction;
(vii) enter into customary agreements (including if the method of
distribution is by means of an underwriting, an underwriting agreement in
customary form) and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of the Registrable
Securities to be so included in the registration statement;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, but not later than fifteen
months after the effective date of the registration statement, an earnings
statement covering the period of at least twelve months beginning with the
first full month after the effective date of such registration statement,
which earnings statements shall satisfy the provisions of Section 11(a) of
the Securities Act; and
(ix) use its best efforts to list the Registrable Securities covered
by such registration statement with any securities exchange on which the
Common Stock is then listed.
For purposes of Section 3(d)(i) and (ii) the period of distribution of
Registrable Securities in a firm commitment underwritten public offering shall
be deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Registrable
Securities in any other registration shall be deemed to extend until the earlier
of the sale of all Registrable Securities covered thereby and six months after
the effective date thereof.
(e) Rights Holder Information. It shall be a condition precedent to
the obligations of Issuer to take any action pursuant hereto that the
Rights Holders shall furnish to Issuer such information regarding
themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as Issuer may reasonably request
and as shall be required in connection with the action to be taken by
Issuer.
(f) Expenses of Registration. All expenses incurred in connection with
each registration pursuant to Sections 3(a), (b), and (c), excluding
underwriters' discounts and commissions, but including, without limitation,
all registration, filing, and qualification fees; word processing,
duplicating, printers', and accounting fees (including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance); fees of the National Association of Securities
Dealers, Inc. or listing fees; messenger and delivery expenses; all fees
and expenses of complying with state securities or blue sky laws; and the
reasonable fees and disbursements of counsel for Issuer; shall be paid by
Issuer. The Rights Holders shall bear and pay the fees and disbursements of
their respective counsel and underwriting commissions and discounts
applicable to securities offered for their account in connection with any
registrations, filings, and qualifications made pursuant hereto.
(g) Underwriting Requirements. In connection with any underwritten
offering, Issuer shall not be required under Section 3(b) to include shares
of Registrable Securities in such underwritten offering unless the Rights
Holders of such shares of Registrable Securities accept the terms of the
underwriting of such offering that have been reasonably agreed upon between
Issuer and the underwriters selected by Issuer.
(h) Rule 144 and Rule 144A Information. With a view to making
available the benefits of certain rules and regulations of the Commission
which may at any time permit the sale of the Registrable Securities to the
public without registration: (i) at all times after ninety days after any
registration statement covering a public offering of securities of Issuer
under the Securities Act has become effective, Issuer shall: (A) make and
keep public information available, as those terms are understood and
defined in Rule 144 under the Securities Act; (B) file with the Commission
in a timely manner all reports and other documents required of Issuer under
the Securities Act and the Exchange Act; and (C) furnish to each Rights
Holder of Registrable Securities forthwith upon request a written statement
by Issuer as to its compliance with the reporting requirements of such Rule
144 and of the Securities Act and the Exchange Act, a copy of the most
recent annual or quarterly report of Issuer, and such other reports and
documents so filed by Issuer as such Rights Holder may reasonably request
in availing itself of any rule or regulation of the Commission allowing
such Rights Holder to sell any Registrable Securities without registration;
and (ii) at all times during which the Issuer is neither subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, nor
exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, it
will provide, upon the written request of any holder of Shares, Warrants,
or Registrable Securities, in written form (as promptly as practicable and
in any event within fifteen business days), to any prospective buyer of
such stock designated by such holder, all information required by Rule
144A(d)(4)(i) of the General Regulations promulgated by the Commission
under the Securities Act.
(i) Indemnification. In the event any Registrable Securities is
included in a registration statement hereunder:
(i) Issuer shall indemnify and hold harmless each Rights Holder,
such Rights Holder's directors and officers, each person who
participates in the offering of such Registrable Securities, including
underwriters (as defined in the Securities Act), and each person, if
any, who controls such Rights Holder or participating person within
the meaning of the Securities Act, against any losses, claims,
damages, or liabilities, joint or several, to which they may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or proceedings in respect thereof)
arise out of or are based on any untrue or alleged untrue statement of
any material fact contained in such registration statement on the
effective date thereof (including any prospectus filed under Rule 424
under the Securities Act or any amendments or supplements thereto) or
arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall
reimburse each such Rights Holder, such Rights Holder's directors and
officers, such participating person or controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in
this Section 3(i)(i) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of Issuer (which consent shall not be
unreasonably withheld); provided, further, that Issuer shall not be
liable to any Rights Holder, such Rights Holder's directors and
officers, participating person or controlling person in any such case
for any such loss, claim, damage, liability, or action to the extent
that it arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in connection
with such registration statement, preliminary prospectus, final
prospectus, or amendments or supplements thereto, in reliance upon and
in conformity with written information furnished expressly for use in
connection with such registration by any such Rights Holder, such
Rights Holder's directors and officers, participating person or
controlling person. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of any
such Rights Holder, such Rights Holder's directors and officers,
participating person or controlling person, and shall survive the
transfer of such securities by such Rights Holder.
(ii) Each Rights Holder requesting or joining in a registration
severally and not jointly shall indemnify and hold harmless Issuer,
each of its directors and officers, each person, if any, who controls
Issuer within the meaning of the Securities Act, and each agent and
any underwriter for Issuer (within the meaning of the Securities Act)
against any losses, claims, damages, or liabilities, joint or several,
to which Issuer or any such director, officer, controlling person,
agent, or underwriter may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or
proceedings in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in such registration statement on the effective date thereof
(including any prospectus filed under Rule 424 under the Securities
Act or any amendments or supplements thereto) or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such
registration statement, preliminary or final prospectus, or amendments
or supplements thereto, in reliance upon and in conformity with
written information furnished by or on behalf of such Rights Holder
expressly for use in connection with such registration; and each such
Rights Holder shall reimburse any legal or other expenses reasonably
incurred by Issuer or any such director, officer, controlling person,
agent, or underwriter (but not in excess of expenses incurred in
respect of one counsel for all of them unless there is an actual
conflict of interest between any indemnified parties, which
indemnified parties may be represented by separate counsel) in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 3(i)(ii) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of such
Rights Holder (which consent shall not be unreasonably withheld); and
provided, further, that the liability of each Rights Holder hereunder
shall be limited to the proportion of any such loss, claim, damage,
liability, or expense which is equal to the proportion that the net
proceeds from the sale of the shares sold by such Rights Holder under
such registration statement bears to the total net proceeds from the
sale of all securities sold thereunder, but not in any event to exceed
the net proceeds received by such Rights Holder from the sale of
Registrable Securities covered by such registration statement.
(iii) Promptly after receipt by an indemnified party under this
Section 3(i) of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against any indemnifying party under this Section 3(i), notify the
indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate in and assume
the defense thereof with counsel selected by the indemnifying party
and reasonably satisfactory to the indemnified party; provided,
however, that an indemnified party shall have the right to retain its
own counsel, with all fees and expenses thereof to be paid by such
indemnified party, and to be apprised of all progress in any
proceeding the defense of which has been assumed by the indemnifying
party. The failure to notify an indemnifying party promptly of the
commencement of any such action, if and to the extent prejudicial to
its ability to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this Section
3(i), but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 3(i).
(iv) To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, or liabilities in such proportion as is appropriate
to reflect the relative fault of the indemnifying party and
indemnified party in connection with the actions which resulted in
such losses, claims, damages, or liabilities, as well as any other
relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by
reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of material fact or
omission or alleged omission to state a material fact, has been made
by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access
to information, and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims,
damages, or liabilities referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party
in connection with any investigation or proceeding. The parties hereto
agree that it would not be just and equitable if contribution pursuant
to this Section 3(i)(iv) were determined by pro rata allocation or by
any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
sentence. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(j) Lockup. Each Rights Holder shall, in connection with any
registration of Issuer's securities, upon the request of Issuer or the
underwriters managing any underwritten offering of Issuer's securities,
agree in writing not to effect any sale, disposition, or distribution of
any Registrable Securities (other than that included in the registration)
without the prior written consent of Issuer or such underwriters, as the
case may be, for such period of time not to exceed ninety days from the
effective date of such registration as Issuer or the underwriters may
specify; provided, however, that all executive officers and directors of
Issuer and all of the significant stockholders of Issuer also have agreed
not to effect any sale, disposition, or distribution of any Securities held
thereby pursuant to any registration rights granted by Issuer, under the
circumstances and pursuant to the terms set forth in this Section 3(j).
(k) Assignment of Registration Rights. Each Rights Holder may assign
its registration rights (and, in connection therewith, shall delegate its
related obligations) hereunder with respect to any Registrable Securities
to any transferee of such Registrable Securities; provided that: (i) the
transferring Rights Holder shall promptly give Issuer written notice of
such assignment stating the name and address of the assignee and
identifying the Securities with respect to which the registration rights
hereunder were assigned; (ii) such assignee agrees in writing to be bound
as a Rights Holder by the provisions of this Section 3; and (iii)
immediately following such assignment the further disposition of such
Securities by such assignee is restricted under the Securities Act. Except
as set forth in this Section 3(k), no transfer of Registrable Securities
shall cause such Registrable Securities to lose such status.
(l) Limits on Other Registration Rights. From and after the date
hereof, Issuer shall not, without the prior written consent of the Rights
Holders holding a majority of the then outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any
Securities which agreement would allow such holder or prospective holder:
(i) for a period of two years from the date hereof, to include such
Securities in any registration filed pursuant to Section 3(a) or (c),
unless, under the terms of such agreement, such holder or prospective
holder may include such Securities in any such registration only to the
extent that the inclusion of such Securities would not reduce the amount of
the Registrable Securities included in such registration; or (ii) to make a
demand registration which could result in such registration statement being
declared effective prior to the ninetieth day after the one year
anniversary of the date hereof; and no Person currently has any such rights
pursuant to the certificate of incorporation (including any certificate of
designations thereto) of Issuer or any effective contract to which Issuer
is a party or otherwise, other than as expressly described in Section 5(x)
of the Disclosure Schedule.
SECTION 4. Information Rights. (a) Reporting Requirements. Issuer shall
deliver to each Rights Holder: (i) as soon as available, and in any event within
thirty days after the end of each month, copies of the balance sheet of Issuer
as at, and the related statements of income, retained earnings, and changes in
cash flow of Issuer for the preceding month, in each case, prepared in
accordance with United States generally accepted accounting principles
consistently applied, and certified by the chief executive officer and chief
financial officer of Issuer; (ii) as soon as available, and in any event within
forty-five days after the end of each of the first three quarters of each fiscal
year, copies of the balance sheet of Issuer as at, and the related statements of
income, retained earnings, and changes in cash flow of Issuer for the period
commencing at the end of the previous fiscal year and ending at, the end of such
quarter, in each case, prepared in accordance with United States generally
accepted accounting principles consistently applied, and certified by the chief
executive officer and chief financial officer of Issuer; (iii) as soon as
available, and in any event within ninety days after the end of each fiscal
year, copies of the audited balance sheet of Issuer as at the end of, and the
related audited statements of income, retained earnings, stockholders' equity,
and changes in financial position of Issuer for, such fiscal year, in each case,
prepared in accordance with United States generally accepted accounting
principles consistently applied, together with all related notes and schedules
thereto and accompanied by the report thereon of the independent public
accountants of Issuer; (iv) as soon as available, and in any event within thirty
days prior to the end of each fiscal year, copies of the annual business plan
and the budget for the next fiscal year, and, as soon as prepared, any other
budgets, revised budgets or business plans prepared by Issuer, in each case
certified by the highest ranking executive officer of Issuer; (v) promptly after
any report, notice, or other document is filed by Issuer with, or received by
Issuer from, any Governmental Authority, copies of such report, notice, or other
document, which report, notice or document relates to a matter that could
reasonably be expected to have a Material Adverse Effect; and (vi) promptly
after any request therefor, such other information with respect to Issuer's
business, operations, assets, properties, condition, and goodwill, financial or
otherwise, as any Rights Holder may from time to time reasonably request.
(b) Books and Records. Issuer shall maintain at its principal place of
business in the United States of America true and complete records and ledgers
and other books of account prepared in accordance with United States generally
accepted accounting principles consistently applied and complying in all
respects with all applicable Laws.
(c) Access to Information. Upon reasonable notice, Issuer shall afford each
Rights Holder and their respective Representatives reasonable access, during
normal business hours, to the executive officers of Issuer, and to the offices,
properties, and other facilities, and the books and records of Issuer (and, upon
any Rights Holder's request, provide to such Rights Holder copies of such books
and records).
SECTION 5. Compliance With Laws, Etc. Issuer shall, and shall cause each
Subsidiary thereof to, comply in all material respects with all applicable Laws
and Governmental Orders.
SECTION 6. 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:
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Name:
Title:
STARWOOD HOTELS AND RESORTS WORLDWIDE, INC.
By:
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Name:
Title:
