SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GRILL CONCEPTS, INC.
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(Name of Registrant As Specified in its Charter)
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[X] No fee required.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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GRILL CONCEPTS, INC.
11661 San Vicente Blvd., Suite 404
Los Angeles, California 90049
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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DATE July 27, 2005
TIME 9:00 a.m., Pacific Time
PLACE Daily Grill Restaurant
612 South Flower Street
Los Angeles, California
ITEMS OF BUSINESS (1) To elect seven directors of the Company to hold office
until the next annual meeting of shareholders or until
their successors are duly elected and qualified.
(2) To consider a proposal to ratify the appointment of
Moss Adams LLP as the Company's independent certifying
accountants.
(3) To transact such other business as may properly come
before the meeting or any adjournment thereof.
RECORD DATE Holders of Grill Concepts common stock of record at the
close of business on June 1, 2005 are entitled to vote at
the meeting.
ANNUAL REPORT The Company's 2004 annual report, which is not part of the
proxy soliciting materials, is included with this document.
PROXY VOTING It is important that your shares be represented and voted at
the meeting. You can vote your shares by completing and
returning the proxy card sent to you. Shareholders may be
able to vote their shares over the Internet or by telephone.
If Internet or telephone voting is available to you, voting
instructions are printed on the proxy card sent to you. You
can revoke a proxy at any time prior to its exercise at the
meeting by following the instructions in the accompanying
proxy statement.
You are cordially invited to attend the meeting. Whether or not you are
planning to attend the meeting, you are urged to complete, date and sign the
enclosed proxy card and return it promptly.
By Order of the Board of Directors
/s/ Michael Weinstock
--------------------------
Michael Weinstock
Chairman
Los Angeles, California
May 24, 2005
TABLE OF CONTENTS
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INTRODUCTION 1
General 1
Matters to be Voted on by Shareholders 1
Proxies 1
Revocation of Proxies 1
Record Date 1
Voting Securities 1
Quorum 2
Voting Procedures 2
PROPOSALS 3
PROPOSAL 1 - ELECTION OF DIRECTORS 3
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS 4
EXECUTIVE COMPENSATION AND OTHER INFORMATION 5
Compensation Committee Report 5
Summary Compensation Table 7
Stock Option Grants 7
Stock Option Exercises and Year-End Option Values 8
Equity Compensation Plan Information 8
Employment Contracts 8
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 9
CORPORATE GOVERNANCE AND RELATED MATTERS 11
Overview 11
Independence 11
Committees of the Board 12
Board Meetings and Executive Sessions 13
Nomination of Directors 13
Codes of Ethics 13
Contacting the Board 14
Compensation Committee Interlocks and Insider Participation 14
Compensation of Directors 14
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS 15
Audit Committee Report 15
Fees Paid to Independent Public Accountants 16
Policy on Audit Committee Pre-Approval of Audit and
Non-Audit Services of Independent Auditors 16
OTHER MATTERS 17
Performance Graph 17
Compliance with Section 16(a) of the Securities Exchange Act 17
Certain Relationships and Transactions 18
Submission of Shareholder Proposals 19
Expenses of Solicitation 19
GRILL CONCEPTS, INC.
11661 SAN VICENTE BLVD., SUITE 404
LOS ANGELES, CALIFORNIA 90049
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD July 27, 2005
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INTRODUCTION
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GENERAL
This Proxy Statement is being furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Grill Concepts, Inc. (the
"Company") for use at the 2005 Annual Meeting of Shareholders of the Company and
at any adjournment thereof (the "Annual Meeting"). The Annual Meeting is
scheduled to be held at Daily Grill, 612 South Flower Street, Los Angeles,
California, on Wednesday, July 27, 2005 at 9:00 a.m. local time. This Proxy
Statement and the enclosed form of proxy will first be sent to shareholders on
or about June 3, 2005.
MATTERS TO BE VOTED ON BY SHAREHOLDERS
At the Annual Meeting, the shareholders will vote upon two proposals, the
election of directors and the ratification of the appointment of Moss Adams LLP
as independent certifying accountants, as described further in this Proxy
Statement. The Board of Directors is not aware of any matters that are expected
to come before the Annual Meeting other than those referred to in this Proxy
Statement.
PROXIES
The shares represented by any proxy in the enclosed form, if such proxy is
properly executed and is received by the Company prior to or at the Annual
Meeting prior to the closing of the polls, will be voted in accordance with the
specifications made thereon. Proxies on which no specification has been made by
the shareholder will be voted FOR the election to the Board of Directors of the
nominees of the Board of Directors named herein and FOR the ratification of the
appointment of the designated independent accountants. If any other matter
should come before the Annual Meeting, the persons named in the accompanying
proxy intend to vote such proxies in accordance with their best judgment.
REVOCATION OF PROXIES
Proxies are revocable by written notice received by the Secretary of the Company
at any time prior to their exercise or by executing a later dated proxy.
Proxies will be deemed revoked by voting in person at the Annual Meeting.
RECORD DATE
Shareholders of record at the close of business on June 1, 2005 (the "Record
Date") are entitled to notice of and to vote at the Annual Meeting.
VOTING SECURITIES
On the Record Date, the total number of shares of common stock of the Company,
$0.00004 par value per share (the "Common Stock"), outstanding and entitled to
vote was 5,650,146.
1
QUORUM
The presence at the Annual Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Annual Meeting is necessary to constitute a quorum.
VOTING PROCEDURES
Casting Votes. "Record" shareholders of Common Stock (that is, persons holding
Common Stock in their own name in Grill Concepts' stock records maintained by
our transfer agent, Securities Transfer Corporation), may attend the Annual
Meeting and vote in person or complete and sign the accompanying proxy card and
return it to Grill Concepts.
"Street name" shareholders of Common Stock (that is, shareholders who hold
Common Stock through a broker or other nominee) who wish to vote at the Annual
Meeting will need to obtain a proxy form from the institution that holds their
shares and to follow the voting instructions on that form.
Counting of Votes. The holders of all outstanding shares of Common Stock are
entitled to one vote for each share of Common Stock registered in their names on
the books of the Company at the close of business on the Record Date.
Additionally, every shareholder voting for the election of directors may
cumulate such shareholder's votes and give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of shares held
by the shareholder as of the Record Date, or distribute such shareholder's votes
on the same principle among as many candidates as the shareholder may select,
provided that votes cannot be cast for more than the number of directors to be
elected. However, no shareholder shall be entitled to cumulate votes unless the
candidate's name has been placed in nomination prior to the voting and the
shareholder, or any other shareholder, has given notice at the meeting prior to
the voting of the intention to cumulate the shareholder's votes.
Broker Non-Votes. A broker non-vote occurs when a broker submits a proxy card
with respect to shares of common stock held in a fiduciary capacity (typically
referred to as being held in "street name"), but declines to vote on a
particular matter because the broker has not received voting instructions from
the beneficial owner. Under the rules that govern brokers who are voting with
respect to shares held in street name, brokers have the discretion to vote such
shares on routine matters, but not on non-routine matters. Routine matters
include the election of directors, increases in authorized common stock for
general corporate purposes and ratification of auditors. Non-routine matters
include amendments to stock plans.
Required Vote to Constitute a Quorum and Approve Proposals. Shares of Common
Stock represented by a properly dated, signed and returned proxy will be counted
as present at the Annual Meeting for purposes of determining a quorum, without
regard to whether the proxy is marked as casting a vote or abstaining.
Directors will be elected by a plurality of the votes cast at the Annual
Meeting. Each of the other matters scheduled to come before the Annual Meeting
requires the approval of a majority of the votes cast at the Annual Meeting.
Therefore, abstentions and broker non-votes will have no effect on the election
of directors or any other matter.
2
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PROPOSALS
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The stockholders are being asked to consider and vote upon two proposals at the
meeting. The following is a summary of the proposals and the voting
recommendations of the Board of Directors:
PROPOSAL BOARD RECOMMENDATION
1 - Election of Directors FOR
2 - Ratification of Appointment of Auditors FOR
Following is a detailed description of the proposals to be considered by the
stockholders.
PROPOSAL 1 - ELECTION OF DIRECTORS
The first proposal to be vote on is the election of seven directors. The
Board's nominees are Robert Spivak, Michael Weinstock, Glenn Golenberg, Lewis
Wolff, Stephen Ross, Richard Dantas and Bruce Schwartz. Each of the nominees,
other than Richard Dantas, is currently serving as a director of the Company.
Mr. Dantas replaces Norman Macleod as designee of Starwood Hotels & Resorts
Worldwide, Inc. pursuant to a contractual right of Starwood to designate a
director nominee. Biographical information about each of the nominees is
included in "Director Information" below. If elected, each of the nominees will
serve a one-year term and will be subject to reelection next year along with the
other directors.
The Board of Directors has no reason to believe that any nominee will be unable
to serve or decline to serve as a director if elected. If a nominee becomes
unable or unwilling to accept nomination or election, the Board will either
select a substitute nominee or will reduce the size of the Board. If you have
submitted a proxy and a substitute nominee is selected, your shares will be
voted for the election of the substitute nominee.
In accordance with Grill Concepts' bylaws, directors are elected by a plurality
vote of shares represented and entitled to vote at the meeting. That means the
seven nominees will be elected if they receive more affirmative votes than any
other nominees. In accordance with applicable law, in electing directors,
stockholders may cumulate their votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of
shares held by the stockholder as of the Record Date, or distribute such
stockholder's votes on the same principle among as many candidates as the
stockholder may select, provided that votes cannot be cast for more than the
number of directors to be elected. However, no stockholder shall be entitled to
cumulate votes unless the candidate's name has been placed in nomination prior
to the voting and the stockholder, or any other stockholder, has given notice at
the meeting prior to the voting of the intention to cumulate the stockholder's
votes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ALL NOMINEES.
DIRECTOR INFORMATION
Set out below is certain information concerning our nominees for election as
directors of the Company:
RICHARD DANTAS Mr. Dantas has served as Vice President, Strategy of
Age: 38 Starwood Hotels and Resorts Worldwide, Inc since April
Nominee 2005. Previously, Mr. Dantas was with PepsiCo's
No Board Committees Frito-Lay Division from 1993 to 2005 where he held a
variety of line, staff and general management positions
in Europe, South Africa and North America. Most
recently he was Frito-Lay North America's
Vice-President for the Mid-Atlantic region.
GLENN GOLENBERG Mr. Golenberg is a Managing Director of Golenberg &
Age: 64 Company, formed in 1978, and The Bellwether Group, LLC,
Director since 1995 merchant banking firms that invest in and provide
Committees: Audit and consulting and financial advisory services to a broad
Compensation range of businesses. Prior to forming Golenberg &
Company, Mr. Golenberg served in various research and
management positions in the investment banking industry
from 1966 to 1978. Previously, Mr. Golenberg was a CPA
with Arthur Andersen & Co.
3
STEPHEN ROSS Mr. Ross is a consultant to the entertainment and
Age: 56 related industries. From 1989 to 2001, Mr. Ross served
Director since 2001 as Executive Vice President - Special Projects for
Committees: Audit and Warner Bros. Previously, Mr. Ross served as Senior Vice
Compensation President and General Counsel for Lorimar Telepictures
Corporation, and its predecessors, from 1981 to 1989.
Since 2001, Mr. Ross has served as a director of MAI
Systems Corporation, an information technology
solutions provider for the hotel industry.
BRUCE SCHWARTZ Mr. Schwartz served, from 1989 until his retirement in
Age: 65 2003, in various executive capacities with Sysco Food
Director since 2004 Services of Los Angeles, Inc., a major food services
Committees: Audit company and subsidiary of NYSE traded Sysco
Corporation. From 1989 to 1996, Mr. Schwartz served as
President and Chief Operating Officer of Sysco Food
Services and, from 1996 to 2003, Mr. Schwartz served as
Chairman of the Board and Chief Executive Officer of
Sysco Food Services.
ROBERT SPIVAK Mr. Spivak has served as President, Chief Executive
Age: 61 Officer and a director of the Company since 1995. Mr.
Director since 1995 Spivak was a co-founder of the Company's predecessor,
No Board Committees Grill Concepts, Inc. (a California corporation)("GCI")
and served as President, Chief Executive Officer and a
director of GCI from the company's inception in 1988
until 1995. Prior to forming GCI, Mr. Spivak
co-founded, and operated, The Grill on the Alley
restaurant in Beverly Hills in 1984. Mr. Spivak is a
founder and past president of the Beverly Hills
Restaurant Association. Mr. Spivak also chairs the
executive advisory board of the Collins School of Hotel
and Restaurant Management at California State
Polytechnic University at Pomona, is Director Emeritus
of the California Restaurant Association and is a
member of the Board of Directors of DiRoNA -
Distinguished Restaurants of North America.
MICHAEL WEINSTOCK Mr. Weinstock has served as Executive Vice President
Age: 62 and a director of the Company since 1995 and as
Director since 1995 Chairman of the Board since 2000. From 1995 to 2000,
No Board Committees Mr. Weinstock served as Vice-Chairman of the Board. Mr.
Weinstock was a co-founder of GCI and served as
Chairman of the Board, Vice President and a director of
GCI from 1988 until 1995. Prior to forming GCI, Mr.
Weinstock co-founded The Grill on the Alley restaurant
in Beverly Hills in 1984. Mr. Weinstock previously
served as President, Chief Executive Officer and a
director of Morse Security Group, Inc., a security
systems manufacturer.
LEWIS WOLFF Mr. Wolff has served as a Director since 2001. Mr.
Age: 69 Wolff is Chairman of Wolff Urban Management, Inc. and
Director since 2001 Wolff Urban Development LLC, real estate acquisition,
No Board Committees investment, development and management firms. Mr. Wolff
is also co-founder and, since 1994, has served as
Chairman of Maritz, Wolff & Co., a privately held hotel
investment group that acquires top-tier luxury hotel
properties. Maritz, Wolff's holdings exceed $1.0
billion. Mr. Wolff is currently Chairman of Sunstone
Hotel Investors Inc. (NYSE: SHO) and Managing Partner
of Oakland Athletics Major League Baseball team.
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Moss Adams LLP as independent auditors for
the fiscal year ending December 25, 2005, and recommends that the shareholders
vote for ratification of such appointment. Moss Adams LLP, has served as the
Company's independent auditors since 2004. In the event of a negative vote on
such ratification, the Board of Directors will reconsider its selection.
Representatives of Moss Adams LLP are expected to be present at the Annual
Meeting, will be afforded an opportunity to make a statement if they desire to
do so, and are expected to be available to respond to appropriate inquiries from
shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF MOSS ADAMS LLP AS INDEPENDENT ACCOUNTANTS FOR GRILL CONCEPTS.
4
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EXECUTIVE COMPENSATION AND OTHER INFORMATION
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COMPENSATION COMMITTEE REPORT
Policy. The Compensation Committee of the Board of Directors reviews and
approves the general compensation policies of the Company with respect to stock
options and the compensation plans and specific compensation levels for
executives of the Company. The Compensation Committee consists of the three
directors named below. The Board has determined that all members of the
Compensation Committee are (i) independent as defined under applicable Nasdaq
rules, (ii) non-employees within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, and (iii) "outside directors" within the meaning of
Section 162(m) of the Internal Revenue Code.
The primary consideration of the Compensation Committee in determining overall
executive compensation is to motivate, reward and retain the best management
team to achieve the company's objective and thus compensation is based upon a
combination of overall financial performance of the company, the meeting of long
term objectives and each individuals' experience and past performance, while
considering salaries of other executives in similar companies. In developing
performance criteria, individual and company objectives, compensation structures
and comparables, the Compensation Committee may, at its election, retain third
party compensation consultants. No compensation consultants were used in 2004.
The CEO recommends, based on the Company's performance evaluation policies and
procedures, the compensation to be paid to executive officers other than
himself; final determination of the amount of compensation rests with the
Compensation Committee. The CEO's compensation, including all components
thereof, is fixed periodically by employment agreement based on negotiations
between the CEO and the Compensation Committee. Other than those negotiations,
the CEO does not participate in discussions about his compensation matters or in
the making of recommendations about his compensation.
The executive compensation system consists of three major components: base
salary, annual incentive - consisting of participation in a cash bonus program,
and long-term incentive compensation - consisting of stock option grants.
Base Salary. For fiscal 2004, the base salary of the executive officers, other
than the Chief Executive Officer and Chief Financial Officer whose salaries are
determined by employment agreements, was set based upon the results of the
executive's performance review. Each executive is reviewed by the Chief
Executive Officer and given specific objectives, which vary with the executive's
position and responsibilities. At the next annual review, the actual
performance of the executive is compared to the previously established specific
objectives and base salary is adjusted accordingly based on the recommendation
of the CEO subject to review and approval by the Compensation Committee.
Cash Bonus Program. During 2004, the Compensation Committee established a
formula for cash bonuses to be paid to executive officers that is based upon
financial performance of the Company. The formula provides for a pool of money
to be split among the various executives. The amount of the bonus pool is based
upon the Company's financial performance taking into account financial
performance of the Company relative to budgeted profitability targets and other
performance criteria established by the Compensation Committee. The maximum
annual bonus available under the bonus plan ranged from 10% to 50% of base
salary during 2004, depending on the individual's position in the Company and
measurement of Company financial performance against the foregoing annual
incentive compensation criteria.
During fiscal 2004 the Company's performance did not meet the required financial
performance goals and thus no cash bonuses were paid.
Stock Options. The Company believes that the granting of stock options serves
as a long-term incentive to officers and other employees of the Company and its
subsidiaries. The 1995 and 1998 stock option plans provide the Company with
flexibility in awarding of stock options.
5
Based on a review of the level of options held and other equity ownership in the
Company, stock option grants to officers during 2004 were made to select
management personnel. Stock option grants in 2004 to all employees totaled
205,000 shares, or 3.63% of the shares outstanding at year-end, of which 81,000
options were granted to executive officers.
2004 Compensation of the CEO. The 2004 salary of the CEO was fixed at $260,000
by an employment agreement entered into and effective January 1, 2004 based on
the Committee's review of Mr. Spivak's prior performance, the Company's future
plans and the salaries of CEO's of similarly positioned companies. Pursuant to
his employment agreement with the Company, Mr. Spivak also received, in addition
to benefits generally available to all employees, a non-accountable expense
allowance of $18,000, a $1,000,000 life insurance policy, the annual premiums of
which totaled $16,831 during 2004, use of a leased automobile and reimbursement
of expenses relating to the use of the same, totaling $13,219 during 2004 and a
stock option grant covering 25,000 shares exercisable at $3.14 per share and
vesting ratably over three years. The current employment agreement with Mr.
Spivak runs through 2006 and provides for base salary of $280,000 in 2005 and
$300,000 in 2006 and provides that Mr. Spivak and his spouse will be provided
with continuing coverage, at the Company's expense, under the Company's existing
group life, health, accident, disability, liability or hospitalization insurance
plans, pension plans, severance plans or retirement plans for a period of five
years following the term of Mr. Spivak's employment agreement.
For 2004 and later years covered by Mr. Spivak's employment agreement, Mr.
Spivak was eligible to earn a cash bonus ranging up to 50% of his base salary
based on attainment of performance goals established by the Committee annually.
Based on a review of performance versus the Company's plan, during 2004, the
Company paid no bonus to Mr. Spivak.
In conjunction with the execution of a new employment agreement with Mr. Spivak,
the Committee approved and the Company entered into a Consulting Agreement with
Mr. Spivak pursuant to which Mr. Spivak will provide ongoing consulting services
to the Company for a period of ten years following the end of his employment
with the Company. Under the terms of the consulting agreement, Mr. Spivak will
provide an estimated 40 hours of services per month and will receive $12,500 per
month plus use of an office and, for a period of eighteen months, an automobile,
a restaurant meal allowance of $1,000 per month and medical, life and disability
insurance.
In entering into the employment agreement and consulting agreement with Mr.
Spivak, and fixing Mr. Spivak's compensation during 2004 and later years, the
Committee took into account the critical role Mr. Spivak has played in
developing and implementing the Company's operating strategies and the
Committee's belief that securing Mr. Spivak's ongoing advice and services
following his eventual departure from the Company would be critical to an
effective transition in leadership when that time arrives.
Tax Deductibility of Executive Compensation. Section 162(m) of the Internal
Revenue Code contains provisions, which could limit the deductibility of certain
compensation payments to the Company's executive officers. The Company believes
that any compensation realized in connection with the exercise of stock options
granted by the Company will continue to be deductible as performance based
compensation. The policy of the Company is to design its compensation programs
generally to preserve the tax deductibility of compensation paid to its
executive officers. The Committee could determine, however, taking into
consideration the burdens of compliance with Section 162(m) and other relevant
facts and circumstances, to pay compensation that is not fully deductible, if
the Committee believes such payments are in the Company's best interests.
Review of all Components of Executive Compensation. The Committee has reviewed
all components of the compensation packages of the Company's CEO and other most
highly compensated executive officers, including salary, bonus, stock option
grants, potential realizable value of options held, the dollar value to the
executive and cost to the Company of all perquisites and other personal benefits
provided and the value of future severance and post-retirement payment
obligations.
Committee Conclusions. Based on the foregoing, the Committee finds that the
total compensation of the CEO and the other highest paid executives, in the
aggregate is reasonable and not excessive.
COMPENSATION COMMITTEE
Stephen Ross, Chairman
Glenn Golenberg
Norman Macleod
6
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning cash and non-cash
compensation paid or accrued for services in all capacities to the Company
during the year ended December 26, 2004 of each person who served as the
Company's Chief Executive Officer during fiscal 2004 and the next four most
highly paid executive officers whose salary exceeded $100,000 (the "Named
Officers").
Long Term
Annual Compensation Compensation
Name and -------------------- ---------------
Principal Position Year Salary($) Bonus($) Other ($) Stock Options(#)
------------------------------ ----- -------- ---------- ---------- -----------------
Robert Spivak 2004 259,123 -0- 48,050 (1) 25,000
President and 2003 244,039 -0- 55,178 (1) -0-
Chief Executive Officer 2002 235,000 -0- 33,500 (1) -0-
John Sola 2004 150,148 -0- -0- 6,000
Vice President - Operations 2003 151,460 -0- -0- 6,000
and Development 2002 146,000 -0- -0- 12,000
Michael Weinstock 2004 148,327 -0- -0- -0-
Executive Vice President and 2003 116,829 -0- -0- -0-
Chairman of the Board 2002 112,500 -0- -0- -0-
Philip Gay 2004 93,101 -0- 15,000 (2) 50,000
Chief Financial Officer and 2003 -0- -0- -0- -0-
Executive Vice President 2002 -0- -0- -0- -0-
---------------------
(1) Mr. Spivak receives the use of a leased automobile and reimbursement of all expenses related to the use thereof
($13,219), a $1,500 per month non-accountable expense allowance ($18,000) and a $1,000,000 term life insurance policy
($16,831), in addition to vacation benefits, expense reimbursements and participation in medical, retirement and other benefit
plans which are generally available to the Company's executives.
(2) Mr. Gay received $15,000 as a relocation allowance in connection his hiring. Mr. Gay's service commenced on July 12,
2004.
STOCK OPTION GRANTS
The following table sets forth information concerning the grant of stock options
made during 2004 to each of the Named Officers:
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
TOTAL OPTIONS OF STOCK PRICE APPRECIATION
GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
------------- -------- ----------- --------- ---------- ------- --------
Robert Spivak 25,000 12.20% 3.14 04/23/09 $12,435 $ 36,248
John Sola 6,000 2.93% 2.86 06/23/14 $10,225 $ 25,914
Michael Weinstock - - - - - -
Philip Gay 50,000 24.39% 2.23 07/12/14 $70,121 $177,702
7
STOCK OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information concerning the exercise of stock
options during 2004 by each of the Named Officers and the number and value of
unexercised options held by the Named Officers at the end of 2004:
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE MONEY OPTIONS
SHARES AT FY-END (#) AT FY-END ($)(1)
ACQUIRED ON VALUE -------------------------- ------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------- ------------ ------------ ------------ -------------- ------------ -------------
Robert Spivak . . 0 0 108,333 16,667 0 0
John Sola . . . . 0 0 45,650 24,600 9,489 8,583
Michael Weinstock 0 0 0 0 0 0
Philip Gay. . . . 0 0 0 50,000 - 1,000
---------------------
(1) Based on the fair market value per share of the Common Stock at year-end, minus the exercise price of "in-the-money"
options. The closing price for the Company's Common Stock on December 31, 2004 on the Nasdaq Small-Cap Market was $2.25.
EQUITY COMPENSATION PLAN INFORMATION
The Company maintains the Grill Concepts, Inc. 1998 Comprehensive Stock Option
and Award Plan pursuant to which it may grant equity awards to eligible
persons.
The following table gives information about equity awards under the Company's
existing plan as of December 26, 2004:
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO EXERCISE PRICE OF EQUITY COMPENSATION
BE ISSUED UPON EXERCISE OUTSTANDING PLANS (EXCLUDING
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS (A) AND RIGHTS (B) COLUMN (A))
----------------------- --------------- --------------------
Equity compensation plans
approved by security holders 678,425 $ 2.69 394,075
Equity compensation plans not
approved by security holders - - -
----------------------- --------------- --------------------
Total 678,425 $ 2.69 394,075
======================= =============== ====================
EMPLOYMENT CONTRACTS
The Company and Robert Spivak, the Company's President and Chief Executive
Officer, entered into a new employment agreement pursuant to which Mr. Spivak
will continue his service for a period of three years, effective January 1,
2004. Mr. Spivak's employment agreement provides for an annual salary of
$260,000 in 2004, $280,000 in 2005 and $300,000 in 2006. In addition, such
agreement provides for Mr. Spivak to receive a 25,000 share stock option grant,
the use of a leased automobile and reimbursement of all expenses related to the
use thereof, a $1,500 per month non-accountable expense allowance, five weeks
paid vacation per year, a $1,000,000 term life insurance policy, reimbursement
of business related travel and meal expenses, participation, for a period
extending five years after the end of the term of Mr. Spivak's employment
agreement, in all medical, retirement and other benefit plans available to the
Company's executives and performance based bonuses in an amount up to fifty
percent of salary based on performance criteria established by the Compensation
Committee. In conjunction with the execution of the new employment agreement,
the Company and Mr. Spivak entered a consulting agreement pursuant to which Mr.
Spivak will provide ongoing consulting services to the Company for a period of
ten years following the end of his employment with the Company. Under the terms
of the consulting agreement, Mr. Spivak will provide an estimated 40 hours of
services per month and will receive $12,500 per month plus use of an office and,
for a period of eighteen months, an automobile, a $1,000 per month restaurant
meal allowance and medical, life and disability insurance.
8
The Company and Philip Gay, the Company's Chief Financial Officer, entered into
an employment agreement, effective July 12, 2004, pursuant to which Mr. Gay
serves as Executive Vice President and Chief Financial Officer for a period of
one year. Mr. Gay's employment agreement provides for an annual salary of
$211,000 with annual cost of living increases. In addition, such agreement
provides for Mr. Gay to receive a 50,000 share stock option grant vesting over
five years and a performance based bonus in an amount up to twenty-five percent
of salary based on performance criteria established by the Compensation
Committee.
--------------------------------------------------------------------------------
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------------------------
The following table is furnished as of April 20, 2005 to indicate beneficial
ownership of shares of the Company's Common Stock by (1) each shareholder of the
Company who is known by the Company to be a beneficial owner of more than 5% of
the Company's Common Stock, (2) each director, nominee for director and Named
Officer of the Company, individually, and (3) all officers and directors of the
Company as a group. The information in the following table was provided by such
persons.
Amount and Nature of
Beneficial Ownership (1)
------------------------
Shares Underlying
Options, Warrants
Name and Address and Other Percent
of Beneficial Owner Shares Convertible Securities (2) Total (2) of Class (2)
--------------------------------------------- --------- -------------------------- ---------- --------------
Starwood Hotels & Resorts Worldwide, Inc. (3) 666,667 666,667 1,333,334 21.1
Michael Weinstock (4)(5)(6) . . . . . . . . . 483,079 75,000 558,079 9.7
Robert Spivak (4)(5)(7) . . . . . . . . . . . 426,091 108,333 534,424 9.3
Aaron Ferrer (8). . . . . . . . . . . . . . . 410,024 0 410,024 7.3
Keith Wolff (9) . . . . . . . . . . . . . . . 337,625 95,000 432,625 7.3
Cundill International Company Ltd (10). . . . 318,633 0 318,633 5.6
Lewis Wolff (11). . . . . . . . . . . . . . . 136,647 316,250 452,897 7.6
Stephen Ross (12) . . . . . . . . . . . . . . 79,485 122,873 202,358 3.5
Glenn Golenberg . . . . . . . . . . . . . . . 21,875 41,250 63,125 1.1
John Sola (13). . . . . . . . . . . . . . . . 8,750 45,650 54,400 *
Philip Gay (14) . . . . . . . . . . . . . . . - 0 0 *
Norman MacLeod (15) . . . . . . . . . . . . . - 22,250 22,250 *
Bruce Schwartz. . . . . . . . . . . . . . . . - 8,250 8,250 *
Richard Dantas (16) . . . . . . . . . . . . . - - - *
All executive officers and directors
as a group (9 persons) . . . . . . . . . . . 1,155,927 739,856 1,895,783 29.7
---------------------
* Less than 1%.
(1) The persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws, where applicable, and the information contained in the
footnotes to the table.
(2) Includes shares of Common Stock not outstanding, but which are subject to options, warrants and other convertible
securities exercisable or convertible within 60 days of the date of the information set forth in this table, which are
deemed to be outstanding for the purpose of computing the shares held and percentage of outstanding Common Stock with
respect to the holder of such options.
(3) Address is 1111 Westchester Avenue, White Plains, New York 10604. Includes (a) 666,667 shares of common stock held, and
(b) 666,667 shares of common stock underlying five year $2.00 warrants. The information set forth herein is based on the
Schedule 13D dated July 27, 2001 filed by Starwood Hotels & Resorts Worldwide, Inc. with the Securities and Exchange
Commission.
(4) Address is 11661 San Vicente Blvd., Suite 404, Los Angeles, California 90049.
(5) All shares indicated as being held by Messrs. Weinstock and Spivak exclude certain shares held by their spouses,
children and certain trusts for the benefit of family members. Messrs. Weinstock and Spivak disclaim any beneficial
interest in such shares.
(6) Includes 75,000 shares issuable upon exercise of warrants held by the Weinstock Family Trust.
(7) Includes 108,333 shares out of 125,000 shares issuable upon exercise of stock options held by Mr. Spivak.
9
(8) Address is 1 Homs Court Hillsborough, California 94010.
(9) Address is 11828 La Grange Avenue, Los Angeles, California 90025. Includes (a) 242,625 shares of common stock held by
Keith Wolff, as Trustee of The Keith M. Wolff 2000 Irrevocable Trust, (b) 95,000 shares of common stock held by KMWGEN
Partners, of which Mr. Wolff is the general partner, and (c) 95,000 shares of common stock underlying warrants held by
KMWGEN Partners. Mr. Wolff has the sole power to vote or to direct the vote, and the sole power to dispose or to direct
the disposition of, the securities beneficially owned by Mr. Wolff, other than the securities owned by KMWGEN Partners, as
to which Mr. Wolff shares power with his father, Lewis Wolff. The information set forth herein is based on Amendment No. 1
to the Schedule 13D dated July 27, 2001 filed by Mr. Wolff with the Securities and Exchange Commission and information
reflected in Schedule 13D described in foot (11) below.
(10) Address is 15 Alton Hill, Southampton SN01 Bermuda. The information set forth herein is based on the Schedule 13G,
Amendment No. 2, dated February 14, 2005 filed by Cundill International Company Ltd with the Securities and Exchange
Commission.
(11) Address is 11828 La Grange Avenue, Los Angeles, California 90025. Includes (a) 2,375 shares of common stock held
directly, (b) 134,272 shares of common stock held by KMWGEN Partners, (c) 95,000 shares of common stock underlying five
year $2.25 warrants held by KMWGEN Partners, (d) 21,250 shares of common stock issuable upon exercise of stock options held
by Mr. Wolff, (e) 125,000 shares issuable upon conversion of 500 shares of Series II Convertible Preferred Stock, held by
KMWGEN Partners, and (f) 75,000 shares issuable pursuant to a warrant to purchase shares at an exercise price of $2.12 per
share, held by KMWGEN Partners. The Series II Convertible Preferred Stock is convertible commencing June 24, 1998 into a
number of shares determined by dividing $1,000 per share by the greater of $4.00 or 75% of the average closing price of the
Company's Common Stock over the five trading days immediately preceding conversion, but not higher than $10.00. For
purposes hereof, the number of shares shown as being issuable upon conversion of the Series Convertible Preferred Stock is
based on a conversion price of $4.00, the minimum conversion price of the Series II convertible Preferred Stock. Mr.
Wolff, as Trustee of the Wolff Revocable Trust of 1993, may be deemed to be the beneficial owner of all such securities
except for the shares underlying the option to purchase 21,250 shares which option is held directly by Mr. Wolff. Mr.
Wolff has the sole power to vote or to direct the vote, and the sole power to dispose or to direct the disposition of, all
the shares beneficially owned by Mr. Wolff, other than 190,000 shares beneficially owned by KMWGEN Partners, of which Mr.
Wolff and his son, Keith M. Wolff, are the general partners. The information set forth herein is based on Amendment No. 5
to the Schedule 13D dated March 1, 2003 filed by Mr. Wolff with the Securities and Exchange Commission on April 9, 2003.
(12) Includes (a) (i) 71,525 shares of common stock held by Stephen Ross and Rachel Ross as co-trustees of the Ross Family
Trust, and (ii) 7,960 shares of common stock held by the Mazel Trust of which Stephen Ross is the co-trustee, (b) (i)
63,565 shares of common stock underlying five year $2.25 warrants, held by Stephen Ross and Rachel Ross as co-trustees of
the Ross Family Trust, (ii) 16,029 shares of common stock underlying five year $2.77 warrants, held by Stephen Ross and
Rachel Ross as co-trustees of the Ross Family Trust, and (iii) 16,029 shares of common stock underlying five year $2.77
warrants, held by the Mazel Trust of which Stephen Ross is the co-trustee, and (c) 27,250 shares issuable upon exercise of
stock options held by Mr. Ross.
(13) Includes 45,650 shares out of 69,250 shares issuable upon exercise of stock options held by Mr. Sola.
(14) Includes 0 shares out of 50,000 shares issuable upon exercise of stock options held by Mr. Gay.
(15) Mr. MacLeod, a current director, has not been nominated for re-election as a director.
(16) Mr. Dantas is an officer of Starwood Hotels & Resorts Worldwide. Mr. Dantas disclaims any beneficial interest in any
shares held by Starwood Hotels & Resorts Worldwide.
10
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CORPORATE GOVERNANCE AND RELATED MATTERS
--------------------------------------------------------------------------------
OVERVIEW
Our Board of Directors believes that corporate governance practices should be
designed to create an environment that encourages and supports optimum
shareholder value, compliance with all legal requirements and maintenance of the
highest standards of integrity. The Board, in conjunction with senior
management, has adopted and adheres to corporate governance practices that they
believe promote those goals. We continually review governance practices,
applicable state law, the rules and listing standards of Nasdaq and SEC
regulations, as well as best practices suggested by recognized governance
authorities, with a view to establishing and maintaining appropriate systems,
practices and procedures which will further our stated goals.
INDEPENDENCE
The Board believes that the interests of the stockholders are best served by
having at least a majority of objective independent representatives on the
Board.
In determining independence, the Board applies the standards established by the
Nasdaq Stock Market. In conjunction with this Proxy Statement, the Board has
evaluated all relationships between each director, or nominee, and Grill
Concepts and has made the following determinations with respect to the
"independence" of each director or nominee for director:
DIRECTOR/NOMINEE STATUS
Mr. Golenberg Independent (1)
Mr. MacLeod Independent (2)
Mr. Ross Independent
Mr. Spivak Not independent (3)
Mr. Weinstock Not independent (4)
Mr. Wolff Not independent (5)
Mr. Dantas Independent (6)
Mr. Schwartz Independent
(1) Mr. Golenberg previously was covered by Grill Concepts' group health and
dental insurance plans with premiums being paid by Grill Concepts. Total
premiums paid on Mr. Golenberg's behalf in 2003 were $10,240.29. Mr.
Golenberg's coverage under the Grill Concepts group health insurance plan
was terminated effective December 31, 2003. The Board has concluded that
this prior relationship is not material and does not otherwise impair, or
appear to impair, Mr. Golenberg's ability to make independent judgments
and, therefore, does not prevent Mr. Golenberg from being an "independent"
director.
(2) Mr. MacLeod served as Executive Vice President of the Sheraton Hotels &
Resorts division of Starwood Hotels & Resorts Worldwide until April 2005.
Starwood is a principal stockholder of Grill Concepts and is party to a
Development Agreement with Grill Concepts pursuant to which certain
payments are made between Starwood and Grill Concepts in connection with
the development and operation of restaurant properties. Revenues from
Starwood, and Starwood affiliates, to Grill Concepts for management
services totaled $241,040 during 2004.
In determining that Mr. MacLeod is independent, the Board took into
consideration that Mr. MacLeod was not an executive officer of Starwood and
that the total payments from Starwood to Grill Concepts for management
services was less than 5% of the revenues of Starwood and less than 5% of
the revenues of Grill Concepts. Further, the Board has concluded that this
relationship does not impair, or appear to impair, Mr. MacLeod's ability to
make independent judgments and, therefore, does not prevent Mr. MacLeod
from being an "independent" director.
(3) Mr. Spivak is the President and Chief Executive Officer of Grill Concepts.
11
(4) Mr. Weinstock is the Chairman and Executive Vice President of Grill
Concepts.
(5) Mr. Lew Wolff may be deemed to be affiliated with Light Tower Associates
and with Hotel Restaurant Properties I, Inc. and Hotel Restaurant
Properties II, Inc. Light Tower Associates owns the San Jose Fairmont Hotel
and leases to Grill Concepts the site of the San Jose Grill restaurant.
Hotel Restaurant Properties is party to an agreement with Grill Concepts
pursuant to which Hotel Restaurant Properties assists Grill Concepts in
locating restaurant sites in hotel properties and for which Hotel
Restaurant Properties receives certain contracted portions of the fees or
income derived by Grill Concepts from operating restaurants in locations
identified by Hotel Restaurant Properties. Hotel Restaurant Properties is
owned by Mr. Wolff's son, Keith Wolff. Lease payments by Grill Concepts to
the Fairmont Hotel during 2004 totaled $160,000. Payments to Hotel
Restaurant Properties by Grill Concepts during 2004 totaled $290,000.
(6) Mr. Dantas, the designated nominee of Starwood Hotels & Resorts Worldwide,
has served as Vice President, Strategy of Starwood since April 2005.
Starwood is a principal stockholder of Grill Concepts and is party to a
Development Agreement with Grill Concepts pursuant to which certain
payments are made between Starwood and Grill Concepts in connection with
the development and operation of restaurant properties. Revenues from
Starwood, and Starwood affiliates, to Grill Concepts for management
services totaled $241,040 during 2004.
In determining that Mr. Dantas is independent, the Board took into
consideration that Mr. Dantas was not an executive officer of Starwood and
that the total payments from Starwood to Grill Concepts for management
services was less than 5% of the revenues of Starwood and less than 5% of
the revenues of Grill Concepts. Further, the Board has concluded that this
relationship does not impair, or appear to impair, Mr. Dantas's ability to
make independent judgments and, therefore, does not prevent Mr. Dantas from
being an "independent" director.
Based on the foregoing analysis, it was determined that at least a majority of
the directors of Grill Concepts are "independent" directors under the standards
established by Nasdaq.
The Board will continually monitor the standards established for director
independence under applicable law or Nasdaq listing requirements and will take
all reasonable steps to assure compliance with those standards.
COMMITTEES OF THE BOARD
In order to facilitate the various functions of the Board of Directors, the
Board has created a standing Audit Committee and a standing Compensation
Committee. Committee assignments are re-evaluated annually and approved by the
Board of Directors at its annual meeting that follows the annual meeting of the
stockholders.
Audit Committee. The Audit Committee operates pursuant to a written charter
that was amended in February 2004 and is attached to the proxy statement filed
with the SEC on April 26, 2004, and available for review on the SEC's web site.
Under its charter, the Audit Committee is given the sole authority and
responsibility for the appointment, retention, compensation and oversight of our
independent auditors, including pre-approval of all audit and non-audit services
to be performed by our independent auditors.
Glenn Golenberg (Chairman), Stephen Ross and Bruce Schwartz are the members, and
during 2004 were the members, of the Audit Committee. The Board of Directors
has determined that each of the members of the Audit Committee satisfies the
independence standards established by Nasdaq for Audit Committee members and
that each of the members of the Audit Committee is qualified to serve on the
Audit Committee based on their financial and accounting acumen. The Board of
Directors has also determined that Glenn Golenberg meets the SEC criteria of an
"audit committee financial expert". Mr. Golenberg has extensive background and
experience in accounting and finance, including serving as a principal in
Golenberg & Co., an investment banking firm, service as a financial analyst and
practice as a certified public accountant at an international accounting firm.
Mr. Golenberg holds both an undergraduate and an MBA degree in accounting and is
a CPA.
12
Compensation Committee. The Compensation Committee is responsible for reviewing
and approving, on behalf of the Board, the amounts and types of compensation to
be paid to Grill Concepts' executive officers and the non-employee directors;
provides oversight and guidance in the development of compensation and benefit
plans for all Grill Concepts employees; and administers Grill Concepts'
stock-based compensation plans.
Stephen Ross (Chairman), Glenn Golenberg and Norman Macleod were the members,
during 2004, of the Compensation Committee. The Board of Directors has
determined that each of the members of the Compensation Committee satisfies the
independence standards established by Nasdaq. With his pending retirement as a
director, Mr. Macleod will no longer serve on the Compensation Committee
following the 2005 shareholders meeting.
BOARD MEETINGS AND EXECUTIVE SESSIONS
During the year ended December 26, 2004, the Board of Directors held four formal
meetings, the Audit Committee held eight meetings and the Compensation Committee
held one meeting. Each director attended at least 75% of the aggregate of (i)
the total number of meetings of the Board of Directors, plus (ii) the total
number of meetings held by all committees of the Board of Directors on which the
director served.
By resolution adopted by the Board of Directors, commencing in 2004, the
non-management members of the Board will meet on a regular basis, not less than
twice annually, in executive session without management present. Executive
sessions are to be led by a "Lead Director" designated by the non-management
directors. An executive session is held in conjunction with each regularly
scheduled Board meeting and other sessions may be called by the Lead Director in
his or her own discretion or at the request of the Board.
NOMINATION OF DIRECTORS
The Board of Directors does not maintain a standing Nominating Committee.
Instead, the Board has adopted, by Board resolution, a process of nominating
directors wherein nominees must be selected, or recommended for the board's
selection, by a majority of the independent directors with independence
determined in accordance with Nasdaq standards. Because of the relatively small
size of the Board and the current demands on the independent directors, the
Board determined that the nomination process would best be carried out, while
maintaining the independence of the nominating process, by drawing upon the
resources of all Board members with the requirement that nominates be selected
by a majority of the independent directors.
In assessing potential director nominees, the Board looks for candidates who
possess a wide range of experience, skills, areas of expertise, knowledge and
business judgment, high integrity and demonstrated superior performance or
accomplishments in his or her professional undertakings.
The Board may utilize the services of a search firm to help identify candidates
for director who meet the qualifications outlined above.
The Board will also consider for nomination as director qualified candidates
suggested by our stockholders. Stockholders can suggest qualified candidates
for nomination as director by writing to our corporate secretary at 11661 San
Vicente Blvd., Suite 404, Los Angeles, California 90049. Submissions that are
received that meet the criteria outlined above are forwarded to the full Board
of Directors for further review and consideration.
It is Grill Concepts' policy that the directors, or nominees for director, who
are up for election attend the Annual Meeting. All nominees up for election at
the 2004 Annual Meeting of stockholders attended that meeting.
CODES OF ETHICS
The Board of Directors has adopted a Code of Business Ethics covering all
officers, directors and employees of Grill Concepts. We require all employees
to adhere to the Code of Business Ethics in addressing legal and ethical issues
encountered in conducting their work. The Code of Business Ethics requires that
our employees avoid conflicts of interest, comply with all laws and other legal
requirements, conduct business in an honest and ethical manner and otherwise act
with integrity and in the company's best interest.
The Board of Directors has also adopted a separate Code of Business Ethics for
the CEO and Senior Financial Officers. This Code of Ethics supplements our
general Code of Business Ethics and is intended to promote honest and ethical
conduct, full and accurate reporting, and compliance with laws as well as other
matters.
13
Both the Code of Business Ethics and the Code of Business Ethics for the CEO and
Senior Financial Officers are filed as exhibits to Grill Concepts' Annual Report
on Form 10-K for the year ended December 28, 2003 and are available for review
at the SEC's web site at www.sec.gov.
CONTACTING THE BOARD
Any shareholder who desires to contact Grill Concepts' Lead Director or the
other members of the Board of Directors may do so electronically by sending an
email to the following address: ggolenberg@bellwethergrp.com. Alternatively, a
shareholder can contact the Lead Director or the other members of the Board by
writing to: Board of Directors, Grill Concepts, Inc., 11661 San Vicente Blvd.,
Suite 404, Los Angeles, California 90049. Communications received electronically
or in writing are distributed to the Lead Director or the other members of the
Board as appropriate depending on the facts and circumstances outlined in the
communication received. For example, if any complaints regarding accounting,
internal accounting controls and auditing matters are received, then they will
be forwarded by the Secretary to the Chairman of the Audit Committee for review.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the Company's executive officers served during fiscal 2004 as a member
of the board of directors or compensation committee of any entity that has had
one or more executive officers which served as a member of the Company's Board
of Directors or Compensation Committee.
COMPENSATION OF DIRECTORS
From January 2004 to June 2004, each non-employee director of the Company was
paid a fee of $500 for each Board meeting attended and $250 for each committee
meeting attended. Beginning in June 2004, the non-employee directors were paid
a quarterly fee of $1,000 plus a quarterly fee of $1,000 for service on the
Audit Committee and a quarterly fee of $500 for service on the Compensation
Committee. The Company also reimburses each director for all expenses of
attending such meetings. Each non-employee director is also granted a $500 per
quarter food credit at the Company's restaurants. Additionally, each
non-employee director is currently granted options, pursuant to the Company's
amended 1998 Comprehensive Stock Option and Award Plan, to purchase 6,250 shares
of Common Stock upon their initial appointment as a director. Thereafter, each
non-employee director on the day following each annual meeting of shareholders
of the Company shall automatically receive options to purchase an additional
5,000 shares, plus an additional 1,000 shares for each committee on which such
non-employee director serves. All such options are exercisable at the fair
market value of the Company's Common Stock on the date of grant. Such options
are fully vested and exercisable with respect to all of the shares covered on
the date of each grant.
Until December 31, 2003, Glenn Golenberg was covered under Grill Concepts' group
health and dental insurance plans and Grill Concepts paid all insurance premiums
relating to that coverage. Premiums paid by Grill Concepts with respect to
health and dental insurance coverage for Mr. Golenberg totaled $10,240.29 during
2003. Mr. Golenberg's health and dental insurance coverage was terminated
effective December 31, 2003.
No additional compensation of any nature is paid to employee directors.
14
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RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors (the "Audit Committee") is
composed of the three directors named below, each of whom is an "independent
director" as defined in the applicable listing standards of Nasdaq. The duties
of the Audit Committee are summarized in this Proxy Statement under "Committees
of the Board" on page 12 and are more fully described in the Audit Committee
charter adopted by the Board of Directors. The Audit Committee reviews and
assesses the adequacy of its charter each fiscal year. The Audit Committee
revised its charter, which was then approved by the Board of Directors, in
February 2004. The revised charter is attached to the Proxy Statement filed with
the SEC on April 26, 2004 and available for review on the SEC's web site,
www.sec.gov.
As more fully described in its charter, one of the Audit Committee's primary
responsibilities is to assist the Board in its oversight of the integrity of the
Company's financial reports. Management is responsible for the Company's
accounting and financial reporting processes, internal controls and the
preparation and integrity of the Company's consolidated financial statements.
Moss Adams, the Company's independent auditing firm, is responsible both for
performing an independent audit of the Company's consolidated financial
statements in accordance with auditing standards generally accepted in the
United States of America and expressing an opinion on the conformity of those
audited consolidated financial statements with accounting principles generally
accepted in the United States of America. The function of the Audit Committee
is not to duplicate the activities of management or the auditors, but to serve a
Board-level oversight role in which it provides advice, counsel, and direction
to management and the auditors.
The Audit Committee has sole authority to select, evaluate and when appropriate,
to replace the Company's independent auditors. The Audit Committee has
appointed Moss Adams as the Company's independent auditors for fiscal year 2005
and has requested stockholder ratification of its appointment.
The Committee has reviewed and discussed with management and Moss Adams the
disclosures made in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 26, 2004. This review included a discussion with management and Moss
Adams regarding the quality of the Company's accounting principles, the
reasonableness of significant estimates and judgments, and the clarity and
completeness of disclosure of the Company's consolidated financial statements.
Management represented to the Audit Committee that the Company's consolidated
financial statements, on which Moss Adams issued an unqualified opinion, were
prepared in accordance with accounting principles generally accepted in the
United States of America. The Committee discussed with Moss Adams, the matters
required to be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees", as amended. In addition, the Audit
Committee received the written disclosures and the letter from Moss Adams
required by Independence Standards Board Standard No. 1, "Independence
Discussions with Audit Committees," and discussed with Moss Adams its
independence from the Company.
The Committee has discussed with management and Moss Adams such other matters
and received such assurances from them as the Committee deemed appropriate.
In reliance on the review and discussions referred to above, and the report of
Moss Adams, the Audit Committee recommended to the Board of Directors, and the
Board of Directors has approved, the inclusion of the audited consolidated
financial statements in the Company's Annual Report on Form 10-K for the fiscal
year ended December 26, 2004 for filing with the SEC.
THE AUDIT COMMITTEE
Glenn Golenberg, Chairman
Stephen Ross
Bruce Schwartz
15
FEES PAID TO INDEPENDENT PUBLIC ACCOUNTANTS
The following table presents fees for professional audit services rendered by
Moss Adams LLP for the audit of the Company's annual financial statements for
the year ended December 26, 2004 and fees billed for other services rendered by
Moss Adams during the year and for professional audit services rendered by
PricewaterhouseCoopers LLP, our former independent public accountants, for the
audit of the Company's annual financial statements for the year ended December
28, 2003 and fees billed for other services rendered by PricewaterhouseCoopers
LLP during the year.
FISCAL 2004 FISCAL 2003
----------- -----------
Audit fees (1) 207,120 109,000
Audit related fees (2) 47,500 47,500
Tax fees 4,397 -
All other fees - -
----------- -----------
Total 259,017 156,500
=========== ===========
(1) Audit Fees consist of fees billed for professional services rendered for
the audit of the Company's consolidated annual financial statements and
review of the interim consolidated financial statements included in
quarterly reports and services that are normally provided by Moss Adams LLP
or PricewaterhouseCoopers LLP, as appropriate, in connection with statutory
and regulatory filings or engagements.
(2) Audit-Related Fees consist of fees billed for assurance and related
services that are reasonably related to the performance of the audit or
review of the Company's consolidated financial statements and are not
reported under "Audit Fees." This category includes fees related to audits
of affiliated entities in which the Company owns an interest or from which
the Company receives management or license fees.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES OF
INDEPENDENT AUDITOR
The Audit Committee's policy is to pre-approve all audit and non-audit services
provided by the independent auditors. These services may include audit services,
audit-related services, tax services and other services. Pre-approval is
generally provided for up to one year and any pre-approval is detailed as to the
particular service or category of services and is generally subject to a
specific budget. The Audit Committee may delegate pre-approval authority to one
or more members when expedition of services is necessary. The independent
auditors and management are required to periodically report to the full Audit
Committee regarding the extent of services provided by the independent auditors
in accordance with this pre-approval, and the fees for the services performed to
date. None of the fees paid to the independent auditors under the categories
Audit-Related, Tax and All Other fees described above were approved by the Audit
Committee after services were rendered.
16
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OTHER MATTERS
--------------------------------------------------------------------------------
PERFORMANCE GRAPH
The following graph compares the cumulative total investor return on the
Company's Common Stock for the five years ended December 26, 2004 with the S&P
SmallCap 600 Index and the S&P SmallCap 600 Restaurant Index.
The graph displayed below is presented in accordance with Securities and
Exchange Commission requirements. Shareholders are cautioned against drawing
any conclusions from the data contained herein, as past results are not
necessarily indicative of future performance. This graph in no way reflects the
Company's forecast of future financial performance.
[GRAPHIC OMITED]
Base Period
December December December December December December
26 1999 31 2000 30 2001 29 2002 28 2003 26 2004
------- ------- ------- ------- ------- -------
Grill Concepts, Inc. 100 178.64 77.67 83.88 157.20 136.70
S&P SmallCap 600 Index 100 116.46 125.12 105.78 146.70 179.55
S&P 600 Restaurants 100 130.80 181.13 168.89 225.63 274.76
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's directors, its
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission. Specific due dates for these reports have
been established and the Company is required to disclose in this Proxy Statement
any failure to file by these dates during 2004. Based solely on a review of
such reports and written statements of its directors, executive officers and
shareholders, the Company believes that all of the filing requirements were
satisfied on a timely basis in 2004, except (1) Michael Weinstock filed one late
Form 4, (2) Stephen Ross filed one late Form 4, (3) Lewis Wolff filed one late
Form 4, (4) John Sola filed one late Form 4, and (5) Glenn Golenberg filed one
late Form 4.
17
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company has entered into transactions with various entities that may be
deemed to be controlled by Lewis Wolff. Mr. Wolff is the trustee of the Wolff
Revocable Trust of 1993 that holds all of the outstanding preferred stock of the
Company and may be deemed to be a controlling shareholder of the Company. Mr.
Wolff has served as director of the Company since June 2001. Transactions that
provide for ongoing obligations and/or rights of the Company, or with respect to
which amounts were paid during 2001 and/or 2002, and which may be deemed to have
been entered into with Mr. Wolff and his affiliates include: (1) lease of the
site of the San Jose Grill at the San Jose Fairmont Hotel from an entity in
which Mr. Wolff is a part owner and (2) entry into an agreement with Hotel
Restaurant Properties, Inc. ("HRP"), an entity controlled by a member of Mr.
Wolff's family, pursuant to which HRP will assist the Company in locating hotel
locations for the opening of restaurants and pursuant to which HRP is entitled
to a portion of the fees or profits from those restaurants. Rents in the amount
of $160,000 and $136,000 were accrued by the Company with respect to the San
Jose Grill during 2003 and 2004, respectively.
In August 1998, the Company entered into an agreement with HRP, of which Mr.
Keith Wolff is President. Pursuant to the agreement HRP will assist the Company
in locating hotel locations for the opening of restaurants. HRP is entitled to
a portion of the fees or profits from those restaurants. The Company paid
$290,000 and $235,000 of management fees to HRP during fiscal years 2003 and
2004, respectively. The agreement also provides that HRP will repay to the
Company amounts advanced to managed units on behalf of HRP. As of December 26,
2004, HRP owed to the Company $396,000. As of December 28, 2003, HRP owed to
the Company $255,000.
