-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AQkP8upXv07EZ6LC21O1TCtrGq1eVvmt/s/gtNZf0bHruFpCMrqMDyLgVBjJ1ht7 RXGg5hGxC8urQVnCH1Hs3Q== 0000912057-00-010382.txt : 20000309 0000912057-00-010382.hdr.sgml : 20000309 ACCESSION NUMBER: 0000912057-00-010382 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREATIVE HOST SERVICES INC CENTRAL INDEX KEY: 0000933098 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 330169494 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-30014 FILM NUMBER: 563416 BUSINESS ADDRESS: STREET 1: 6335 FERRIS SQUARE STREET 2: STES G-H CITY: SAN DIEGO STATE: CA ZIP: 92126 BUSINESS PHONE: 6195877300 MAIL ADDRESS: STREET 1: 6335 FERRIS SQUARE STREET 2: STES G-H CITY: SAN DIEGO STATE: CA ZIP: 92126 S-3/A 1 S-3/A As filed with the Securities and Exchange Commission on March 8, 2000 Registration No. 333-30014 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-3 PRE-EFFECTIVE AMENDMENT NUMBER 1 TO THE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 CREATIVE HOST SERVICES, INC. (Exact name of registrant as specified in their charter) California (State or other jurisdiction of incorporation or organization of registrant) 33-1069494 (I.R.S. employer identification number) 6335 Ferris Square, Suites G-H San Diego, California 92126 (619) 587-7300 (Address, including zip code, and telephone number, including area code, of registrants' principal executive office) Sayed Ali, President Creative Host Services, Inc. 6335 Ferris Square, Suite G-H San Diego, California 92126 (619) 587-7300 (Name, address, including zip code, and telephone number, including area code, of agent for service) With copies to: Mark J. Richardson, Esq. Richardson & Associates 1299 Ocean Avenue, Suite 900 Santa Monica, California 90401 (310) 393-9992 (310) 393-2004 (fax) Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1993, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _____. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. Registration No. _______. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum Title of Each Class of Amount to be Aggregate Price Aggregate Amount of Securities to be Registered Registered(1) Per Share(2) Offering Price Registration Fee Common Stock.................................... 1,192,001 $ 10.00 $11,920,010.00 $3,146.88 Common Stock Underlying Warrants................ 120,000 $ 1.375 $ 165,000.00 $ 43.56 Common Stock Underlying Warrants................ 119,600 $ 1.48 $ 177,008.00 $ 46.73 Common Stock Issuable Upon Conversion of Notes.. 299,427 $ 2.62 $ 784,498.74 $ 207.11 - ------------------------------------------------ ================== ===================== =============== ================ Totals 1,731,028 -- $13,046,516.74 $3,444.28 ================================================ ================== ===================== =============== ================ * This fee has already been paid.
(1) This Registration Statement covers shares of the Registrant's Common Stock being registered for resale on behalf of certain Selling Securityholders, as well as shares issuable upon the exercise of Warrants issued to certain Selling Securityholders (the "Warrants), and additional shares of Common Stock as may become issuable upon conversion of the Company's outstanding 12% Secured Convertible Promissory Notes (the "Notes"). This Registration Statement registers securities to be offered pursuant to terms which provide for a change in the amount of securities being offered or issued to prevent dilution resulting from stock splits, stock dividends or similar transactions. Pursuant to Rule 416, this Registration Statement shall be deemed to cover the additional securities to be offered or issued in connection with any such provision. (2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c), or reflects the Warrant exercise and Note conversion prices. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Subject to Completion, Dated March 8, 2000 PROSPECTUS CREATIVE HOST SERVICES, INC. [LOGO] 1,731,028 Shares Common Stock This Prospectus covers 1,731,028 shares of the Common Stock, no par value (the "Common Stock") of Creative Host Services, Inc., a California corporation ("CHST") held by several individuals and entities (collectively, the "Selling Securityholders"). The shares covered by this Prospectus include 1,192,001 outstanding shares of Common Stock, up to 239,600 shares issuable upon the exercise of outstanding warrants (the "Warrants"), and up to 299,427 shares issuable upon the conversion of outstanding 12% Convertible Secured Notes, dated December 21, 1998 (the "Notes"). We will not receive any of the proceeds from the sale of securities by the Selling Securityholders. Our Common Stock is traded on the NASDAQ Small Cap Market under the symbol "CHST." On March 1, 2000, the last bid price and ask price for the Common Stock as reported on the NASDAQ Small Cap Market was $10.00 and $10.25, respectively. For a discussion of certain factors that should be considered in connection with an investment in the Company's Common Stock, see "Risk Factors" beginning on page 3. ------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------- The Selling Securityholders may from time to time sell all or a portion of the securities offered by this Prospectus in transactions in the over-the-counter market, in negotiated transactions, or otherwise, at fixed prices that may be changed, at market prices prevailing at the time of sale, or at negotiated prices. The Selling Securityholders may effect such transactions by selling such securities directly to purchasers or through dealers or agents who may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the securities for whom they may act as agents. ADDITIONAL INFORMATION This Prospectus is part of a Registration Statement on Form S-3 (together with all amendments and exhibits (the "Registration Statement") which has been filed by CHST with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), relating to the securities offered by this Prospectus. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, you may read the Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to in this Prospectus are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, you may read the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. We are subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance with the Exchange Act we file reports, proxy and information statements and other information with the Commission. Such reports, proxy and information statements and other information, as well as the Registration Statement and Exhibits of which this Prospectus is a part, filed by us may be inspected and copied at the public reference facilities of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as at the following Regional Offices: 7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street--Suite 1400, Chicago, Illinois 60661. You may obtain copies of such material from the Commission by mail at prescribed rates. You should direct your requests to the Commission's Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. The Commission maintains a web site that contains reports, proxies, and information statements regarding registrants that file electronically with the Commission. The address of the web site is http://www.secgov. Our Common Stock is traded on the Nasdaq Small Cap Market. Reports and other information concerning us can also be obtained at the offices of the National Association of Security Dealers, Inc., Market Listing Section, 1735 K Street, N.W., Washington, D.C., 20006. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE We hereby incorporate by reference into this Prospectus the following documents previously filed with the Commission: 1. The Company's Annual Report on Form 10-KSB for the year ended December 31, 1998. 2. The Company's Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 1999. 3. The description of the Company's Common Stock contained in the Company's Registration Statement on Form SB-2, dated July 22, 1997. All documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and -2- prior to the termination of this offering are deemed incorporated by reference in this Prospectus and are a part of this Prospectus from the date of the filing of such documents. See "Additional Information". Any statement contained in a document incorporated or deemed to be incorporated in this Prospectus by reference shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained in this Prospectus or in any other subsequently filed document which also is or is deemed to be incorporated by reference in this Prospectus modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. We will provide without charge to each person to whom this Prospectus is delivered, upon request of any such person, a copy of any of the foregoing documents incorporated in this Prospectus by reference, other than exhibits to such documents not specifically incorporated by reference. Written or telephone requests should be directed to our President at our principal executive offices: Creative Host Services, Inc., 6335 Ferris Square, Suites G-H, San Diego, California, telephone number (858) 587-7300. RISK FACTORS Purchasing shares of Common Stock in Creative Host Services, Inc. is risky. You should be able to bear a complete loss of your investment. You should carefully consider the following factors, among others. Forward-Looking Statements. The following cautionary statements are made pursuant to the Private Securities Litigation Reform Act of 1995 in order for CHST to avail itself of the "safe harbor" provisions of that Act. The discussions and information in this Prospectus including the documents incorporated by reference may contain both historical and forward-looking statements. To the extent that the Prospectus contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of CHST, please be advised that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in forward-looking statements. We have attempted to identify, in context, certain of the factors that we currently believe may cause actual future experience and results to differ from our current expectations. The differences may be caused by a variety of factors, including but not limited to adverse economic conditions, general decreases in air travel, intense competition, including entry of new competitors, increased or adverse federal, state and local government regulation, inadequate capital, unexpected costs, lower revenues and net income than forecast, loss of airport concession bids or existing locations, price increases for supplies, inability to raise prices, failure to obtain new concessions, the risk of litigation and administrative proceedings involving the Company and its employees, higher than anticipated labor costs, the possible fluctuation and volatility of the Company's operating results and financial condition, adverse publicity and news coverage, inability to carry out marketing and sales plans, loss of key executives, changes in interest rates, inflationary factors, and other specific risks that may be alluded to in this Prospectus or in other reports filed by us. Need for Additional Capital. We may not have sufficient cash flow from our current operations to enable us to acquire and build additional locations at our historic growth rate. We may be required to raise additional capital in the future -3- to build out capital improvements for any newly awarded concession locations. Furthermore, on December 29, 1999, we notified the Noteholder of the exercise of our right to prepay in full $1,505,000 original principal amount of outstanding 12% Secured Convertible Notes, dated December 21, 1998. The repayment date has been set as March 30, 2000, in accordance with the terms of the Note. On February 9, 2000, the Noteholder notified us that it had elected to convert $720,500 outstanding principal amount of Notes into 275,000 shares of CHST's Common Stock. On February 29, 2000, the Noteholder sold the remaining Note to several outside purchasers (collectively, the "New Noteholders"). If the New Noteholders do not convert the balance of the outstanding Note into Common Stock and we do not have sufficient cash to repay the Note plus accrued interest plus premium as required by the Note by March 30, 2000, then we would be in default on the Note. While we believe that we will have sufficient funds to repay the balance of the Note, if it is not converted, and to continue our growth, no assurance can be given that additional capital will be available on terms acceptable to us or at all. One source of additional capital is the potential proceeds from the exercise of 462,500 outstanding warrants which have an exercise price of $5.40 per share, although there is no assurance that those warrants will be exercised. We are also making a private placement of up to 500,000 shares of our Common Stock for a price of $5.00 per share pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as amended. Failure to secure adequate capital to bid, win, retain or service concession contracts will hinder our growth or force us to franchise valuable locations that we would otherwise prefer to operate directly. In addition, we presently utilize equipment leasing to finance some of our operations. Additional lease financing with rates acceptable to us may not be available, in which case we will be required to raise additional capital or cease our expansion program until such financing or capital is made available, if ever. Dependence on Airport Concession Business. We are currently dependent on the airport concession business for substantially all of our revenues. We expect such dependence to continue for the foreseeable future. The concession business is highly competitive and subject to the uncertainties of the bidding and proposal process. Sophisticated bid packages and persuasive presentations are required in order to have an opportunity to win concession contracts at airports and other public venues. While there are thousands of airport concessions nationwide, the majority of those concessions are located in the largest 125 airports. Concession business operators, such as CHST, must maintain their reputations with the various airport authorities and other government, quasi government and public agencies in order to remain eligible to win contracts. The terms and conditions of concession contracts must be carefully analyzed to ensure that they can be profitable for us. Certain of our locations have incurred and may in the future incur net operating losses. Because our concession agreements contain minimum rent guarantees, we are constrained in our ability to terminate under-performing locations. In addition, the failure of any single concession could have a material adverse impact on our reputation with airport authorities generally, and hinder our ability to renew existing concessions or secure new ones. There is no assurance that we will continue to be awarded concession contracts by airports or by any other public venue, that the concession contracts will be profitable, or that we will not lose contracts that we have been awarded. Concessions Subject To Set Asides and Special Requirements. Rules issued by the Federal Aviation Administration ("FAA") require a portion of airport concession contracts to be awarded to certain classes of entities or persons designated as disadvantaged business enterprises ("DBEs"). The rules do not specify the method in which the DBEs must participate, whether through owning the concession, employment or providing services. Competitors in the industry have relied on combinations of using DBE employees or vendors to meet this requirement. Prior to CHST's initial public offering in July 1997, Mr. Sayed Ali, a native of Pakistan, owned all of the Company's Common Stock, thereby satisfying FAA rules. As a result of the change in ownership resulting from the initial public offering, CHST's status as a DBE is less clear. Certain existing concession contracts designate CHST as a DBE and may have to be reaffirmed. We believe that even if Mr. Ali's current equity ownership of CHST is no longer sufficient to qualify as a DBE, we would be able to maintain all of our contracts and continue to satisfy DBE rules by hiring or contracting with minority parties or other entities qualifying as DBEs, if required. However, we have not discussed with any airport authority the possible impact of our change in status, nor have we -4- attempted to reaffirm any existing contract. Our status as a DBE assisted us in securing concessions with several airports. We believe we can continue to secure new concessions on the basis of the products and services we offer and our industry reputation. We have secured concessions to operate 25 additional locations after our initial public offering and the resultant dilution of ownership, although we are not aware of the extent to which CHST's DBE status, or lack thereof, was a factor in the airport authorities' decisions to award such contracts to us. To the extent that our historic rate of success in securing new airport concessions was attributable to our status as a DBE, that growth rate may decline if we are not recognized as a DBE or if DBE programs are eliminated or curtailed. Possible Early Termination of Concessions. Certain airport authorities or airlines that operate concession locations provide in their concession agreements for the right to reacquire the concession from the concessionaire upon reimbursement of equipment and build out costs and, sometimes, a percentage of anticipated profits during the balance of the concession term. Certain of the Company's significant concession contracts, including Los Angeles International, Des Moines, Iowa, Columbia, South Carolina, Cedar Rapids, Iowa, and others, provide for such early termination. To date, we have not had any of our concessions terminated, and we have not received notice that any airport authority is contemplating the early termination of any of our concessions. No assurances can be provided, however, that these airport authorities will not exercise their contractual right to early termination of the concession contracts in the future. Possible Delay in Commencement of Concession Operations. The commencement of our concession operations at any airport location are subject to a number of factors which are outside our control, including construction delays and decisions by airport authorities to delay the opening of concessions. CHST has, in the past, experienced delays in commencing operations because of decisions by airport authorities. CHST's franchisee had completed capital improvements for a facility at the Denver International Airport, only to have the airport authority close the concourse when a major airline withdrew its operations from that airport. Consequently, we bear the risk that after a concession has been awarded, the completion of capital improvements or the commencement of operations at completed facilities may be delayed. Any such delay or requirement by an airport authority for us to construct facilities during peak travel periods would adversely impact our financial projections and cash flow planning, and may have a material adverse impact on our financial position. CHST's Liabilities and Risks Under the Note. CHST is obligated to pay the outstanding Note in accordance with its terms. The outstanding principal balance of the Note is $1,505,000, payable interest only on a monthly basis, with all principal and accrued but unpaid interest due in full on December 21, 2003. The Note also contains requirements for maintenance of coverage and cash flow ratios, as well as other restrictions. During 1999 CHST was in technical default on certain of those covenants, triggering the accrual of default interest equal to an additional 3% per annum, raising the overall interest rate on the Note during that period to 15% per annum. Restrictions in the Note also contributed to preventing us from submitting bid proposals for three airport locations that we otherwise would have sought in 1999. We do not believe that we are in technical default under the Note any longer, and we have notified the Noteholder that we intend to repay the Note in full on March 30, 2000, as permitted under the optional redemption provisions of the Note. Furthermore, we have tendered the default interest payment to the Noteholder and are current with our payments. The Noteholder has received the default interest payment of approximately $39,000, but is claiming that we agreed to issue approximately 106,000 warrants to the Noteholder in lieu of the cash payment for default interest. The Noteholder is claiming that the warrants would entitle it to purchase our common stock at prices prevailing in October or November of 1999. We vigorously deny the Noteholder's claims and do not believe that we agreed to issue any warrants to the Noteholder. Nevertheless, there is no assurance regarding the outcome of the dispute and, if litigation results, we could incur significant costs. The Noteholder has converted $720,500 principal amount of the Note into 275,000 shares of our Common Stock, 1,050 shares of which are covered by this Prospectus, and the New Noteholders have the right to convert the remaining outstanding principal balance of the Note into shares of Common Stock at a conversion price of $2.62 per share. If the New Noteholders convert the remaining Note into Common Stock, which is covered by this Prospectus, then there will be additional free trading shares in the market, possibly causing the market price of our Common Stock to decline. If the New Noteholders do not convert, then we will be required to tender cash to the Noteholders equal to 104% of the outstanding principal balance of the remaining Note plus accrued but unpaid interest on March 30, 2000. If we do not have sufficient cash at that time to repay the remaining Note as required by our optional redemption notice, then we would be in default on the Note and possibly could be subject to operating restrictions and collection costs. Risks of Decline in Stock Price. The market trading price of our stock could decline or become volatile because of the eligibility of the Common Stock covered by this Prospectus to be sold in the open market. This Prospectus causes the supply of free trading shares to increase substantially. There is no assurance that the price of our stock on the NASDAQ market will not decline because of the availability of the Common Stock covered by this Prospectus for potential sale, and for other reasons. CHST may register more shares of its stock in the future, potentially increasing the supply of free trading shares and possibly exerting downward pressure on our stock price. Risk of Dilution Through Additional Issuances of Shares. We may issue more shares of our common or preferred stock in the future in order to raise capital and make acquisitions of other businesses. Outstanding warrants and stock options may be exercised, causing more dilution in the outstanding shares of our capital stock. We are currently offering up to 500,000 shares of our common stock at a price of $5.00 per share in a private placement to accredited investors only under Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended. As part of the placement, we have agreed to register those shares with the Securities and Exchange Commission for free trading, subject to a minimum six month holding period required for those shares. We are also planning to file a Form S-8 registration statement with the Securities and Exchange Commission to register the shares authorized and issuable upon the exercise of stock options granted under our Stock Option Plan for officers, directors, and key employees and consultants. On October 18, 1999, we granted a total of 65,000 new stock options to the officers and directors of CHST, all of which vested immediately and are exercisable for periods ranging from five to ten years, at exercise prices ranging from $.93 to $1.02 per share. On December 3, 2000, we granted 25,000 new stock options to an independent consultant of CHST, all of which vested immediately and are exercisable for a period of ten years, at an exercise price of $3.875 per share. We are generally permitted to issue additional shares of our capital stock with the approval of our Board of Directors and without the consent of CHST's shareholders. Dependence on Key Personnel and Need to Attract Qualified Management. Our success will depend largely upon CHST's management. While management has had previous experience in concession and restaurant operations, there can be no assurance that our operations will be successful. Sayed Ali, Chairman of the Board, President and Chief Executive Officer of CHST, has entered into a five-year employment agreement with CHST, which commenced on January 1, 1997. In the event of a loss of the services of Mr. Ali, CHST could be materially adversely affected because there is no assurance that CHST could obtain successor management of equivalent talent and experience. -5- CHST has obtained a $1,000,000 key man policy on Mr. Ali which CHST owns. Given our stage of development, we are dependent upon our ability to identify, hire, train, retain and motivate highly qualified personnel, especially management personnel which will be required to supervise our expansion into various geographic areas. There can be no assurance that we will be able to attract qualified personnel or that our current employees will continue to work for us. The failure to attract, assimilate and train key personnel could have a material adverse effect on our business, financial condition and results of operations. Highly Competitive Industry Dominated by Larger Competitors. We compete with certain national and several regional companies to obtain the rights from airport and other authorities to operate food, beverage, news, gift, merchandise and inflight catering concessions. The airport concession market is principally serviced by several companies which are significantly larger than CHST, including, but not limited to, Host Marriott Services, Inc., CA One Services, Concessions International, and Ogden Food Services. Each of these well established competitors possesses substantially greater financial, marketing, administrative and other resources than CHST. Many of our competitors have achieved significant brand name and product recognition. They engage in extensive advertising and promotional programs, both generally and in response to efforts by additional competitors to enter new markets or introduce new products. There can be no assurance that we will be able to compete successfully in our chosen markets. Dependence Upon Continuing Approvals from Government Regulatory Authorities. The food and beverage service industry is subject to various federal, state and local government regulations, including those related to health, safety, wages and working conditions. While CHST has not experienced difficulties in obtaining necessary government approvals to date, the failure to obtain and retain food licenses or any other governmental approvals could have a material adverse effect on the Company's operating results. Moreover, our failure to meet government regulations could result in the temporary closure of one or more of our concession facilities, restaurants or the food preparation center, any of which would have a material adverse impact on our financial condition and result of operations. In addition, operating costs are affected by increases in the minimum hourly wage, unemployment tax rates, sales taxes and similar matters over which we have no control. We are also subject to federal and state laws, rules and regulations that govern the offer and sale of franchises. No Assurance of Enforceability of Trademarks. We utilize trademarks in our business and have registered our Creative Croissants(R) trademark. While we intend to file federal trademark registrations for certain of our other trademarks, we have not yet done so. There can be no assurance that we will be granted registration for such trademarks or that our trademarks do not or will not violate the proprietary rights of others, that our trademarks would be upheld if challenged or that we will not be prevented from using our trademarks, any of which could have a material adverse effect on us. Should we believe that our trademarks are being infringed upon by competitors, there can be no assurance that we will have the financial resources necessary to enforce or defend our trademarks and service marks. Seasonality. Because our airport concession business is dependent on pedestrian traffic at domestic airports, we experience some seasonality consistent with enplanements and general air traffic patterns. Accordingly, our revenues and income are generally expected to be lowest in the first quarter of the year and become progressively stronger through the fourth quarter, which includes the holiday travel periods. Control by Principal Shareholder. The principal shareholder of the -6- Company, Mr. Sayed Ali, beneficially owns approximately 20% of the outstanding shares of capital stock of CHST. Accordingly, Mr. Ali has significant influence over the outcome of all matters submitted to the shareholders for approval, including the election of directors of the Company. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the shares offered by the Selling Securityholders. SELLING SECURITYHOLDERS The shares of Common Stock being offered by the Selling Securityholders were issued to them in connection with various transactions. The Selling Securityholders include the following persons and entities who have acquired Common Stock, Warrants and Notes: - Seven individuals who acquired a total of 355,000 shares of our Common Stock for a purchase price of $1.00 per share in a private placement of Common Stock made by CHST in November 1999. The capital raised from that placement was utilized to pay default interest on the outstanding Notes, to pay for equipment costs at one of our new concession locations, and for general working capital. - A financial advisor who received (a) shares of Common Stock from the prior exercise of warrants, and (b) additional Warrants, in consideration for consulting services performed for CHST. - An individual who purchased $1,495,000 original principal amount of outstanding 12% Secured Convertible Notes dated December 21, 1998, from their original holder, and then converted them into 570,610 shares of Common Stock. This individual also purchased and holds 119,600 of the Warrants, the underlying shares of which are covered by this Prospectus. - An individual who purchased a total of 140,000 shares of our Common Stock for a purchase price of $.80 per share in a private placement of Common Stock made by CHST in July 1999. The capital raised from that placement was utilized for general working capital. - An institution that purchased $1,505,000 original principal amount of Notes in December 1998 and which (1) has converted $720,500 of principal amount of Note into 275,000 shares of our Common Stock, 1,050 of which are covered by this Prospectus, and (2) has sold the remaining $784,500 outstanding principal amount of Note to 15 purchasers (collectively, the "New Noteholders"), who may convert the Notes into shares of Common Stock at a conversion price of $2.62 per share. The shares issuable upon the conversion of the Notes are covered by this Prospectus as a result of the registration rights of the Noteholder. The Selling Securityholders include the New Noteholders. - Four individuals who exercised warrants previously granted to them in consideration for their services and assistance to CHST in obtaining the proceeds from the issuance of the 12% Secured Convertible Notes in December 1998. - The Noteholder that exercised 150,400 warrants to purchase Common Stock received by it in December 1998 in connection with providing the financing to CHST evidenced by the Notes. The Noteholder exercised those warrants in December 1999 on a "cashless" basis and as a result was issued 94,572 shares of Common Stock with the right to have them registered for free trading. The following tables set forth certain information with respect to each Selling Securityholder for whom we are registering securities for resale to the public. Beneficial ownership of the Common Stock by such Selling Securityholders after this offering will depend on the number of shares of Common Stock sold by each Selling Securityholder. The following Selling Securityholders own outstanding shares of Common Stock:
NUMBER OF OUTSTANDING SHARES OFFERED NAME OF SELLING SECURITYHOLDER BY THIS PROSPECTUS - ------------------------------ ------------------------------------ Anthony So (1) 50,000 John Stewart Jackson (1) 105,000 Mark Anthony Hatsis (1) 105,000 John and Virginia Blessom, as Joint Tenants (1) 5,000 Curtiss M. McQueen (1) 5,000 Gerdz Investment Limited Partnership RLLLP (1) 85,000 David C. Olson (2) 10,769 John Stewart Jackson (3) 570,610 Mark J. Richardson (4) 140,000 CapEx, L.P. (5) 95,622 Gregory Fulton (6) 14,664 Katie Johnson (6) 3,665 Clarence Bixler (6) 334 James Cohig (6) 1,337
The following Selling Securityholders hold Warrants or Notes and therefore have the right to acquire the number of shares indicated below, which are covered by this Prospectus:
NUMBER OF SHARES ISSUABLE UPON EXERCISE OF WARRANTS OR NAME OF SELLING SECURITYHOLDER CONVERSION OF NOTES - ------------------------------ --------------------------- David C. Olson (7) 120,000 John Stewart Jackson (8) 119,600 Robert R. Tomlinson (9) 10,047 Edward E. Bravo (9) 10,047 Thomas T. Vickers (9) 20,094 Christopher C. Serbousek (9) 5,024 Matthew M. Pinard (9) 10,047 Mark Hatsis (9) 10,047 Mark Lemiex (9) 10,047 William Zulejkic (9) 5,024 Douglas Moreland (9) 40,189 Robert Deden (9) 5,024 Ronald Gotlin (9) 6,963 Bernard Korn (9) 5,024 Michelle Baere (9) 5,024 Allied Conservacy (9) 56,354 MSM Advisors (9) 100,472
-7- (1) These individuals purchased the shares of Common Stock in a private placement in November 1999 for a purchase price of $1.00 per share. (2) David C. Olson was issued 15,000 warrants to purchase up to 15,000 shares of CHST's common stock for an exercise price of $1.375 per share, in consideration for his assistance in facilitating our borrowing of $3,000,000 in December 1998 under the 12% Secured Convertible Notes. Mr. Olson exercised those warrants on a "cashless" basis and as a result was issued 10,769 shares of Common Stock in January 2000. (3) John Stewart Jackson purchased $1,495,000 original principal amount of 12% Secured Convertible Notes from their original owner and converted them into 570,610 shares of Common Stock on December 29, 1999. The holder of those notes has demand registration rights, which are being satisfied by the inclusion of those shares of Common Stock in this Prospectus. (4) Mark J. Richardson purchased these shares of Common Stock in a private placement in July 1999 for a purchase price of $.80 per share. Mr. Richardson is a partner of Richardson & Associates, legal counsel to CHST. Mr. Richardson owns a total of 140,000 shares of our Common Stock. (5) CapEx, L.P., in connection with its purchase of the Notes in December 1998, was issued 150,400 warrants to purchase up to 150,400 shares of CHST's common stock for an exercise price of $1.48 per share. CapEx, L.P. exercised those warrants on a "cashless" basis on December 10, 1999 and as a result was issued 94,572 shares of Common Stock. The holder of those warrants has demand registration rights, which are being satisfied by the inclusion of those shares of Common Stock in this Prospectus. The shares on the table also include 1,050 shares issued to CapEx, L.P. as part of the conversion of $720,500 outstanding balance of Notes in January 2000. The other 273,950 shares issued to CapEx, L.P. from the conversion of those Notes have been included in a Form 144 filing made by CapEx, L.P. in February 2000. (6) These individuals were issued a total of 40,000 warrants to purchase up to 40,000 shares of CHST's common stock for an exercise price of $1.48 per share, in consideration for their services in facilitating our borrowing of $3,000,000 in December 1998 under the 12% Secured Convertible Notes. In December 1999 they exercised 20,000 of the warrants. These individuals exercised those warrants on a "cashless" basis and as a result, were issued the number of shares of Common Stock indicated on the table. (7) David C. Olson was issued these Warrants on November 19, 1999 in consideration for his financial advisory and consulting services to CHST. The Warrants are exercisable at any time until November 19, 2004 at an exercise price of $1.375 per share, and may be exercised on a "cashless" basis. The holder of these Warrants has demand registration rights, which are being satisfied by inclusion of them in this Prospectus. If they are exercised on a "cashless" basis, less than 120,000 shares of Common Stock would ultimately be issued. (8) Mr. Jackson purchased 119,600 Warrants from third party holders in December 1999 at approximately the same time as he purchased $1,495,000 original principal amount of Notes. These Warrants give Mr. Jackson the right to purchase up to 119,600 shares of our Common Stock for a purchase price of $1.48 per share until December 21, 2003, and may be exercised on a "cashless" basis. The shares issuable upon the exercise of these Warrants are covered by this Prospectus. If they are exercised on a "cashless" basis, less than 119,600 shares of Common Stock would ultimately be issued. (9) These New Noteholders purchased an aggregate of $784,500 outstanding principal amount of Notes from CapEx, L.P. pursuant to which they have the right to convert the Notes into a total of 299,427 shares of our Common Stock, which are covered by this Prospectus. We expect that the New Noteholders will convert their Notes into our Common Stock, although we have not received any conversion notices to date. There is no assurance that the Notes will be converted. PLAN OF DISTRIBUTION Sales of the shares of Common Stock by the Selling Securityholders may be effected from time to time in transactions (which may include block transactions) in the over-the-counter market, in negotiated transactions, through the writing of options on the Common Stock or a combination of such methods of sale, at fixed prices that may be changed, at market prices prevailing at the time of sale, or at negotiated prices. The Selling Securityholders may effect such transactions by selling the shares of Common Stock directly to purchasers or through broker-dealers that may act as agents or principals. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of shares of Common Stock for whom such broker-dealers may act as agents or to whom they sell as principals, or both. Such compensation as to a particular broker-dealer -8- might be in excess of customary commissions. The Selling Securityholders and any broker-dealers that act in connection with the sale of the shares of Common Stock as principals may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act. Any commissions received by them and any profit on the resale of the shares of Common Stock earned by them as principals might be deemed to be underwriting discounts and commissions under the Securities Act. The Selling Securityholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares of Common Stock against certain liabilities, including liabilities under the Securities Act. The Company will not receive any proceeds from the sale of the shares of Common Stock. The shares of Common Stock are offered by the Selling Securityholders on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. We have agreed to pay all expenses incurred in connection with the registration of the shares offered by the Selling Securityholders except that the Selling Securityholders are exclusively liable to pay all commissions, discounts and other payments to broker-dealers incurred in connection with their sale of Common Stock. LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS Under the California Corporations Code and CHST's Amended and Restated Articles of Incorporation, our directors will have no personal liability to CHST or its shareholders for monetary damages incurred as the result of the breach or alleged breach by a director of his "duty of care". This provision does not apply to the directors' (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transaction from which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders, (v) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence. The effect of this provision in CHST's Amended and Restated Articles of Incorporation is to eliminate the rights of CHST and its shareholders (through shareholder's derivative suits on behalf of CHST) to recover monetary damages against a director for breach of his fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through -9- (vi) above. This provision does not limit nor eliminate the rights of CHST or any shareholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, CHST's Restated Articles of Incorporation provide that if California law is amended to authorize the future elimination or limitation of the liability of a director, then the liability of the directors will be eliminated or limited to the fullest extent permitted by the law, as amended. The California Corporations Code grants corporations the right to indemnify their directors, officers, employees and agents in accordance with applicable law. CHST's Bylaws provide for indemnification of such persons to the full extent allowable under applicable law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling CHST pursuant to the foregoing provisions, CHST has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable. LEGAL MATTERS The validity of the Common Stock being offered hereby will be passed upon by Richardson & Associates, 1299 Ocean Avenue, Suite 900, Santa Monica, California 90401. EXPERTS The financial statements and the related supplemental schedules incorporated in this Prospectus by reference from CHST's Annual Report on Form 10-KSB for the year ended December 31, 1998 have been audited by Stonefield Josephson, independent certified public accountants, as set forth in their report appearing with the financial statements, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. -10- No dealer, salesman or any other person has been authorized by CHST to give any information or to make any representations other than those contained in this Prospectus in connection with the offering made hereby, and if given or made, such information or representations may not be relied upon. The Prospectus does not constitute an offer to sell or the CREATIVE HOST SERVICES, INC. solicitation of an offer to buy any securities other than those specifically [LOGO] offered hereby or an offer to sell, or a solicitation of an offer to buy, to any person in any jurisdiction in which such offer or sale would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of CHST since the dates as of which information is furnished or since the date of this Prospectus. ----------------- ------------------------- PROSPECTUS ------------------------- TABLE OF CONTENTS Page ADDITIONAL INFORMATION..................2 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................2 RISK FACTORS............................3 USE OF PROCEEDS.........................7 SELLING SHAREHOLDERS....................7 March 8, 2000 PLAN OF DISTRIBUTION....................8 LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS............9 LEGAL MATTERS..........................10 EXPERTS ..............................10 ======================================== ======================================= PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. Other Expenses Of Issuance And Distribution The following table sets forth the expenses, other than any underwriting discounts or commissions, payable in connection with the distribution of the shares being registered. All expenses incurred are in connection with the registration. All amounts shown are estimates except for the SEC registration fee. SEC Registration Fee $ 3,444.28 NASDAQ Listing Fee $ 0 Blue Sky Fees and Expenses $ 0 Printing and Engraving Expenses $ 5,000 Accounting Fees and Expenses $ 2,000 Legal Fees and Expenses $ 17,000 Registerar and Transfer Agent's Fees and Expenses $ 2,000 Miscellaneous Expenses $ 1,000 ----------- Total $ 30,444.28 =========== ITEM 15. Indemnification Of Directors And Officers Under the California Corporations Code and the Company's Amended and Restated Articles of Incorporation, the Company's directors will have no personal liability to the Company or its shareholders for monetary damages incurred as the result of the breach or alleged breach by a director of his "duty of care". This provision does not apply to the directors' (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transaction from which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders, (v) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence. The effect of this provision in the Company's Amended and Restated Articles of Incorporation is to eliminate the rights of the Company and its shareholders (through shareholder's derivative suits on behalf of the Company) to recover monetary damages against a director for breach of his fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (vi) above. This provision does not limit nor eliminate the rights of the Company or any shareholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, the Company's Restated Articles of Incorporation provide that if California law is amended to authorize the future elimination or limitation of the liability of a director, then the liability of the directors will be eliminated or limited to the fullest extent permitted by the law, as amended. The California Corporations Code grants corporations the right to indemnify their directors, officers, employees and agents in accordance with applicable law. The Company's Bylaws II-1 provide for indemnification of such persons to the full extent allowable under applicable law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable. ITEM 16. Exhibits 4.1 Specimen Certificate for Common Stock(1) 4.2 Warrant for $1.375 Warrants (Warrant Certificate) 4.3 12% Secured Convertible Note and Indenture dated December 21, 1998(2) 5.1 Opinion of Richardson & Associates 23.1 Consent of Richardson & Associates (contained in Exhibit 5) 23.2 Consent of Stonefield Josephson, independent accountants 24 Power of Attorney (contained on signature page) - ------------------ (1) Incorporated by reference from the exhibits included with the Company's Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-KSB filed with the SEC for fiscal year ended December 31, 1997. (2) Incorporated by reference from Exhibit 4.4 included with the Company's Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-KSB filed with the SEC for fiscal year ended December 31, 1998. ITEM 17. Undertakings The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the registration statement; provided, however, that paragraphs (i) and (ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in the periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. II-2 (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the indemnification provisions described under Item 15, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned thereto duly authorized, in the City of San Diego, State of California, on March 8, 2000. CREATIVE HOST SERVICES, INC. By: /s/ SAYED ALI ----------------------------------- Sayed Ali, President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sayed Ali, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirement of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ SAYED ALI President, Chief Financial March 8, 2000 - ------------------------------ Officer and Director Sayed Ali /s/ BOOKER T. GRAVES* Director March 8, 2000 - ------------------------------ Booker T. Graves /s/ JOHN P. DONOHUE, JR.* Director March 8, 2000 - ------------------------------ John P. Donohue, Jr. /s/ CHARLES B. RADLOFF* Director March 8, 2000 - ------------------------------ Charles B. Radloff *By Sayed Ali as Attorney-in-Fact. II-4 EX-4.2 2 EXHIBIT 4.2 THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED AND QUALIFIED PURSUANT TO THE APPLICABLE PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION APPLIES. THEREFORE, NO SALE OR TRANSFER OF THIS SECURITY SHALL BE MADE, NO ATTEMPTED SALE OR TRANSFER SHALL BE VALID, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO ANY SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION HAS BEEN DULY REGISTERED UNDER THE ACT AND QUALIFIED OR APPROVED UNDER APPROPRIATE STATE SECURITIES LAWS, OR (B) THE ISSUER HAS FIRST RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH REGISTRATION, QUALIFICATION OR APPROVAL IS NOT REQUIRED. WARRANT For the Purchase of Shares of Common Stock of CREATIVE HOST SERVICES, INC. Void After 5 P.M. November 19, 2004 No. 1 Date: November 19, 1999 Warrant to Purchase One Hundred and Twenty Thousand (120,000) Shares of Common Stock THIS IS TO CERTIFY, that, for value received, David C. Olson, or registered assigns (the "Holder"), is entitled, subject to the terms and conditions hereinafter set forth, on or after the date hereof, and at any time prior to 5 P.M., Pacific Standard Time ("PST"), on November 19, 2004 but not thereafter, to purchase such number of shares of Common Stock, no par value ("Common Stock" or the "Shares"), of Creative Host Services, Inc. (the "Company"), from the Company as set forth above and upon payment to the Company of an amount per Share of $1.375 (the "Purchase Price"), if and to the extent this Warrant is exercised, in whole or in part, during the period this Warrant remains in force, subject in all cases to adjustment as provided in Section 2 hereof, and to receive a certificate or certificates representing the Shares so purchased, upon presentation and surrender to the Company of this Warrant, with the form of Subscription Agreement attached hereto, including changes thereto reasonably requested by the Company, duly executed and accompanied by payment of the Purchase Price of each Share. SECTION 1. TERMS OF THIS WARRANT 1.1 TIME OF EXERCISE. This Warrant may be exercised at any time and from time to time after 9:00 A.M., PST, on the date hereof, (the "Exercise Commencement Date"), but no later than 5:00 P.M., November 19, 2004 (the "Expiration Time") at which time this Warrant shall become void and all rights hereunder shall cease. 1.2 MANNER OF EXERCISE. 1.2.1 The Holder may exercise this Warrant, in whole or in part, upon surrender of this Warrant, with the form of Subscription Agreement attached hereto duly executed, to the Company at its corporate office in San Diego, California, and upon payment to the Company of the full Purchase Price for each Share to be purchased in lawful money of the United States, or by certified or cashier's check, or wired funds, and upon compliance with and subject to the conditions set forth herein. 1.2.2 Upon receipt of this Warrant with the form of Subscription Agreement duly executed and accompanied by payment of the aggregate Purchase Price for the Shares for which this Warrant is then being exercised, the Company shall cause to be issued certificates for the total number of whole Shares for which this Warrant is being exercised in such denominations as are required for delivery to the Holder, and the Company shall thereupon deliver such certificates to the Holder or its nominee. 1.2.3 In case the Holder shall exercise this Warrant with respect to less than all of the Shares that may be purchased under this Warrant, the Company shall execute a new Warrant for the balance of the Shares that may be purchased upon exercise of this Warrant and deliver such new Warrant to the Holder. 1.2.4 The Company covenants and agrees that it will pay when due and payable any and all taxes which may be payable in respect of the issue of this Warrant, or the issue of any Shares upon the exercise of this Warrant. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance or delivery of this Warrant or of the Shares in a name other than that of the Holder at the time of surrender, and until the payment of such tax the Company shall not be required to issue such Shares. 1.3 "CASHLESS" NET ISSUE EXERCISE. 1.3.1 Notwithstanding any provisions herein to the contrary, if the Current Market Price of one Share is greater than the Purchase Price, in lieu of exercising this Warrant by payment with cash, certified check, or wired funds, the Holder may elect to receive that number of Shares (as determined below) equal to the value of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the corporate office of the Company together with the duly executed form of Subscription Agreement and notice of such election, in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder -2- Y = the total number of shares of Common Stock to be purchased A = the Current Market Price of one Share of the Company's Common Stock on the day prior to exercise hereunder. B = Purchase Price. 1.3.2 The Current Market Price shall be determined as follows: (a) if the security at issue is listed on a national securities exchange or admitted to unlisted trading privileges on such an exchange or quoted on either the National Market System or the Small Cap Market of the automated quotation service operated by Nasdaq, Inc. ("NASDAQ"), the current value shall be the last reported sale price of that security on such exchange or system on the day for which the Current Market Price is to be determined or, if no such sale is made on such day, the average of the highest closing bid and lowest asked price for such day on such exchange or system; or (b) if the security at issue is not so listed or quoted or admitted to unlisted trading privileges and bid and asked prices are not reported, the current market value shall be determined in good faith and in such reasonable manner as may be prescribed from time to time by the Board of Directors of the Company. 1.4 EXCHANGE OF WARRANT. This Warrant may be divided into, combined with or exchanged for another Warrant or Warrants of like tenor to purchase a like aggregate number of Shares. If the Holder desires to divide, combine or exchange this Warrant, he shall make such request in writing delivered to the Company at its corporate office and shall surrender this Warrant and any other Warrants to be so divided, combined or exchanged. The Company shall execute and deliver to the person entitled thereto a Warrant or Warrants, as the case may be, as so requested. The Company shall not be required to effect any division, combination or exchange which will result in the issuance of a Warrant entitling the Holder to purchase upon exercise a fraction of a Share. The Company may require the Holder to pay a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any division, combination or exchange of Warrants. 1.5 HOLDER AS OWNER. Prior to surrender of this Warrant in accordance with Section 1.6 for registration of assignment, the Company may deem and treat the Holder as the absolute owner of this Warrant (notwithstanding any notation of ownership or other writing hereon) for the purpose of any exercise hereof and for all other purposes, and the Company shall not be affected by any notice to the contrary. 1.6 METHOD OF ASSIGNMENT. Any assignment or transfer of any portion or all of this Warrant shall be made by surrender of this Warrant to the Company at its principal office with the form of assignment attached hereto duly executed and accompanied by funds sufficient to pay any transfer tax. In such event, the Company shall, without charge, execute and deliver a new Warrant -3- in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. 1.7 RIGHTS OF HOLDER. Nothing contained in this Warrant shall be construed as conferring upon the Holder the right to vote, consent or receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. 1.8 LOST CERTIFICATES. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on such reasonable terms as to indemnity or otherwise as it may impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as, and in substitution for, this Warrant, which shall thereupon become void. Any such new Warrant shall constitute an additional contractual obligation of the Company, whether or not the Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. 1.9 COVENANTS OF THE COMPANY. The Company covenants and agrees as follows: 1.9.1 At all times the Company shall reserve and keep available for the exercise of this Warrant such number of authorized shares of Common Stock as are sufficient to permit the exercise in full of this Warrant. 1.9.2 The Company covenants that all Shares when issued upon the exercise of this Warrant will be validly issued, fully paid, nonassessable and free of preemptive rights. SECTION 2. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES PURCHASABLE UPON EXERCISE 2.1 STOCK SPLITS. If the Company at any time or from time to time after the issuance date of this Warrant effects a subdivision of the outstanding Common Stock, the Purchase Price then in effect immediately before that subdivision shall be proportionately decreased, and conversely, if the Company at any time or from time to time after the issuance date of this Warrant combines the outstanding shares of Common Stock, the Purchase Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection 2.1 shall become effective at the close of business on the date the subdivision or combination becomes effective. 2.2 DIVIDENDS AND DISTRIBUTIONS. In the event the Company at any time, or from time to time after the issuance date of this Warrant makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Purchase Price then in effect shall be decreased as of the time of such issuance or, in the event such a record date is fixed, as of the close of business on such record date, by multiplying the Purchase Price then in effect by a fraction (i) the -4- numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Purchase Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Purchase Price shall be adjusted pursuant to this subsection 2.2 as of the time of actual payment of such dividends or distributions. 2.3 RECAPITALIZATION OR RECLASSIFICATION. If the Shares issuable upon the exercise of the Warrant are changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Section 2), then, and in any such event, the Holder shall thereafter be entitled to receive upon exercise of this Warrant such number and kind of stock or other securities or property of the Company to which a holder of Shares deliverable upon exercise of this Warrant would have been entitled on such reclassification or other change, subject to further adjustment as provided herein. 2.4 SALE OF THE COMPANY. If at any time or from time to time there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 2) or a merger or consolidation of the Company with or into another Company, or the sale of all or substantially all of the Company's properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant such number of shares of stock or other securities or property of the Company, or of the successor Company resulting from such merger or consolidation or sale, to which a holder of Shares deliverable upon exercise would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 2 with respect to the rights of the holders of the Warrants after the reorganization, merger, consolidation or sale to the end that the provisions of this Section (including adjustment of the Purchase Price then in effect and number of shares purchasable upon exercise of the Warrants) shall be applicable after that event and be as nearly equivalent to the provisions hereof as may be practicable. 2.5 OBSERVANCE OF DUTIES. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such action as may be necessary or appropriate in order to protect the Exercise Rights of the holders of the Warrants against dilution or other impairment. -5- SECTION 3. REGISTRATION UNDER THE SECURITIES ACT OF 1933 3.1 REGISTRATION AND LEGENDS. This Warrant and the Shares issuable upon exercise of this Warrant have not been registered under the Securities Act of 1933, as amended ("the Act"). Upon exercise, in whole or in part, of this Warrant, the certificates representing the Shares shall bear the following legend: THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 ("ACT") OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED AND QUALIFIED PURSUANT TO THE APPLICABLE PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION APPLIES. THEREFORE, NO SALE OR TRANSFER OF THIS SECURITY SHALL BE MADE, NO ATTEMPTED SALE OR TRANSFER SHALL BE VALID, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO ANY SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION HAS BEEN DULY REGISTERED UNDER THE ACT AND QUALIFIED OR APPROVED UNDER APPROPRIATE STATE SECURITIES LAWS, OR (B) THE ISSUER HAS FIRST RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH REGISTRATION, QUALIFICATION OR APPROVAL IS NOT REQUIRED. 3.2 DEMAND REGISTRATION RIGHTS. On one occasion at any time before the Expiration Date, the Company shall, upon the demand of the holders of a majority of the Registrable Securities, register such securities and file all necessary undertakings with the Securities and Exchange Commission (the "SEC") so as to permit the Holder the right to sell publicly the Shares issued on exercise of this Warrant. 3.3 PIGGYBACK REGISTRATION RIGHTS. In the event that the right to demand that the Registrable Securities be registered pursuant to Section 3.2 has not been exercised, the Company agrees to include any Shares issuable upon exercise of this Warrant in any registration statement filed by the Company at any time after the Exercise Commencement Date and before the Expiration Date. SECTION 4. OTHER MATTERS 4.1 BINDING EFFECT. All the covenants and provisions of this Warrant by or for the benefit of the Company shall bind and inure to the benefit of its successors and assigns hereunder. -6- 4.2 NOTICES. Notices or demands pursuant to this Warrant to be given or made by the Holder to or on the Company shall be sufficiently given or made if sent by certified or registered mail, return receipt requested, postage prepaid, or facsimile and addressed, until another address is designated in writing by the Company, as follows: Creative Host Services, Inc. 6335 Ferris Square, Suites G & H San Diego, California 92121 Telephone No.: (858) 587-7300 Facsimile No.: (858) 587-7309 Attention: Sayed Ali, President Notices to the Holder provided for in this Warrant shall be deemed given or made by the Company if sent by certified or registered mail, return receipt requested, postage prepaid, and addressed to the Holder at his last known address as it shall appear on the books of the Company. 4.3 GOVERNING LAW. The validity, interpretation and performance of this Warrant shall be governed by the laws of the State of California. The venue for any legal proceedings under this Warrant will be in the appropriate forum in the County of San Diego, State of California. 4.4 PARTIES BOUND AND BENEFITTED. Nothing in this Warrant expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the Company and the Holder any right, remedy or claim under any promise or agreement hereof, and all covenants, conditions, stipulations, promises and agreements contained in this Warrant shall be for the sole and exclusive benefit of the Company and its successors and of the Holder, its successors and permitted assigns. 4.5 HEADINGS. The Section headings herein are for convenience only and are not part of this Warrant and shall not affect the interpretation thereof. IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as of November 19, 1999. CREATIVE HOST SERVICES, INC. By: ------------------------ Sayed Ali, President -7- ASSIGNMENT OF WARRANT FOR VALUE RECEIVED, _______________________ hereby sells, assigns and transfers unto _____________________________ the within Warrant and the rights represented thereby, and does hereby irrevocably constitute and appoint _______________________________ Attorney, to transfer said Warrant on the books of the Company, with full power of substitution. Dated: _____________________ Signed:___________________ Signature guaranteed: - ---------------------------- -1- SUBSCRIPTION AGREEMENT FOR THE EXERCISE OF WARRANTS The undersigned hereby irrevocably subscribes for the purchase of _____________ Shares pursuant to and in accordance with the terms and conditions of this Warrant, which Shares should be delivered to the undersigned at the address stated below. If said number of Shares are not all of the Shares purchasable hereunder, a new Warrant of like tenor for the balance of the remaining Shares purchasable hereunder should be delivered to the undersigned at the address stated below. The undersigned elects to pay the aggregate Purchase Price for such Shares in the following manner: [ ] by the enclosed cash or check made payable to the Company in the amount of $________; [ ] by wire transfer of United States funds to the account of the Company in the amount of $____________, which transfer has been made before or simultaneously with the delivery of this Notice pursuant to the instructions of the Company; or [ ] by cashless exercise pursuant to Section 1.3 of the Warrant. The undersigned agrees that: (1) the undersigned will not offer, sell, transfer or otherwise dispose of any Shares unless either (a) a registration statement, or post-effective amendment thereto, covering the Shares has been filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Act"), such sale, transfer or other disposition is accompanied by a prospectus meeting the requirements of Section 10 of the Act forming a part of such registration statement, or post-effective amendment thereto, which is in effect under the Act covering the Shares to be so sold, transferred or otherwise disposed of, and all applicable state securities laws have been complied with, or (b) counsel reasonably satisfactory to Creative Host Services, Inc. has rendered an opinion in writing and addressed to Creative Host Services, Inc. that such proposed offer, sale, transfer or other disposition of the Shares is exempt from the provisions of Section 5 of the Act in view of the circumstances of such proposed offer, sale, transfer or other disposition; (2) Creative Host Services, Inc. may notify the transfer agent for the Shares that the certificates for the Shares acquired by the undersigned are not to be transferred unless the transfer agent receives advice from Creative Host Services, Inc. that one or both of the conditions referred to in (1)(a) and (1)(b) above have been satisfied; and (3) Creative Host Services, Inc. may affix the legend set forth in Section 3.1 of this Warrant to the certificates for the Shares hereby subscribed for, if such legend is applicable. Dated:___________________________ Signed:______________________________ Signature guaranteed: Address:_____________________________ _____________________________ - --------------------------------- -2- EX-5.1 3 EXHIBIT 5.1 RICHARDSON & ASSOCIATES ATTORNEYS AT LAW WILSHIRE PALISADES BUILDING 1299 OCEAN AVENUE SUITE 900 SANTA MONICA, CALIFORNIA 90401 TELEPHONE (310) 393-9992 FACSIMILE (310) 393-2004 March 8, 2000 Creative Host Services, Inc. 6355 Ferris Square Suites G & H San Diego, California 92126 RE: CREATIVE HOST SERVICES, INC. - VALIDITY OF ISSUANCE OF SHARES Ladies and Gentlemen: : We have acted as special counsel to you in connection with the registration on Form S-3 (File No.___________________ ) under the Securities Act of 1933, as amended (the "Registration Statement") of 1,731,028 shares of the Common Stock of Creative Host Services, Inc., a California corporation (the "Company"), no par value per share, consisting of 1,192,001 outstanding shares of the Company's Common Stock (collectively, the "Shares"), up to 239,600 shares of the Company's Common Stock issuable upon the exercise of 239,600 outstanding warrants (collectively, the "Warrants") to purchase the Company's Common Stock, and up to 299,427 shares of the Company's Common Stock issuable upon the conversion of $784,500 outstanding principal amount of 12% Secured Convertible Promissory Notes dated December 21, 1998 (collectively, the "Notes"). The shares of the Company's Common Stock issuable upon the exercise of the Warrants and conversion of the Notes are collectively referred to herein as the "Underlying Shares". You have requested our opinion in connection with the registration of the Shares and Underlying Shares covered by the Prospectus, dated March 8, 2000 (the "Prospectus"). In connection with our acting as counsel, we have examined the laws of the State of California together with the Warrant entered into by the Company and the Warrantholder attached as Exhibit 4.2 to the Registration Statement and the Notes issued by the Company attached as Exhibit 4.3 to the Registration Statement, as well as the Prospectus and certain other documents and instruments prepared on behalf of the Company as we deemed necessary and relevant in the preparation of our opinion as hereinafter set forth. In our examination, we have assumed the genuineness of all signatures on original documents and the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies of originals, the authenticity of such latter documents, and the proper execution, delivery and filing of the documents referred to in this opinion. Creative Host Services, Inc. March 8, 2000 Page Two Based upon the foregoing, we are of the opinion that the outstanding Shares and the Underlying Shares to be issued by the Company pursuant to the conversion of the Notes and the exercise of the Warrants have been and will be duly created, and have been and will be validly issued shares of the Common Stock, no par value per share, of the Company. Upon proper exercise of the outstanding Warrants and payment for the Underlying Shares issuable upon the exercise of the Warrants, and upon the proper conversion of the Notes, the Underlying Shares will be fully paid and nonassessable. For the purposes of this opinion we are assuming the proper execution of the Notes and Warrants and all certificates evidencing the Notes and Warrants, and that the appropriate certificates are duly filed and recorded in every jurisdiction in which such filing and recordation is required in accordance with the laws of such jurisdictions. We express no opinion as to the laws of any state or jurisdiction other than California. We consent to the use of this opinion as an exhibit to the Registration Statement, and we further consent to the use of our name in the Registration Statement and the Prospectus which is a part of said Registration Statement. Respectfully submitted, Mark J. Richardson, Esq. MJR:csc EX-23.2 4 EXHIBIT 23.2 TYPE: EX-23 DESCRIPTION: EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS Board of Directors Creative Host Services, Inc. San Diego, California We consent to the incorporation by reference of our Independent Auditors' Report dated March 9, 1999, on the financial statements of Creative Host Services, Inc. for the year ended December 31, 1998, and to the reference to us as experts, in the Registration Statement on Form S-3, filed with the Securities and Exchange Commission on March 8, 2000. /s/ Stonefield Josephson, Inc. CERTIFIED PUBLIC ACCOUNTANTS Santa Monica, California March 8, 2000 -----END PRIVACY-ENHANCED MESSAGE-----