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EXHIBIT 3
DEVELOPMENT AGREEMENT
DEVELOPMENT AGREEMENT, dated as of July 27, 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 ("GCI"); and STARWOOD HOTELS AND RESORTS
WORLDWIDE, INC., a corporation organized and existing under the laws of the
State of Maryland ("STARWOOD");
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 GCI and Starwood, GCI
issued to Starwood 666,667 shares of common stock of GCI, par value $0.00004 per
share (the "COMMON STOCK"), and warrants to purchase 666,667 shares of Common
Stock;
WHEREAS, GCI is principally engaged in the business of
developing, managing, operating, and licensing restaurants under the "Grill"
(the "GRILL"), the "Daily Grill" (the "Daily"), and the "City Bar & Grill" (the
"CITY") trademarks and business concepts;
WHEREAS, GCI and Starwood wish to consider jointly developing
Grill-, Daily-, and City-branded restaurants in certain hotels (collectively,
the "STARWOOD PROPERTIES") owned, managed, or franchised by Starwood (any such
restaurant developed in any Starwood Property, a "GCI CONCEPT FACILITY"), all
upon the terms and subject to the conditions set forth herein; and
WHEREAS, it is a condition precedent to Starwood's willingness
to consummate the transactions contemplated by the Subscription Agreement that
GCI 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. Development Proposals; Negotiation in Good Faith.
Either party hereto may at any time in its sole discretion propose to develop a
new GCI Concept Facility in any Starwood Property. Upon the making of any such
proposal, each party hereto shall negotiate in good faith with a view to
agreeing on the terms and conditions applicable to such development; but neither
party hereto shall have any legal or binding obligation or commitment to enter
into any agreement with respect to any such proposed development. Whenever
Starwood and GCI agree to develop a new GCI Concept Facility in any Starwood
Property, they shall, among other things, enter into a management agreement
which shall be negotiated on a property-by-property basis using, as a starting
point, the management agreement term sheet
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attached as Exhibit A hereto (each, a "Management Agreement"), in the case of
any Grill- or Daily-branded restaurant, or a license agreement which shall be
negotiated on a property-by-property basis using, as a starting point, the
template agreement attached as Exhibit B hereto (each, a "License Agreement"),
in the case of any City-branded restaurant.
SECTION 3. Exclusivity. (a) GCI shall not, and shall not
permit any controlled Affiliate thereof to, develop, manage, operate, or license
any Grill-, Daily-, or City-branded restaurant in any hotel or resort owned,
managed, or franchised by any Person that owns the rights to be a licensor or
franchisor of a hotel brand name (a "Flag") whereby there are greater than fifty
(50) hotels or resorts operating under such Flag (any such Person, a "Major
Hotel Operator"); provided that this restriction shall not apply to the Grill-,
Daily- and City-branded restaurants listed on Exhibit C hereto, which
restaurants GCI hereby represents to Starwood are the only Grill-, Daily- or
City-branded restaurants that GCI develops, manages, operates or licenses (or
with respect to which GCI is in the process of negotiating Management Agreements
or License Agreements) in any hotel or resort owned, managed, or franchised by a
Major Hotel Operator (other than Starwood) as of the date hereof; provided
further that this restriction shall not restrict GCI from engaging in branded
operations with non-Major Hotel Operators.
(b) All of GCI's covenants under this Section 3, including
Sections 3(a), 3(b), 3(c) and 3(d), shall expire and be of no further force or
effect at midnight on any anniversary of the Closing Date (each, an "ANNIVERSARY
DATE"), if (i) the aggregate number of GCI Concept Facilities covered by
Management Agreements and/or License Agreements entered into during the period
commencing on the Closing Date and ending on such Anniversary Date; divided by
(ii) the number of full calendar years that have elapsed between the Closing
Date and such Anniversary Date; is less than 3.0. Solely by way of illustration,
if the aggregate number of GCI Concept Facilities covered by Management
Agreements and/or License Agreements entered into during the first twelve-month
period following the Closing Date is nine (9), GCI's covenant under Section 3(a)
shall remain in effect until at least the fourth anniversary of the Closing Date
(as of which date it will expire if the aggregate number of GCI Concept
Facilities covered by Management Agreements and/or License Agreements entered
into during such four-year period is less than twelve (12)).
(c) Subject to the provisions of Section 3(b) above, GCI's
covenant under Section 3(a) with respect to Daily-branded restaurants only shall
expire and be of no further force or effect at midnight on any Anniversary Date,
if (i) the aggregate number of Daily-branded GCI Concept Facilities covered by
Management Agreements entered into during the period commencing on the Closing
Date and ending on such Anniversary Date; divided by (ii) the number of full
calendar years that have elapsed between the Closing Date and such Anniversary
Date; is less than 1.0. Solely by way of illustration, if the aggregate number
of Daily-branded GCI Concept Facilities covered by Management Agreements entered
into during the first twelve-month period following the Closing Date is three
(3), and provided GCI's covenant has not expired pursuant to the terms of
Section 3(b), GCI's covenant under Section 3(a) with respect to Daily-branded
restaurants shall remain in effect until at least the fourth anniversary of the
Closing Date (as of which date it will expire if the aggregate number of
Daily-branded GCI Concept Facilities covered by Management Agreements entered
into during such four-year period is less than four (4)).
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(d) Subject to the provisions of Section 3(b) above, GCI's
covenant under Section 3(a) with respect to Grill-branded restaurants only shall
expire and be of no further force or effect at midnight on the second
anniversary of the Closing Date or on any consecutive two-year anniversary
thereof, if the aggregate number of Grill-branded GCI Concept Facilities covered
by Management Agreements entered into during the two-year period ending on such
date is less than one (1). Solely by way of illustration, if the aggregate
number of Grill-branded GCI Concept Facilities covered by Management Agreements
entered into during the first twelve-month period following the Closing Date is
two (2), and provided GCI's covenant has not expired pursuant to the terms of
Section 3(b), GCI's covenant under Section 3(a) with respect to Grill-branded
restaurants shall remain in effect until at least the sixth anniversary of the
Closing Date (as of which date it will expire if the aggregate number of
Grill-branded GCI Concept Facilities covered by Management Agreements entered
into during such six-year period is less than three (3)).
SECTION 4. Development Warrants. GCI shall issue to Starwood,
promptly after the date as of which the aggregate number of GCI Concept
Facilities covered by Management Agreements and/or License Agreements entered
into on or after the date hereof reaches five, ten, fifteen, and twenty (each, a
"DEVELOPMENT THRESHOLD DATE"), a warrant substantially in the form attached as
Exhibit D hereto (each, a "DEVELOPMENT WARRANT") to purchase a number of shares
of Common Stock representing, four percent (4%) of the then outstanding shares
of Capital Stock of GCI (for purposes of this Agreement, the term "Capital
Stock" shall refer to the aggregate of the then outstanding shares of Common
Stock and the then outstanding shares of any class or series of preferred stock
of GCI).
(a) If the Fair Market Value of the Common Stock as of the
applicable Development Threshold Date is greater than the Fair Market Value of
the Common Stock as of the Closing Date (the "CLOSING DATE SHARE PRICE"), the
Development Warrants will have an exercise price equal to the greater of (i)
seventy-five percent (75%) of the Fair Market Value of the Common Stock as of
the applicable Development Threshold Date; and (ii) the Closing Date Share
Price; or
(b) If the Fair Market Value of the Common Stock as of the
applicable Development Threshold Date is less than the Closing Date Share Price,
the Development Warrants will have an exercise price equal to the Fair Market
Value of the Common Stock as of the applicable Development Threshold Date.
For the avoidance of doubt, the Development Threshold Date shall be the date of
the opening to the public of the relevant GCI Concept Facility that triggered
GCI's obligation to issue the Development Warrants.
SECTION 5. Incentive Warrants. (a) If, as of the date of
execution of any Management Agreement or License Agreement covering any new GCI
Concept Facility (the "INITIAL INCENTIVE THRESHOLD DATE"), the aggregate number
of GCI Concept Facilities covered by Management Agreements and/or License
Agreements entered into on or after the date hereof (the "AGGREGATE NEW
FACILITIES") represents more than thirty-five percent (35%) of the then existing
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Grill-, Daily-, or City-branded restaurants (including all such GCI Concept
Facilities) (the "INCENTIVE THRESHOLD"), GCI shall issue to Starwood, promptly
after the Initial Incentive Threshold Date, a warrant substantially in the form
attached as Exhibit D hereto to purchase a number of shares of Common Stock
representing, 0.75 percent (three-quarters of one percent) of the then
outstanding shares of Capital Stock of GCI (an "INCENTIVE WARRANT") at an
exercise price in each case equal to the Fair Market Value of the Common Stock
on the Initial Incentive Threshold Date.
(b) (i) If, as of the first anniversary of the Initial
Incentive Threshold Date (the "FIRST INCENTIVE ANNIVERSARY DATE"), the Aggregate
New Facilities exceed the Incentive Threshold, GCI shall issue to Starwood,
promptly thereafter, an additional Incentive Warrant at an exercise price equal
to the Fair Market Value of the Common Stock on the First Incentive Anniversary
Date to purchase a number of shares of Common Stock representing 0.75 percent
(three-quarters of one percent) of the then outstanding shares of Capital Stock
of GCI, and GCI shall issue to Starwood an additional Incentive Warrant on each
subsequent anniversary of the Initial Incentive Threshold Date (at an exercise
price in each case equal to the Fair Market Value of the Common Stock as of the
applicable anniversary thereof) to purchase a number of shares of Common Stock
representing 0.75 percent (three-quarters of one percent) of the then
outstanding shares of Capital Stock of GCI until the Aggregate New Facilities do
not exceed the Incentive Threshold as of any such anniversary date; and (ii) if,
as of the First Incentive Anniversary Date or any subsequent anniversary
thereof, the Aggregate New Facilities do not exceed the Incentive Threshold, GCI
shall not be obligated to issue to Starwood an additional Incentive Warrant
unless and until the Aggregate New Facilities again exceed the Incentive
Threshold as of the date of execution of a Management Agreement or License
Agreement covering a new GCI Concept Facility (a "SUBSEQUENT INCENTIVE THRESHOLD
DATE"). In such event, GCI shall be obligated to issue to Starwood an additional
Incentive Warrant promptly thereafter and on each subsequent anniversary of the
Subsequent Incentive Threshold Date (at an exercise price in each case equal to
the Fair Market Value of the Common Stock as of the Subsequent Incentive
Threshold Date or the applicable anniversary thereof) to purchase a number of
shares of Common Stock representing 0.75 percent (three-quarters of one percent)
of the then outstanding shares of Capital Stock of GCI until the Aggregate New
Facilities do not exceed the Incentive Threshold as of any such anniversary
date. In such event, GCI's obligation to issue additional Incentive Warrants
will be suspended until the Aggregate New Facilities again exceed the Incentive
Threshold. The provisions of this Section 5(b) shall apply iteratively until the
expiration or termination of this Agreement.
SECTION 6. Account Management. Promptly after the execution
and delivery of the first Management Agreement or License Agreement hereunder,
GCI shall assign one of its account managers to Starwood's GCI Concept Facility
development team. The specific terms of such assignment shall be negotiated by
the parties in good faith, with the understanding that as the number of GCI
Concept Facilities increases it will become a full-time position.
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SECTION 7. 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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EXHIBIT A
FORM OF MANAGEMENT AGREEMENT TERM SHEET
Starwood and Grill Concepts may desire to enter into a Management Agreement to
govern the relationship at a Starwood site. The following terms may govern such
a relationship and may be used in negotiating a definitive management agreement,
however in no way shall anything listed below be binding to either party.
Starwood hotel/ restaurant = HOT Grill Concepts = GRIL
1. TERM [5 to 10] years, with [one] 5-year renewal term based
on performance metrics, which may include, but are not
limited to hurdles based on revenue and return on
capital
2. GRIL May include, but are not limited to:
SERVICES - Meals (breakfast, lunch, dinner)
[includes restaurant and bar]
- Banquets and Catering*
- Room/ Poolside Service*
- Training
- Marketing
- Budgeting
- Coordination of construction
and/or capital improvements
- Employee discounts on meals
3. AGENCY GRIL will operate as an independent contractor, all
restaurant employees [may] be employees of GRIL
4. FEE Net Income from [Meals] only may be distributed as
follows:
STRUCTURE a. HOT Priority Return of [12]% of total development
costs (remodel and pre-opening costs)
b. GRIL Primary Mgmt. Fee of [3]% of total revenues**
c. HOT Secondary Return of [3]% of total development
costs (remodel and pre-opening costs)
d. GRIL Secondary Mgmt. Fee of [1-2]% of total
revenues**
e. If net income is insufficient to make payments
[a,b,c,d], such fees will accrue [with interest]
and be payable in such year as there is additional
net income remaining after the pay out of items x-x
x. Remaining Net Income split [60-65]% to HOT and
[35-40]% to GRIL
* Net income from these services may not be on the same
income distribution terms as listed above. GRIL's
incentive compensation for Banquets and Catering may be
based on a [X]% above a pro-forma net income number and
capped at $[X].
** If applicable, a cost allocation (rental) payment to
HOT of [4-10]% of total revenues may be distributed in
priority to any or all priority and/ or secondary
returns.
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5. TERMINATION The agreement may be terminated by HOT after the
following:
- Events of default (GRIL may also terminate under
events of default)
- HOT does not receive a minimum annual payment of
[10-12]% of total development cost and/ or a [X]%
cost allocation (rental) payment
- Delays pertaining to the failure of GRIL to, if
GRIL is responsible for these areas:
a) deliver the initial remodel plans within 60
days of agreement execution
b) submit initial
remodel plans to the City within 90 days of
execution
c) obtain all applicable building
permits within 180 days of execution
d) obtain conditional liquor license approval
from the State within 180 days of execution
Reasonable cure periods/ additional termination
provisions may be included in this section
6. ASSIGNMENT If HOT transfers its ownership of the site,
HOT may have the right to terminate this agreement with
90 days notice upon payment of a termination fee equal
to the sum of GRIL's fees over the trailing [24-36]
months (items referenced in sections 4b, 4e, and 4f)
divided by [24-36], and multiplied by the months
remaining in the term, provided that the termination fee
may be no less than the sum of GRIL's trailing [12]
month fees (as referenced above) and no greater than the
sum of GRIL's trailing [24-36] month fees
7. GOVERNING State where the restaurant is located
LAW
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EXHIBIT B
FORM OF LICENSE AGREEMENT
LICENSE AGREEMENT TEMPLATE
TO BE NEGOTIATED BY THE LICENSED SITE
This Agreement is made effective as of ___________________ (the
"Effective Date") by and between Hotel Restaurant Properties, Inc. II ("HRPII")
with offices at 00000 Xx Xxxxxx Xxx., Xxx Xxxxxxx, XX 00000, Grill Concepts,
Inc. ("Affiliate") with offices at 00000 Xxx Xxxxxxx Xxxxxxxxx, Xxxxx 000, Xxx
Xxxxxxx, XX 00000 and ______________________ (the "Operator") with offices at
______________________________.
WHEREAS, HRPII and/or Affiliate own and operate, among other
restaurants, The Daily Grill restaurant chain ("Daily Grill"), the City Bar &
Grill ("City Grill") and have substantial experience in the management and
operation of such restaurants. For the purpose of this Agreement, Licensor shall
mean HRPII and/or Affiliate.
WHEREAS, for the purpose of this Agreement, "Licensor Managed Units"
shall be defined as all Daily Grill and City Grill locations that (a) have been
open for greater than twelve (12) months and (b) have been operated by Licensor
whereby substantially all of the restaurant employees are employees of the
Licensor;
WHEREAS, Licensor has developed and continues to develop certain
proprietary recipes and food products described on Exhibit A (the "Proprietary
Products");
WHEREAS, in connection with the sale of such Proprietary Products,
Licensor has developed and owns certain designs, logos, names and trademarks as
described on Exhibit B (the "Name and Marks");
WHEREAS, the Operator currently manages the ___________________ Hotel
("Hotel Manager") including an existing hotel restaurant, bar, and operation
which, pursuant to the terms hereof, will be converted to a full service
restaurant under the name the "[City Grill]" (the "Restaurant") using
proprietary recipes, logos and systems developed by Licensor;
WHEREAS, the Operator wishes to use certain Proprietary Products and
Names and Marks of Licensor in connection with the operation of the Restaurant,
all as hereinafter described;
WHEREAS, Licensor has agreed to permit such use of its Proprietary
Products, Names and Marks upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration for the premises hereto and the mutual
covenants and agreements hereinafter contained the parties agree as follows:
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1. TERM
Subject to Section 7 and the provisions herein, this Agreement shall be
in effect for a term of ten (10) years commencing as of the Effective Date (the
"Term").
2. GRANT OF RIGHTS
Licensor represents that it is the owner of the Name and the Marks as
shown on Exhibit B. Subject to Operator satisfying its obligations to Licensor
hereunder, Licensor hereby (a) grants Operator during the term hereof, the
non-exclusive right to use the Name and Marks in connection with the Restaurant
in the ___________ Hotel (the "Hotel"), and (b) covenants during the Term
hereof, not to license the use of its Name and Marks to any third party for use
within a ________ mile radius of the Hotel.
3. DESIGN AND CONSTRUCTION APPROVAL
Operator will be required to pay all costs to convert the existing
Restaurant to a turn-key [City Grill] facility of comparable quality to the
existing Licensor Managed Units. Operator and Licensor agree to follow the
design and construction approval process described in Exhibit J.
4. SALE OF PROPRIETARY PRODUCTS
4.1 Operator agrees to feature the Names and Marks in the Restaurant
and sell certain Proprietary Products as referenced in Exhibit A and Exhibit B
throughout the Term of this Agreement.
4.2 In connection with its preparation and sale of Proprietary
Products, Operator covenants to:
(a) strictly abide by all Licensor's recipe formulations related
to such products, including specifications for production,
cooking, temperature and holding times;
(b) insure that wholesome and unadulterated ingredients are used
in the production of the Proprietary Products and that such
ingredients meet the grade levels prescribed by Licensor in
its recipes;
(c) maintain quality standards described in Licensor's Manuals,
copies of which will be delivered to and received by Operator.
Means and methods of production shall be maintained using the
system consistent with those at the Licensor Managed Units.
(d) use ingredients purchased only from approved suppliers where
use of such items is specified by Licensor and to abide by
established shelf life set for such items; as long as the
Operator requested supplier can provide the same ingredients
used by Licensor at the Licensor Managed Units, the selection
and approval of
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suppliers shall not be unreasonable and approval of new
suppliers shall not be unreasonably delayed.
(e) use only Licensor approved and/or specified packaging for the
Proprietary Products;
(f) obtain prior approval from Licensor for all uses of Licensor's
Marks and/or Name, such approval shall not be unreasonably
withheld or delayed; and all Restaurant items that use the
[City Grill] name and/or logo as subsequently modified or
amended including, but not limited to menus, marketing
collateral, signage, and promotion within the Hotel;
(g) provide Restaurant patrons with the menus in Exhibit D which
have been mutually approved by Operator and Licensor at the
execution of this Agreement ("Approved Menus"); and
(h) maintain all food and beverage items on the Approved Menus,
the portion size, ingredients, ingredient quality, and plate
presentation relating to each Approved Menu item and not
change any of the foregoing without the prior written consent
of Licensor.
4.3 In furtherance of the above, Licensor will provide Operator with
the right to utilize the proprietary [City Grill] breakfast, lunch, dinner,
children's, and bar menus requirements for each menu item on the Approved Menus
and provide Operator with complete recipe cards, and plate presentation
requirements including photographs for each menu item on the Approved Menus.
5. ROYALTY FEES
5.1 In consideration of the rights granted pursuant to Section 2 above,
Operator shall pay Licensor a royalty ("Royalty Payment") equal to the greater
of (i) 2% of Gross Revenues (as defined below) derived from the sale of food and
beverage from the Restaurant, or (ii) $75,000 per year ("Minimum Annual
Royalty"). The Minimum Annual Royalty shall be increased annually by the CPI
Increase defined below. As used herein, the term "CPI" means the Price Index
(or, if that Index is no longer published or is revised, a successor or
substitute index appropriately adjusted) published by the Bureau of Labor
Statistics of the United States Department of labor, for the Los Angeles County,
California area, for a calendar month. As used herein, the term "Base Index"
means the Price Index for the month during which the Effective Date occurs. On
each anniversary date of the Effective Date during the Term, the percentage of
increase, if any, in the then Price Index over the Base Index shall be
determined (the "CPI Increase"); notwithstanding the foregoing, however, for
purposes hereof, in no event shall the CPI Increase during the Term be greater
than six percent (6%) per year.
5.2 Upon execution of this Agreement, Operator shall pay Licensor a sum
of $75,000 ("Initial Royalty"). The Initial Royalty payment will be applied to
the first year's Royalty Payment. The Royalty Payments commencing at the
beginning of the Second Year shall be paid
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to Licensor on a monthly basis without offset or deduction, with each such
payment due and payable on the 15th day of the following month. The minimum
monthly Royalty payment will be equal to the Minimum Annual Royalty divided by
12. The Royalty Payment due Licensor for each twelve (12) month period during
the Term shall be computed based on Operator's Gross Revenue at the Restaurant
for each said period. To the extent the Royalty Payment due Licensor for each
such 12 month period exceeds the aggregate of the minimum monthly Royalty
Payments received by Licensor for such period, Operator shall pay Licensor a sum
equal to the amount of such excess; on or before the tenth day of the month
following the last month of the 12th month of the period in question.
5.3 Operator shall be required to electronically transmit its daily
Gross Sales to Licensor on a daily basis; Licensor will assist Operator in
automating this process. Operator shall be required to provide Licensor with a
monthly Profit and Loss Statement for the Restaurant (Licensor is to assist
Operator in the development of automated processing of the daily Gross Sales
report. Failure to provide automated daily Gross Sales reports shall not be an
Event of Default so long as good faith efforts are made to provide the daily
Gross Sales information on a daily basis by other means in a timely manner);
such Profit and Loss Statement shall be prepared in a manner consistent with
GAAP and contain the final numbers contained in Operator's general ledger.
Operator shall promptly notify Licensor of any adjustments made to such
statements and concurrently provide all such restated statements to Licensor.
Licensor shall have the right to audit (at its sole cost and expense) all
records relating to Operator's Gross Revenue at the Restaurant and the
calculation of fees payable hereunder for a period of three (3) years following
each payment period. In the event such audit discloses an error in reported
Gross Sales, in an amount greater than 2.5% of such Gross Sales then, in
addition to immediately paying to Licensor the additional Royalty Payment due,
Operator shall reimburse Licensor for all of its reasonable costs and expenses
attributable to such audit.
5.4 Gross Revenue shall mean all revenues generated at the Restaurant
from all sources, including without limitation all Restaurant, Room Service and
Bar revenues, excluding only those Exclusions expressly set forth on attached
Exhibit I.
6. METHODS AND STANDARDS OF OPERATION
6.1 Maintenance and Repair. Operator shall at all times maintain the
Restaurant in good condition and repair and shall be solely responsible for
maintenance, cleanliness, repair and replacement (where necessary to maintain it
in good operating condition), and any liabilities arising therefrom, including
but not limited to all signs, furniture, fixture, equipment and any other
tangible property on and about the Restaurant.
6.2 Compliance with Laws. Operator shall use reasonable efforts to
operate the Restaurant in strict compliance with all applicable laws, rules, and
regulations, of governmental authorities, including, but not limited to, any and
all alcoholic beverage control laws and regulations. Operator shall procure and
continuously maintain thereafter all necessary permits and licenses required for
the operation of the Restaurant.
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6.3 INSPECTION. Licensor, or their employees may, but shall not be
obligated to inspect the Restaurant during regular operating hours and interview
Operator's managers at any reasonable time to determine that the Restaurant is
being operated in accordance with the terms of this Agreement and to ensure the
protection of the Names and Marks, and the goodwill associated therewith.
6.4 PRE-OPENING TRAINING. Prior to opening the Restaurant under the
[City Grill] name and unless otherwise approved by the Licensor at its sole
discretion, Operator must complete the following training ("Pre-Opening
Training") of Operator's Key Personnel (as defined below). Operator's Key
Personnel shall include the: Restaurant Manager (restaurant General Manager),
Assistant Restaurant Manager, Head Chef, Sous Chef and Training Server.
Prior to the opening under the [City Grill] name, each of the Key
Personnel will be required to work and pass, in Licensor's reasonable
discretion, all then required training tests at an existing Daily Grill, [City
Grill], or Grill on the Alley training facility designated by the Licensor. The
length of this training will be between two (2) and four weeks (4) for each of
the Key Personnel positions other than the Head Chef position, which will be
between four (4) and six (6) weeks in duration.
Licensor shall use best efforts to select as the Daily Grill Training
Facility a Daily Grill site that is reasonably close in proximity to Operator's
location. Licensor may also consider the designation of a Starwood location as
an approved training facility. Such a Starwood facility shall have been in
operation for no less than one (1) year. Notwithstanding the foregoing,
selection of the Training Facility shall be at Licensor's sole discretion,
provided that if Starwood demonstrates to GRIL's satisfaction that one or more
[City]-branded restaurants located in a Starwood property is qualified to be a
training site for Starwood's (or its properties') employees at other
[City]-branded restaurants, GRIL, in its sole discretion, may designate such
restaurant as the training site for other [City]-branded restaurants to be
located in Starwood properties.
The Operator shall be required to pay for all travel, lodging, meals,
salary, benefits and other expenses of their Key Personnel attending this
training. Licensor will not charge any fees for conducting this Pre-Opening
Training.
6.5 OPENING TEAM. The Opening Period shall be deemed to extend for a
period of approximately two (2) weeks prior to the opening of the Restaurant
until two (2) weeks after the opening of the Restaurant. The Opening Period may
be extended by a total of fourteen (14) additional days at the reasonable
discretion of the Licensor. During the Opening Period, the Licensor, in its
discretion, will make arrangements for existing Licensor employees and managers
("Opening Team") to assist in the opening of the Restaurant under the [City
Grill] name.
Subject to modification by Licensor, in its reasonable discretion, the
Opening Team shall be comprised of the following personnel for the indicated
periods: one Training Coordinator (2-4 weeks), three Corporate Server Trainers
(2-4 weeks), one Xxxxxx Trainer (1-2 weeks), one Bartender Trainer (1-2 weeks),
and four Kitchen Trainers (3-4 weeks). The number of Opening Team members will
not exceed ten (10) people per day excluding Senior Managers as defined
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herein. In addition, Licensor salaried personnel ("Senior Managers") will make
periodic visits during the Opening Period and will be considered members of the
Opening Team.
The Operator shall be responsible for `providing on a complimentary
basis' each member of the Opening Team with the following: one guest room per
person per night, food and non-alcoholic beverage for each meal period, airport
transportation, and reimbursement for airfare for one coach round-trip ticket
from a home base location within the continental United States.
Additionally, the Operator shall pay Licensor $135.00 per day during
the Opening Period, per Opening Team member (excluding Senior Managers). This
per day fee shall be increased annually by the CPI Increase as defined in
Section 5.1. The hourly wages for the Opening Team members will be paid by
Licensor to such members directly.
In Exhibit E, Licensor has provided Operator with a detailed estimate
of Licensor's total Opening Team costs (excluding complimentary Hotel related
charges such as guestrooms and meals) for the Opening Period ("Opening Team Cost
Estimate"). The Opening Team Cost Estimate shall be paid by Operator to Licensor
thirty (30) days prior to the beginning of the Opening Period. A detailed
invoice reconciling the difference between the actual Opening Team costs and the
Opening Team Cost Estimate shall be delivered to Operator by Licensor within
twenty (20) days of the end of the Opening Period. If actual Licensor Opening
Team costs are less than the Opening Team Cost Estimate, Licensor shall refund
this over-payment within twenty (20) days of receipt of the invoice. If actual
Licensor Opening Team costs exceed the Opening Team Cost Estimate by less than
or equal to 15% of the estimate, Operator shall pay the shortage within twenty
(20) days of receipt of the invoice. If actual Licensor Opening Team costs
exceed the Opening Team Cost Estimate by greater than 15%, Operator shall pay
the first 15% of excess costs within twenty (20) days of receipt of the invoice
and Licensor will be responsible for all remaining costs above the initial 15%.
6.6 REQUIRED KEY PERSONNEL TRAINING. In order to ensure consistency and
quality of the [City Grill] brand (including its Proprietary Products, Names and
Marks), the Operator shall be required to have all of its Key Personnel trained
by Licensor at all times. In the event that there is turnover in a Key Personnel
position at the Restaurant, the Operator will be required to use its best
efforts to have the vacated Key Personnel position replaced ("New Key
Personnel") within sixty (60) days of the vacated position.
All New Key Personnel will be required to work and pass, in Licensor's
reasonable discretion, all then required training tests. The required training
tests will be similar to those provided to Licensor's employees at the Licensor
Managed Units. Licensor, at its reasonable discretion, shall require Key
Personnel to attend training at an existing [City Grill], Daily Grill, or Grill
on the Alley training facility designated according to Section 6.4 above. The
length of this training will be between two (2) and (4) four weeks for each of
the Key Personnel positions except the Head Chef position which will be between
four (4) and six (6) weeks in duration. At Licensor's sole discretion,
abbreviated training may be provided for Key Personnel including Head Chef if
competency and experience is sufficient to justify an abbreviated or accelerated
training schedule.
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The Operator shall be required to pay for all travel, lodging, meals, salary,
benefits and other expenses of their Key Personnel attending this training. In
addition, the Operator will be required to pay Licensor $100.00 per day per Key
Personnel for this Pre-Opening Training ("Training Fee"). The Training Fee will
be adjusted annually by the CPI Increase as defined above. The Training Fee
shall be payable within twenty (20) days of completing the training.
In the case of Head Chef training, Operator shall have the right to
temporarily fill the vacated Head Chef position during the time needed to
replace the vacation position and/or during the training period. Operator shall
temporarily fill the Head Chef position by requesting a temporary replacement
from a) Licensor; or b) another Starwood City or Daily Grill location. If a
temporary replacement is not available from Licensor or another Starwood City or
Daily Grill location, another Starwood non-City or Daily Grill location may be
used. At all times the cost of the temporary Head Chef, including salary and
benefits, shall be paid by Operator.
6.7 Operator acknowledges that changes to the menu offerings at the
Restaurant must be approved by Licensor in advance. Such approval shall be
subject to Licensor's reasonable discretion for breakfast menu items but at all
other times, such approval shall be subject to Licensor's sole discretion,
provided that any suggested additions to the menu items be consistent with the
menu offerings at Licensor Managed Units. In addition, should the Operator elect
to operate a buffet-style breakfast, such approval shall not be unreasonably
withheld or delayed by Licensor.
6.8 Operator covenants that the Restaurant will be managed by a manager
who has been properly trained with respect to Licensor's system and the
preparation and sale of the Proprietary Products.
6.9 TRADE-DRESS AND UNIFORMS. The Operator will be required to utilize
the specified china, glass, silver, small wares and buffet chafing dishes
utilized at other Licensor Managed Units. Operator is also required to conform
to the strict uniform dress standards for all salaried and hourly positions
within the Restaurant consistent with other Licensor Managed Units.
6.10 PROMOTIONAL PROGRAMS AND COLLATERAL. Licensor will make available
to Operator all promotional items available to Licensor Managed Units such as
menus, signs, table tents and advertising collateral. The cost of these items
will be paid by Operator to Licensor at Licensor's cost with no additional
xxxx-up. No signage, promotions, or advertising using the [City Grill] or other
Licensor Names or Marks will be permitted without the prior written approval of
Licensor. Approval not to be unreasonably withheld or delayed as long as such
approval is consistent with other Licensor Managed Units.
6.11 CHEF TRAINING. At the discretion of Licensor and for a maximum of
two (2) times per year, Operator will be required to send Operator's Head Chef
to a designated Licensor Managed Unit for a 1-3 day training program. This
training program will provide the Operator's Head Chef with further instruction
on how to prepare new menu items and to provide support and training on matters
impacting the kitchen operation.
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The Operator shall be required to pay for all travel, lodging, meals,
salary, benefits and all other expenses of Operator's personnel during this Chef
Training. No Training Fee shall be paid to Licensor for this training.
6.12 ANNUAL MANAGER TRAINING. At the discretion of Licensor and for a
maximum of one time per year, Operator will be required to send Operator's
Restaurant Manager to an annual Manager's Meeting which will be an informational
and training program for all licensed, managed and owned Licensor restaurants.
It is currently anticipated that this shall be a 2-3 day program; Licensor, may
in its discretion, adjust the duration of this training.
The Operator shall be required to pay for all travel, lodging, meals,
entertainment, salary, benefits and all other expenses of Operator's personnel
during this Annual Manager Training. No Training Fee shall be paid to Licensor
for this training.
6.13 PRICING POLICIES. Licensor shall provide Operator with average
menu pricing from Licensor Managed Units. Operator shall use the average menu
pricing to determine reasonable, market-competitive pricing for the Operator's
menu. As long as all Licensor Managed Units offer complimentary items such as
sourdough bread and soft beverage refills as a brand standard, Operator shall be
required to follow these standards.
6.14 INDEPENDENT SERVICE AUDITS. The Operator shall be required to have
a minimum of two (2) Independent Service Audits each month conducted by a
Licensor approved "mystery shopper" service ("Auditing Agency"). A list of
approved Auditing Agencies is attached as Exhibit F; Licensor can, from time to
time, add or eliminate Auditing Agencies from this list. The Independent Service
Audit shall be conducted in a similar fashion to that of the Licensor Managed
Units. The Independent Service Audits shall be sent by the Auditing Agency
directly to the Licensor and the Operator every two (2) weeks. The Operator
shall pay the reasonable cost of these Independent Service Audits for the
Restaurant; such costs shall be consistent with those paid by Licensor at the
Licensor Managed Units. A sample of the currently approved Independent Service
Audit report is attached in Exhibit G, it being acknowledged that same may be
changed from time to time at the sole discretion of the Licensor in accordance
with the Independent Service Audit for the Licensor Managed Units and upon
written notice to Operator.
6.15 LICENSOR SUPPORT AND VISITATION. Licensor shall have a designated
manager ("Operator Consultant") who will be available to answer Operator
questions during the Term. The Operator Consultant will visit the Restaurant
every eight (8) to twelve weeks (12) at the discretion of Licensor ("Consultant
Visits"). During the Consultant Visits the Operator Consultant will perform a
comprehensive brand standards audit of the dining room, kitchen areas, and will
be present for all meal periods to evaluate service standards and food quality.
The Operator Consultant will provide the Operator with a Brand Standards Audit
Report after the conclusion of the Consultant Visit. The current Brand Standards
Audit Report is included in Exhibit H. The Brand Standards Audit Report may be
changed from time to time by the Licensor at the Licensor's discretion and upon
written notice to the Operator. At all times however, the standards listed in
The Brand Standards Audit Report shall be consistent with those standards upheld
by Licensor at Licensor's Managed Units. The Brand Standards Audit Report
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shall be graded on a percentage basis, the results of which may be contested by
Operator. If the Restaurant scores above a 90% on the Brand Standards Audit
Report for three (3) consecutive Consultant visits, Operator Consultant will
visit the Restaurant every twelve (12) to sixteen (16) weeks, until such time as
the Restaurant scores lower than 90% on the Brand Standards Audit Report, at
which time, Consultant will resume scheduled visits every eight (8) to twelve
(12) weeks.
There shall be no Licensor Fees associated with this Consultant Visit,
however the Operator shall be responsible for providing to the Operator
Consultant airfare (coach class only), airport transportation, lodging, and
meals during the Consultant Visits. At least one (1) time per year, in addition
to a Standard Audit Report, Operator Consultant will provide to Operator a
detailed written business performance review addressing P&L performance with
specific recommendations as to improvement of profitability and sales growth.
The duration of the Consultant Visits will be between 1-3 days at the discretion
of the Licensor.
6.16 PERFORMANCE STANDARD MAINTENANCE. The Restaurant may receive one
(1) Standards Violation Point in each of the following cases:
(a) if the Restaurant shall realize an Independent Service Audit
score that is lower than 70% of the total possible Service
Audit score
(b) if the Operator shall realize a failing score of less than 70%
of the total possible score on the Brand Standards Audit
Report
(c) should the Health Department (or similar governmental or
quasi-governmental organization) provide audit grades that are
to be posted by the Restaurant for its patrons, and the
Restaurant receives a score that is less than ninety percent
(90%) of the highest score possible
(d) if the Operator is not in compliance with minimum Health
Department (or similar governmental or quasi-governmental
organization) requirements and all such deficiencies are not
cured within thirty (30) days of such violation(s).
For the first six (6) months after the Restaurant opens, the Operator shall be
granted a grace period during which no Violation Points may be assigned by
Licensor to Operator for any cause.
If during any twelve (12) month period (following the grace period),
the Restaurant receives three (3) Standards Violation Points, the Licensor may
require the Operator to participate in a Standards Retraining Program as defined
in the following.
The Standards Retraining Program requires that Licensor provides for a
qualified instructor ("Instructor") for a five (5) to seven (7) day period to
provide retraining for the Operator's Key Personnel focusing on the deficient
areas noted within the Independent Service Audit(s) and the Brand Standards
Audit Report(s). The Operator shall be responsible to provide: airfare (coach),
airport transportation, lodging, meals, and salary plus benefits (at Licensor's
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cost) during such period. No additional fees shall be charged by Licensor for
this retraining service.
The Restaurant shall be deemed to be in a Standards Probation Period
for a twelve (12) month period commencing at the time that the Standards
Retraining Program is completed. If during Standards Probation Period, the
Restaurant receives two (2) Standards Violation Points, ("Standards Probation
Violation"), the Licensor shall have the right, but not the obligation, to
terminate this Agreement at any time during the Standards Probation Period or
within 60 days subsequent to the Standards Probation Period ("Termination
Decision Period"). Licensor will provide Operator with thirty (30) days prior
written notice should Licensor elect to terminate the Agreement.
Should Licensor elect not to terminate this Agreement due to a
Standards Probation Violation, at any time during the Termination Decision
Period, Licensor shall have the option to:
1 require that Operator participates in another Standards Retraining Program
whereby at the end of this program, the Operator shall be deemed to be at the
beginning of a Standards Probation Period as defined above, or
2 require Operator to convert all existing Restaurant marks from [City Grill] to
another name as designated by the Operator subject to the reasonable approval of
Licensor. The newly branded restaurant will operate exactly as a [City Grill]
under the same terms and conditions of this Agreement except that all marks
shall carry the new name as opposed to the [City Grill] name. If the Licensor
requires the Operator to convert all existing marks to another name, Operator
shall have the right to elect to pay for all costs to re-brand the Restaurant to
the new name. If Operator does not elect to pay for all costs to re-brand the
Restaurant, Licensor shall be required to pay for all costs to re-brand the
Restaurant to the new name.
3 If Licensor pays for all costs to re-brand the Restaurant, the Term of this
Agreement will be extended by twelve (12) months and the Minimum Term as defined
in Section 7.6 shall be extended by twelve (12) months. If, Operator elects to
pay for all costs to re-brand the Restaurant, the Term of this Agreement shall
not be extended. If, at the time of the re-brand, the Minimum Term has expired
(the Term is in its 37th month or greater), then the Minimum Term shall not be
extended. Once the conversion is completed from a [City Grill] to another name,
the Restaurant shall be deemed to be at the beginning of a Standards Probation
Period.
At no time shall Operator be held to a standard that is greater than the
standards at the Licensor Managed Units. In the event that Operator objects to
the scores received on a Brand Standards Audit report by Licensor, within thirty
days (30) of such audit, either party may request a 3rd party, independent
restaurant expert to review Operator's operations against Licensor's standards
("Contested Audit").In the event that the independent audit results in a finding
for the Operator, Operator shall not receive a Violation Point for the Contested
Audit. Costs of such an audit are to be paid by the party against which the
audit finds.
6.17 HEALTH STANDARDS. Operator's receipt of a report that does not
pass the Minimum Health Department Standards (or similar governmental or
quasi-governmental organization) two
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times or greater within a twenty-four (24) month period, shall be deemed a
Standards Probation Violation as defined above.
6.18 LIQUOR LICENSE. Operator's failure to operate a full bar
including, but not limited to, beer, wine and liquor for a period of 4 months or
greater, shall be deemed a Standards Probation Violation as defined above.
6.19 EMPLOYMENT LAWS. Operator, but not Licensor, shall be liable for
any failure of the Restaurant to comply with any federal, state, local and
foreign statutes, laws, ordinances, regulations, rules, permits, judgments,
orders and decrees affecting labor union activities, civil rights or employment
in the United States, including, without limitation, the Civil Rights Act of
1870, 42 U.S.C.Section 1981, the Civil Rights Acts of 1871, 42 U.S.C.Section
1983, the Fair Labor Standards Act, 29 U.S.C.Section 201, et seq., the Civil
Rights Act of 1964, 42 U.S.C. Section 2000e, et seq., as amended, the Civil
Rights Act of 1991, the Age Discrimination in Employment Act of 1967, 29
U.S.C.Section 621, et seq., the Rehabilitation Act, 29 U.S.C.Section 701, et
seq., The Americans With Disabilities Act of 1990, 29 U.S.C.Section 706, 42
U.S.C.Section 12101, et seq., the Employee Retirement Income Security Act of
1974, 29 U.S.C. Section 301, et seq., the Equal Pay Act, 29 U.S.C.Section 201,
et seq., the National Labor Relations Act, 29 U.S.C.Section 151, et seq., and
any regulations promulgated pursuant to such statutes (collectively, as amended
from time to time, and together with any similar laws now or hereafter enacted,
the "Employment Laws").
Employees and Consultants of Licensor while performing services for or
with Operator's employees shall be liable for any failure resulting from their
conduct to comply with any Federal, State, Local statutes, laws, ordinances,
regulations, rules, permits, judgments, orders, and decrees affecting labor
union activities, civil rights or employment in the United States as stated
above. Further all employees and consultants of Licensor are expected to comply
with all workplace standards of Starwood provided the activity is not violative
of any of the aforementioned laws, statutes, etc.
7. EVENTS OF DEFAULT/TERMINATION
7.1 The following shall constitute events of default:
A. If Operator shall be in default in the payment of any
amount required to be paid under the terms of this Agreement, and such
default continues for a period of ten (10) days after written notice
from Licensor;
B. If either party shall be in default in the performance of
its other obligations under this Agreement, and such default continues
for a period of thirty (30) days after written notice from the other
party, provided that if such default cannot by its nature reasonably be
cured within such thirty-day period, an event of default shall not
occur if and so long as the defaulting party promptly commences and
diligently pursues the curing of such default;
C. If either party shall (i) make an assignment for the
benefit of creditors, (ii) institute any proceeding seeking relief
under any federal or state bankruptcy or
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insolvency laws, (iii) institute any proceeding seeking the appointment
of a receiver, trustee, custodian or similar official for its business
or assets or (iv) consent to the institution against it of any such
proceeding by any other person or entity (an "Involuntary Proceeding");
or
D. If an Involuntary Proceeding shall be commenced against
either party and shall remain undismissed for a period of sixty (60)
days.
7.2 If any event of default shall occur, the non-defaulting party may
terminate this Agreement on sixty (60) days prior notice to the defaulting
party.
7.3 The right of termination set forth in this Section 7 shall not be
in substitution for, but shall be in addition to, any and all rights and
remedies for breach of contract available in law or at equity and in addition to
Licensor's right to terminate this Agreement for a Standards Probation Violation
as provided for herein.
7.4 Neither party shall be deemed to be in default of its obligations
under this Agreement if and to the extent that such party is unable to perform
such obligation as a result of fire or other casualty, act of God, strike or
other labor unrest, unavailability of materials, war, riot or other civil
commotion or any other cause beyond the control of such party (which shall not
include the inability of such party to meet its financial obligations). Any
party claiming an inability to perform due to any of the causes referred to in
this paragraph shall notify the other party of the event causing such inability
to perform promptly after such event occurs.
7.5 Operator acknowledges that upon and after the expiration or
termination of this Agreement, all rights granted by Licensor hereunder shall
immediately and automatically revert to Licensor, and Operator will remove from
its signage at the Restaurant and Hotel any reference to the Marks or the Name
and cease using any materials, directly or indirectly utilizing Licensor's
Proprietary Products, Name and/or Marks. Operator expressly acknowledges and
agrees that, except as expressly provided herein, it acquires no rights
whatsoever in the Licensor's Proprietary Products, Name and/or Marks. Operator
expressly acknowledges that, in the event of Operator's breach of any of the
provisions herein, in addition to its other remedies, Licensor shall be entitled
to injunctive and equitable relief without the necessity of proving the
inadequacy of its legal remedies.
7.6 After the Restaurant has been open under the [City Grill] name for
a minimum of thirty-six (36) months ("Minimum Term"), the Operator may cancel
this Agreement with sixty (60) days prior written notice to Licensor at any time
and for any reason. The effectiveness of such termination shall be conditioned
upon Operator's concurrent payment to Licensor of an Early Termination Fee equal
to the greater of (i) the prior year's Royalty Fee, or (ii) the then current
Minimum Annual Royalty.
8. INDEMNIFICATION
8.1 Operator shall indemnify and hold Licensor (and Licensor's agents,
principals, shareholders, partners, trustees, partners, members, officers,
directors and employees) harmless
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from and against all liabilities, losses, claims, damages, costs and expenses
(including, but not limited to, reasonable attorneys' fees and expenses) that
may be incurred by or asserted against any such party and that arise from
(a) the fraud, willful misconduct or gross negligence of Operator or any of its
employees, officers, directors, agents or contractors, (b) the breach by
Operator of any provision of this Agreement; (c) any action taken by Operator
which is beyond the scope of Operator's authority under this Agreement, or
(d) Operator's operation of the Hotel including, without limitation, the
Restaurant.. If any claim shall be made against Licensor and/or Operator which
is based upon a violation or alleged violation of the Employment Laws (an
"Employment Claim") relative to operation of Managed Outlet, the Employment
Claim shall be the sole obligation of Operator and be within the scope of
Operator's indemnification obligation. Licensor shall promptly provide Operator
with written notice of any claim or suit brought against it by a third party
which might result in such indemnification and Operator shall have the option of
defending any claim or suit brought against the Licensor with counsel selected
by Operator and reasonably approved by Licensor. Licensor shall cooperate with
the Operator or its counsel in the preparation and conduct of any defense to any
such claim or suit.
8.2 Licensor shall indemnify, defend and hold Operator harmless from
and against any losses, damages, claims or costs (including attorney's fees
incurred by Operator in its defense or in enforcing this provision) for
trademark or servicemark infringement commenced by any third party against
Operator with respect to the use of the Name or the Marks by Operator in
accordance with this Agreement. In the event that Operator receives notice of
any claims, suit or demand against it on account of any alleged infringement,
unfair competition or similar matter relating to its use of the Name or the
Marks in accordance with the terms of this License Agreement, Operator shall
promptly notify Licensor of such event whereupon Licensor shall take all action
necessary to protect and defend Operator and hold Operator harmless as described
above. (See Section 9.4 herein for Licensor's Negligence)
8.3 The provisions of this Section shall survive the termination of
this Agreement with respect to acts and/or omissions and occurrences arising
during the Term.
9. OPERATOR'S INSURANCE
9.1 At all times during the Term, Operator shall carry: (a) Worker's
Compensation insurance in such amount as is required by the laws of the State
where the Restaurant is located (b) Comprehensive general liability insurance
(commercial, dram shop and automobile liability coverages) with limits of not
less than $1,000,000 covering each person and $5,000,000 covering each
occurrence and property damage liability insurance, with limits of not less than
$1,000,000 covering each occurrence and $3,000,000 in the aggregate (with no
exclusion for liability assumed by contract) and (c) blanket crime insurance
covering its employees in a minimum amount of $500,000. Operator shall deliver
to Licensor prior to commencement of Pre-Opening Training hereunder and then on
or prior to, the expiration date of any then existing policies in the future
during the Term hereof, a certificate or certificates evidencing that such
insurance coverages are in effect for a period of not less than one year from
the date of such certificate. All policies shall contain a clause providing in
substance that such policies shall not be cancelled or any material provisions
thereof amended adversely to the Licensor unless it shall have been first given
at least thirty (30) days advance notice of such termination or of any such
proposed
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amendment. Operator shall cause the Licensor to be named as an additional
insured on its liability insurance policies for liability arising out of
Operator's responsibilities under this Agreement, including but not limited to
Section 7 above.
9.2 All such policies may be provided under blanket and/or umbrella
policies carried by the Operator.
9.3 The insurance required by Section 9.1 (b) shall be primary
insurance and the insurer shall be liable for the full amount of any loss up to
the total limit of liability required without the right of contribution of any
other insurance coverage held by the Licensor.
9.4 This Section 9 is subject to all limitations identified in Section
8, respecting Indemnification. Nothing in this Section 9 shall be construed as
requiring liability coverage and/or indemnification of the Licensor for
Licensor's negligence or willful action or omission.
10. LICENSOR'S CONSENTS AND APPROVALS
Except as otherwise expressly provided herein to the contrary, where
consent or approval of or authorization (the "Consent") from the Licensor is
required hereunder, such Consent shall mean the written consent or written
approval form Licensor, in its sole discretion.
11. CONTROVERSY RESOLUTION
Except as otherwise expressly provided herein, if any controversy
should arise between the parties in the performance, interpretation or
application of this Agreement, either may serve upon the other a written notice
stating that such party desires to have such controversy mediated by a mediator
agreed upon by both parties. In the event the parties fail to agree upon a
mediator or fail to resolve the dispute through the services of the mediator,
then either party may avail The Courts of the Federal or State Government of the
United States. Further not withstanding any provisions herein, the parties shall
expressly be entitled to injunctive relief and other equitable or provisional
remedies as provided for under California C.C.P. Section 1281.8 or otherwise.
The non-prevailing party in any such action agrees to pay the
prevailing party's costs and reasonable attorneys' fees incurred in connection
therewith.
12. ASSIGNMENT
This Agreement and all the parties' respective rights and obligations
hereunder may be assigned by either party in their discretion; no such
assignment shall relieve the assigning party of any of its obligations
hereunder. Notwithstanding the foregoing, if at any time all or substantially
all of the Hotel, or more than fifty percent (50%) of Operator's direct or
indirect interest therein, is voluntarily sold, conveyed, exchanged or otherwise
transferred (including a long term lease having the effect of a sale) to any
unaffiliated third party person or entity (other than a person or entity that
controls, is controlled by, or is under common control with, Operator or in
which Operator has a greater than 20% interest), and should the purchaser of the
Hotel elect not to assume this License Agreement, the Operator shall have the
right to terminate this
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Agreement upon not less than ninety (90) days written notice. The Licensor shall
be paid an early termination fee, equal to A) if the Agreement is in the Minimum
Term: the difference between (i) four times the greater of (a) the prior year's
Royalty Fee, or (b) the then current Minimum Annual Royalty and (ii) the sum of
the total Minimum Annual Royalty payments made to Licensor over the course of
this agreement; or B) if the Agreement is not in the Minimum Term: the greater
of (i) the prior year's Royalty Fee, or (ii) the then current Minimum Annual
Royalty.
By way of example, if the Agreement is terminated in the third year of
operation, Licensor shall be paid the sum of (i) four times the greater of (a)
the prior year's Royalty Fee, or (b) the then current Minimum Annual Royalty
(approximately $75,000 * 4) less (ii) the sum of the Royalty payments over the
two full operating years (approximately $75,000 * 2). By way of further example,
if the Agreement is terminated in the fifth year of operation, Licensor shall be
paid the greater of (i) the prior year's Royalty Fee, or (ii) the then current
Minimum Annual Royalty (approximately $75,000).
13. NOTICES
Any notice, statement or demand required to be given under this
Agreement shall be in writing, sent by certified mail, postage prepaid, return
receipt requested, or by nationally-recognized overnight courier, receipt
confirmed, addressed if to:
Operator: ____________________________
Attention:
Phone:
Fax:
With a copy to:
Attention:
Phone:
Fax:
HRP II: Hotel Restaurant Properties II Management, Inc.
00000 XxXxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx, President
Phone: (000) 000-0000
Fax: (000) 000-0000
Affiliate: Grill Concepts, Inc.
00000 Xxx Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxx Xxxxxxx, XX 00000
Attention: Xxx Xxxxxx, CEO
Phone: (000) 000-0000, ext. 240
Fax: (000) 000-0000
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or to such other addresses as Operator and Licensor shall designate in the
manner provided in this Section 14. Any notice or other communication shall be
deemed given (a) on the date three (3) business days after it shall have been
mailed, if sent by certified mail, or (b) on the date received if it shall have
been given to a nationally-recognized overnight courier service.
14. MISCELLANEOUS
14.1 Nothing contained in this Agreement shall be construed in any
manner whatsoever to constitute or appoint Operator as the agent or legal
representative of Licensor, or to place the parties in the relationship of
partners or joint venturers. Neither party shall have any right or authority
hereunder to obligate or bind the other in any manner whatsoever.
14.2 The parties agree to comply with all laws, statutes and ordinances
relating to the operation conducted hereunder and to each party's rights,
obligations and duties hereunder. Each party agrees to indemnify and hold
harmless the other party, including its officers, directors, principals,
employees, agents and successors, from and against any and all claims,
liabilities, losses, damages, costs, expenses, obligations or deficiencies
arising out of or by reason of such party's failure to comply with any such
laws.
14.3 This Agreement shall be binding upon and inure to the benefit of
the respective parties and their successors, assigns and transferees, except as
articulated in section 12.
14.4 The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision.
14.5 This Agreement shall be construed in accordance with and governed
by the laws of the State where the Restaurant is located.
14.6 This Agreement contains the sole and entire agreement between the
parties with respect to the subject matter hereof, and shall supersede any and
all other agreements between them. The parties acknowledge and agree that
neither of them has made any representations with respect to the subject matter
of this Agreement, or any representation including the execution and delivery
hereof, except such representations as are specifically set forth herein, and
each of the parties acknowledges that it has relied on its own judgment in
entering into the same.
14.7 No waiver or modification of this Agreement or of any covenant,
condition, or limitation herein contained shall be valid unless the same is made
in writing and duly executed by the party to be charged therewith. No evidence
of any waiver or modification shall be offered or received in evidence in any
proceeding, arbitration, or litigation between the parties arising out of or
affecting this Agreement, or the rights or obligations of any party hereunder,
unless such waiver or modification is in writing, duly executed as aforesaid.
14.8 This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one agreement.
25
17
14.9 Owner and Licensor shall execute and deliver all other appropriate
supplemental agreements and other instruments, and take any other action
necessary to make this Agreement fully and legally effective, binding, and
enforceable as between them and as against third parties.
14.10 The headings of the titles to the sections and/or provisions of
this Agreement are inserted for convenience only and are not intended to affect
the meaning of any of the provisions hereof.
14.11. Notwithstanding any provisions herein at no time will Operator
be held to an operating standard greater than that of the Licensor Managed
Units, including but not limited to training requirements uniform requirements,
menu requirements, etc. However, Operator acknowledges that fees, charges and
expenses specified in this Agreement may differ from those allocated to Licensor
Managed Units. Notwithstanding any provision specified within this Section
14.11, Operator shall pay Licensor all fees, charges and expenses based on the
terms and conditions specified within this Agreement.
14.12. As Operator is the first major Licensee of Licensor, for all
transactions completed after the Effective Date, as long as Starwood hotels
retains its exclusivity or reaches any Incentive Threshold Date per the
Development Agreement pertaining to Starwood's investment in Grill Concepts,
Inc., Licensee at all times shall receive the most competitive terms available
with regard to Royalty Fees, Methods and Standards of Operations, and Events of
Default/Termination such that any other future licensees making substantially
similar, larger or smaller commitments to Licensor would not receive more
favorable pricing or terms than Licensee. For example, during the term of
Starwood's exclusivity, should a lesser amount with regard to the Royalty
Payment, Minimum Annual Royalty and Training Fee be charged to any new licensee,
Licensee's pricing structure with regard to these items will immediately be
reduced accordingly.
26
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
HOTEL RESTAURANT PROPERTIES, INC. II
BY: ___________________________
Name: Xxxxx X. Xxxxx
Title:President
GRILL CONCEPTS INC.
By: ___________________________
Name: Xxxxxx X. Xxxxxx
Title:President
_________________________________
BY: ___________________________
Name: ___________________________
Title:___________________________
27
EXHIBITS
Exhibit A: Description of Proprietary Products
Exhibit B: Name, Trademarks, Logos, designs and service marks
Exhibit C: Description of facility location
Exhibit D: Approved Menus
Exhibit E: Opening Team Cost Estimate
Exhibit F: Approved Auditing Agencies
Exhibit G: Sample Independent Service Audit Report
Exhibit H: Sample Brand Standards Audit Report
Exhibit I: Revenue Exclusions
Exhibit J: Initial Remodel
28
Exhibit J
(License Agreement)
Initial Remodel of the Restaurant
The Operator will be required to remodel, at Operator's sole cost, the
existing Restaurant to a quality consistent with the Licensor Managed Units as
defined herein ("Initial Remodel"). The Operator will be required to adhere to
all Licensor design standards and kitchen specifications consistent with the
Licensor Managed Units.
Licensor will permit the Operator to utilize the successful Daily
Grill/City Grill design package. The Operator shall be required to retain a
Licensor Approved Architect to develop the Initial Site Plan and Detail
Specifications for the Restaurant conversion at a cost of no greater than
$_________ plus customary reimbursables. Licensor will supply specifications for
signage, flooring, booths, millwork, ceilings, bus stations, bar areas,
kitchens, and all other areas of development. A portion of these specifications
are included in Exhibit K and are subject to change at Licensor's reasonable
discretion.
Based upon the Initial Site Plan and Detailed Specifications, the
Operator will obtain Preliminary Cost Estimate to convert the existing
Restaurant to a [City Grill] facility. If the Preliminary Cost Estimate is
greater than $____________ including all non-construction cost estimates (the
"Maximum Preliminary Cost"), Operator shall have the option to terminate this
Agreement with no further obligation of Operator or Licensor.
If the Preliminary Cost Estimate is less than the Maximum Preliminary
Cost, the Operator will be required to proceed with developing complete
architectural drawings ("Working Drawings"). Although it is highly recommended
that the Operator use the Licensor Approved Architect, the Operator will be
permitted to retain its own qualified architect ("Operator Architect") to
complete the Working Drawings based on the specifications of the Licensor
Approved Architect.
If the Licensor Approved Architect is not used to develop the Working
Drawings for the Restaurant, Operator will be required to commission the
Licensor Approved Architect to consult with the Operator Architect on behalf of
the Licensor during the design process. The cost of this consultation will be no
greater than $___________ plus customary reimbursables. The Working Drawings are
subject to the reasonable approval of the Licensor. Licensor's approval shall be
based on the proposed Working Drawings representing a Restaurant of equal or
greater quality to the Licensor Managed Units.
Based upon the approved Working Drawings, the Operator will obtain a
Final Cost Estimate to convert the existing Restaurant to a [City Grill]
facility. If the Final Cost Estimate is greater than $____________ including all
non-construction cost estimates (the "Maximum Final Cost"), Operator shall have
the option to terminate this Agreement with no further obligation of Operator or
Licensor.
29
If the Final Cost Estimate is less than the Maximum Final Cost, the
Operator will be required to proceed with the development of the [City Grill]
restaurant to the specifications of the Working Drawings. If the Final Cost
Estimate is greater than the Maximum Final Cost and the Operator elects to
proceed, the Licensor will be required to fulfill all of its obligations under
this Agreement.
The Operator will be permitted to utilize its own qualified contractor
subject to Licensor's prior approval ("Operator Contractor"), which approval
shall not be unreasonable withheld or delayed. No material changes from the
Working Drawings approved by Licensor shall be permitted unless approved in
writing by the Licensor Approved Architect, which approval shall not be
unreasonably delayed.
The Operator shall be required to retain the Licensor Approved
Architect for consultation and to approve all change orders to ensure the
development of the Restaurant is consistent with the approved Working Drawings.
The Operator shall also be required to commission the Licensor Approved
Architect to visit the construction site every two (2) weeks during the
construction process to ensure that the design and work quality is consistent
with the approved Working Drawings. The cost of this consultation during the
Initial Remodel construction period will be no greater than $___________ plus
customary reimbursables.
In addition, the Operator shall be responsible for providing
complimentary guest rooms, room tax, and meals for one Licensor Development
Coordinator to visit the site every two weeks during the period of the Initial
Remodel.
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EXHIBIT C
MAJOR HOTEL OPERATOR EXCLUSIONS
Burbank Airport Hilton & Convention Center, Burbank, California (existing Daily
Grill)
Doubletree Skokie, Skokie, Illinois (existing Daily Grill)
San Xxxx Xxxxxx & Towers, San Jose, California (existing City Bar & Grill)
San Xxxx Fairmont, San Jose, California (existing The Grill)
Handlery Hotel, San Francisco, California (under contract)
Georgetown Inn, Georgetown, D.C.(existing Daily Grill)
Westin Chicago, Chicago Illinois (existing The Grill)
Hyatt in Bethesda, MD (under discussion)
Anaheim Hilton, Anaheim, California (under discussion)
JW Marriot, Atlanta (Buckhead), Georgia (under discussion)
Marriot Courtyard, Chicago, Illinois (under discussion)
Downtown Marriot, San Diego, California (under discussion)
31
EXHIBIT D
FORM OF WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK OF GRILL CONCEPTS, INC. TO BE ISSUED
UPON ANY EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS
WARRANT AND THE UNDERLYING SHARES OF COMMON STOCK MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
WARRANT
to Purchase Shares
of
Common Stock (.00004 par value per share)
of
GRILL CONCEPTS, INC.
Dated as of [DATE]
COMMON STOCK WARRANTS
This certifies that, for value received, STARWOOD HOTELS AND RESORTS WORLDWIDE,
INC. or its registered assigns ("HOLDER"), is entitled to purchase, subject to
the provisions of this Warrant, from Grill Concepts, Inc., a Delaware
corporation (the "ISSUER"), at any time or from time to time on or before 5:00
p.m. New York time on the fifth (5th) anniversary of the date first above
written (the "EXPIRATION DATE"), [NUMBER] fully paid and nonassessable shares of
common stock, $.00004 par value per share (the "COMMON STOCK") of the Issuer at
an exercise price equal to $[___] per share, subject to adjustment pursuant to
the terms hereunder (the "EXERCISE PRICE") (such shares of Common Stock and
other securities issued and issuable upon exercise of this Warrant, the "WARRANT
SHARES"). Capitalized terms not defined herein shall have the meanings ascribed
to such terms in the subscription agreement, dated as of May 16, 2001, between
the Issuer and the Holder (the "SUBSCRIPTION AGREEMENT").
SECTION 1. Exercise of Warrant. (a) Subject to the provisions
hereof, this Warrant may be exercised, in whole or in part, but not as to a
fractional share, at any time or from time to time on or after the date hereof
and on or before the Expiration Date, by presentation and surrender hereof to
the Issuer at the address which, in accordance with the notice provisions of
Section 10 hereof, is then effective for notices to the Issuer, with the
Election to Purchase Form annexed hereto as Schedule I, duly executed, for the
account of the Issuer, of the Exercise Price for the number of Warrant Shares
specified in such form. If this Warrant should be exercised in part only, the
Issuer shall, upon surrender of this Warrant, execute and deliver a new Warrant
evidencing the rights of the Holder hereof to purchase the
32
balance of the Warrant Shares purchasable hereunder. The Issuer shall maintain
at its principal place of business a register (the "Register") for the
registration of this Warrant and registration of any transfer or assignment in
whole or in part of the Warrant.
(b) The Exercise Price for the number of Warrant Shares
specified in the Election to Purchase Form shall be payable in United States
Dollars by (i) certified or official bank check payable to the order of the
Issuer or by wire transfer of immediately available funds to an account
specified by the Issuer for that purpose, (ii) an election by the Holder to have
the Issuer withhold shares of Common Stock issuable upon exercise (a "Cashless
Exercise"), (iii) certificates representing shares of Common Stock theretofore
owned by the Holder duly endorsed for transfer to the Issuer, or (iv) any
combination of the preceding, equal in value to the aggregate Exercise Price.
For purposes hereof, a Cashless Exercise shall be effected by surrendering the
Warrant, in part or in whole, for such number of Warrant Shares as is determined
by dividing (1) the total Exercise Price payable in respect of the number of
Warrant Shares being purchased upon such exercise by (2) the amount by which the
Fair Market Value per share of Common Stock as of the Exercise Date exceeds the
Exercise Price per share.
(c) Certificates representing Warrant Shares shall bear the
following restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF EITHER AN EFFECTIVE REGISTRATION STATEMENT FOR THESE
SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF
COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
SECTION 2. Reservation of Shares; Preservation of Rights of
Holder. The Issuer hereby agrees that there shall be reserved for issuance
and/or delivery upon exercise of this Warrant, such number of Warrant Shares as
shall be required for issuance or delivery upon exercise of this Warrant. The
Warrant surrendered upon exercise shall be canceled by the Issuer. After the
Expiration Date no shares of Common Stock shall be subject to reservation in
respect of this Warrant. The Issuer further agrees (a) that it will not, by
amendment of its Certificate of Incorporation or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observation or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
the Issuer, and (b) promptly to take all action as may from time to time be
required in order to permit the Holder to exercise this Warrant and the Issuer
duly and effectively to issue shares of its Common Stock or other securities as
provided herein upon the exercise hereof. Without limiting the generality of the
foregoing, should the Warrant Shares at any time consist in whole or in part of
shares of capital stock having a par value, the Issuer agrees that before taking
any action which would cause an adjustment of the Exercise Price so that the
same would be less than the then par value of such Warrant Shares, the Issuer
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Issuer may validly and legally issue fully paid and
nonassessable shares of such Common Stock at the Exercise Price as so adjusted.
The Issuer
33
further agrees that it will not establish a par value for its Common Stock while
this Warrant is outstanding in an amount greater than the Exercise Price.
SECTION 3. Exchange, Transfer, Assignment or Loss of Warrant.
(a) During the one-year period commencing on the date first above written and
ending immediately prior to the first anniversary thereof (the "RESTRICTED
PERIOD"), this Warrant is not transferable or assignable by the Holder except
with the prior written consent of the Issuer. Notwithstanding the foregoing, (i)
the Holder may at any time prior to the expiration of this Warrant transfer or
assign this Warrant in whole or in part to any Permitted Transferee, and (ii)
upon expiration of the Restricted Period, the Holder may freely transfer or
assign this Warrant in whole or in part to any third party without the prior
consent of the Issuer. Issuer shall register any such transfer or assignment in
the Register upon surrender of this Warrant, with the Form of Assignment
attached as Schedule II hereto duly filled in and signed, to the Issuer at the
office of Issuer specified in Section 1(a). Upon any such registration of
transfer or assignment, a new Warrant, in substantially the form of this
Warrant, evidencing the rights of the Holder so transferred shall be issued to
the transferee and a new Warrant, in similar form, evidencing the rights of the
Holder to purchase the balance of the Warrant Shares purchasable hereunder, if
any, shall be issued to the Holder.
(b) Upon receipt by the Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Issuer will execute and deliver a new Warrant of like
tenor and date. Any such new Warrant executed and delivered shall constitute a
separate contractual obligation on the part of the Issuer, whether or not the
Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable
by anyone.
SECTION 4. Rights of Holder. Neither a Holder nor any
transferee or assignee thereof shall be, or have any rights or privileges of, a
stockholder of the Issuer with respect to any Warrant Shares, unless and until
this Warrant has been exercised.
SECTION 5. Adjustments in Exercise Price and Warrant Shares.
The Exercise Price and Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 5.
(a) If the Issuer is recapitalized through the subdivision or
combination of its outstanding shares of Common Stock into a larger or smaller
number of shares, the number of shares of Common Stock for which this Warrant
may be exercised shall be increased or reduced, as of the record date for such
recapitalization, in the same proportion as the increase or decrease in the
outstanding shares of Common Stock, and the Exercise Price shall be adjusted so
that the aggregate amount payable for the purchase of all Warrant Shares
issuable hereunder immediately after the record date for such recapitalization
shall equal the aggregate amount so payable immediately before such record date.
(b) If the Issuer declares a dividend on Common Stock, or
makes a distribution to holders of Common Stock, and such dividend or
distribution is payable or made in
34
Common Stock or securities convertible into or exchangeable for Common Stock, or
rights to purchase Common Stock or securities convertible into or exchangeable
for Common Stock, the number of shares of Common Stock for which this Warrant
may be exercised shall be increased, as of the record date for determining which
holders of Common Stock shall be entitled to receive such dividend or
distribution, in proportion to the increase in the number of outstanding shares
(and shares of Common Stock issuable upon conversion of all such securities
convertible into Common Stock) of Common Stock as a result of such dividend or
distribution, and the Exercise Price shall be adjusted so that the aggregate
Exercise Price for the purchase of all the Warrant Shares issuable hereunder
immediately after the record date for such dividend or distribution shall equal
the aggregate Exercise Price so payable immediately before such record date.
(c) If the Issuer declares a dividend on Common Stock (other
than a dividend covered by subsection (b) above) or distributes to holders of
its Common Stock, other than as part of its dissolution or liquidation or the
winding up of its affairs, any shares of its capital stock, any evidence of
indebtedness or any cash or other of its assets (other than for Common Stock),
the Holder shall receive notice of such event as set forth in Section 7 below.
(d) In case of any consolidation of the Issuer with, or merger
of the Issuer into, any other corporation (other than a consolidation or merger
in which the Issuer is the continuing corporation and in which no change occurs
in its outstanding Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Issuer, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Issuer, except where
the Issuer is the surviving entity and no change occurs in its outstanding
Common Stock), the corporation formed by such consolidation or the corporation
resulting from such merger or the corporation which shall have acquired such
assets or securities of the Issuer, as the case may be, shall execute and
deliver to the Holder simultaneously therewith a new Warrant, satisfactory in
form and substance to the Holder, together with such other documents as the
Holder may reasonably request, entitling the Holder thereof to receive upon
exercise of such Warrant the kind and amount of shares of stock and other
securities and property receivable upon such consolidation, merger, sale,
transfer, or exchange of securities, or upon the dissolution following such sale
or other transfer, by a holder of the number of shares of Common Stock
purchasable upon exercise of this Warrant immediately prior to such
consolidation, merger, sale, transfer, or exchange. Such new Warrant shall
contain the same basic other terms and conditions as this Warrant and shall
provide for adjustments which, for events subsequent to the effective date of
such written instrument, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 5. The above provisions of this
paragraph (d) shall similarly apply to successive consolidations, mergers,
exchanges, sales or other transfers covered hereby.
(e) If the Issuer shall, at any time before the expiration of
this Warrant, dissolve, liquidate or wind up its affairs other than as covered
by Section 5(d), the Holder shall, upon exercise of this Warrant have the right
to receive, in lieu of the shares of Common Stock of the Issuer that the Holder
otherwise would have been entitled to receive, the same kind and amount of
assets as would have been issued, distributed or paid to the Holder upon any
such dissolution, liquidation or winding up with respect to such shares of
Common Stock of the Issuer had the Holder been the holder of record of such
shares of Common Stock receivable upon
35
exercise of this Warrant on the date for determining those entitled to receive
any such distribution. If any such dissolution, liquidation or winding up
results in any cash distribution in excess of the aggregate Exercise Price
provided by this Warrant for the shares of Common Stock receivable upon exercise
of this Warrant, the Holder may, at the Holder's option, exercise this Warrant
without making payment of the Exercise Price and, in such case, the Issuer
shall, upon distribution to the Holder, consider the Exercise Price to have been
paid in full and, in making settlement to the Holder, shall obtain receipt of
the Exercise Price by deducting an amount equal to the Exercise Price for the
shares of Common Stock receivable upon exercise of this Warrant from the amount
payable to the Holder. For purposes of this paragraph, at Holder's option, the
sale of all or substantially all of the assets of the Issuer and distribution of
the proceeds thereof to the Issuer's shareholders shall be deemed liquidation.
(f) If the Issuer sells or issues on or prior to the first
anniversary of the date hereof any shares of Common Stock (or options, warrants,
or other securities convertible, exercisable, or exchangeable for shares of
Common Stock, excluding options in an amount not to exceed in the aggregate
fifteen percent (15%) of the Fully-Diluted Shares issued to employees of Issuer
at an exercise price equal to or greater than the Fair Market Value as of the
date of grant) for consideration per share (in the case of options, warrants, or
other securities convertible, exercisable, or exchangeable for shares of Common
Stock, on an as-converted basis) less than the Exercise Price then in effect
immediately prior to the issuance of such additional Common Stock (the "NEW
ISSUANCE PRICE"), then upon consummation of such sale or issuance (a "TRIGGERING
TRANSACTION"), the Exercise Price shall automatically be decreased by an amount
equal to the difference between (i) the Exercise Price in effect immediately
prior to such Triggering Transaction; and (ii) the New Issuance Price.
(g) If an event occurs which is similar in nature to the
events described in this Section 5, but is not expressly covered hereby, the
Board of Directors of the Issuer shall make or arrange for an equitable
adjustment to the number of Warrant Shares and the Exercise Price.
(h) The term "Common Stock" shall mean the Common Stock,
$.00004 par value, of the Issuer as the same exists at the date of issuance of
this Warrant or as such stock may be constituted from time to time, except that
for the purpose of this Section 5, the term "Common Stock" shall include any
stock of any class of the Issuer which has no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Issuer and which is not subject to redemption
by the Issuer.
(i) The Issuer shall retain a firm of independent public
accountants of recognized standing (who may be any such firm regularly employed
by the Issuer) to make any computation required under this Section 5, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section 5 absent manifest error.
(j) Whenever the number of Warrant Shares or the Exercise
Price shall be adjusted as required by the provisions of this Section 5, the
Issuer forthwith shall file in the custody of its secretary or an assistant
secretary, at its principal office, and furnish to each Holder
36
hereof, a certificate prepared in accordance with paragraph (h) above, showing
the adjusted number of Warrant Shares and the Exercise Price and setting forth
in reasonable detail the circumstances requiring the adjustments.
(k) Notwithstanding any other provision, this Warrant shall be
binding upon and inure to the benefit of any successors and assigns of the
Issuer.
(l) No adjustment in the Exercise Price in accordance with the
provisions of this Section 5 need be made if such adjustment would amount to a
change in such Exercise Price of less than $.01 provided however, that the
amount by which any adjustment is not made by reason of the provisions of this
paragraph (l) shall be carried forward and taken into account at the time of any
subsequent adjustment in the Exercise Price.
(m) If an adjustment is made under this Section 5 and the
event to which the adjustment relates does not occur, then any adjustments in
accordance with this Section 5 shall be readjusted to the Exercise Price and the
number of Warrant Shares which would be in effect had the earlier adjustment not
been made.
SECTION 6. Taxes on Issue or Transfer of Common Stock and
Warrant. The Issuer shall pay any and all documentary stamp or similar issue or
transfer taxes payable solely in respect of the issue or delivery of shares of
Common Stock or other securities on the exercise of this Warrant. The Issuer
shall not be required to pay any tax which may be payable in respect of any
transfer of this Warrant or in respect of any transfers involved in the issue or
delivery of shares or the exercise of this Warrant in a name other than that of
the Holder and the person requesting such transfer, issue or delivery shall be
responsible for the payment of any such tax (and the Issuer shall not be
required to issue or deliver said shares until such tax has been paid or
provided for).
SECTION 7. Notice of Adjustment. . In case at any time: (a)
the Issuer shall declare any cash dividend on its Common Stock; (b) the Issuer
shall pay any dividend payable in stock upon its Common Stock or make any
distribution (other than regular cash dividends) to the holders of its Common
Stock; (c) the Issuer shall offer for subscription pro rata to the holders of
its Common Stock any additional shares of stock of any class or other rights;
(d) the Issuer shall authorize the distribution to all holders of its Common
Stock of evidences of its indebtedness or assets (other than cash dividends or
cash distributions payable out of current earnings or dividends payable in
Common Stock); (e) the Issuer shall issue shares of its capital stock at a price
per share less than the Exercise Price in effect as of the date of such
issuance; (f) there shall be any capital reorganization, or reclassification of
the capital stock of the Issuer, or consolidation or merger of the Issuer with
another corporation (other than a subsidiary of the Issuer in which the Issuer
is the surviving or continuing corporation and no change occurs in the Issuer's
Common Stock), or sale of all or substantially all of its assets to, another
corporation; (g) there shall be a voluntary or involuntary dissolution,
liquidation, bankruptcy, assignment for the benefit of creditors, or winding up
of the Issuer; or (h) the Issuer proposes to take any other action or an event
occurs which would require an adjustment pursuant to subsection (i) of this
Section 7; then, in any one or more of said cases, the Issuer shall give at
least fifteen days' prior written notice, addressed to Holder at the address of
Holder as shown on the books of the Issuer,
37
of (i) the date on which the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights, or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up; (ii) in the case of any issuance of capital at a price per share
less than the then applicable Exercise Price, the date of such issuance and the
number of shares issued; and (iii) in the case of any reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
bankruptcy, assignment for the benefit of creditors, winding up or other action,
as the case may be, the date (or, if not then known, a reasonable approximation
thereof by the Issuer) when same shall take place. Such notice shall also
specify (or, if not then known, reasonably approximate), if applicable, the date
as of which the holders of Common Stock of record shall participate in such
dividend, distribution or subscription rights, or shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, bankruptcy, assignment for the benefit of creditors, winding up, or
other action, as the case may be.
SECTION 8. No Dilution or Impairment. The Issuer shall not, by
amendment of its charter or through reorganization, consolidation, merger,
dissolution, sale of assets or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against dilution or other impairment. Without
limiting the generality of the foregoing, the Issuer will not increase the par
value, if any, of any shares of stock receivable upon the exercise of any
Warrant above the amount payable therefor upon such exercise, and at all times
will take all such action as may be necessary or appropriate in order that the
Issuer may validly and legally issue fully paid and non-assessable stock upon
the exercise of each Warrant.
SECTION 9. Registration Rights. Section 3 of the investor
rights agreement, dated as of July ___, 2001, between the Issuer and the Holder
(the "INVESTOR RIGHTS AGREEMENT") is incorporated herein by reference and made a
part hereof mutatis mutandis.
SECTION 10. Representations and Warranties of the Issuer;
Indemnity; Miscellaneous. Sections 5, 16 and 17 of the Subscription Agreement
are incorporated herein by reference and made a part hereof mutatis mutandis.
GRILL CONCEPTS, INC.
By: ______________________
Name:
Title:
38
SCHEDULE I
FORM OF ELECTION TO PURCHASE
To: [ ]
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, [_____] shares of Grill Concepts, Inc. Common
Stock issuable upon the exercise of this Warrant for an aggregate exercise price
of $_______ payable in [cash][cashless exercise][shares], and requests that
certificates for such shares be issued in the name of:
(Name)
(Address)
(United States Social Security or other taxpayer
identifying number, if applicable)
and, if different from above, be delivered to:
(Name)
(Address)
and, if the number of Warrant Shares so purchased are not all of the Warrant
Shares issuable upon exercise of this Warrant, that a Warrant to purchase the
balance of such Warrant Shares be registered in the name of, and delivered to,
the undersigned at the address stated below.
Date: , 200
Name of Registered Owner:
Address:
Signature:
39
SCHEDULE II
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ______________________ the right represented by the within
Warrant to purchase the _______ shares of the _________ Common Stock of Grill
Concepts, Inc., to which the within Warrant relates, and appoints
___________________ attorney to transfer said right on the books of Grill
Concepts, Inc., with full power of substitution in the premises.
Dated: ___________________________
______________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