In July 2000, Lewis Wolff and Michael Weinstock each agreed to guarantee
$750,000 of the Company's bank credit facility. Pursuant to the terms of the
guarantee, the Company issued to each of Mr. Wolff and Mr. Weinstock 75,000
warrants exercisable to purchase common stock at $1.41 per share. In 2001 each
of Mr. Wolff and Mr. Weinstock received an additional 75,000 five year warrants
exercisable at $2.12 per share. Additionally, the Company agreed to pay each of
Mr. Wolff and Mr. Weinstock interest at the rate of 2% per annum of the average
annual balance of the loans guaranteed. No interest was accrued or paid to Mr.
Wolff and Mr. Weinstock during the years ended December 28, 2003 and December
26, 2004.
In July 2001, the Company completed a series of transactions with Starwood
Hotels & Resorts Worldwide, Inc., pursuant to which (1) Starwood acquired, for
$1,000,000.50, 666,667 shares of Common Stock and five year $2.00 666,667
warrants to purchase shares of the Company's Common Stock, (2) the Company and
certain shareholders agreed to take appropriate actions, so long as Starwood
owns no fewer than 333,333 shares of Common Stock, to cause one nominee of
Starwood to be elected to the Company's board or, in the event the number of
restaurants operated pursuant to the Starwood Agreements equals or exceeds ten
restaurants, to cause two nominees of Starwood to be elected to the Company's
board, and (3) the Company and Starwood agreed to jointly develop the Company's
branded restaurants in Starwood properties with Starwood being the exclusive
major hotel operator in which the Company's restaurants are developed, managed,
operated or licensed. Norman MacLeod has been designated as Starwood's board
representative and currently serves as a Director of the Company.
In conjunction with, and as a condition of, the Starwood transactions, the
Company was obligated to secure funding, in addition to that provided by
Starwood, in an amount not less than $1,000,000 from the sale of equity
securities to other investors on terms not more favorable to the investors than
those of Starwood. Pursuant to that obligation, the Company sold, for $142,500,
95,000 shares of common stock and 95,000 five year $2.25 warrants to KMWGEN
Partners, a partnership of which Lewis Wolff, as Trustee of the Wolff Revocable
Trust of 1993, and Keith Wolff, as Trustee of The Keith M. Wolff 2000
Irrevocable Trust, are general partners.
Also, in conjunction with the Starwood transactions, the Company sold 65,565
shares of common stock to the Ross Family Trust for $95,348. The Ross Family
Trust and the Mazel Trust, both of which Mr. Ross is co-trustee of, in 2000,
loaned $400,000 to the Company for which it is paid interest of 10% and was
issued 40,000 five year warrants exercisable at $1.40625 per share. In 2001 the
trusts were issued an additional 32,058 four year warrants exercisable at $2.77
per share. In 2002, the Ross Family Trust acquired the loans from the Mazel
Trust. The Company owed $67,635 to the Ross Family Trust at December 28, 2003
and $0 at December 26, 2004. Stephen Ross, co-trustee of the Ross Family Trust
was elected as a director of the Company in 2001, following the Starwood
transactions.
The Starwood Agreements also provide for the issuance to Starwood, after the
aggregate number of branded restaurants covered by management agreements or
licensing agreements reaches five, ten, fifteen and twenty (each a "Development
Threshold Date"), of warrants (the "Development Warrants") to purchase a number
of shares of the Company's Common Stock equal to 4% of the then outstanding
shares of capital stock. The Development Warrants will have an exercise price
equal to (1) 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 of the transactions contemplated by the Starwood
Agreements (the "Closing Date"), the greater of (A) 75% of the fair market value
of the Common Stock on the date of issuance of the Development Warrants or (B)
the fair market value of the Common Stock on the closing date as defined in the
Starwood Agreements, or (2) if the fair market value of the Common Stock as of
the applicable Development Threshold Date is equal to or less than the fair
market value of the Common Stock on the closing date, the fair market value of
the Common Stock as of the applicable Development Threshold Date.
18
In addition to the Development Warrants, the Starwood Agreements provide for the
issuance of warrants (the "Incentive Warrants") to Starwood to purchase a number
of shares of the Company's Common Stock equal to 0.75% of the then outstanding
shares of capital stock of the Company on the date of execution of any
management agreement or license agreement (the "Initial Incentive Threshold
Date") resulting in the total number of restaurants being operated pursuant to
the Starwood Agreements exceeding 35% of the total branded restaurants operated
by the Company. Additional Incentive Warrants will be issued on each
anniversary of the Initial Incentive Threshold Date provided that the incentive
threshold continues to be satisfied.
In 1993, Michael Weinstock, Executive Vice President and Chairman of the Board,
loaned $85,000 to the Company in an uncollateralized subordinated note,
renewable annually with interest accruing at 7% per annum. At December 26,
2004, the balance owed to Mr. Weinstock, including accrued interest, totaled
$152,502.
In 1998, Robert Spivak, President and Chief Executive Officer, loaned $70,000 to
the Company in an uncollateralized subordinated note, renewable annually with
interest accruing at 10% per annum. At December 26, 2004, the balance owed to
Mr. Spivak, including accrued interest, totaled $106,750.
In February 2004, the Company adopted a policy requiring that all transactions
with affiliates be subject to the prior review and approval by the Audit
Committee.
Other than elections to office, no director, nominee for director, executive
officer or associate of any of the foregoing persons has any substantial
interest, direct or indirect, by security holdings or otherwise, in any matter
to be acted upon at the Annual Meeting.
SUBMISSION OF SHAREHOLDER PROPOSALS
In order for shareholder proposals to be included in the Company's Proxy
Statement and proxy relating to the Company's 2006 Annual Meeting of
Shareholders, such proposals must be received by the Company at its principal
executive offices not later than December 30, 2005. If the Company receives
notice of a shareholder proposal after March 14, 2006, persons named as proxies
for the 2006 Annual Meeting of Shareholders will have discretionary authority to
vote on such proposal at such meeting.
EXPENSES OF SOLICITATION
All of the expenses of soliciting proxies from shareholders, including the
reimbursement of brokerage firms and others for their expenses in forwarding
proxies and proxy statements to the beneficial owners of the Company's Common
Stock, will be borne by the Company.
Michael Weinstock
Chairman
Los Angeles, California
May 24, 2005
19
GRILL CONCEPTS, INC.
11661 San Vicente Blvd., Suite 404
Los Angeles, California 90049
Proxy for Annual Meeting of Shareholders
to be held on July 27, 2005
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Robert Spivak and Michael Weinstock, and
each of them, as Proxies, with full power of substitution in each of them, in
the name, place and stead of the undersigned, to vote at an Annual Meeting of
Shareholders (the "Meeting") of Grill Concepts, Inc., a Delaware corporation
(the "Company"), on July 27, 2005, at 9:00 a.m., or at any adjournment or
adjournments thereof, in the manner designated below, all of the shares of the
Company's common stock that the undersigned would be entitled to vote if
personally present.
1. GRANTING _____ WITHHOLDING _____ authority to vote for the
election as directors of the Company the following nominees: Robert Spivak,
Michael Weinstock, Glenn Golenberg, Lewis Wolff, Stephen Ross, Richard Dantas
and Bruce Schwartz.
(Instructions: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name.)
2. Proposal to ratify the appointment of Moss Adams LLP as the
Company's independent certifying accountants.
________FOR ________AGAINST ________ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the Meeting or any adjournments
thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ABOVE. IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 2 AND 3 AND FOR
THE ELECTION OF ALL NOMINEES AS DIRECTORS.
Please sign exactly as your name appears
hereon. When shares are held by joint
tenants, both should sign. When signing as an
attorney, executor, administrator, trustee,
guardian, or corporate officer, please
indicate the capacity in which signing.
DATED:__________________________ , 2005
Signature:___________________________________
Signature if held jointly:___________________
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE