SC TO-T

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE TO

(RULE 14d-100)

TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) or 13(e)(1) of

THE SECURITIES EXCHANGE ACT OF 1934

CREATIVE HOST SERVICES, INC.

(Name of Subject Company (Issuer))

YORKMONT FIVE, INC.

(Offeror)

COMPASS GROUP USA INVESTMENTS, LLP

(Parent of Offeror)

(Names of Filing Persons)

     

COMMON STOCK

NO PAR VALUE

(Title of Class of Securities)

22527P 10 2

(Cusip Number of Class of Securities)

Johnny C. Taylor, Jr., Esq.
Executive Vice President,
General Counsel and Secretary
Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, North Carolina 28217
Telephone: (704) 329-4032

(Name, Address and Telephone Number of Person Authorized to Receive

Notices and Communications on Behalf of Filing Persons)

Copy To:
Boyd C. Campbell, Jr.
Helms Mulliss & Wicker, PLLC
201 North Tryon Street
Charlotte, North Carolina 28202
Telephone: (704) 343-2030

CALCULATION OF FILING FEE

TRANSACTION VALUATION*	AMOUNT OF FILING FEE**
$32,673,845	$4,139.78

* Estimated for purposes of calculating the amount of filing fee only. This calculation is based upon the sum of (i) the product of 8,830,140 shares of Creative Host Services, Inc. common stock multiplied by a price of $3.40 per share, net in cash, without interest, (ii) the purchase of 440,500 shares of Creative Host Services, Inc. common stock to be issued upon the exercise of options to purchase such shares, at an aggregate cost of $876,133, and (iii) the purchase of 1,200,800 shares of Creative Host Services, Inc. common stock to be issued upon the exercise of warrants to purchase such shares, at an aggregate cost of $1,775,237.

** The amount of the filing fee, calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, and supplemented by Fee Rate Advisory #7 for Fiscal Year 2004, is equal to $126.70 per million of the transaction valuation, or $4,139.78.

o Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

Amount Previously Paid:	N/A
Form or Registration No:	N/A
Filing Party:	N/A
Date Filed:	N/A

o Check the box if the filing relates to solely to preliminary communications made before the commencement of a tender offer.

     Check the appropriate boxes below to designate any transactions to which the statement relates:

þ third-party tender offer subject to Rule 14d-1.

o issuer tender offer subject to Rule 13e-4.

o going-private transaction subject to Rule 13e-3.

o amendment to Schedule 13D under Rule 13d-2.

     Check the following box if the filing is a final amendment reporting the results of the tender offer:  o

Items 1 through 9, and 11

     This Tender Offer Statement on Schedule TO (this “Schedule TO”) relates to the offer by Yorkmont Five, Inc., a California corporation (“Purchaser”) and a wholly owned indirect subsidiary of Compass Group USA Investments, LLP, a Delaware limited liability partnership (“Parent”), to purchase all the outstanding shares of common stock, no par value, (the “Shares”), of Creative Host Services, Inc., a California corporation (the “Company”), at a purchase price of $3.40 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated February 26, 2004 (the “Offer to Purchase”), and in the related Letter of Transmittal, copies of which are filed with this Schedule TO as Exhibits (a)(1)(A) and (a)(1)(B), respectively. This Schedule TO is being filed on behalf of Purchaser and Parent.

     The information set forth in the Offer to Purchase, including Schedule I thereto, and the Letter of Transmittal, is hereby incorporated by reference in answer to items 1 through 9 and 11 of this Schedule TO.

ITEM 10. FINANCIAL STATEMENTS.

     Not applicable.

ITEM 12. EXHIBITS.

(a)(1)(A)	Offer to Purchase dated February 26, 2004.
(a)(1)(B)	Form of Letter of Transmittal.
(a)(1)(C)	Form of Notice of Guaranteed Delivery.
(a)(1)(D)	Form of Letter to Brokers, Dealers, Banks, Trust Companies and Other Nominees.
(a)(1)(E)	Form of Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies and Other Nominees.
(a)(1)(F)	Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(a)(1)(G)	Joint Press Release issued by Parent and the Company on February 18, 2004.
(a)(1)(H)	Summary Newspaper Advertisement published February 26, 2004.
(b)	Not applicable.
(d)(1)	Agreement and Plan of Merger dated as of February 18, 2004, among Parent, Purchaser and the Company, together with Amendment No. 1 to Agreement and Plan of Merger dated as of February 24, 2004, among Parent, Purchaser and the Company.
(d)(2)	Tender and Voting Agreement dated as of February 18, 2004, among Parent, Purchaser and Sayed Ali.
(d)(3)	Tender Agreement dated as of February 18, 2004, among Parent, Purchaser and J. Stewart Jackson, IV.
(d)(4)	Stock Option Agreement dated as of February 18, 2004, among Parent, Purchaser and the Company.

(d)(5)	Mutual Nondisclosure Agreement dated as of December 2, 2003 between Compass Group USA, Inc. and the Company.
(d)(6)	Employment Agreement dated as of November 1, 2002 between the Company and Sayed Ali, as amended by the Addendum to Employment Agreement, dated as of February 18, 2004 among the Company, Compass Group USA, Inc. and Sayed Ali.
(d)(7)	Employment Agreement, dated as of February 18, 2004 among the Company, Compass Group USA, Inc. and Tasneem Vakharia.
(g)	Not applicable.
(h)	Not applicable.

SIGNATURES

     After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

YORKMONT FIVE, INC.
By:	/s/ Tom Ondrof
Name:	Tom Ondrof
Title:	Authorized Representative
COMPASS GROUP USA INVESTMENTS, LLP
By:	/s/ Tom Ondrof
Name:	Tom Ondrof
Title:	Authorized Representative

Dated:  February 26, 2004

INDEX TO EXHIBITS

EXHIBIT NUMBER	DOCUMENT
(a)(1)(A)	Offer to Purchase dated February 26, 2004.
(a)(1)(B)	Form of Letter of Transmittal.
(a)(1)(C)	Form of Notice of Guaranteed Delivery.
(a)(1)(D)	Form of Letter to Brokers, Dealers, Banks, Trust Companies and Other Nominees.
(a)(1)(E)	Form of Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies and Other Nominees.
(a)(1)(F)	Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(a)(1)(G)	Joint Press Release issued by Parent and the Company on February 18, 2004.
(a)(1)(H)	Summary Newspaper Advertisement published February 26, 2004.
(b)	Not applicable.
(d)(1)	Agreement and Plan of Merger dated as of February 18, 2004, among Parent, Purchaser and the Company, together with Amendment No. 1 to Agreement and Plan of Merger dated as of February 24, 2004, among Parent, Purchaser and the Company.
(d)(2)	Tender and Voting Agreement dated as of February 18, 2004, among Parent, Purchaser and Sayed Ali.
(d)(3)	Tender Agreement dated as of February 18, 2004, among Parent, Purchaser and J. Stewart Jackson, IV.
(d)(4)	Stock Option Agreement dated as of February 18, 2004, among Parent, Purchaser and the Company.
(d)(5)	Mutual Nondisclosure Agreement dated as of December 2, 2003 between Compass Group USA, Inc. and the Company.
(d)(6)	Employment Agreement dated as of November 1, 2002 between the Company and Sayed Ali, as amended by the Addendum to Employment Agreement, dated as of February 18, 2004 among the Company, Compass Group USA, Inc. and Sayed Ali.
(d)(7)	Employment Agreement, dated as of February 18, 2004 among the Company, Compass Group USA, Inc. and Tasneem Vakharia.
(g)	Not applicable.
(h)	Not applicable.

EX-99.A.1.A

Offer to Purchase for Cash

All Outstanding Shares of Common Stock

of

Creative Host Services, Inc.

at

$3.40 Net Per Share

by

Yorkmont Five, Inc.,

a wholly owned indirect subsidiary of

Compass Group USA Investments, LLP

THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME,

ON THURSDAY, MARCH 25, 2004, UNLESS THE OFFER IS EXTENDED.

________________________________________________________________________________

    THE OFFER IS BEING MADE PURSUANT TO THE AGREEMENT AND PLAN OF MERGER DATED AS OF FEBRUARY 18, 2004, AS AMENDED, AMONG COMPASS USA INVESTMENTS, LLP, YORKMONT FIVE, INC. AND CREATIVE HOST SERVICES, INC. (THE “COMPANY”). THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY (I) DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER (EACH AS DEFINED HEREIN), ARE FAIR TO, AND IN THE BEST INTEREST OF THE COMPANY’S SHAREHOLDERS, (II) APPROVED AND ADOPTED THE MERGER AGREEMENT, THE OPTION AGREEMENT (AS DEFINED HEREIN), THE OFFER AND THE MERGER AND (III) RECOMMENDED THAT THE HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES OF COMMON STOCK OF THE COMPANY (THE “SHARES”) PURSUANT TO, AND SUBJECT TO THE TERMS AND CONDITIONS OF, THE OFFER, AND APPROVE AND ADOPT THE MERGER AGREEMENT AND THE MERGER.

    THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF SHARES THAT WOULD REPRESENT AT LEAST 90% OF ALL SHARES OUTSTANDING ON THE DATE OF PURCHASE. THE OFFER IS ALSO SUBJECT TO THE SATISFACTION OF VARIOUS OTHER CONDITIONS. SEE SECTION 14 — “CERTAIN CONDITIONS OF THE OFFER.”

    IF MORE THAN 50% BUT LESS THAN 90% OF THE THEN-OUTSTANDING SHARES ARE TENDERED PURSUANT TO THE OFFER AND NOT WITHDRAWN, COMPASS GROUP USA INVESTMENTS, LLP AND YORKMONT FIVE, INC. WILL, UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN, (I) EXTEND THE OFFER, AS DESCRIBED HEREIN, (II) AMEND THE OFFER AND EXERCISE THE OPTION PURSUANT TO THE OPTION AGREEMENT AND REDUCE THE NUMBER OF SHARES SUBJECT TO THE OFFER TO SUCH NUMBER THAT, WHEN COMBINED WITH THE NUMBER OF SHARES ISSUED UPON EXERCISE OF THE OPTION AGREEMENT, WOULD EQUAL, ONE SHARE MORE THAN 90% OF THE OUTSTANDING SHARES, SUBJECT TO THE LIMITATIONS PROVIDED IN THE OPTION AGREEMENT DESCRIBED HEREIN, OR (III) AMEND THE OFFER SO THAT IT IS CONDITIONED UPON THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN BEFORE THE EXPIRATION OF THE OFFER A NUMBER OF SHARES EQUAL TO 49.9% OF ALL OUTSTANDING SHARES.

    IN CONNECTION WITH THE MERGER AGREEMENT, COMPASS GROUP USA INVESTMENTS, LLP AND YORKMONT FIVE, INC. ENTERED INTO A TENDER AND VOTING AGREEMENT DATED AS OF FEBRUARY 18, 2004, WITH A MANAGEMENT SHAREHOLDER OF THE COMPANY AND A TENDER AGREEMENT DATED AS OF FEBRUARY 18, 2004 WITH ANOTHER SHAREHOLDER OF THE COMPANY (COLLECTIVELY, THE “TENDER AGREEMENTS”), WHO TOGETHER OWN APPROXIMATELY 40.3% OF THE OUTSTANDING SHARES OF COMMON STOCK OF THE COMPANY. PURSUANT TO THE TENDER AGREEMENTS, SUCH SHAREHOLDERS HAVE AGREED TO TENDER SUCH SHARES PURSUANT TO THE OFFER.

IMPORTANT

     Any shareholder desiring to tender all or any portion of such shareholder’s Shares should either (1) complete and sign the Letter of Transmittal (or manually signed facsimile thereof) in accordance with the instructions in the Letter of Transmittal, have such shareholder’s signature thereon guaranteed if required by Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of Transmittal (or such manually signed facsimile) and any other required documents to Computershare Trust Company of New York (the “Depositary”) and deliver the certificates for such Shares to the Depositary along with the Letter of Transmittal (or such manually signed facsimile) or, in the case of a book-entry transfer effected pursuant to the procedures described in Section 2, deliver an Agent’s Message (as defined herein) and any other required documents to the Depositary and deliver such Shares pursuant to the procedures for book-entry transfer described in Section 2, in each case prior to the expiration of the Offer, or (2) request such shareholder’s broker, dealer, bank, trust company or other nominee to effect the transaction for such shareholder. A shareholder having Shares registered in the name of a broker, dealer, bank, trust company or other nominee must contact such broker, dealer, bank, trust company or other nominee if such shareholder desires to tender such Shares.

     A shareholder who desires to tender Shares and whose certificates for such Shares are not immediately available or who cannot comply in a timely manner with the procedure for book-entry transfer, or who cannot deliver all required documents to the Depositary prior to the expiration of the Offer, may tender such Shares by following the procedures for guaranteed delivery described in Section 2.

     Questions and requests for assistance or for additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or any other tender offer materials may be directed to MacKenzie Partners, Inc. (the “Information Agent”) at the address and telephone numbers set forth on the back cover of this Offer to Purchase.

February 26, 2004

TABLE OF CONTENTS

		Page
Summary Term Sheet			1
Introduction			6
The Tender Offer			9
	1. Terms of the Offer		9
	2. Procedures for Tendering Shares		11
	3. Withdrawal Rights		14
	4. Acceptance for Payment and Payment for Shares		14
	5. Certain U.S. Federal Income-Tax Consequences		15
	6. Price Range of the Shares; Dividends		16
	7. Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations		17
	8. Certain Information Concerning the Company		17
	9. Certain Information Concerning Parent, Purchaser and Ultimate Parent		19
	10. Source and Amount of Funds		20
	11. Contacts and Transactions with the Company; Background of the Offer		20
	12. Purpose of the Offer; the Merger Agreement; Related Agreements; Plans for the Company		22
	13. Dividends and Distributions		37
	14. Certain Conditions of the Offer		37
	15. Certain Legal Matters		39
	16. Fees and Expenses		40
	17. Miscellaneous		40
Schedule I — Directors and Executive Officers of Ultimate Parent, Group Holdings, Overseas Holdings and Purchaser			S-1

i

SUMMARY TERM SHEET

      Yorkmont Five, Inc., a California corporation, which is referred to in this Offer to Purchase as “Purchaser,” “we” or “us,” is offering to purchase (the “Offer”) all of the outstanding shares of Common Stock, no par value (the “Shares”), of Creative Host Services, Inc., a California corporation (the “Company”), at a price of $3.40 per Share, net to the seller, in cash without interest. The following are some of the questions you, as a shareholder of the Company, may have and answers to those questions. We urge you to read carefully the remainder of this Offer to Purchase and the Letter of Transmittal because the information in this summary is not complete. Additional important information is contained in the remainder of this Offer to Purchase and the Letter of Transmittal.

Who Is Offering To Buy My Shares?

      Our name is Yorkmont Five, Inc. We are a California corporation formed for the purpose of making a tender offer for all of the common stock of the Company. We are a wholly owned indirect subsidiary of Compass Group USA Investments, LLP, a Delaware limited liability partnership, which is referred to in this Offer to Purchase as “Parent.” Parent is an indirect, wholly owned subsidiary of Compass Group PLC, a public limited company incorporated under the laws of England and Wales, which is referred to in this Offer to Purchase as “Ultimate Parent”. See “Introduction” and Section 9 — “Certain Information Concerning Parent, Purchaser and Ultimate Parent” of this Offer to Purchase.

What Shares Are Being Sought In The Offer?

      We are seeking to purchase all of the outstanding common stock of the Company. See “Introduction” and Section 1 — “Terms of the Offer” of this Offer to Purchase.

How Much Are You Offering To Pay, What Is The Form Of Payment And Will I Have To Pay Any Fees Or Commissions?

      We are offering to pay $3.40 per Share, net to you, in cash without interest (the “Offer Price”). If you are the record owner of your Shares and you tender your Shares to us in the Offer, you will not have to pay brokerage fees or similar expenses. If you own your Shares through a broker or other nominee, and your broker tenders your Shares on your behalf, your broker or nominee may charge you a fee for doing so. You should consult your broker or nominee to determine whether any charges will apply. See “Introduction” and Section 1 — “Terms of the Offer” of this Offer to Purchase.

Why Are You Making This Offer?

      The Offer is the first step in Parent’s plan to acquire the Company, as provided in the Agreement and Plan of Merger, as amended (the “Merger Agreement”) dated as of February 18, 2004 among Parent, Purchaser and the Company. The Merger Agreement provides for the merger (the “Merger”) of Purchaser with and into the Company following the purchase of Shares pursuant to the Offer. In the Merger, each Share (other than Shares (a) held by the Company, Purchaser or Parent or (b) as to which dissenter’s rights are properly exercised under California law) will be converted into the right to receive the same consideration as is being offered to shareholders of the Company pursuant to this Offer. See Section 12 — “Purpose of the Offer; the Merger Agreement; Related Agreements; Plans for the Company — The Merger Agreement” of this Offer to Purchase.

What Does The Company’s Board Of Directors Think Of The Offer?

      We are making the Offer pursuant to the Merger Agreement. The Board of Directors of the Company has unanimously (a) determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Offer and the Merger, are fair to, and in the best interest of, the Company’s shareholders, (b) approved and adopted the Merger Agreement, the Option Agreement described in this Offer to Purchase, the Offer and the Merger and (c) recommended that the holders of the Shares accept the Offer and tender their Shares pursuant to, and subject to the terms and conditions of, the Offer.

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Does Purchaser Have The Financial Resources To Make Payment?

      Yes. We will need approximately $32,675,000 to purchase all of the Shares and to complete the Offer and the Merger. Parent has agreed to provide us with sufficient funds to complete the Offer. The Offer is not conditioned upon any financing arrangements. See Section 10 — “Source and Amount of Funds” of this Offer to Purchase.

Is Purchaser’s Financial Condition Relevant To My Decision To Tender In The Offer?

      No. We are offering to pay cash for the Shares rather than stock or other securities. Because Parent has agreed to provide us with the funds needed to complete the Offer if the conditions described in this Offer to Purchase are satisfied, and because there are no financing contingencies related to the Offer, we do not believe our financial condition is relevant to your decision whether to tender your Shares.

How Long Do I Have To Decide Whether To Tender In The Offer?

      The Offer expires on the later of (a) 12:00 Midnight, New York City time, on March 25, 2004, or (b) the latest time and date on which any extension of the Offer will expire (the “Expiration Date”). Thus, you will have at least until 12:00 Midnight, New York City time, on March 25, 2004, to tender your Shares in the Offer. Further, if you cannot deliver everything that is required in order to make a valid tender by that time, you may be able to use a guaranteed delivery procedure, which is described later in this Offer to Purchase. See Section 1 — “Terms of the Offer” and Section 2 — “Procedures for Tendering Shares” of this Offer to Purchase.

      If shareholders fail to tender 90% of the outstanding Shares by the scheduled Expiration Date, your receipt of the Offer Price could be delayed for a significant period of time while we seek additional tenders or seek shareholder approval of the Merger. Also, there is a risk that one or more of the conditions to the Offer could not be satisfied during an extension of the Offer.

Can The Offer Be Extended And Under What Circumstances?

      Subject to the terms of the Merger Agreement, we can extend the Offer. The Merger Agreement provides that we may extend the Offer for one or more periods of time we reasonably believe necessary to cause the conditions to our Offer to be satisfied, if on a scheduled Expiration Date any of the conditions to our Offer are not satisfied. However, we may not extend the Offer beyond July 2, 2004 without the Company’s prior written consent.

      If all conditions to the Offer have been satisfied or waived, we will accept for payment and pay for all Shares that are tendered and not withdrawn at such time (Shares may not be withdrawn after acceptance for payment) and provide a “subsequent offering period” for at least three business days, during which time shareholders whose Shares have not yet been tendered may tender, but not withdraw, their Shares and receive the Offer consideration. We are not permitted under the federal securities laws to provide a subsequent offering period of more than 20 business days. See Section 1 — “Terms of the Offer” of this Offer to Purchase.

How Will I Be Notified If The Offer Is Extended?

      If we extend the Offer, we will inform Computershare Trust Company of New York, the depositary for the Offer (the “Depositary”), of that fact, and we will make a public announcement of the extension not later than 9:00 a.m., New York City time, on the next business day after the day on which the Offer was scheduled to expire. See Section 1 — “Terms of the Offer” of this Offer to Purchase.

What Are The Most Significant Conditions To The Offer?

      There is no financing condition to the offer; however, we are not obligated to purchase any Shares that you validly tender unless the number of Shares validly tendered and not withdrawn before the Expiration Date of the Offer represents, in the aggregate, at least 90% of the Shares outstanding on the date of purchase. If

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more than 50% but less than 90% of the Shares then outstanding are validly tendered pursuant to the Offer and not withdrawn, Purchaser and Parent will, as described in this Offer to Purchase, either extend the Offer, exercise the Option Agreement described in this Offer to Purchase and purchase enough Shares such that Purchaser would own one Share more than 90% of all Shares outstanding on the date of purchase or reduce the number of Shares subject to the Offer to a number equal to 49.9% of the Shares then outstanding. See “Introduction” and Section 1 — “Terms of the Offer” of this Offer to Purchase.

      If the number of Shares subject to the Offer is reduced, we may reduce the amount of Shares we will purchase from you by the same proportion we reduce the amount purchased from all other tendering shareholders. If the Merger occurs, you will receive the Offer Price as the Merger consideration, subject to your right, if any, under California law to dissent and demand the fair market value of your Shares, for your Shares that were either not tendered or tendered but not purchased in the Offer. See Section 12 — “Purpose of the Offer; The Merger Agreement; Related Agreements; Plans for the Company — Dissenter’s Rights” of this Offer to Purchase.

      The Offer is also subject to the condition that the Company obtain a consent to the Merger from counterparties to customer contracts representing projected 2004 revenue of at least $40,000,000. We cannot predict the amount of time required to obtain these consents and satisfy this condition. The Offer is also subject to the condition that the Company’s Net Indebtedness (as defined in the Merger Agreement) does not exceed $9,900,000.

      We are also not obligated to purchase any Shares you validly tender if any other conditions are not satisfied or waived. See Section 14 — “Certain Conditions of the Offer” of this Offer to Purchase.

How Do I Tender My Shares?

      To tender Shares, you must deliver the certificates representing your Shares, together with a completed Letter of Transmittal and any other documents required, to the Depositary, not later than the time the Offer expires. If your Shares are held in street name, the Shares can be tendered by your nominee through The Depository Trust Company. If you cannot deliver something that is required to be delivered to the Depositary by the expiration of the Offer, you may obtain additional time to do so by having a broker, a bank or other fiduciary that is a member of the Securities Transfer Agent’s Medallion Program or other eligible institution guarantee that the missing items will be received by the Depositary within three Nasdaq Stock Market trading days. For the tender to be valid, however, the Depositary must receive the missing items within that three-trading-day period. See Section 2 — “Procedures for Tendering Shares” of this Offer to Purchase.

Until What Time Can I Withdraw Previously Tendered Shares?

      You can withdraw Shares at any time until the Offer has expired and, if we have not agreed to accept your shares for payment by March 25, 2004, you can withdraw them at any time after such time until we accept Shares for payment. This right to withdraw will not apply to any subsequent offering period. See Section 1 — “Terms of the Offer” and Section 3 — “Withdrawal Rights” of this Offer to Purchase.

How Do I Withdraw Previously Tendered Shares?

      To withdraw Shares, you must deliver a written notice of withdrawal, or a facsimile of one, with the required information to the Depositary while you still have the right to withdraw the Shares. See Section 1 — “Terms of the Offer” and Section 3 — “Withdrawal Rights” of this Offer to Purchase.

What Are The Tax Consequences Of The Sale of Shares Through The Offer?

      The sale of Shares to us through the Offer is a taxable transaction for U.S. federal income-tax purposes, and may also be taxable under applicable state, local, foreign and other tax laws. In general, if you are a United States person, as defined under U.S. federal income-tax law, you will recognize gain or loss equal to the difference between the amount of cash that you receive from us for the Shares and the tax basis of your Shares.

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      We encourage you to consult with your own tax advisor about the particular effect the Offer will have on you. See Section 5 — “Certain U.S. Federal Income-Tax Consequences” of this Offer to Purchase.

Have Any Shareholders Already Agreed To Tender Their Shares?

      Yes. Shareholders holding 3,562,668 Shares have entered into agreements with Parent and Purchaser under which they have agreed to tender their Shares in the Offer. See “Introduction” and Section 12 — “Purpose of the Offer; The Merger Agreement; Related Agreements; Plans for the Company — Tender Agreements”.

Will The Tender Offer Be Followed By A Merger If All The Shares Are Not Tendered In The Offer?

      If we accept for payment and pay for at least 90% of the Shares outstanding on the date of purchase, we will promptly take steps to merge with the Company. If Purchaser elects to reduce the number of Shares subject to the Offer to a number equal to 49.9% of the Shares then outstanding, then Purchaser will seek the approval of the holders of a majority of the Company’s outstanding shares to consummate the Merger. If Purchaser does elect to accept for payment a number of Shares between 50% and 90% of the then-outstanding Shares, Purchaser also will seek a fairness hearing before the Commissioner of Corporations of the State of California followed by seeking approval of a majority of the outstanding Shares to consummate the Merger. We and one shareholder have signed a tender and voting agreement, representing 900,000 Shares, under which that shareholder has agreed to vote those Shares in favor of the Merger. If that merger takes place, it will result in Parent owning all of the Shares, because the remaining shareholders of the Company will receive $3.40 per Share in cash, without interest (or any higher price per Share that is paid in the Offer) for their Shares in the Merger.

      There are no dissenters’ rights available in connection with the Offer. However, if the Merger takes place, shareholders who have not tendered their Shares in the Offer and who do not vote in favor of the Merger will have dissenters’ rights under California law. See Section 12 — “Purpose of the Offer; The Merger Agreement; Related Agreements; Plans for the Company — Dissenters’ Rights” of this Offer to Purchase.

If I Decide Not To Tender, How Will The Offer Affect My Shares?

      If you decide not to tender your Shares in the Offer, you may also contribute to a delay in the timing of the Merger because we may not receive valid tenders of 90% of the outstanding Shares.

      If the Merger takes place, shareholders who do not tender in the Offer will receive the same amount of cash per Share that they would have received had they tendered their Shares in the Offer, subject to their right to pursue dissenters’ rights under California law. Therefore, if the Merger takes place and you do not perfect your dissenters’ rights, the only difference to you between tendering your Shares and not tendering your Shares is that you will be paid earlier if you tender your Shares. If the Merger does not take place, however, you will continue to hold Shares and there may no longer be an active public trading market (or, possibly, any public trading market) for the Shares because the number of Shares still held publicly and the number of shareholders may be too small. Also, the Shares may no longer be eligible to be traded on the Nasdaq Stock Market or any other securities exchange, and the Company may cease making filings with the Securities and Exchange Commission (the “Commission”) or otherwise cease being required to comply with the Commission’s rules relating to publicly held companies. See Section 7 — “Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations” and Section 12 — “Purpose of the Offer; The Merger Agreement; Related Agreements; Plans for the Company” of this Offer to Purchase.

What Is The Market Value Of My Shares As Of A Recent Date?

      On February 17, 2004, the last trading day before the Company and Parent announced that they had signed the Merger Agreement, the last sale price of the Shares reported on the Nasdaq Stock Market was $2.78 per Share. On February 25, 2004, the last trading day before we commenced our tender offer, the last reported sale price of the Shares was $3.36 per Share. We advise you to obtain a recent quotation for the

4

Shares in deciding whether to tender your Shares. See Section 6 — “Price Range of the Shares; Dividends” of this Offer to Purchase.

To Whom Can I Talk If I Have Questions About The Tender Offer?

      You can call MacKenzie Partners, Inc. at (800) 322-2885. MacKenzie Partners, Inc. is acting as the information agent for our Offer. See the back cover of this Offer to Purchase.

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To the Holders of Common Stock of
Creative Host Services, Inc.:

INTRODUCTION

      Yorkmont Five, Inc., a California corporation (“Purchaser”) and wholly owned indirect subsidiary of Compass Group USA Investments, LLP (“Parent”), hereby offers to purchase all the outstanding shares of common stock, no par value (collectively, the “Shares”), of Creative Host Services, Inc., a California corporation (the “Company”), at a price of $3.40 per Share, net to the seller, in cash without interest (the “Offer Price”), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements, collectively constitute the “Offer”).

      Shareholders whose Shares are registered in their own names and who tender directly to the Depositary (as defined below) will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares by Purchaser pursuant to the Offer. Shareholders whose Shares are held through banks or brokers should check with such institutions as to whether they charge any service fees. Purchaser will not pay any of those service fees.

      Purchaser will pay all fees and expenses of Computershare Trust Company of New York, which is acting as the Depositary (the “Depositary”), and MacKenzie Partners, Inc., which is acting as the Information Agent (the “Information Agent”), incurred in connection with the Offer.

      The Board of Directors of the Company has unanimously (a) determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Offer and the Merger (as defined below), are fair to, and in the best interest of, the Company’s shareholders, (b) approved and adopted the Merger Agreement, the Option Agreement (as defined below), the Offer and the Merger and (c) recommended that the holders of the Shares accept the Offer and tender their Shares pursuant to, and subject to the terms and conditions of, the Offer. The factors considered by the Board of Directors of the Company in arriving at its decision to approve the Merger Agreement and the transactions contemplated by the Merger Agreement and to recommend that shareholders of the Company accept the Offer and tender their Shares pursuant to the Offer are described in the Company’s Solicitation/ Recommendation Statement on Schedule 14D-9 (the “Schedule 14D-9”), which has been filed with the Securities and Exchange Commission (the “Commission”) and is being mailed to shareholders of the Company concurrently herewith.

      The Offer expires on the later of (a) 12:00 Midnight, New York City time, on March 25, 2004, or (b) the latest time and date on which any extension of the Offer will expire (the “Expiration Date”).

      Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (“Houlihan”) has acted as the Company’s financial advisor. The opinion of Houlihan, dated February 12, 2004, that, as of such date, the consideration to be received in the Offer and the Merger by the holders of Shares was fair, from a financial point of view, to such holders is set forth in full as an annex to the Schedule 14D-9. Shareholders are urged to, and should, read carefully the Schedule 14D-9 and such opinion in their entirety.

      The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the Expiration Date that number of Shares that would represent at least 90% of the Shares outstanding on the date of purchase (the “Minimum Condition”). The Offer is also subject to the satisfaction of various other conditions. See Section 14 for a detailed discussion of those conditions.

      The Offer is being made under the terms of an Agreement and Plan of Merger dated February 18, 2004, as amended (the “Merger Agreement”), among Parent, Purchaser and the Company, under which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, Purchaser will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned indirect subsidiary of Parent. At the effective time of the Merger (the “Effective Time”) each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by Parent, Purchaser or

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the Company or by shareholders, if any, who are entitled to and properly exercise dissenters’ rights under California law) will be converted into the right to receive the price per Share paid pursuant to the Offer in cash, without interest.

      The purpose of the Offer is for Parent, indirectly through Purchaser, to acquire a voting interest in the Company as the first step in a business combination. In the event the Minimum Condition is not satisfied on any scheduled Expiration Date, subject to the right of Parent or Purchaser to terminate the Merger Agreement pursuant to its terms (for reasons other than failure to meet the Minimum Condition (unless the Revised Minimum Number (as defined below) has not been tendered)), Purchaser shall take, and Parent shall cause Purchaser to take, one of the actions set forth in the following clauses (x), (y), or (z) (provided that Purchaser shall have complete discretion as to which action to take): (x) extend the Offer pursuant to the provisions of the Merger Agreement, (y) amend the Offer in contemplation of the exercise of the Option Agreement (to the extent the Option Agreement is exercisable at such time) to reduce the Minimum Condition to that number of Shares (the “Option Exercise Minimum Number”) equal to the number of Shares that, when combined with the number of Shares issued upon exercise of the Option Agreement, equals one Share more than 90% of the Shares then outstanding; provided that the number of Shares issued upon exercise of the Option Agreement may not exceed 2,099,200 Shares outstanding at the time such option is exercised, or (z) amend the Offer to provide that, in the event (i) the Minimum Condition is not satisfied at the next scheduled Expiration Date of the Offer (after giving effect to the issuance of any Shares theretofore acquired by Parent or Purchaser) and (ii) the number of Shares tendered pursuant to the Offer and not withdrawn as of such next-scheduled Expiration Date is more than 50% of the then-outstanding Shares, Purchaser shall waive the Minimum Condition and amend the Offer to reduce the number of Shares subject to the Offer to 49.9% of the Shares then outstanding (the “Revised Minimum Number”) and, subject to the prior satisfaction or waiver of the other conditions of the Offer, either (A) purchase, on a pro rata basis, the Revised Minimum Number of Shares or (B) (1) purchase all Shares that have been tendered and not withdrawn as of such Expiration Date, (2) prepare and file a permit application under Section 25142 of the California General Corporation Law (the “CGCL”) and a related information statement or other disclosure document, and shall request a hearing on the fairness of the terms and conditions of the Merger pursuant to Section 25142 of the CGCL, and (3) otherwise comply with the CGCL (it being understood that Purchaser shall not in any event be required to accept for payment, or pay for, any Shares if less than the Revised Minimum Number of Shares are tendered pursuant to the Offer and not withdrawn at the Expiration Date). If Purchaser elects to seek a hearing on the fairness of the terms and conditions of the Merger, it will still need to seek shareholder approval of the Merger.

      The consummation of the Merger is subject to the satisfaction or waiver of certain conditions, including the approval and adoption of the principal terms of the Merger Agreement by the requisite vote of the shareholders of the Company, if required by the CGCL. Under the CGCL, if Parent or Purchaser acquires, pursuant to the Offer, the Option Agreement or otherwise, at least 90% of the Shares then outstanding, it will be able to effect the Merger without a vote of the shareholders. In such event, Parent, Purchaser and the Company have agreed in the Merger Agreement to take all necessary and appropriate action to cause the Merger to be effective as soon as practicable after the expiration of the Offer without a meeting of shareholders of the Company, in accordance with Section 1110 of the CGCL (the “Short-Form Merger”). Under the CGCL, the Merger consideration paid to the shareholders of the Company may not be cash if Parent and Purchaser own, directly or indirectly, more than 50% but less than 90% of the then-outstanding Shares, unless either all the shareholders of the Company consent to the Merger or the Commissioner of Corporations of the State of California (the “Corporations Commissioner”) approves, after a hearing, the terms and conditions of the Merger and the fairness thereof. If, pursuant to the Offer, the Option Agreement or otherwise, Purchaser does not acquire Shares that, together with Shares owned by Parent or Purchaser, represent at least 90% of the Shares then outstanding as of any scheduled Expiration Date, and Purchaser instead amends the Offer to reduce the number of Shares subject to the Offer to the Revised Minimum Number, then Purchaser, together with Parent, would own 49.9% of the Shares then outstanding upon consummation of the Offer, and would thereafter solicit the approval of the Merger and the Merger Agreement by a majority vote of the outstanding Shares. Under such circumstances, a significantly longer period of time will be required to effect the Merger and tendering shareholders will be delayed in receiving a

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payment of the Merger consideration. For a description of the conditions set forth in the Merger Agreement and the CGCL as it relates to this transaction, see Section 12.

      This Offer to Purchase also constitutes notice pursuant to Section 1110 of the CGCL that if Purchaser, Parent or any other subsidiary of Parent acquires at least 90% of the outstanding Shares, Parent or Purchaser will cause the Short-Form Merger to become effective without any further notice to shareholders of the Company.

      Concurrently with the execution of the Merger Agreement, and as a condition and inducement to Parent’s and Purchaser’s entering into the Merger Agreement, the Company entered into a Stock Option Agreement, dated as of February 18, 2004 (the “Option Agreement”), with Parent and Purchaser. Pursuant to the Option Agreement, the Company granted to Parent and Purchaser an irrevocable option (the “Top-Up Stock Option”) to purchase that number of Shares (the “Top-Up Option Shares”) equal to the number of Shares that, when added to the number of Shares owned by Parent, Purchaser and any other subsidiary of Parent immediately following consummation of the Offer, will constitute one Share more than 90% of the Shares then outstanding (assuming the issuance of the Top-Up Option Shares) up to a maximum of 2,099,200 Shares at a purchase price per Top-Up Option Share equal to the Offer Price, subject to the terms and conditions set forth in the Option Agreement, including, without limitation, that the Top-Up Stock Option shall not be exercisable if the number of Shares that would otherwise be issued thereunder would exceed the number of authorized Shares available for issuance at the time such option is exercised. If the Top-Up Stock Option is exercised by Purchaser (resulting in Purchaser and Parent owning one Share more than 90% or more of the Shares then outstanding), Purchaser will be able to effect the Short-Form Merger, subject to the terms and conditions of the Merger Agreement. The Option Agreement is more fully described in Section 12.

      In connection with the Merger Agreement, Parent and Purchaser entered into a Tender and Voting Agreement, dated February 18, 2004, with Mr. Sayed Ali, the President and Chief Executive Officer of the Company, and a Tender Agreement with J. Stewart Jackson, IV, an individual shareholder of the Company (collectively, the “Tender Agreements”; Mr. Ali and Mr. Jackson are collectively referred to as the “Tendering Shareholders”). Pursuant to the Tender Agreements, the Tendering Shareholders have agreed to tender an aggregate of 3,562,668 Shares owned by the Tendering Shareholders (the “Committed Shares”). Mr. Ali has agreed to vote his Committed Shares in favor of the Merger. The Committed Shares represent approximately 40.3% of the Shares that as of February 18, 2004 were issued and outstanding. The Tender Agreements are described in more detail in Section 12.

      The Company has informed Purchaser that, as of February 18, 2004, there were: (a) 8,830,140 Shares issued and outstanding; (b) no more than 535,500 Shares reserved for issuance upon the exercise of outstanding options to purchase Shares from the Company and (c) no more than 1,340,800 Shares reserved for issuance upon the exercise of outstanding warrants to purchase Shares from the Company. Assuming that no Shares are otherwise issued after February 18, 2004, the Minimum Condition will be satisfied if at least 7,947,126 Shares are validly tendered and not withdrawn prior to the Expiration Date. The actual number of Shares required to be tendered to satisfy the Minimum Condition will depend upon the actual number of Shares outstanding on the date that Purchaser accepts Shares for payment pursuant to the Offer. If the Minimum Condition is satisfied, and Purchaser accepts for payment Shares tendered pursuant to the Offer, Purchaser will be able to elect a majority of the members of the Company’s Board of Directors and to effect the Merger without the affirmative vote of any other shareholder of the Company.

      The Merger Agreement provides that promptly upon the acceptance for payment of, and payment by Purchaser for, at least 49.9% of the Shares pursuant to the Offer, Purchaser shall be entitled to designate such number of directors on the Board of Directors of the Company as will give Purchaser, subject to compliance with Section 14(f) of the Exchange Act, representation on the Board of Directors of the Company equal to that number of directors, rounded up to the next whole number, that is the product of (a) the total number of directors on the Board of Directors of the Company (giving effect to the directors elected pursuant to this sentence) multiplied by (b) the percentage that (i) such number of Shares so accepted for payment and paid for by Purchaser bears to (ii) the number of such Shares outstanding, and the Company shall, at such time,

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cause Purchaser’s designees to be so elected. Purchaser’s right to designate directors on the Company’s Board of Directors is more fully described in Section 12. In addition, the present members of the Company’s Board of Directors will resign as of the Effective Time.

      Certain U.S. federal income-tax consequences of the sale of Shares pursuant to the Offer and the conversion of Shares pursuant to the Merger are described in Section 5.

      This Offer to Purchase and the related Letter of Transmittal contain important information and should be read carefully and in their entirety before any decision is made with respect to the Offer.

THE TENDER OFFER

1. Terms of the Offer

      Upon the terms and subject to the conditions of the Offer, Purchaser will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not withdrawn in accordance with Section 3. Initially, the term “Expiration Date” means 12:00 Midnight, New York City time, on March 25, 2004.

      The Merger Agreement and the Offer may be terminated by Parent and Purchaser if certain events occur. Subject to the provisions of the Merger Agreement and the applicable rules and regulations of the Securities and Exchange Commission (the “Commission”), Purchaser expressly reserves the right to modify the terms and conditions of the Offer. Subject to the provisions of the Merger Agreement, including the provisions of the Merger Agreement described in the next paragraph, and the applicable rules and regulations of the Commission, if by the Expiration Date any of such conditions to the Offer have not been satisfied, Purchaser reserves the right (but shall not be obligated) to (a) terminate the Offer and return all tendered Shares to tendering shareholders, (b) waive such unsatisfied conditions and purchase all Shares validly tendered or (c) extend the Offer and, subject to the terms of the Offer (including the rights of shareholders to withdraw their Shares), retain the Shares that have been tendered, until the termination of the Offer, as extended.

      Under the terms of the Merger Agreement, Purchaser may not, without the prior written consent of the Company, (a) reduce the number of Shares subject to the Offer, (b) reduce the Offer Price, (c) change or waive the Minimum Condition, (d) add any other conditions to the Offer other than the conditions set forth in the Merger Agreement, or modify any conditions set forth in the Merger Agreement, or amend, modify or supplement any other terms of the Offer in any manner adverse to the Company’s shareholders, (e) change the form of consideration payable in the Offer or (f) extend the Offer beyond July 2, 2004. If the Minimum Condition is not satisfied on any scheduled Expiration Date, subject to any right of Parent or Purchaser to terminate the Merger Agreement pursuant to its terms (for reasons other than failure to meet the Minimum Condition (unless the Revised Minimum Number has not been tendered)), Purchaser shall, and Parent shall cause Purchaser to, take one of the actions set forth in the following clauses (x), (y) or (z) (provided that Purchaser shall have complete discretion concerning which action to take): (x) extend the Offer pursuant to the provisions of the Merger Agreement, (y) amend the Offer in contemplation of the exercise of the Option Agreement (to the extent the Option Agreement is exercisable at such time) to reduce the Minimum Condition to the Option Exercise Minimum Number; provided, however, that the number of Shares issued upon the exercise of the Option Agreement may not exceed 2,099,200 Shares outstanding at the time such option is exercised or (z) amend the Offer to provide that, if (i) the Minimum Condition is not satisfied at the next scheduled Expiration Date (after giving effect to the issuance of any Shares theretofore acquired by Parent or Purchaser) and (ii) the number of Shares tendered pursuant to the Offer and not withdrawn as of such next scheduled Expiration Date is more than 50% but less than 90% of the then-outstanding Shares, Purchaser shall waive the Minimum Condition and amend the Offer to reduce the number of Shares subject to the Offer to the Revised Minimum Number and, subject to the prior satisfaction or waiver of the other conditions of the Offer, either (A) purchase, on a pro rata basis, the Revised Minimum Number of Shares or (B) (1) purchase all Shares that have been tendered and not withdrawn as of such Expiration Date, (2) prepare and file a permit application under Section 25142 of the CGCL and a related information statement or other disclosure document, and shall request a hearing on the fairness of the terms and conditions

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of the Merger pursuant to Section 25142 of the CGCL, and (3) otherwise comply with the CGCL (it being understood that Purchaser shall not in any event be required to accept for payment, or pay for, any Shares if less than the Revised Minimum Number of Shares are tendered pursuant to the Offer and not withdrawn at the Expiration Date). Under no circumstances will interest be paid on the purchase price for tendered Shares, regardless of any extension of or amendment to the Offer or any delay in paying for such Shares.

      Any extension, waiver, amendment or termination will be followed as promptly as practicable by a public announcement of that action. An announcement in the case of an extension will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date, in accordance with the public announcement requirements of Rule 14e-1(d) under the Exchange Act. Without limiting the manner in which Purchaser may choose to make any public announcement, subject to applicable law (including Rules 14d-4(d) and 14d-6(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which require that material changes be promptly disseminated to holders of Shares), we will have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service. As used in this Offer to Purchase, the term “business day” has the meaning set forth in Rule 14d-1 under the Exchange Act.

      If Purchaser extends the Offer or if Purchaser is delayed in its acceptance for payment of or payment for Shares or is unable to pay for Shares pursuant to the Offer for any reason, then, without prejudice to Purchaser’s rights under the Offer, the Depositary may retain tendered Shares on behalf of Purchaser, and such Shares may not be withdrawn except to the extent tendering shareholders are entitled to withdrawal rights as described under Section 3. However, the ability of Purchaser to delay the payment for Shares that Purchaser has accepted is limited by Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of shareholders promptly after termination or withdrawal of such bidder’s offer.

      If Purchaser makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer, Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of such offer or information concerning such offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. With respect to a change in price or a change in the percentage of securities sought, a minimum period of 10 business days is generally required to allow for adequate dissemination to shareholders.

      Rule 14d-11 under the Exchange Act permits Purchaser to provide a subsequent offering period of from three business days to 20 business days in length (a “Subsequent Offering Period”) following the expiration of the Offer on the Expiration Date and acceptance for payment of the Shares tendered in the Offer. A Subsequent Offering Period is an additional period of time, following the expiration of the Offer and the purchase of Shares in the Offer, during which shareholders may tender, but not withdraw, Shares not tendered in the Offer. A Subsequent Offering Period is not an extension of the Offer, which, if any, already will have been completed. Pursuant to Rule 14d-11, Purchaser may include a Subsequent Offering Period so long as, (a) the initial Offer remained open for a minimum of 20 business days and has expired, (b) the Offer is for all outstanding Shares, (c) Purchaser accepts and promptly pays for all Shares validly tendered during the initial Offer, (d) Purchaser announces the results of the Offer, including the approximate number and percentage of Shares tendered in the Offer to date, no later than 9:00 a.m., New York City time, on the next business day after the Expiration Date and immediately begins the Subsequent Offering Period, (e) Purchaser immediately accepts and promptly pays for all Shares as they are tendered during the Subsequent Offering Period and (f) Purchaser offers the Offer Price to shareholders who tender in the initial Offer and the Subsequent Offering Period.

      Purchaser intends to include a Subsequent Offering Period of no less than three business days in the event that the Minimum Condition and all of the other conditions to the Offer have been satisfied or waived as of the Expiration Date. Pursuant to Rule 14d-7 under the Exchange Act, no withdrawal rights apply to

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Shares tendered during a Subsequent Offering Period and no withdrawal rights apply during the Subsequent Offering Period with respect to Shares tendered in the Offer and accepted for payment. The same consideration will be paid to shareholders tendering Shares in the Offer or in a Subsequent Offering Period.

      The Company has provided Purchaser with the Company’s shareholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares, and will be furnished to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder lists, or, if applicable, who are listed as participants in a clearing agency’s security position listing, for subsequent transmittal to beneficial owners of Shares.

2. Procedures for Tendering Shares

      Valid Tender. For a shareholder to validly tender Shares pursuant to the Offer, (a) the certificates for tendered Shares, together with a Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, any required signature guarantees and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date; (b) in the case of a transfer effected pursuant to the book-entry transfer procedures described under “Book-Entry Transfer”, either a Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, and any required signature guarantees, or an Agent’s Message (as defined below), and any other required documents, must be received by the Depositary at one of such addresses, such Shares must be delivered pursuant to the book-entry transfer procedures described below and a Book-Entry Confirmation (as defined below) must be received by the Depositary, in each case prior to the Expiration Date; or (c) the tendering shareholder must comply with the guaranteed delivery procedures described below under “Guaranteed Delivery” prior to the Expiration Date.

      The valid tender of Shares pursuant to one of the procedures described above will constitute a binding agreement between the tendering shareholder and Purchaser upon the terms and subject to the conditions of the Offer.

      The method of delivery of Shares, the Letter of Transmittal and all other required documents, including delivery through the Book-Entry Transfer Facility (as defined below), is at the election and risk of the tendering shareholder. Shares will be deemed delivered only when actually received by the Depositary (including, in the case of a Book-Entry Transfer, by Book-Entry Confirmation (as defined below)). If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery.

      Book-Entry Transfer. The Depositary will establish an account with respect to the Shares at The Depository Trust Company (the “Book-Entry Transfer Facility”) for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant of the Book-Entry Transfer Facility’s system may make book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary’s account in accordance with the Book-Entry Transfer Facility’s procedures for such transfer. Although delivery of Shares may be made through book-entry transfer into the Depositary’s account at the Book-Entry Transfer Facility, the Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent’s Message, and any other required documents, also must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date. The confirmation of a book-entry transfer of Shares into the Depositary’s account at the Book-Entry Transfer Facility as described above is referred to herein as a “Book-Entry Confirmation”. Delivery of documents to the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility’s procedures does not constitute delivery to the Depositary.

      The term “Agent’s Message” means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, that states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer

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Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against the participant.

      Signature Guarantees. No signature guarantee is required on the Letter of Transmittal if (a) the Letter of Transmittal is signed by the registered holder (which term, for purposes of this Section 2, includes any participant in the Book-Entry Transfer Facility’s system whose name appears on a security position listing as the owner of the Shares) of Shares tendered and such registered holder has not completed either the box entitled “Special Payment Instructions” or the box entitled “Special Delivery Instructions” on the Letter of Transmittal or (b) such Shares are tendered for the account of a financial institution (including most commercial banks, savings associations and brokerage houses) that is a participant in the Security Transfer Agent’s Medallion Program or the Stock Exchange Medallion Program or by any other “eligible guarantor institution,” as such term is defined in Rule 17Ad-15 under the Exchange Act (such participant, an “Eligible Institution”). In all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. If the certificates for Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for Shares not tendered or not accepted for payment are to be returned to a person other than the registered holder of the certificates surrendered, the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed. See Instructions 1 and 5 to the Letter of Transmittal.

      Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to the Offer and such shareholder’s certificates for Shares are not immediately available or the book-entry transfer procedures cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date, such shareholder’s tender may be effected if all the following conditions are met:

      (a) such tender is made by or through an Eligible Institution;

      (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Purchaser, is received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date; and

      (c) either (i) the certificates for tendered Shares together with a Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, and any required signature guarantees, and any other required documents are received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase within three trading days after the date of execution of such Notice of Guaranteed Delivery, or (ii) in the case of a book-entry transfer effected pursuant to the book-entry transfer procedures described above under “Book-Entry Transfer”, either a Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, and any required signature guarantees, or an Agent’s Message, and any other required documents, is received by the Depositary at one of such addresses, such Shares are delivered pursuant to the book-entry transfer procedures above and a Book-Entry Confirmation is received by the Depositary, in each case within three trading days after the date of execution of such Notice of Guaranteed Delivery. For purposes of the foregoing, a “trading day” is any day on which the Nasdaq Stock Market (the “Nasdaq”) is open for business.

      The Notice of Guaranteed Delivery may be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. The procedures for guaranteed delivery specified above may not be used during any Subsequent Offering Period.

      Other Requirements. Notwithstanding any provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation with respect to) such Shares, (b) a Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent’s Message in lieu of the Letter of Transmittal) and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering shareholders may be paid at

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different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. Under no circumstances will interest be paid on the purchase price of the Shares, regardless of any extension or amendment of the Offer or any delay in paying for such Shares.

      Appointment. By executing a Letter of Transmittal (or manually signed facsimile thereof), or, in the case of a book-entry transfer, by delivery of an Agent’s Message in lieu of a Letter of Transmittal, a tendering shareholder will irrevocably appoint designees of Purchaser as such shareholder’s attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such shareholder’s rights with respect to the Shares tendered by such shareholder and accepted for payment by Purchaser and with respect to any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after February 18, 2004. All such proxies will be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Purchaser accepts for payment Shares tendered by such shareholder as provided herein. Upon the effectiveness of such appointment, all prior powers of attorney, proxies and consents given by such shareholder with respect to such Shares or other securities or rights will, without further action, be revoked and no subsequent powers of attorney, proxies, consents or revocations may be given (and, if given, will not be effective). The designees of Purchaser will thereby be empowered to exercise all voting and other rights with respect to such Shares and other securities or rights in respect of any annual, special or adjourned meeting of the Company’s shareholders, actions by written consent in lieu of any such meeting or otherwise, as they in their sole discretion deem proper. Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, Purchaser must be able to exercise full voting, consent and other rights with respect to such Shares and other securities or rights, including voting at any meeting of shareholders immediately upon Purchaser’s acceptance for payment of such Shares.

      Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by Purchaser in its sole discretion, which determination will be final and binding. Purchaser reserves the absolute right to reject any or all tenders determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of Purchaser, be unlawful. Purchaser also reserves the absolute right to waive any defect or irregularity in the tender of any Shares of any particular shareholder whether or not similar defects or irregularities are waived in the case of other shareholders. No tender of Shares will be deemed to have been validly made until all defects or irregularities relating thereto have been cured or waived. None of Purchaser, Parent, the Company, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Purchaser’s interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto and any other related documents thereto) will be final and binding.

      Backup Withholding. In order to avoid “backup withholding” of U.S. federal income-tax on payments of cash pursuant to the Offer, a shareholder tendering Shares in the Offer who is a U.S. citizen or U.S. resident alien must, unless the shareholder is exempt, provide the Depositary with such shareholder’s correct taxpayer identification number (“TIN”) on a Substitute Form W-9 and certify under penalties of perjury that such TIN is correct and that such shareholder is not subject to backup withholding. If a shareholder does not provide such shareholder’s correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the “IRS”) may impose a penalty on such shareholder and payment of cash to such shareholder pursuant to the Offer may be subject to backup withholding of 28% by the Depositary. All shareholders surrendering Shares pursuant to the Offer should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to Purchaser and the Depositary). Certain shareholders (including, among others, certain corporations and certain foreign individuals and entities) are not subject to backup withholding. Noncorporate foreign shareholders should complete and sign the main signature form and a Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, a copy

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of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 9 to the Letter of Transmittal.

3. Withdrawal Rights

      Except as otherwise provided in this Section 3, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time prior to the Expiration Date and, unless theretofore accepted for payment and paid for by Purchaser pursuant to the Offer, may also be withdrawn at any time after March 25, 2004.

      For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution, any and all signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been tendered pursuant to the book-entry transfer procedures described in Section 2, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with the Book-Entry Transfer Facility’s procedures. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 2 at any time prior to the Expiration Date.

      All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Purchaser in its sole discretion, which determination will be final and binding. None of Purchaser, Parent, the Company, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification.

      No withdrawal rights will apply to Shares tendered during any Subsequent Offering Period and no withdrawal rights apply during any Subsequent Offering Period with respect to Shares tendered in the Offer and accepted for payment.

4. Acceptance for Payment and Payment for Shares

      Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will accept for payment and will pay for all Shares validly tendered prior to the Expiration Date and not properly withdrawn promptly after the Expiration Date. Purchaser, subject to the Merger Agreement, expressly reserves the right, in its sole discretion, to delay acceptance for payment of, or payment for, Shares in order to comply in whole or in part with any applicable law. Any such delays will be effected in compliance with Rule 14e-1(c) under the Exchange Act (relating to a bidder’s obligation to pay for or return tendered securities promptly after the termination or withdrawal of such bidder’s offer).

      In all cases (including during a Subsequent Offering Period), payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (a)(1) the certificates for such Shares, together with a Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, and any required signature guarantees, or (2) in the case of a transfer effected pursuant to the book-entry transfer procedures described in Section 2, a Book-Entry Confirmation and either a Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, and any required signature guarantees, or an Agent’s Message, and (b) any other required documents. Accordingly, tendering shareholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary.

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      The per Share consideration paid to any shareholder pursuant to the Offer will be the highest per Share consideration paid to any other shareholder pursuant to the Offer.

      For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered to Purchaser and not properly withdrawn as, if and when Purchaser gives oral or written notice to the Depositary of Purchaser’s acceptance for payment of such Shares. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as an agent for tendering shareholders for the purpose of receiving payment from Purchaser and transmitting that payment to tendering shareholders whose Shares have been accepted for payment. Under no circumstances will interest be paid on the purchase price for tendered Shares, regardless of any extension of or amendment to the Offer or any delay in paying for such Shares.

      If Purchaser is delayed in its acceptance for payment of or payment for Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to Purchaser’s rights under the Offer (but subject to compliance with Rule 14e-1(c) under the Exchange Act (relating to a bidder’s obligation to pay for or return tendered securities promptly after the termination or withdrawal of such bidder’s offer), and the terms of the Merger Agreement (requiring that Purchaser pay for Shares accepted for payment as soon as practicable after the Expiration Date)), the Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent tendering shareholders are entitled to do so as described in Section 3.

      If any tendered Shares are not accepted for payment pursuant to the terms and conditions of the Offer for any reason, the certificates for such Shares will be returned (and, if certificates are submitted for more Shares than are tendered, new certificates for the Shares not tendered will be sent) in each case without expense to the tendering shareholder (or, in the case of Shares delivered by book-entry transfer of such Shares into the Depositary’s account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described in Section 2, such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable after the expiration or termination of the Offer.

      Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to Parent, or to one or more direct or indirect wholly owned subsidiaries of Parent, the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering shareholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer.

5. Certain U.S. Federal Income-Tax Consequences

      The receipt of cash pursuant to the Offer or the Merger will be a taxable transaction to the recipient shareholder for U.S. federal income-tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”), and may also be a taxable transaction under applicable state, local or foreign income or other tax laws. Generally, for U.S. federal income-tax purposes, a tendering shareholder will recognize gain or loss equal to the difference between (1) the amount of cash received by the shareholder pursuant to the Offer or Merger and (2) the aggregate adjusted tax basis in the Shares tendered by the shareholder and purchased pursuant to the Offer or converted into cash in the Merger, as the case may be. Gain or loss will be calculated separately for each block of Shares tendered and purchased pursuant to the Offer or converted into cash in the Merger, as the case may be.

      If Shares sold pursuant to the Offer or the Merger were held by the selling shareholder as capital assets, gain or loss recognized by such shareholder will be capital gain or loss, which will be long-term capital gain or loss if such shareholder’s holding period for the Shares exceeds one year. In the case of a tendering noncorporate shareholder, long-term capital gains will be eligible for a maximum U.S. federal income tax rate of 15%. The gain from the sale of such Shares may also be subject to the Alternative Minimum Tax. In addition, there are limits on the deductibility of capital losses.

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      A shareholder (other than certain exempt shareholders including, among others, certain corporations and certain foreign individuals and entities) that tenders Shares or has Shares converted in the Merger may be subject to 28% backup withholding unless the shareholder (1) provides its TIN and certifies that such number is correct (or properly certifies that it is awaiting a TIN) and certifies as to no loss of exemption from backup withholding and (2) otherwise complies with the applicable requirements of the backup withholding rules. A shareholder that does not furnish a required TIN or that does not otherwise establish a basis for an exemption from backup withholding may be subject to a penalty imposed by the IRS. See “Backup Withholding” under Section 2. Each shareholder should complete and sign the Substitute Form W-9 included as part of the Letter of Transmittal so as to provide the information and certification necessary to avoid backup withholding.

      If backup withholding applies to a shareholder, the Depositary is required to withhold 28% from payments to such shareholder. Backup withholding is not an additional tax. Rather, the amount of the backup withholding will be credited against the U.S. federal income-tax liability of the person subject to the backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund can be obtained by the shareholder by filing a U.S. federal income-tax return.

      The foregoing discussion may not apply to Shares received pursuant to the exercise of employee stock options or otherwise as compensation or with respect to holders of Shares who are subject to special tax treatment under the Code — such as non-U.S. persons, life-insurance companies, tax-exempt organizations and financial institutions — and may not apply to a holder of Shares in light of individual circumstances, such as holding Shares as a hedge or as part of a hedging, straddle, conversion or other risk-reduction transaction. Shareholders are urged to consult their own tax advisors to determine the particular tax consequences to them (including the application and effect of any state, local or foreign income and other tax laws) of the Offer and the Merger.

6. Price Range of the Shares; Dividends

      The Shares are listed on the SmallCap Market^SM tier of the Nasdaq (the “SmallCap Market”) under the symbol “CHST”. The following table sets forth, for each of the periods indicated, the high and low sales prices per Share on the Nasdaq, as reported in the Company’s Form 10-KSB for the year ended December 31, 2002 and as reported by published financial services for the year ended December 31, 2003 and the specified period during the first quarter of 2004.

		High		Low
Fiscal Year Ended December 31, 2002:
	First Quarter	$	1.34	$	0.97
	Second Quarter		1.87		1.28
	Third Quarter		2.24		1.31
	Fourth Quarter		2.04		1.55
Fiscal Year Ended December 31, 2003:
	First Quarter	$	1.99	$	1.62
	Second Quarter		2.10		1.31
	Third Quarter		2.38		1.76
	Fourth Quarter		2.69		2.02
Fiscal Year Ending December 31, 2004:
	First Quarter (through February 18, 2004)	$	2.99	$	2.35

      On February 17, 2004, the last full trading day before the public announcement of the execution of the Merger Agreement, the last reported sales price of the Shares on the Nasdaq was $2.78 per Share. On February 25, 2004, the last full trading day before commencement of the Offer, the last reported sales price of the Shares on the Nasdaq was $3.36 per Share. Shareholders are urged to obtain current market quotations for the Shares.

      According to the Company, cash dividends on the Shares have never been paid.

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7.  Effect of the Offer on the Market for the Shares; Nasdaq Listing; Exchange Act Registration; Margin Regulations

      Market for the Shares. The purchase of Shares pursuant to the Offer will reduce the number of holders of Shares and the number of Shares that might otherwise trade publicly and could adversely affect the liquidity and market value of the remaining Shares held by the public.

      Nasdaq Listing. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the requirements for continued listing on the SmallCap Market. According to the Nasdaq’s published guidelines, the Nasdaq would consider delisting the Shares if, among other things, (1) the number of round lot holders (holders of 100 Shares or more) should fall below 300; (2) the number of publicly held Shares should fall below 500,000 (Shares held by officers or directors of the Company or by beneficial holders of 10% or more of the Shares ordinarily will not be considered as being publicly held for this purpose); or (3) the aggregate market value of publicly held Shares should fall below $1,000,000.

      According to the Company, as of February 18, 2004 there were 8,830,140 Shares outstanding. If, as a result of the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet the requirements of the Nasdaq for continued listing and the Shares are no longer listed, the market for Shares could be adversely affected.

      If the Nasdaq were to delist the Shares, it is possible that the Shares would continue to trade on other securities exchanges or in the over-the-counter market and that price quotations would be reported by such exchanges. The extent of the public market for the Shares and the availability of such quotations would, however, depend upon the number of holders of Shares remaining at such time, the interests in maintaining a market in Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act as described below, and other factors.

      Exchange Act Registration. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application of the Company to the Commission if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the Shares under the Exchange Act would reduce the information required to be furnished by the Company to its shareholders and to the Commission and would make certain provisions of the Exchange Act no longer applicable to the Company, such as the short-swing profit-recovery provisions of Section 16(b) of the Exchange Act and the requirement of furnishing a proxy statement pursuant to Section 14(a) or 14(c) of the Exchange Act in connection with shareholders’ meetings and the related requirement of furnishing an annual report to shareholders. Furthermore, the ability of “affiliates” of the Company and persons holding “restricted securities” of the Company to dispose of such securities pursuant to Rule 144 or 144A promulgated under the Securities Act of 1933, as amended, may be impaired or eliminated. Purchaser intends to seek to cause the Company to apply for termination of registration of the Shares under the Exchange Act as soon after the completion of the Offer as the requirements for such termination are met.

      Margin Regulations. The Shares are currently “margin securities” under Regulation T of the regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding listing and market quotations, it is possible that, following the Offer, the Shares would no longer be deemed to be “margin securities” for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers.

8. Certain Information Concerning the Company

      The Company is a California corporation with its principal offices at 16955 Via Del Campo, Suite 110, San Diego, California 92127, telephone number (858) 675-7711. According to the Company’s most recent filing with the Commission, the Company is engaged in the business of acquiring, managing and operating airport concessions such as food and beverage, cocktail and lounge, and news and gift retail facilities at various locations across the United States.

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      Certain Company Financial Information. Set forth below is certain selected financial information with respect to the Company and its subsidiaries derived from the Company’s audited consolidated financial statements as of and for the years ended December 31, 2001 and 2002, that are contained in the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002 filed with the Commission (the “10-KSB”) and the Company’s unaudited condensed consolidated financial statements as of and for the nine month periods ended September 30, 2002 and 2003 that are contained in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 filed with the Commission (the “10-Q”). This information should be read in conjunction with the financial statements and notes to those statements contained in the 10-KSB and the 10-Q. More comprehensive financial information is included in those reports and other documents filed by the Company with the Commission, and the following summary is qualified in its entirety by reference to such reports, other documents and all the financial information (including any related notes) contained therein. Such reports and other documents should be available for inspection and copies thereof should be obtainable in the manner set forth below under “Available Information”.

CREATIVE HOST SERVICES, INC. AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL INFORMATION

		For the Fiscal Years					For the Nine Months
		Ended December 31,					Ended September 30,
		2001			2002		2002		2003
Consolidated Statements of Operations/ Income:
	Total revenues	$	30,745,851		$	34,615,454	$	25,723,451	$	28,775,763
	Total operating costs and expenses		29,486,680			32,694,601		24,038,254		26,880,302
	Income from operations		1,259,171			1,920,853		1,685,197		1,895,461
	Total other expense		822,924			594,567		441,551		891,251
	Income before income taxes and extraordinary item		436,247			1,326,286		1,243,646		1,004,210
	Provision (Benefit) for income taxes		(21,753	)		68,481		109,000		420,952
	Income before extraordinary item		458,000			1,257,805		1,134,646		583,258
	Extraordinary item		(128,261	)		—		—		—
	Net income		586,261			1,257,805		1,134,646		583,258
	Net income per share — Basic		0.06			0.16		0.14		0.07
	Net income per share — Diluted		0.08			0.16		0.14		0.07
	Weighted average Shares Outstanding — Basic		7,386,478			7,913,223		7,878,060		8,124,223
	Weighted average Shares Outstanding — Diluted		7,413,411			7,987,819		7,936,246		8,285,899

		For the Fiscal Year Ended		For the Nine Months Ended
		December 31, 2002		September 30, 2003
Consolidated Balance Sheets Data:
	Total assets	$	25,727,397	$	31,925,519
	Other long-term liabilities		162,898		166,004
	Line of Credit		1,310,984		—
	Notes Payable, less current maturities		1,277,936		7,755,664
	Capital lease obligations, less current maturities		1,220,050		885,327
	Total shareholders’ equity		17,749,962		18,755,014

      Available Information. The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, is required to file reports and other information with the Commission relating to its business, financial condition and other matters. Certain information as of particular dates concerning the Company’s directors and officers, their remuneration, stock options and other matters, the principal holders of the Company’s securities and any material interest of such persons in transactions with the Company is required to be disclosed in the Company’s proxy statements distributed to the Company’s shareholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission at 450 Fifth Street, N.W., Washington, DC 20549. Copies of such information should be obtainable, by mail, upon payment of the Commission’s customary charges, by writing to the Commission’s principal office at 450 Fifth Street, N.W., Washington, DC 20549. The Commission also maintains a website on the Internet at http://www.sec.gov/ that contains

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reports, proxy and information statements and other information regarding registrants that file electronically with the Commission.

      Except as otherwise stated in this Offer to Purchase, the information concerning the Company contained herein has been taken from or based upon publicly available documents on file with the Commission and other publicly available information. Although none of Parent, Purchaser, the Information Agent or the Depositary have any knowledge that any such information is untrue, none of Parent, Purchaser, the Information Agent or the Depositary takes any responsibility for the accuracy or completeness of such information or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information.

9. Certain Information Concerning Parent, Purchaser and Ultimate Parent

      Purchaser, a California corporation and wholly owned indirect subsidiary of Parent, was organized to acquire the Company and has not conducted any unrelated activities since its organization. All outstanding shares of capital stock of Purchaser are owned by Compass Holdings, Inc., a Delaware corporation (“CHI”), and a wholly owned direct subsidiary of Parent.

      Parent, a Delaware limited liability partnership, is a wholly owned indirect subsidiary of Compass Group PLC, a public limited company incorporated under the laws of England and Wales (“Ultimate Parent”). Parent is wholly owned by two general partners, Compass Group Holdings PLC, a public limited company incorporated under the laws of England and Wales (“Group Holdings”), and Compass Overseas Holdings Ltd, a limited company incorporated under the laws of England and Wales (“Overseas Holdings”). Overseas Holdings is a wholly owned direct subsidiary of Group Holdings. Group Holdings is a wholly owned direct subsidiary of Hospitality Holdings Ltd, a limited company incorporated under the laws of England and Wales (“Hospitality Holdings”) and a wholly owned direct subsidiary of Ultimate Parent.

      Parent serves as an entity through which Ultimate Parent makes investments in its North American operations. Ultimate Parent is the world’s largest foodservice company. Ultimate Parent is listed on the London Stock Exchange and is a member of the FTSE 100. Ultimate Parent’s foodservice operations employ more than 425,000 associates worldwide and include contract catering and concessions. Ultimate Parent is organized geographically into three divisions — United Kingdom, North America and Continental Europe and the rest of the world, and also by market sector within each of these divisions. The market sectors are: Business and Industry, Fine Dining, Vending, Healthcare, Travel, Leisure and Concessions, Education and Defense, Offshore and Remote Site.

      The principal executive offices of Ultimate Parent, Hospitality Holdings, Group Holdings and Overseas Holdings are located at Compass House, Guildford Street, Chertsey, Surrey, England KT16 9BQ, telephone number 011-44-1932-573-000. The principal executive offices of Parent, Purchaser and CHI are located at 2400 Yorkmont Road, Charlotte, North Carolina 28217, telephone number (704) 329-4000. Parent either directly or through CHI owns substantially all of Ultimate Parent’s indirect operating subsidiaries in the United States.

      The name, citizenship, business address, present principal occupation or employment and five-year employment history of each of the directors and executive officers of Ultimate Parent, Group Holdings, Overseas Holdings and Purchaser are set forth in Schedule I hereto.

      During the last five years, none of Purchaser, Parent, Ultimate Parent, CHI, Group Holdings, Overseas Holdings or Hospitality Holdings (together, the “Corporate Entities”), nor, to the best knowledge of Purchaser and Parent, any of the persons listed on Schedule I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of such laws.

      Except as described in this Offer to Purchase, none of the Corporate Entities or, to the best knowledge of Purchaser and Parent, any of the persons listed in Schedule I or any associate or majority-owned subsidiary of

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any of the Corporate Entities or any of the persons so listed, beneficially owns any equity security of the Company, and none of the Corporate Entities or, to the best knowledge of Purchaser and Parent, any of the other persons referred to above, or any of the respective directors, executive officers or subsidiaries of any of the foregoing, has effected any transaction in any equity security of the Company during the past 60 days.

      Except as described in this Offer to Purchase or the Schedule TO (as defined below), (a) there have not been any contacts, transactions or negotiations between the Corporate Entities, any of their respective subsidiaries or, to the best knowledge of Purchaser and Parent, any of the persons listed in Schedule I, on the one hand, and the Company or any of its directors, officers or affiliates, on the other hand, that are required to be disclosed pursuant to the rules and regulations of the Commission, and (b) none of the Corporate Entities or, to the best knowledge of Purchaser and Parent, any of the persons listed in Schedule I has any contract, arrangement, understanding or relationship with any person with respect to any securities of the Company.

      Because the only consideration in the Offer and the Merger is cash and the Offer covers all outstanding Shares, and in view of the absence of a financing condition and the amount of consideration payable in relation to the financial capacity of Parent and its affiliates, Purchaser believes the financial condition of Parent and its affiliates is not material to a decision by a holder of Shares whether to sell, tender or hold Shares pursuant to the Offer.

10. Source and Amount of Funds

      Purchaser estimates that the total amount of funds required to purchase all outstanding Shares pursuant to the Offer and the Merger will be approximately $30,022,000, plus reasonable and customary fees and expenses. Additional funds of approximately $876,000 will be required to fund all payments with respect to all outstanding options required pursuant to the Merger Agreement. Additional funds of approximately $1,775,000 will be required to fund the payments with respect to all outstanding warrants required pursuant to the Merger Agreement. Purchaser will obtain necessary funds from capital contributions or intercompany advances from Parent, either directly or through one or more wholly owned subsidiaries of Parent. Parent will obtain such funds from internally generated funds including its banking facilities. The Offer is not conditioned on any financing arrangements.

11. Contacts and Transactions with the Company; Background of the Offer

      Ultimate Parent has historically followed a strategy for long-term growth with a focus on client and customer satisfaction and leadership in the foodservice market. In order to implement that strategy, Ultimate Parent has acquired businesses in certain specific industry sectors of the United States foodservice market. The acquisition of the Company enhances Ultimate Parent’s business in its airport concessions operations in the United States.

      On June 25, 2003, Mr. Johann Weinzetti, President of Select Service Partners, a subsidiary of Ultimate Parent, met with Mr. Sayed Ali, the President and Chief Executive Officer of the Company, to generally discuss the North American airport concession market. Mr. Weinzetti and Mr. Ali are acquaintances and have periodically talked at industry functions. No formal discussion of a proposed transaction took place at that time. Following this meeting, Mr. Thomas G. Ondrof, the Chief Financial Officer of Ultimate Parent’s North America Division, called Mr. Ali regarding similar matters and to introduce himself as Ultimate Parent’s North America Division’s representative in that market. They agreed to meet and talk again later.

      On August 10, 2003, Mr. Ondrof and Mr. Ali met in Chicago, Illinois where Mr. Ondrof informed Mr. Ali of Parent’s interest in a potential negotiated transaction with the Company. Following this meeting, Mr. Ali sent various marketing materials and other publicly available information about the Company to Mr. Ondrof.

      On August 25, 2003, Ultimate Parent’s North America Division entered into a Confidential Disclosure Agreement with the Company (the “Confidential Disclosure Agreement”).

      On September 13, 2003, Mr. Ali and Mr. Ondrof met in Charlotte, North Carolina. At this meeting Mr. Ondrof proposed a possible negotiated acquisition of the Company by Parent and proposed a tentative

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valuation for the Company. Mr. Ali asserted that a higher purchase price for the Company was warranted, but agreed to continue discussions.

      Various conversations followed between Mr. Ali, Mr. Ondrof and Mr. C. Palmer Brown, Jr., Vice President of Corporate Development of Ultimate Parent’s North America Division, regarding potential terms of a proposed negotiated transaction.

      On October 29, 2003, a term sheet was forwarded from Ultimate Parent’s North America Division to Mr. Ali containing more detailed proposed transaction terms including a higher valuation for the Company. Following this correspondence, representatives from Ultimate Parent’s North America Division began discussions with its legal counsel about proceeding with the transaction.

      On November 5, 2003, Mr. Ali and legal counsel for the Company had a conference call with Mr. Ondrof, Mr. Brown and legal counsel for Ultimate Parent’s North America Division to discuss the proposed timetable for the transaction and the structure of the transaction.

      On November 17, 2003, representatives from Ultimate Parent’s North America Division traveled to San Diego, California and began preliminary due diligence on the Company.

      On November 24, 2003, the Board of Directors appointed two of its members as a Special Committee to consider the Offer and to make a recommendation to the Company’s Board of Directors as a whole.

      On December 2, 2003, Ultimate Parent’s North America Division entered into a Mutual Nondisclosure Agreement with the Company (the “Confidentiality Agreement”) that superseded the Confidential Disclosure Agreement.

      On December 8, 2003, Parent’s counsel delivered an initial draft of the Merger Agreement to the Company’s legal counsel.

      On December 15, 2003, Mr. Ali met with Mr. Ondrof and Mr. Brown in New York, and Mr. Ondrof and Mr. Brown informed Mr. Ali that Ultimate Parent’s North America Division was suspending negotiations of the transaction. Negotiations resumed in early January 2004.

      On January 20, 2004, a representative of Houlihan contacted Mr. Brown seeking a higher valuation for the Company.

      On January 21 and 22, 2004, Mr. Brown and other representatives from Ultimate Parent’s North America Division and its legal counsel met with Mr. Ali and other Company representatives in San Diego, California to negotiate the Merger Agreement and to discuss other transaction issues. On January 22, 2004, Mr. Brown notified Houlihan by letter that Parent would not agree to a higher valuation for the Company.

      Following these meetings, Mr. Ondrof and Mr. Brown spoke by telephone with the Special Committee of the Company’s Board of Directors and Mr. Ali regarding the transaction and the Company’s valuation. Following this discussion, additional telephone conversations were held between Mr. Ondrof, Mr. Brown and Mr. Ali regarding further negotiation of the proposed transaction, as a result of which Ultimate Parent’s North America Division agreed to an increased valuation for the Company and subsequently presented a final offer of $3.40 per Share.

      During the first week of February 2004, Creative Host and Ultimate Parent’s North America Division continued to have discussions with Mr. Jackson concerning the benefits of the proposed transaction and the alternatives available to Creative Host if Mr. Jackson would not support the transaction. Ultimate Parent’s North America Division reiterated that it would not pursue the transaction without the agreement to tender from Mr. Jackson and declined to increase the offer price or change the form of consideration in response to Mr. Jackson. On February 11, 2004, Mr. Jackson agreed to execute the Tender Agreement.

      On the afternoon of February 12, 2004, the Company’s Board of Directors unanimously approved the Offer, the Merger and the other transactions contemplated by the proposed Merger Agreement and authorized the negotiation of a final Merger Agreement.

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      On February 17, 2004, the Board of Directors of Purchaser approved the Offer, the Merger and the transactions described in the Merger Agreement.

      On February 17, 2004, the general partners of Parent approved the Offer, the Merger and the transactions described in the Merger Agreement.

      On the afternoon of February 18, 2004, Parent, Purchaser, and the Company concluded negotiations and executed the Merger Agreement and the Option Agreement, and Parent and the Company issued a joint press release in the United States and in London, England announcing the execution of the Merger Agreement.

      On February 26, 2004, in accordance with the Merger Agreement, Purchaser commenced the Offer.

12. Purpose of the Offer; the Merger Agreement; Related Agreements; Plans for the Company

Purpose of the Offer

      The Offer, as the first step in the acquisition of the Company, is intended to facilitate Parent’s acquisition of all the outstanding Shares of the Company. The purpose of the Merger is to acquire all outstanding Shares not tendered and purchased pursuant to the Offer or otherwise.

The Merger Agreement

      The Merger Agreement provides that, following the satisfaction or waiver of the conditions described below under “Conditions to the Merger,” Purchaser will be merged with and into the Company, with the Company being the surviving corporation, and each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by Parent, Purchaser or the Company, or by shareholders, if any, who are entitled to and who properly exercise dissenters’ rights under California law) will be converted into the right to receive the price per Share paid pursuant to the Offer in cash, without interest.

      Vote Required to Approve Merger. The Board of Directors of the Company has approved and adopted the Offer, the Merger and the Merger Agreement in accordance with the CGCL. If the Minimum Condition or the Option Exercise Minimum Number, as applicable, and the other conditions to the Offer are satisfied and the Offer is consummated, Purchaser will own a sufficient number of Shares to cause the Merger to occur without a vote of the shareholders of the Company, pursuant to Section 1110 of the CGCL. The Minimum Condition requires that there shall have been validly tendered and not properly withdrawn, together with the Shares owned by Parent, Purchaser and their direct and indirect subsidiaries, at least 90% of the Shares then outstanding on the date of purchase. If however, the Minimum Condition or the Option Exercise Minimum Number, as applicable, is not satisfied but the Revised Minimum Number and the other conditions are satisfied, the Board of Directors of the Company will be required to submit the Merger Agreement to the Company’s shareholders for approval at a shareholders’ meeting convened for that purpose in accordance with the CGCL. Pursuant to the Merger Agreement, the Company has represented that the execution and delivery of the Merger Agreement by the Company and the consummation by the Company of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of the Company, subject to the approval and adoption of the Merger by the shareholders of the Company in accordance with the CGCL. In addition, the Company has represented that the affirmative vote of the holders of a majority of the outstanding Shares is the only vote of the holders of any of the Company’s common stock necessary in connection with the consummation of the Merger. Therefore, unless the Merger is consummated in accordance with the Short-Form Merger provisions under the CGCL described below (in which case no action by the shareholders of the Company will be required to consummate the Merger), the only remaining corporate action of the Company will be the approval and adoption of the Merger Agreement and the transactions contemplated thereby by the affirmative vote of the holders of a majority of the Shares. If Purchaser acquires the Revised Minimum Number of Shares, or between 50% and 90% of the outstanding Shares, it would have the ability to ensure approval of the Merger by the shareholders of the Company with the approval of a de minimis number of remaining outstanding Shares or no additional Shares, as the case may be.

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      If the adoption of the Merger Agreement by the Company’s shareholders is required by law or the Company’s articles of incorporation or bylaws, the Company shall, as promptly as practicable following the acceptance of Shares for purchase pursuant to the Merger Agreement, establish a record date (which will be as promptly as reasonably practicable following the expiration of the Offer) for, duly call, give notice of, convene and hold a meeting of the Company’s shareholders for the purpose of obtaining the shareholder approval of the Merger Agreement. All Shares owned by Purchaser or any other subsidiary of Parent will be voted in favor of approval of the Merger Agreement. The meeting of shareholders shall be held as soon as practicable following the purchase of Shares pursuant to the Offer.

      Under the CGCL, the merger consideration paid to the Company’s shareholders may not be cash if Purchaser or Parent owns, directly or indirectly, more than 50% but less than 90% of the then-outstanding Shares unless either all the shareholders consent to the Merger or the Commissioner of Corporations of the State of California approves, after a hearing, the terms and conditions of the Merger and the fairness thereof. If such shareholder consent or Corporations Commissioner approval is not obtained, the CGCL requires that the consideration received in the Merger consist only of nonredeemable common stock of Parent. The purpose of the Offer is to obtain 90% or more of the Shares then outstanding and thus to enable Parent and Purchaser to acquire all the equity of the Company for consideration consisting solely of cash.

      THIS OFFER TO PURCHASE ALSO CONSTITUTES NOTICE UNDER SECTION 1110 OF THE CGCL THAT IF PURCHASER, PARENT OR ANY OTHER SUBSIDIARY OF PARENT ACQUIRES AT LEAST 90% OF THE OUTSTANDING SHARES, PARENT OR PURCHASER SHALL CAUSE THE SHORT-FORM MERGER TO BECOME EFFECTIVE WITHOUT ANY FURTHER NOTICE TO THE COMPANY’S SHAREHOLDERS.

      THE OFFER IS CONDITIONED UPON THE MINIMUM CONDITION OR THE OPTION EXERCISE MINIMUM NUMBER BEING SATISFIED.

      THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF A PROXY, CONSENT OR AUTHORIZATION FOR OR WITH RESPECT TO THE ANNUAL MEETING OR ANY SPECIAL MEETING OF THE COMPANY’S SHAREHOLDERS OR ANY ACTION IN LIEU THEREOF. ANY SUCH SOLICITATION WHICH PURCHASER MAY MAKE WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT.

      Conditions to the Merger. The Merger Agreement provides that the respective obligations of each party to effect the Merger are subject to the satisfaction or waiver of certain conditions, including the following: (a) holders of a majority of the Shares shall have approved the Merger, if required by applicable law (the “Company Shareholder Approval”); (b) no temporary restraining order, preliminary or permanent injunction or other order or decree issued by any court of competent jurisdiction or other legal restraint or prohibition (collectively, “Legal Restraints”) that has the effect of preventing the consummation of the Merger shall be in effect; provided, however, that each of the parties shall have used reasonable efforts to prevent the entry of any such injunction or other order and to appeal as promptly as practicable any injunction or other order that may be entered; and (c) Purchaser shall have previously accepted for payment and paid for the Shares validly tendered pursuant to the Offer.

      Termination of the Merger Agreement. The Merger Agreement may be terminated at any time prior to the effective time of the Merger (the “Effective Time”), whether before or after Company Shareholder Approval has been obtained:

      (a) by mutual written consent of Parent, Purchaser and the Company;

      (b) by either Parent or the Company:

      (i) if (A) as a result of the failure of any of the conditions to the Offer set forth in Section 14, the Offer shall have terminated or expired in accordance with its terms without Purchaser having accepted for payment any Shares pursuant to the Offer within the time period for acceptance specified by the Merger Agreement or (B) Purchaser shall not have accepted for payment any

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Shares pursuant to the Offer prior to July 6, 2004; provided that this right to terminate the Merger Agreement is not available to any party whose breach of the Merger Agreement has been a principal reason the Offer has not been consummated by such date; or

      (ii) if any domestic or foreign (whether national, federal, state, provincial, local or otherwise) government or any court, administrative agency or commission or other governmental or regulatory authority or agency domestic, foreign or supranational (a “Governmental Entity”) shall have issued an order, injunction or other decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the acceptance for payment of, or payment for, the Shares pursuant to the Offer or the Merger and such order, injunction, decree or ruling or other action shall have become final and nonappealable.

      (c) by Parent if the Board of Directors of the Company or any committee thereof shall have (A) withdrawn its recommendation of the Merger Agreement, the Offer or the Merger or modified such recommendation in a manner adverse to Parent or Purchaser or (B) failed to confirm its recommendation to the Company’s shareholders that they accept the Offer and give the Company Shareholder Approval within 10 business days after a written request by Parent that it do so if such request is made following the making of a Takeover Proposal (as defined below under “Takeover Proposals”); provided that Parent may not make more than one such request in respect of a Takeover Proposal unless such proposal has been materially modified;

      (d) prior to the Specified Date (as defined below under “Takeover Proposals”) by Parent (i) if the Company shall have breached any of its representations, warranties or covenants contained in the Merger Agreement, which breach would give rise to the failure of a condition set forth in paragraph (c), (d) or (e) of Section 14 hereof, and which breach has not been or is incapable of being cured by the Company within 10 business days after its receipt of written notice thereof from Parent or (ii) if any suit, action or proceeding set forth in paragraph (a) of Section 14 hereof shall have prevailed and become final and nonappealable;

      (e) prior to the Specified Date by the Company if any of Parent’s representations and warranties contained in the Merger Agreement shall not be true and correct, except for such failures to be true and correct that (without giving effect to any limitation as to “materiality” set forth therein), individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect (as defined below) which failure has not been or is incapable of being cured by Parent within 10 business days after its receipt of written notice thereof from the Company;

      (f) prior to the Specified Date by the Company in the circumstances described below under “Takeover Proposals” in which such termination is permitted, subject to compliance by the Company with the notice provisions described below and payment of the Termination Fee (as defined below) and expense reimbursement provisions described below;

      (g) by the Company if Purchaser shall have failed to commence (within the meaning of Rule 14d-2 under the Exchange Act) the Offer within six business days after the date of the Merger Agreement; or

      (h) by the Company if (i) any material covenant of Parent or Purchaser contained in the Merger Agreement shall have been breached, (ii) the Company shall have delivered to Parent written notice of the breach of such covenant and (iii) at least 10 business days shall have elapsed since the date of delivery of such written notice to Parent and such breach shall not have been cured in all material respects.

      Takeover Proposals. The Merger Agreement provides that the Company will not, nor will it permit any of its subsidiaries to, nor will it authorize or permit any officer, director, employee, attorney, accountant, investment banker, agent, advisor or representative (collectively, “Representatives”) of the Company or any of its subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage (or, with respect to Representatives who are nonsalaried employees of the Company, knowingly encourage), or take any other action to facilitate (or, with respect to Representatives who are nonsalaried employees of the Company, intentionally facilitate), any Takeover Proposal (as defined below), or (ii) enter into, continue or otherwise participate in any

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discussions or negotiations regarding, or furnish to any person any information with respect to, or otherwise cooperate in any way with, or assist or participate in any effort or attempt by any person with respect to, any Takeover Proposal; provided that at any time prior to the acceptance for payment of Shares pursuant to and subject to the conditions of the Offer (the “Specified Date”), the Board of Directors of the Company may, in response to a Superior Proposal (as defined below) or a bona fide Takeover Proposal that such Board of Directors determines in good faith is reasonably likely to lead to a Superior Proposal (a “Likely Superior Proposal”), in each case that was unsolicited, and subject to compliance with the notification obligations described below, (x) furnish information with respect to the Company and its subsidiaries to the person making such Superior Proposal or Likely Superior Proposal (and its representatives) pursuant to a customary confidentiality agreement (which confidentiality agreement contains terms that are no less favorable to the Company than the terms of the Confidentiality Agreement); and (y) participate in discussions or negotiations with the person making such Superior Proposal or Likely Superior Proposal (and its representatives) regarding such Superior Proposal or Likely Superior Proposal.

      “Superior Proposal” means any offer not solicited by the Company, or any subsidiary or any Representative thereof (provided that any offer made by any third party contacted by the Company’s Representative in connection with a market check shall not be deemed to have been solicited so long as no contacts with such party were made by the Company, or any subsidiary or Representative thereof, after February 1, 2004), made by a third party to consummate a tender offer, exchange offer, merger, consolidation or similar transaction which would result in such third party (or its shareholders) owning, directly or indirectly, more than 50% of the Shares of the Company (or the surviving entity in a merger) then outstanding or all or substantially all of the assets of the Company and its subsidiaries and otherwise on terms that the Board of Directors of the Company determines in good faith (following receipt of the advice of a financial advisor of nationally recognized reputation) to be more favorable to the holders of Shares than the terms of the Offer, taking into account any changes to the terms of the Merger Agreement proposed in writing by Parent in response to any Superior Proposal or otherwise.

      “Takeover Proposal” means any inquiry, proposal or offer from any person relating to any direct or indirect acquisition or purchase of 20% or more of the assets of the Company and its subsidiaries, taken as a whole, or 20% or more of any class or series of equity securities of the Company or any of its subsidiaries, any tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of any class or series of equity securities of the Company or any of its subsidiaries, or any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of its subsidiaries, other than the transactions contemplated by the Merger Agreement.

      The Merger Agreement further provides that, except as described below, neither the Board of Directors of the Company nor any committee thereof may (i) withdraw (or modify in a manner adverse to Parent or Purchaser) the approval or recommendation by such Board of Directors or any such committee of the Merger Agreement, the Offer or the Merger, (ii) adopt, approve or recommend, or propose to adopt, approve or recommend, any Takeover Proposal, (iii) cause or permit the Company to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other similar agreement (each, an “Acquisition Agreement”) constituting or related to, or that is intended to or is reasonably likely to lead to, any Takeover Proposal (other than a confidentiality agreement referred to above and entered into under the circumstances described above) or (iv) agree or resolve to take any of the actions set forth in clauses (i), (ii) or (iii) of this sentence. Notwithstanding the foregoing, at any time prior to the Specified Date, the Board of Directors of the Company may, in response to a Superior Proposal, withdraw or modify the recommendation by such Board of Directors of the Merger Agreement, the Offer or the Merger or terminate the Merger Agreement, if such Board of Directors determines in good faith (after taking into account any changes to the terms of the Merger Agreement proposed in writing by Parent in response to such Superior Proposal and after consultation with a financial advisor of nationally recognized reputation) that failure to do so would be a breach by the Company’s Board of Directors of its fiduciary duties to the Company’s shareholders (and concurrently with or after such termination, if it chooses, cause the Company to enter into any Acquisition Agreement with respect to such Superior Proposal), but only at a time that is prior to the Specified Date and is after the fourth business day following Parent’s receipt of written notice advising

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Parent that the Board of Directors of the Company is prepared to accept a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the person making such Superior Proposal.

      In addition to the obligations of the Company described in the preceding paragraphs, the Merger Agreement provides that the Company will promptly (and in any event within 24 hours) advise Parent orally and in writing of any request for information or inquiry that the Company reasonably believes could lead to or contemplates a Takeover Proposal or of any Takeover Proposal, or any inquiry the Company reasonably believes could lead to any Takeover Proposal, the terms and conditions of such request, Takeover Proposal or inquiry (including any subsequent amendment or other modification to such terms and conditions) and the identity of the person making any such request, Takeover Proposal or inquiry. The Company shall promptly keep Parent informed in all material respects of the status and details (including amendments or proposed amendments) of any such request, Takeover Proposal or inquiry.

      The Merger Agreement provides that the provisions described above will not prohibit the Company from taking and disclosing to its shareholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or making any disclosure to the Company’s shareholders if, in the good faith judgment of the Board of Directors of the Company, after consultation with outside counsel, failure so to disclose would violate applicable law; provided, however, that unless it is permitted to do so as described above, neither the Company nor the Board of Directors of the Company nor any committee thereof shall withdraw or modify, or propose to withdraw or modify, its position with respect to the Merger Agreement, the Offer or the Merger or adopt, approve or recommend, or propose to adopt, approve or recommend, any Takeover Proposal.

      Fees and Expenses; Termination Fee. The Merger Agreement provides that except as set forth below, all fees and expenses incurred in connection with the Merger Agreement, the Offer, the Merger and the other transactions contemplated by the Merger Agreement shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated.

      In the event that (i)(A) first, a Takeover Proposal shall have been publicly proposed or publicly announced or any person has publicly announced an intention (whether or not conditional and whether or not withdrawn) to make a Takeover Proposal, thereafter (B) the Merger Agreement is terminated by either Parent or the Company as described above in paragraph (b)(i) under “Termination of the Merger Agreement” and (C) within 12 months after such termination, the Company or any of its subsidiaries enters into any Acquisition Agreement with respect to, or consummates, any Takeover Proposal, or (ii) the Merger Agreement is terminated by Parent as described above in paragraph (c) under “Termination of the Merger Agreement” or by the Company as described in paragraph (f) under “Termination of the Merger Agreement”, then the Company shall pay Parent a fee equal to $1,500,000 (the “Termination Fee”). If such fee is to be paid as a result of any event referred to in subsection (i) of the preceding sentence, it shall be paid upon the consummation of the transaction constituting a Takeover Proposal, and if such fee is to be paid as a result of subsection (ii) of the preceding sentence, it shall be paid promptly, but in no event later than the date of such termination. For purposes of this paragraph, the references to “20%” in the definition of “Takeover Proposal” shall be deemed to be references to “50%”. The parties have agreed that if the Company fails to promptly pay the amounts due pursuant to this or the following paragraph and, in order to obtain such payment, Parent commences a suit that results in a judgment against the Company for the amounts set forth in this or the following paragraph, as applicable, the Company shall pay to Parent interest on such amounts at the prime rate of Bank of America, N.A. in effect on the date such payment was required to be made and all of Parent’s costs and expenses (including reasonable attorneys’ fees) of bringing such suit.

      The Company shall reimburse Parent and Purchaser for all their expenses incurred in connection with the Merger Agreement, the Offer, the Merger and the other transactions contemplated by the Merger Agreement (a) if the Merger Agreement is terminated in the circumstances described in subsection (i) of the immediately preceding paragraph upon the consummation of the transaction constituting a Takeover Proposal, (b) if the Merger Agreement is terminated in the circumstances described in subsection (ii) of the immediately preceding paragraph or (iii) if the Merger Agreement is terminated pursuant to paragraph (d) under “Termination of the Merger Agreement,” promptly, but in no event later than the date of such

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termination; provided that the aggregate amount of such reimbursement together with the Termination Fee shall not exceed $1,700,000 in the aggregate.

      Conduct of Business. The Merger Agreement provides that during the period from the date of the Merger Agreement to the Effective Time, except (i) as consented to in writing by Parent, (ii) as specifically contemplated by the Merger Agreement, (iii) as expressly provided for in the Company’s fiscal 2004 budget or (iv) as disclosed on the Company’s disclosure schedule to the Merger Agreement, the Company shall, and shall cause its subsidiaries to, carry on their respective businesses in the ordinary course consistent with past practice and use their commercially reasonable efforts to comply with all applicable laws, rules and regulations and, to the extent consistent therewith, use their commercially reasonable efforts to preserve their assets and technology and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them in all material respects; provided, however, that the Company shall not be obligated to make any material expenditures under any customer contracts that are not required by the terms of such customer contracts in order to preserve the customer contract. Without limiting the generality of the foregoing, the Company shall not, and shall not permit any of its subsidiaries to:

      (i) (A) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its capital stock, (B) purchase, redeem or otherwise acquire any shares of capital stock or any other securities of the Company or its subsidiaries or any options, warrants, calls or rights to acquire any such shares or other securities, (C) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or any of its other securities or (D) liquidate or merge with any subsidiaries of the Company;

      (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other equity or voting interests or any securities convertible into, or exchangeable for, or any options, warrants, calls or rights to acquire, any such shares, voting securities or convertible securities or any stock appreciation rights or other rights that are linked to the price of the Shares (other than the issuance of Shares upon the exercise of Company Warrants or Company Stock Options (each as defined in the Merger Agreement) pursuant to the Benefit Plans (as defined in the Merger Agreement) that were in existence on the date of the Merger Agreement);

      (iii) amend its articles of incorporation or bylaws (or similar organizational documents);

      (iv) directly or indirectly acquire or agree to acquire (A) by merging or consolidating with, or by purchasing all or a substantial portion of the assets of, or by any other manner, any assets constituting a business or any corporation, partnership, limited liability company, joint venture or association or other entity or division thereof, or any direct or indirect interest in any of the foregoing, or (B) any assets other than purchases of assets in the ordinary course of business consistent with past practice;

      (v) directly or indirectly sell, lease, license, sell and leaseback, mortgage or otherwise encumber or subject to any pledge, claim, lien, charge, encumbrance or security interest of any kind (except for purchase money security interests and other liens and encumbrances incurred in the ordinary course of business, including the pledge of all equity interests of the Company’s subsidiaries under the credit agreement dated as of January 17, 2003, among the Company, various lenders, and ING Capital Inc.) or otherwise dispose of any of its properties or assets or any interest therein, except sales of (A) inventory and obsolete assets in the ordinary course of business consistent with past practice and (B) immaterial assets in the ordinary course of business consistent with past practice (but specifically excluding joint venture investments);

      (vi) (A) repurchase, accelerate, prepay or incur any indebtedness or guarantee any indebtedness of another person or issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of the Company or any of its subsidiaries, guarantee any debt securities of another person, enter into any “keep well” or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, other than in the ordinary course of business consistent with past practice, provided that the Net Indebtedness (as defined

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in the Merger Agreement) of the Company shall not exceed $9,900,000 as of the Specified Date, (B) make any loans, advances or capital contributions to, or investments in, any other person, other than any direct or indirect wholly owned subsidiary of the Company or (C) enter into any hedging agreement or other financial agreement or arrangement designed to protect the Company against fluctuations in commodities prices or current exchange rates, except agreements or arrangements in respect of contractual commitments of the Company entered into in the ordinary course of business consistent with past practice;

      (vii) incur or commit to incur any capital expenditures in excess of $50,000 individually, or $100,000 in the aggregate, whether by acquisition or internal investment, or any obligations or liabilities in connection therewith, other than capital expenditures that are reflected on the Company’s fiscal 2004 budget;

      (viii) pay, discharge, settle or satisfy any claims (including claims of shareholders), liabilities or obligations (whether absolute, accrued, asserted or unasserted, contingent or otherwise), in excess of $50,000 (net of any insurance proceeds) in the aggregate other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or as required by their terms as in effect on the date of the Merger Agreement of trade payables and other similar liabilities and of claims, liabilities or obligations reflected, reserved against or otherwise disclosed in the most recent audited financial statements (or the notes thereto) of the Company included in documents the Company has filed with the Commission (for amounts not in excess of such reserves or as otherwise disclosed) or incurred since the date of such financial statements in the ordinary course of business consistent with past practice, or waive, release, grant or transfer any right of material value, other than in the ordinary course of business consistent with past practice, or waive any material benefits of, or agree to modify in any adverse respect, or fail to enforce, or consent to any matter with respect to which its consent is required under, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party;

      (ix) (A) grant to any employee, officer, director, consultant or independent contractor of the Company or any of its subsidiaries any increase in compensation or pay any bonus, other than in the ordinary course of business consistent with past practice, (B) establish any program for or grant to any employee, officer, director, consultant or independent contractor of the Company or any of its subsidiaries any increase in severance or termination pay, (C) establish, adopt, enter into or amend any Pension Plan (as defined in the Merger Agreement), (D) establish, adopt, enter into or amend in any material respect any collective bargaining agreement or Benefit Plan, (E) take any action to accelerate any rights or benefits, take any action to fund or in any other way secure the payment of compensation or benefits under any Pension Plan or Benefit Plan, or make any material determinations not in the ordinary course of business consistent with past practice, under any collective bargaining agreement or Benefit Plan or Pension Plan, other than as provided below under “Benefit Matters,” or (F) amend or modify or grant any Company Stock Options or Company Warrants, in each case above other than (i) changes that are required by applicable law, (ii) to satisfy obligations existing as of the date of the Merger Agreement or (iii) any amendments that may be necessary to complete the cancellation and settlement of the Company Stock Options or Company Warrants, as described below under “Stock Options, Warrants and Restricted Stock”;

      (x) fail to maintain existing insurance at levels substantially comparable to current levels or otherwise in a manner inconsistent with past practice;

      (xi) transfer or license to any person or entity or otherwise extend, amend or modify any rights to the Intellectual Property Rights (as defined in the Merger Agreement) of the Company and its subsidiaries other than in the ordinary course of business consistent with past practices;

      (xii) enter into or amend any agreements pursuant to which any person is granted exclusive marketing, manufacturing or other rights with respect to any material Company product, process or technology;

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      (xiii) enter into or amend any contract or other agreement, whether written or oral, that (A) contains any guarantees as to the Company’s or any subsidiary’s future revenues or (B) obligates the Company to purchase a material amount of goods or supplies and is not terminable on 90 days’ notice or less except for any capital expenditures otherwise permitted under the terms of the Merger Agreement;

      (xiv) extend, renew, amend or otherwise modify any Material Contract (as defined in the Merger Agreement);

      (xv) obtain any real property, whether through acquisition, lease, sublease or otherwise, other than in the ordinary course of business consistent with past practice in connection with contracts with customers;

      (xvi) hire in excess that number of additional employees required in the good faith judgment of the Company;

      (xvii) except insofar as may be required by a change in generally accepted accounting principles in the United States or generally accepted accounting principles of the applicable jurisdiction or changes in applicable law, make any changes in accounting methods, principles or practices;

      (xviii) take any action that would reasonably be expected to result in (A) any representation and warranty of the Company set forth in the Merger Agreement that is qualified as to materiality becoming untrue, (B) any such representation and warranty that is not so qualified becoming untrue in any material respect or (C) any condition to the Offer or the Merger not being satisfied (unless such action is expressly permitted by the Merger Agreement);

      (xix) authorize any of, or commit, resolve or agree to take any of, the foregoing actions.

      Board of Directors. The Merger Agreement provides that promptly upon the acceptance for payment of, and payment by Purchaser for, at least 49.9% of the Shares pursuant to the Offer, Purchaser shall be entitled to designate such number of directors on the Board of Directors of the Company as will give Purchaser, subject to compliance with Section 14(f) of the Exchange Act, representation on the Board of Directors of the Company equal to that number of directors, rounded up to the next whole number, which is the product of (a) the total number of directors on the Board of Directors of the Company (giving effect to the directors elected pursuant to this sentence) multiplied by (b) the percentage that (i) such number of Shares so accepted for payment and paid for by Purchaser bears to (ii) the number of such Shares outstanding, and the Company shall, at such time, cause Purchaser’s designees to be so elected; provided, however, that in the event that Purchaser’s designees are appointed or elected to the Board of Directors of the Company, until the Effective Time, the Board of Directors of the Company shall have at least a sufficient number of independent directors to comply with the Nasdaq rules in effect from time to time (the “Independent Directors”); and provided further, that in such event, if the number of Independent Directors shall be reduced below the number required by the rules of the Nasdaq for any reason whatsoever, any remaining Independent Directors (or Independent Director, if there shall be only one remaining) shall be entitled to designate persons to fill such vacancies who shall be deemed to be Independent Directors for purposes of the Merger Agreement or, if no Independent Directors then remain, the other directors shall designate a sufficient number of persons to fill such vacancies who are not officers, shareholders or affiliates of the Company, Parent or Purchaser, and such persons shall be deemed to be Independent Directors for purposes of the Merger Agreement. Subject to applicable law, the Company shall take all action requested by Parent necessary to effect any such election, including mailing to its shareholders the Information Statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and the Company shall make such mailing with the mailing of the Schedule 14D-9 (provided that Purchaser shall have provided to the Company on a timely basis all information required to be included in the Information Statement with respect to Purchaser’s designees). In connection with the foregoing, the Company has agreed to promptly, at the option of Purchaser, either increase the size of the Board of Directors of the Company or obtain the resignation of such number of its directors as is necessary to enable Purchaser’s designees to be elected or appointed to the Board of Directors of the Company as provided above.

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      Prior to the Effective Time, the Company shall cause each member of its Board of Directors, other than Purchaser’s designees, to execute and deliver a letter effectuating his or her resignation as a director effective immediately prior to the Effective Time.

      Stock Options, Warrants and Restricted Stock. The Merger Agreement provides that upon payment by Purchaser for the Shares pursuant to the Offer, each holder of a Company Stock Option that will terminate on the Specified Date pursuant to Section 6.2 of the Company’s 1997 Stock Option Plan or Section 19 of the Company’s 2001 Stock Option Plan, as applicable, whether or not such Company Stock Option is exercisable on the Specified Date, shall be entitled to receive, in cancellation and full settlement of such Company Stock Option, an amount equal to the product of (a) the number of Shares for which the Company Stock Option is exercisable and (b) the excess, if any, of the price per Share paid pursuant to the Offer over the exercise price per Share provided for in the Company Stock Option (the “Option Consideration”), if such product is a positive number. At the Effective Time, the Company shall pay (or cause to be paid) the Option Consideration in cash to each holder of a Company Stock Option to whom Option Consideration is payable. The Company shall take such other actions available under the Company Stock Plans (as defined in the Merger Agreement) to effect the cancellation of all Company Stock Options. The Company agrees to use commercially reasonable efforts to obtain consents from the holders of such Company Stock Options to their cancellation to the extent Parent determines such consents to be advisable.

      Upon payment by Purchaser for shares of Common Stock pursuant to the Offer, each Company Warrant outstanding immediately prior to the Specified Date, whether or not then exercisable, shall be converted into an obligation of the surviving corporation to pay upon exercise thereof, and a right of each holder thereof to receive in full satisfaction of such Company Warrant, cash in an amount equal to the product of (a) the number of shares of Company Common Stock for which the Company Warrant is exercisable and (b) the excess, if any, of the Offer Price over the exercise price per share of Company Common Stock provided for in the Company Warrant (the “Warrant Consideration”), if such product is a positive number. As soon as practicable following payment by Purchaser for shares of Common Stock pursuant to the Offer, but no later than the Effective Time, the Company shall pay (or cause to be paid) the Warrant Consideration in cash to each holder of a Company Warrant to whom the Warrant Consideration is payable. The Company shall take such other actions necessary to effect the cancellation of all Company Warrants. The Company agrees to use commercially reasonable efforts to obtain consents from the holders of such Company Warrants to their cancellation to the extent Compass determines such consents to be advisable.

      Notwithstanding any provision in any granting agreement or other document to the contrary, all restrictions on the Shares granted under any of the company incentive plans shall lapse at the Specified Date, and the holder of such restricted Shares shall be entitled to tender such Shares in the Offer or receive for each restricted Share, in cancellation and full settlement of such restricted Share, the price per Share paid pursuant to the Offer in cash.

      Benefits Matters. The Merger Agreement provides that from and after the Effective Date (but for no longer than a 12-month period), the surviving corporation shall continue to honor in accordance with their respective terms the Benefit Plans, Pension Plans (as that term is used in the Merger Agreement) and all of the Company’s other employee benefit, compensation, employment, severance and termination agreements, plans and policies, including any rights or benefits arising as a result of the transactions contemplated by the Merger Agreement (either alone or in combination with any other event). The closing of the Merger will not affect the Benefit Plans and Pension Plans offered to employees of the Company as of the date of the Merger Agreement. If the surviving corporation or Parent terminates any or all of such Benefit Plans and Pension Plans after the closing, the surviving corporation will offer employees of the surviving corporation benefits that are comparable to those offered under such Benefit Plans and Pension Plans.

      Nothing contained in the Merger Agreement shall be construed to prevent the termination of employment of any individual Company employee or any change in the employee benefits available to any individual Company employee or the amendment or termination of any particular Benefit Plan, Pension Plan or other employee benefit plan, program, policy or arrangement to the extent permitted by its terms as in effect immediately prior to the Specified Date.

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      During the period from the date of the Merger Agreement to the Effective Time, the Company will permit no further discounted purchases of the Shares with director fees or deferred compensation for Company Directors.

      Indemnification and Insurance. Parent and Purchaser have agreed in the Merger Agreement that all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time existing on February 18, 2004, in favor of the then-current or former directors or officers of the Company and its subsidiaries (the “Indemnified Parties”) as provided in their respective articles of incorporation or bylaws (or similar organizational documents) and any indemnification agreement in effect between the Company and any Indemnified Party as of February 18, 2004 shall be assumed and continued by the surviving corporation in the Merger, without further action, at the Effective Time and shall survive the Merger and shall continue in full force and effect in accordance with their terms. The articles of incorporation and bylaws of the surviving corporation shall contain the provisions with respect to indemnification and exculpation from liability set forth in the Company’s articles of incorporation and bylaws on the date of the Merger Agreement, and, during the period commencing on the Specified Date and ending on the sixth anniversary of the Effective Time, such provisions shall not be amended, repealed or otherwise modified in any manner that would adversely affect the rights thereunder of any Indemnified Party. Notwithstanding any other provisions in any such articles of incorporation or bylaws to the contrary, any Indemnified Party who is an officer or director of the Company as of the date of the Merger Agreement will provide notice to the surviving corporation and Parent of any third-party claim that may give rise to an indemnity obligation, and the surviving corporation and Parent shall have the ability to participate in the defense of any such claim

      In the Merger Agreement, Parent has agreed that for six years after the Effective Time, Parent shall maintain in effect the Company’s current directors’ and officers’ liability insurance covering each person currently covered by the Company’s directors’ and officers’ liability insurance policy for acts or omissions occurring prior to the Effective Time on terms with respect to such coverage and amounts no less favorable in any material respect to such directors and officers than those of such policy as in effect on the date of the Merger Agreement; provided that (i) Parent may substitute therefor policies of a reputable insurance company the material terms of which, including coverage and amount, are no less favorable in any material respect to such directors and officers than the insurance coverage otherwise required by such provision of the Merger Agreement and (ii) in no event shall Parent be required to pay annual premiums for insurance described in this paragraph in excess of 200% of the amount of the annual premiums paid by the Company for 2003 for such purpose; provided further that if annual premiums payable for such insurance coverage exceed 200%, Parent shall nevertheless be obligated to obtain a policy with the greatest coverage available for a cost equal to such amount.

      The provisions of the Merger Agreement described in “Indemnification and Insurance” shall survive the acquisition of Shares pursuant to the Offer and shall also survive consummation of the Merger and the Effective Time. Further, such provisions may be enforced by the Indemnified Parties and their respective heirs, representatives, successors and assigns, and is binding on all successors and assigns of Parent and the surviving corporation.

      Fairness Hearing. If Purchaser elects to request a fairness hearing with the Corporations Commissioner, each of Parent, Purchaser and the Company shall use all commercially reasonable efforts to cause the Corporations Commissioner to approve the fairness of the terms and conditions of the Merger at the fairness hearing; provided that none of the parties to the Merger Agreement shall be obligated to amend the Merger Agreement to change the Merger Consideration (as defined in the Merger Agreement). The Company shall provide and include in the application for the fairness hearing such information relating to the Company as may be required pursuant to the rules of the Corporations Commissioner, including a copy of the fairness opinion and valuation reports received by the Company in connection with the Merger. The application shall also include the recommendation of the Merger Agreement, the Offer and the Merger by the Board of Directors of the Company.

      Commercially Reasonable Efforts; Notification. The Merger Agreement provides that each of the parties agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions that are

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necessary, proper or advisable to consummate and make effective the Offer, the Merger and the other transactions contemplated by the Merger Agreement, including using all commercially reasonable efforts to accomplish the following: (i) the taking of all commercially reasonable acts necessary to cause the conditions to the Offer and the Merger to be satisfied, (ii) the obtaining of all necessary actions or nonactions, waivers, consents, approvals, orders and authorizations from Governmental Entities and the making of all necessary registrations, declarations and filings, as promptly as reasonably practicable, and in any event, within 15 business days after the date of the Merger Agreement and (iii) the obtaining of all necessary consents, approvals or waivers from third parties. In connection with and without limiting the foregoing, the Company and its Board of Directors shall, if any provision of the Company’s articles of incorporation, bylaws or state takeover statute or similar statute or regulation is or becomes applicable to the Merger Agreement, the Offer, the Merger or any of the other transactions contemplated thereby, take all acts necessary to ensure that the Merger Agreement, the Offer, the Merger and the other transactions contemplated by the Merger Agreement may be consummated as promptly as practicable on the terms contemplated by the Merger Agreement and otherwise to minimize the effect of such provision, statute or regulation on the Merger Agreement, the Offer, the Merger and the other transactions contemplated thereby. The Company and Parent shall keep the other apprised of the status of matters relating to the completion of the transactions contemplated thereby and work cooperatively in connection with obtaining any such waivers, consents, approvals, orders and authorizations, including, without limitation: (i) promptly notifying the other of, and if in writing, furnishing the other with copies of (or, in the case of material oral communications, advise the other orally of) any communications from or with any Governmental Entity with respect to the Offer, the Merger or any of the other transactions contemplated by the Merger Agreement (except such communications which counsel to the Company advises the Company is privileged under the attorney-client privilege or similar privilege), (ii) permitting the other party to review and discuss in advance, and considering in good faith the views of one another in connection with, any proposed written (or material proposed oral) communication with any Governmental Entity, (iii) not participating in any meeting with any Governmental Entity unless it consults with the other party in advance and to the extent permitted by such Governmental Entity gives the other party the opportunity to attend and participate, (iv) furnishing the other party with copies of all correspondence, filings and communications (and memoranda setting forth the substance thereof) between it and any Governmental Entity with respect to the Merger Agreement, the Offer and the Merger and (v) furnishing the other party with such necessary information and reasonable assistance as such other party may reasonably request in connection with its preparation of necessary filings or submissions of information to any Governmental Entity, and which is not of a privileged nature or which contains competitively sensitive information. The Company shall give prompt notice to Parent and Parent shall give prompt notice to the Company, of (x) any representation or warranty made by it contained in the Merger Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect or (y) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under the Merger Agreement; provided that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under the Merger Agreement.

      Representations and Warranties. The Merger Agreement contains various customary representations and warranties, including representations relating to corporate existence and power; subsidiaries; capital structure; authority and enforceability; consents; Commission filings; absence of certain changes; litigation; contracts; compliance with laws; benefit plans; employment and labor relations; absence of certain business practices; environmental matters; taxes; insurance; intellectual property; absence of indemnifiable claims; and the opinion of the Company’s financial advisor.

      Certain representations and warranties in the Merger Agreement made by the Company and Parent are qualified as to “materiality” or “Material Adverse Effect”. For purposes of the Merger Agreement and the Offer, the term “Material Adverse Effect” means any state of facts, change, inaccuracy, development, effect, event, violation, condition, circumstance or occurrence (considered together with all other matters that would constitute a breach of the representations and warranties of the Company set forth in the Merger Agreement, disregarding any “Material Adverse Effect” or other materiality qualifications, or any similar qualifications, in such representations and warranties) that is materially adverse to (a) the business, condition, assets, liabilities,

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financial condition or results of operations of the Company and its subsidiaries, taken as a whole, or (b) the ability of the Company to consummate the Merger or any of the other transactions contemplated by the Merger Agreement or to perform any of its material obligations under the Merger Agreement, other than adverse changes resulting from (i) general national, international or regional economic, financial or market conditions, (ii) conditions, circumstances or changes affecting the food-service industry in general and not the Company and its subsidiaries specifically, (iii) any change in accounting requirements or principles or any change in applicable law, rules or regulations or interpretation thereof or (iv) any adverse effect that results from the commencement or pendency of the Offer, the Merger or any of the other transaction contemplated by the Merger Agreement (which shall in no event include the Company’s failure to obtain a third-party consent to the transactions contemplated by the Merger Agreement); provided, however, notwithstanding the foregoing, if the Company’s representation and warranty regarding its capital structure is inaccurate and in connection with such inaccuracy, there are or could reasonably be one or more claims against Parent involving more than 50,000 Shares, or securities exercisable for or convertible into in excess of 50,000 Shares, a Material Adverse Effect on the Company shall be deemed to have occurred.

      Procedure for Termination, Amendment, Extension or Waiver. The Merger Agreement may be amended by the parties at any time, whether before or after the Company Shareholder Approval has been obtained by an instrument in writing signed on behalf of each of the parties; provided that, after the purchase of Shares pursuant to the Offer, no amendment shall be made that decreases the Offer Price and, after the Company Shareholder Approval has been obtained, there shall be made no amendment that by law requires further approval by the Company’s shareholders without the further approval of the Company’s shareholders. Following the election or appointment of Purchaser’s designees to the Company’s Board of Directors as described above and prior to the Effective Time, the affirmative vote of a majority of the Independent Directors then in office shall be required by the Company to (i) amend or terminate the Merger Agreement by the Company, (ii) exercise or waive any of the Company’s rights or remedies under the Merger Agreement or (iii) extend the time for performance of Parent’s and Purchaser’s respective obligations under the Merger Agreement.

      At any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained in the Merger Agreement or in any document delivered pursuant thereto or (c) waive compliance with any of the agreements or conditions contained therein; provided that after the Company Shareholder Approval has been obtained, there shall be made no waiver that by law requires further approval by such shareholders of the parties without the further approval of such shareholders. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure or delay by any party to the Merger Agreement to assert any of its rights under the Merger Agreement or otherwise shall not constitute a waiver of such rights nor shall any single or partial exercise by any party to the Merger Agreement of any of its rights under the Merger Agreement preclude any other or further exercise of such rights or any other rights under the Merger Agreement.

      The foregoing summary of the Merger Agreement is qualified in its entirety by reference to the Merger Agreement, a copy of which is filed as Exhibit (d)(1) to the Schedule TO pursuant to Rule 14d-3 under the Exchange Act, together with exhibits, furnishing certain additional information with respect to the Offer (the “Schedule TO”). The Merger Agreement should be read in its entirety for a more complete description of the matters summarized above.

  Option Agreement

      Under the Option Agreement, the Company granted to Parent and Purchaser an irrevocable option (the “Top-Up Stock Option”) to purchase that number of Shares (the “Top-Up Option Shares”) equal to the number of Shares that, when added to the number of Shares owned by Purchaser, Parent and any other subsidiary of Parent immediately following the consummation of the Offer, will constitute one share more than 90% of the Shares then outstanding (assuming the issuance of the Top-Up Option Shares), calculated in accordance with the Option Agreement at a purchase price per Top-Up Option Share equal to the Offer Price.

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However, the Top-Up Stock Option will not be exercisable if the number of Shares subject thereto exceeds the number of authorized Shares available for issuance.

      Subject to the terms and conditions of the Option Agreement, the Top-Up Stock Option may be exercised by Parent and Purchaser, at their election at any one time after the occurrence of a Top-Up Exercise Event (as defined below) and prior to the Top-Up Termination Date (as defined below). A “Top-Up Exercise Event” will occur, for purposes of the Option Agreement, only upon Purchaser’s acceptance for payment pursuant to the Offer of Shares constituting, together with Shares owned directly or indirectly by Purchaser, Parent or any other subsidiary of Parent, more than 88% but less than 90% of all outstanding Shares on the date of purchase. Except as provided in the last sentence of this paragraph, the “Top-Up Termination Date” will occur, for purposes of the Option Agreement, upon the earliest to occur of: (1) the Effective Time; (2) the date that is 20 business days after the Specified Date; (3) the termination of the Merger Agreement; and (4) the date on which Purchaser reduces the Minimum Condition to the Revised Minimum Number and accepts for payment the Revised Minimum Number of Shares. Nevertheless, even if the Top-Up Termination Date has occurred, Parent and Purchaser will be entitled to purchase the Top-Up Option Shares if it has exercised the Top-Up Stock Option in accordance with the terms of the Option Agreement prior to such occurrence.

      The obligation of the Company to deliver Top-Up Option Shares upon the exercise of the Top-Up Stock Option is subject to the following conditions: (a) no provision of any Contract (as defined in the Merger Agreement), Benefit Plan (as defined in the Merger Agreement), instrument, applicable law or regulation and no judgment, injunction, order or decree shall prohibit the issuance of the Top-Up Stock Option, the exercise of the Top-Up Stock Option or the delivery of the Top-Up Option Shares in respect of any such exercise; (b) no lawsuit shall be pending seeking to prevent the exercise of the Top-Up Stock Option or the delivery of the Top-Up Option Shares; and (c) delivery of the Top-Up Option Shares would not require shareholder approval pursuant to the rule set forth in Section 4350(i)(1)(D) of the Nasdaq Marketplace Rules (although Parent and Purchaser may waive this condition in their sole discretion).

      The foregoing summary of the Option Agreement is qualified in its entirety by reference to the Option Agreement, a copy of which is filed as Exhibit (d)(4) to the Schedule TO.

  Tender Agreements

      Concurrently with the execution and delivery of the Merger Agreement, Parent, Purchaser and Mr. Ali entered into a Tender and Voting Agreement (the “Ali Tender Agreement”), pursuant to which Mr. Ali agreed to tender into the Offer the Shares currently owned by him. The Ali Tender Agreement further provides that Mr. Ali must vote his Shares during the term of the Ali Tender Agreement (a) in favor of the approval and adoption of the Merger Agreement, the Merger and all the transactions contemplated by the Merger Agreement; (b) against any action, proposal, agreement or transaction that would result in a breach of any covenant, obligation, agreement, representation or warranty of the Company under the Merger Agreement or of Mr. Ali contained in the Ali Tender Agreement; and (c) against any action, agreement, transaction (other than the Merger Agreement or the transactions contemplated thereby) or proposal (including any Takeover Proposal) that could reasonably be expected to result in any of the conditions to the Offer or to the Company’s obligations under the Merger Agreement not being fulfilled or that is intended, or could reasonably be expected, to impede, interfere with, delay, discourage or adversely affect the Merger Agreement, the Offer, the Merger or the Ali Tender Agreement, in each case at any annual, special or other meeting or action of the shareholders of the Company, in lieu of a meeting or otherwise. If Mr. Ali fails to vote his Shares in accordance with the foregoing, he has, in the Ali Tender Agreement, irrevocably appointed Purchaser as his proxy to vote his Shares in connection with the transaction in the following manner: (i) for the adoption and approval of the Merger Agreement and the Merger and (ii) otherwise as Mr. Ali is contractually bound to vote them pursuant to the Ali Tender Agreement, including with respect to the transaction or any Takeover Proposal.

      Concurrently with the execution and delivery of the Merger Agreement, Parent, Purchaser and J. Stewart Jackson, IV entered into a Tender Agreement (the “Jackson Tender Agreement” and, together with the Ali

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Tender Agreement, the “Tender Agreements”), pursuant to which Mr. Jackson agreed to tender into the Offer the Shares currently owned by him. Mr. Jackson has also agreed that, to the extent that he has a beneficial interest in any other Shares that are not subject to the Jackson Tender Agreement, he will use his best efforts to cause such Shares to be tendered in the Offer as soon as possible after its commencement.

      The Tender Agreements further provide that Mr. Ali and Mr. Jackson will not (a) except as consented to in writing by Parent in its sole discretion, directly or indirectly, sell, transfer, assign, pledge, hypothecate, tender, encumber or otherwise dispose of or limit their right to vote in any manner any of their Shares subject to the Tender Agreements, or agree to do any of the foregoing, and (b) take any action that would have the effect of preventing or disabling them from performing their obligations under the Tender Agreements.

      In addition, during the term of the Tender Agreements, neither Mr. Ali or Mr. Jackson nor any person acting as an agent of either of them or otherwise on their behalf shall, directly or indirectly, (a) solicit, initiate, facilitate or encourage any inquiries relating to, or the submission of, any Takeover Proposal, (b) participate in any discussions or negotiations regarding any Takeover Proposal, or furnish to any person any information or data with respect to or provide access to the properties of the Company or its subsidiaries, or take any other action to facilitate the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal or (c) enter into any agreement with respect to any Takeover Proposal or approve or resolve to approve any Takeover Proposal, except, with respect to Mr. Ali, to the extent permitted under Section 5.2 of the Merger Agreement. Messrs. Ali and Jackson agreed to immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties with respect to any of the foregoing.

      The Tender Agreements terminate upon the earliest of (1) the Effective Time, (2) the termination of the Merger Agreement in accordance with its terms or (3) such date and time as any amendment to the Merger Agreement is effected without the Tendering Shareholder’s consent.

      Collectively, the Tender Agreements represent 3,562,668 Shares, or approximately 40.3% of all outstanding Shares on February 18, 2004.

      The foregoing summaries of the Tender Agreements are qualified in their entirety by reference to the Tender Agreements, copies of which are filed as Exhibits (d)(2) and (d)(3) to the Schedule TO.

  The Confidentiality Agreement

      Pursuant to the Confidentiality Agreement, the Company and Parent agreed to keep confidential certain information provided by the Company or its representatives. The Confidentiality Agreement also contains a standstill provision. The Merger Agreement provides that certain information exchanged pursuant to the Merger Agreement will be subject to the Confidentiality Agreement.

  Employment Agreements

      In connection with the execution of the Merger Agreement, the Company and Compass Group USA, Inc., an indirect wholly owned subsidiary of Parent (“Compass”), executed an addendum, dated February 18, 2004, with Mr. Ali (the “Addendum”) to amend the original employment agreement entered into by the Company and Mr. Ali on November 1, 2002 (the “Ali Employment Agreement”). The Addendum provides that Mr. Ali shall continue as Chief Executive Officer of the Company and shall assume such responsibilities and positions as the executive officers of Compass shall determine from time to time. The Addendum also provides that the term of the Ali Employment Agreement shall continue until the fourth annual anniversary of the completion of the Merger (the “Term”), unless extended or renewed by the parties. The Addendum states that Mr. Ali’s annual base salary will be $300,000 and will increase annually by $25,000 to a maximum of $375,000. The Addendum further provides that Mr. Ali shall be paid a discretionary annual bonus based on factors to be determined, and shall receive all benefits provided by Compass to similarly situated executives of Compass, including incentive compensation plans. Under the terms of the Addendum, Mr. Ali agreed that he will not, for a period of the greater of 24 months or the number of full months remaining from Mr. Ali’s last day of employment by the Company until March 31, 2008 (the “Noncompetition Period”) directly or

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indirectly engage in Competitive Activity (as defined in the Addendum) within the Territory (as defined in the Addendum). Upon termination by Mr. Ali for the Company’s breach of the Ali Employment Agreement, Mr. Ali shall be paid severance in an amount equal to the monthly equivalent of his annual base salary then in effect multiplied by the number of full months of the Noncompetition Period.

      Also in connection with the Merger Agreement, Compass entered into an Employment Agreement dated February 18, 2004 with Ms. Tasneem Vakharia (the “Vakharia Agreement”). The Vakharia Agreement provides that Ms. Vakharia will, among other things, (i) be employed as the Executive Vice President and Secretary of the Company; (ii) receive an annual base salary of $112,000; (iii) receive all other benefits provided by the Company, including bonuses, incentive compensation plans and employee welfare benefit plans; (iv) if terminated due to death, receive one year’s annual salary and any accrued, unpaid bonus; (v) if terminated due to Termination Without Cause (as defined in the Vakharia Agreement), receive severance in the amount equal to the annual base salary; and (vi) not directly or indirectly solicit employees of the Company, or any employee of an affiliate of the Company, or engage in Competitive Activity (as defined in the Vakharia Agreement) within the territory set forth in the Vakharia Agreement for a period of twelve months following termination of employment.

      By letter dated February 18, 2004, Louis Coccoli, Jr., president of GladCo Enterprises, Inc., a subsidiary of the Company, agreed that the Offer and the Merger do not constitute a change of control under his employment agreement and that his employment agreement remains in full force and effect.

      The foregoing summary of the employment agreements is qualified in its entirety by reference to the signed employment agreements, which are attached hereto as Exhibits (d)(6) and (d)(7) to the Schedule TO.

  Plans For The Company

      Parent will continue to evaluate the business and operations of the Company during the pendency of the Offer and after the consummation of the Offer and the Merger. Parent intends to seek additional information about the Company during this period. Thereafter, Parent intends to review such information as part of a comprehensive review of the Company’s business, operations, capitalization and management with a view to optimizing the Company’s potential contribution to Parent’s business.

      Except as indicated in this Offer to Purchase, Parent does not have any current plans or proposals that relate to or would result in any of the following: an extraordinary corporate transaction, such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries; a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; any change in the present management of the Company; any material changes in the Company’s present capitalization or dividend policy; or any other material change in the Company’s corporate structure or business, except that as of the Effective Time, the present members of the Board of Directors of the Company will resign. Notwithstanding the foregoing, promptly after Purchaser acquires a majority of the Shares, Purchaser will be entitled to designate such number of directors on the Board of Directors of the Company equal to the percentage of aggregate voting power of the Shares purchased by Purchaser pursuant to the Offer, rounded to the next whole number. Parent expects that the Board of Directors of the Company would not declare dividends on the Shares.

      THE FOLLOWING DESCRIPTION OF CERTAIN PROVISIONS OF THE CGCL IS NOT NECESSARILY COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE CGCL.

  Dissenters’ Rights

      Shareholders do not have dissenters’ rights as a result of the Offer. However, if the Merger is consummated, certain shareholders who fully comply with and meet all the requirements of Chapter 13 of the CGCL (“Qualifying Shareholders”) may have certain rights to dissent and to require the Company to purchase their Shares for cash at “fair market value.” Qualifying Shareholders will be entitled to exercise dissenters’ rights under the CGCL if such holders properly file a demand for payment.

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      Under the CGCL, the “fair market value” of the Shares may be one agreed to by the Company and the Qualifying Shareholder or judicially determined, depending on the circumstances. The “fair market value” is determined as of the day before the first announcement of the terms of the proposed Merger, excluding any appreciation or depreciation as a result of the Merger and subject to adjustments. The value so determined could be more or less than the Offer Price.

      If the Merger is not completed, no Qualifying Shareholder will be entitled to have the Company purchase such holder’s Shares under Chapter 13 of the CGCL. If a shareholder and the Company do not agree on whether that shareholder is a Qualifying Shareholder, or if a Qualifying Shareholder and the Company fail to agree on the fair market value of Shares and neither the Company nor the Qualifying Shareholder files a complaint or intervenes in a pending action within six months after the Company mails the required notice that shareholders have approved the Merger, that shareholder does not have (or will cease to have) rights as a dissenting shareholder. After a shareholder files a demand to exercise dissenters’ rights, that shareholder may not withdraw the demand without the Company’s consent.

      The foregoing discussion of the rights of Qualifying Shareholders does not purport to be a complete statement of the procedures to be followed by shareholders desiring to exercise any available dissenters’ rights and is qualified in its entirety by reference to Chapter 13 of the CGCL.

      FAILING TO FOLLOW THE STEPS REQUIRED BY CHAPTER 13 OF THE CGCL FOR PERFECTING DISSENTERS’ RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.

  Going-Private Transactions

      The Commission has adopted Rule 13e-3 under the Exchange Act, which is applicable to certain “going private” transactions. Purchaser does not believe that Rule 13e-3 will apply to the Merger unless the Merger is consummated more than one year after the termination of the Offer. If applicable, Rule 13e-3 requires, among other things, that certain financial information concerning the fairness of the Merger and the consideration offered to minority shareholders in the Merger be filed with the Commission and disclosed to shareholders prior to the consummation of the Merger.

13. Dividends and Distributions

      As discussed in Section 12, the Merger Agreement provides that from February 18, 2004, until the Effective Time, without the prior approval of Parent, the Company may not declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its capital stock.

14. Certain Conditions of the Offer

      The Merger Agreement provides that Purchaser will not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-l(c) under the Exchange Act (relating to Purchaser’s obligation to pay for or return tendered Shares promptly after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer and may terminate the Offer and the Agreement, if

      (i) the Minimum Condition or the Revised Minimum Number, as applicable, has not been satisfied;

      (ii) there shall be in effect any voluntary agreement between Parent and the United States Federal Trade Commission or the United States Department of Justice pursuant to which Parent has agreed not to accept for payment any Shares pursuant to the Offer for any period of time; or

      (iii) at any time after the date of the Merger Agreement, and before acceptance for payment of any Shares, Parent shall have determined in its reasonable good faith discretion that any of the following events shall have occurred and be continuing:

      (a) there shall be pending or formally threatened any suit, action or proceeding by any Governmental Entity, (i) challenging the acquisition by Parent or Purchaser of any shares of

37

common stock of the Company, seeking to restrain or prohibit consummation of the Offer or the Merger, or seeking to place limitations on the ownership of Shares (or shares of common stock of the Company following the Merger) by Parent or Purchaser, (ii) seeking to prohibit or limit the ownership or operation by the Company or Parent and their respective subsidiaries of the business or assets of the Company or Parent and their respective subsidiaries, or to compel the Company or Parent and their respective subsidiaries to dispose of or hold separate any material portion of the business or assets of the Company or Parent and their respective subsidiaries taken as a whole, as a result of the Offer, the Merger or any of the other transactions contemplated by the Merger Agreement, (iii) seeking to prohibit Parent or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company or (iv) that otherwise is reasonably expected to have a Material Adverse Effect in each of (i) through (iv) above, subject to the parties’ obligations to use their commercially reasonable efforts to avoid such an occurrence as set forth in Section 12 hereof;

      (b) any Legal Restraint or any action or proceeding that may result in the filing of any injunction or other order that has the effect of preventing the purchase of Shares pursuant to the Offer or the Merger shall be in effect;

      (c) the representations and warranties of the Company contained in the Merger Agreement shall not have been accurate in all respects as of the date of the Merger Agreement, except that any inaccuracies in such representations and warranties will be disregarded if the inaccuracies or circumstances giving rise to all such inaccuracies (considered collectively) do not constitute, and would not reasonably be expected to have, a Material Adverse Effect on the Company; provided, however, for purposes of determining the accuracy of such representations and warranties, all “Material Adverse Effect” qualifications and other materiality qualifications contained in such representations and warranties shall be disregarded;

      (d) the representations and warranties of the Company contained in the Merger Agreement shall not be accurate in all respects as of the Specified Date as if made on and as of the Specified Date, except that any inaccuracies in such representations and warranties will be disregarded if the inaccuracies or the circumstances giving rise to all such inaccuracies (considered collectively) do not constitute, and would not reasonably be expected to have, a Material Adverse Effect on the Company; provided, however, that, for purposes of determining the accuracy of such representations and warranties, all “Material Adverse Effect” qualifications and other materiality qualifications contained in such representations and warranties shall be disregarded, and any modification to the schedules to the Merger Agreement made after the date of the Merger Agreement shall be disregarded;

      (e) the Company shall have breached or failed in any material respect to perform or comply with any covenant or obligation that the Company is required to perform or comply with at or prior to the Specified Date;

      (f) except as set forth in the Company’s disclosure schedules to the Merger Agreement or in the documents the Company had filed with the Commission prior to February 18, 2004, since the date of the Merger Agreement, there shall have been any state of facts, change, development, effect, event, condition or occurrence that, individually or in the aggregate, constitutes or would reasonably be expected to have, a Material Adverse Effect on the Company;

      (g) the Company shall have failed to obtain an appropriate consent to the Merger from the counterparties to Customer Contracts (as that term is used in the Merger Agreement) that represent aggregate projected 2004 revenue of at least $40,000,000 as set forth in the applicable schedule to the Merger Agreement;

      (h) the Company’s Net Indebtedness exceeds $9,900,000;

      (i) Parent and Purchaser shall not have received each of the following agreements and documents: (i) a certificate executed on behalf of the Company by its Chief Executive Officer and

38

Chief Financial Officer confirming that the conditions set forth in paragraphs (b), (c) , (d), (e), (f), (g), (h) and (j) of this Section 14 have been duly satisfied and (ii) the written resignations of all directors of the Company and its subsidiaries as and to the extent required by the terms of the Merger Agreement; or

      (j) the Merger Agreement shall have been terminated in accordance with its terms.

      The foregoing conditions are for the sole benefit of Purchaser and Parent and may be asserted by Purchaser or Parent regardless of the circumstances giving rise to such condition or may be waived by Purchaser or Parent in whole or in part at any time and from time to time in their reasonable discretion; provided that Purchaser and Parent may only waive or modify the Minimum Condition as set forth in Section 1.1 of the Merger Agreement. The failure by Parent, Purchaser or any other affiliate of Parent at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right. The waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time.

15. Certain Legal Matters

      Except as described in this Section 15, based on a review of publicly available filings made by the Company with the Commission and other publicly available information concerning the Company and discussions of representatives of Parent with representatives of the Company, none of Purchaser, Parent or the Company is aware of any license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by Purchaser’s acquisition of Shares (and the indirect acquisition of the stock of the Company’s subsidiaries) as contemplated herein or of any approval or other action by any Governmental Entity that would be required or desirable for the acquisition or ownership of Shares by Purchaser as contemplated herein. Should any such approval or other action be required or desirable, Parent and Purchaser currently contemplate that such approval or other action will be sought. While (except as otherwise expressly described in this Section 15) Purchaser does not presently intend to delay the acceptance for payment of or payment for Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that failure to obtain any such approval or other action might not result in consequences adverse to the Company’s business or that certain parts of the Company’s business might not have to be disposed of if such approvals were not obtained or such other actions were not taken or in order to obtain any such approval or other action. If certain types of adverse action are taken with respect to the matters discussed below, Purchaser could, subject to the terms and conditions of the Merger Agreement, decline to accept for payment or pay for any Shares tendered. See Section 14 for a description of certain conditions to the Offer.

      State Takeover Laws. A number of states throughout the United States have enacted takeover statutes that purport, in varying degrees, to apply to attempts to acquire securities of corporations that are incorporated or have assets, shareholders, executive offices or places of business in such states. In Edgar v. Mite Corp., the Supreme Court of the United States held that the Illinois Business Takeover Act, which involved state securities laws that made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and therefore was unconstitutional. In CTS Corp. v. Dynamics Corp. of America, however, the Supreme Court of the United States held that a state may, as a matter of corporate law and, in particular, those laws concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without prior approval of the remaining shareholders, provided that such laws were applicable only under certain conditions. Subsequently, a number of U.S. federal courts ruled that various state takeover statutes were unconstitutional insofar as they apply to corporations incorporated outside the state of enactment.

      Under the CGCL, the Merger consideration paid to the Shareholders of the Company may not be cash if Purchaser or Parent owns directly or indirectly more than 50% but less than 90% of the then-outstanding

39

Shares, unless either all the shareholders of the Company consent or the Commissioner of Corporations of the State of California approves, after a hearing, the terms and conditions of the Merger and the fairness thereof.

      If the Minimum Condition is not satisfied on any scheduled Expiration Date of the Offer, Purchaser will, in its sole discretion, either (x) extend the Offer pursuant to the provisions of the Merger Agreement, (y) amend the Offer in contemplation of the exercise of the Option Agreement (to the extent the Option Agreement is exercisable at such time) to reduce the Minimum Condition to the Option Exercise Minimum Number or (z) amend the Offer to provide that, if (i) the Minimum Condition is not satisfied at the next scheduled Expiration Date of the Offer (after giving effect to the issuance of any Shares theretofore acquired by Parent or Purchaser) and (ii) the number of Shares tendered pursuant to the Offer and not withdrawn as of such next-scheduled Expiration Date is more than 50% but less than 90% of the then-outstanding Shares, Purchaser shall waive the Minimum Condition and amend the Offer to reduce the number of Shares subject to the Offer to the Revised Minimum Number and, subject to the prior satisfaction or waiver of the other conditions of the Offer, either (A) purchase, on a pro rata basis, the Revised Minimum Number of Shares or (B) (1) purchase all Shares that have been tendered and not withdrawn as of such Expiration Date, (2) prepare and file a permit application under Section 25142 of the CGCL and a related information statement or other disclosure document, and shall request a hearing on the fairness of the terms and conditions of the Merger pursuant to Section 25142 of the CGCL, and (3) otherwise comply with the CGCL (it being understood that Purchaser shall not in any event be required to accept for payment, or pay for, any Shares less than the Revised Minimum Number of Shares that are tendered pursuant to the Offer and not withdrawn at the expiration date). In either case, Purchaser will seek the approval of the Merger by the requisite vote of the shareholders in order to consummate the Merger.

      Based on information supplied by the Company, Purchaser does not believe that any other state takeover statutes or similar laws purport to apply to the Offer or the Merger. Neither Purchaser nor Parent has currently complied with any state takeover statute or regulation. Purchaser reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer or the Merger and nothing in this Offer to Purchase or any action taken in connection with the Offer or the Merger is intended as a waiver of such right. If it is asserted that any state takeover statute is applicable to the Offer or the Merger and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, Purchaser might be required to file certain information with, or to receive approvals from, the relevant state authorities, and Purchaser might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in consummating the Offer or the Merger. In such case, Purchaser may not be obligated to accept payment or pay for any Shares tendered pursuant to the Offer. See Section 14.

16. Fees and Expenses

      Parent and Purchaser have retained MacKenzie Partners, Inc. to act as the Information Agent and Computershare Trust Company of New York to serve as the Depositary in connection with the Offer. The Information Agent and the Depositary each will receive reasonable and customary compensation for their services, be reimbursed for certain reasonable out-of-pocket expenses and be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities and expenses under the U.S. federal securities laws.

      Neither Purchaser nor Parent will pay any fees or commissions to any broker or dealer or other person (other than the Information Agent) in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, banks, trust companies and other nominees will be reimbursed by Purchaser upon request for customary mailing and handling expenses incurred by them in forwarding material to their customers.

17. Miscellaneous

      The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. Neither Purchaser nor Parent is aware of any jurisdiction in which the making of

40

the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. To the extent Purchaser or Parent becomes aware of any state law that would limit the class of offerees in the Offer, Purchaser will amend the Offer and, depending on the timing of such amendment, if any, will extend the Offer to provide adequate dissemination of such information to holders of Shares prior to the expiration of the Offer. In those jurisdictions where securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed made on behalf of Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction to be designated by Purchaser.

      NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF PARENT OR PURCHASER NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.

      Parent and Purchaser have filed with the Commission the Schedule TO, together with exhibits, and may file amendments thereto. In addition, the Company has filed the Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act, together with exhibits, setting forth the recommendation of its Board of Directors with respect to the Offer and the reasons for such recommendation and furnishing certain additional related information. Such Schedules and any amendments thereto, including exhibits, should be available for inspection and copies should be obtainable in the manner set forth in Section 8.

YORKMONT FIVE, INC.

February 26, 2004

41

SCHEDULE I

DIRECTORS AND EXECUTIVE OFFICERS OF ULTIMATE PARENT, GROUP HOLDINGS,

OVERSEAS HOLDINGS AND PURCHASER

Directors and Executive Officers of Ultimate Parent

      The name, citizenship, business address, present principal occupation or employment and five-year employment history of each director and executive officer of Ultimate Parent and certain other information are set forth below. Unless otherwise indicated below, (1) the address of each Ultimate Parent director and executive officer is c/o Compass Group PLC, Guildford Street, Chertsey, Surrey, England KT16 9BQ and (2) the directors and executive officers listed below are citizens of the United Kingdom.

Name and Citizenship	Positions and Offices Held with	Principal Occupation and Business Experience During Past Five
(Age at 2/18/04)	Ultimate Parent	Years; Outside Directorships
Francis H. Mackay (59)	Chairman	Appointed Chief Executive of Ultimate Parent in 1991 and additionally Deputy Chairman in 1994; became Chairman of Ultimate Parent in July 1999; appointed Chairman of Group Holdings in February 1987; Director of Overseas Holdings since June 1992; a Non-executive Chairman of Kingfisher plc.
Michael J. Bailey (55)	Director, Chief Executive Officer	Director of Ultimate Parent since 1995 and Chief Executive Officer of Ultimate Parent’s North America Division from 1994 to 1999; became Chief Executive of Ultimate Parent in July 1999; appointed President and Chief Executive Officer of Group Holdings in September 1995; Director of Overseas Holdings since September 1997.
Peter H. Blackburn (63)	Non-executive Director	Non-executive Director of Ultimate Parent since April 2002; Chairman of Northern Foods plc and Non-executive Director of SIG plc; formerly President of the Food and Drink Federation and Chairman and Chief Executive Officer of Nestlé U.K.; c/o Northern Foods plc, Beverley House, St. Stephen’s Square, Hull HU1 3XG.
Denis P. Cassidy (71)	Non-executive Director	Non-executive Director of Ultimate Parent since June 1994; Non-executive Director of Forever Broadcasting plc; formerly Chairman of Satellite Information Systems, Newcastle United PLC, Liberty Public Limited Company, The Oliver Group plc and Ferguson International Holdings PLC; c/o Cassidy & Partners, P.O. Box 593, Peterborough PE1 1WN.

S-1

Name and Citizenship	Positions and Offices Held with	Principal Occupation and Business Experience During Past Five
(Age at 2/18/04)	Ultimate Parent	Years; Outside Directorships
Peter E.B. Cawdron (60)	Senior Independent Non-executive Director, Deputy Chairman	Non-executive Director of Ultimate Parent since November 1993 and Deputy Chairman since July 1999; formerly a Director of Grand Metropolitan PLC, and is now a Non- executive Director of several companies, including Capita Group PLC, Johnston Press PLC, ARM Holdings PLC, Punch Taverns PLC and Capital Radio PLC; c/o The Old Bakery, Rectory Road, Great Haseley, Oxfordshire OX44 7JG.
Alain F. Dupuis (59)	Director, Chief Executive Officer, Global Business Division	Director of Ultimate Parent since September 1995 and Chief Executive Officer, Global Business Division of Ultimate Parent since 1997; Director of Group Holdings since September 1995; Founder of Ticket Restaurant in Belgium and previously Chief Executive Officer of Seafood Broiler, a Californian restaurant chain, National Cleaning Contractor, a building maintenance company in the US, and Eurest International.
Valerie F. Gooding (53)	Non-executive Director	Non-executive Director of Ultimate Parent since January 2000; Chief Executive of BUPA since September 1996; a Non-executive Director of BAA plc; formerly a director of Cable & Wireless Communications plc; c/o BUPA, BUPA House, 15/19 Bloomsbury Way, London, England WC1A 2BA.
Clive W.P. Grundy (52)	Human Resources Director	Director of Ultimate Parent since October 2002 and Human Resources Director since 1996.
Sven A. Kado Germany (59)	Non-executive Director	Non-executive Director of Ultimate Parent since April 2002; Chairman of Marsh & McLennan Holdings GmbH and formerly Chief Financial Officer of Nixdorf Computer AG and of Dyckerhoff AG and Senior Advisor at Principal Finance Group/ Nomura International; c/o Marsh & McLennan Holdings GmbH, Marstallstrasse 11, 80539 Munich, Germany.
Andrew P. Lynch (47)	Finance Director	Finance Director of Ultimate Parent since 1997. Prior to 1997, Finance Director of Ultimate Parent’s UK Division; Director of Group Holdings since January 1997; Director of Overseas Holdings since March 1998; a Non-executive Director of Dixons Group PLC.
Ronald M. Morley (51)	Company Secretary	Company Secretary since 1989; Director of Group Holdings since May 2001; Director of Overseas Holdings since July 1999.

S-2

Directors and Executive Officers of Group Holdings

      The name, citizenship, business address, present principal occupation or employment and five-year employment history of each director and executive officer of Group Holdings and certain other information are set forth below. Where such individual is also a director or executive officer of Ultimate Parent, biographical information has not been provided. Unless otherwise indicated below, (1) the address of each Group Holdings director and executive officer is c/o Compass Group PLC, Guildford Street, Chertsey, Surrey, England KT16 9BQ; and (2) the directors and executive officers listed below are citizens of the United Kingdom.

Name and Citizenship	Positions and Offices Held with	Principal Occupation and Business Experience During Past Five
(Age at 2/18/04)	Group Holdings	Years; Outside Directorships
Francis H. Mackay (59)	Chairman	See biographical information under Ultimate Parent Board.
Michael J. Bailey (55)	President and Chief Executive Officer	See biographical information under Ultimate Parent Board.
Alain F. Dupuis (59)	Director	See biographical information under Ultimate Parent Board.
Andrew P. Lynch (47)	Director	See biographical information under Ultimate Parent Board.
Ronald M. Morley (50)	Director	See biographical information under Ultimate Parent Board.
Andrew V. Derham (50)	Company Secretary	Deputy Company Secretary for Ultimate Parent since January 2001; Secretary for Granada Group PLC from 1989 to January 2001; Company Secretary of Group Holdings since May 2002; Company Secretary of Overseas Holdings since May 2002.

Directors of Overseas Holdings

      The name, citizenship, business address, present principal occupation or employment and five-year employment history of each director of Overseas Holdings and certain other information are set forth below. Where such individual is also a director or executive officer of Ultimate Parent or Group Holdings, biographical information has not been provided. Unless otherwise indicated below, (1) the address of each Overseas Holdings director is c/o Compass Group PLC, Guildford Street, Chertsey, Surrey, England KT16 9BQ; and (2) the directors listed below are citizens of the United Kingdom. Overseas Holdings does not have executive officers.

Name and Citizenship	Positions and Offices Held with	Principal Occupation and Business Experience During Past Five
(Age at 2/18/04)	Overseas Holdings	Years; Outside Directorships
Francis H. Mackay (59)	Director	See biographical information under Ultimate Parent Board.
Michael J. Bailey (55)	Director	See biographical information under Ultimate Parent Board.
Antoine E. A. Cau France (56)	Director	Chairman and Chief Executive, Western Europe Division of Ultimate Parent since January 2001; Chief Executive of Forte Hotels from 1998 to January 2001; Director of Overseas Holdings since June 2001.
Andrew P. Lynch (47)	Director	See biographical information under Ultimate Parent Board.
Ronald M. Morley (50)	Director	See biographical information under Ultimate Parent Board.

S-3

Name and Citizenship	Positions and Offices Held with	Principal Occupation and Business Experience During Past Five
(Age at 2/18/04)	Overseas Holdings	Years; Outside Directorships
Andrew V. Derham (50)	Company Secretary	See biographical information under Group Holdings Board.

Directors and Executive Officers of Purchaser

      The name, citizenship, business address, present principal occupation or employment and five-year employment history of each director and executive officer of Purchaser and certain other information are set forth below. The address of each director and executive officer of Purchaser is c/o Compass Group USA, Inc., 2400 Yorkmont Drive, Charlotte, North Carolina 28217. Each director and executive officer of Purchaser is a citizen of the United States.

Name and Citizenship	Positions and Offices Held with	Principal Occupation and Business Experience During Past Five
(Age at 2/18/04)	Purchaser	Years; Outside Directorships
Thomas G. Ondrof (39)	Director, President	Chief Financial Officer of Ultimate Parent’s North America Division since July 1999; Vice President–Finance and Planning of Ultimate Parent’s North America Division from May 1998 to July 1999.
Antony G. Shearer (40)	Director	Chairman of Foodbuy LLC, an indirect subsidiary of Parent, since July 2001; Vice President–Information Systems of Ultimate Parent’s North America Division from November 1994 to July 2001.
Johnny C. Taylor, Jr. (35)	Director, Executive Vice President, General Counsel and Secretary	Executive Vice President, General Counsel and Secretary of Ultimate Parent’s North America Division since January 2004, Senior Vice President, General Counsel and Secretary of Ultimate Parent’s North America Division from May 2002 to January 2004; General Counsel and Senior Vice President–Human Resources of Paramount Parks, Inc. from March 1998 to May 2002.

S-4

      Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each shareholder of the Company or such shareholder’s broker, dealer, bank, trust company or other nominee to the Depositary at one of its addresses set forth below.

The Depositary for the Offer is:

By Mail:	By Facsimile Transmission:	By Hand or Overnight Courier:
Computershare Trust Company	For Eligible Institutions Only:	Computershare Trust Company
of New York	(212) 701-7636	of New York
Wall Street Station		Wall Street Plaza
P.O. Box 1010	For Confirmation Only Telephone:	88 Pine Street, 19th Floor
New York, NY 10268-1010	(212) 701-7600	New York, NY 10005

      Questions and requests for assistance may be directed to the Information Agent at the telephone numbers and location listed below. Additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or any other tender offer materials may be obtained from the Information Agent. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer.

The Information Agent for the Offer is:

105 Madison Avenue

New York, NY 10016

Call Collect: (212) 929-5500

or

Toll-Free: (800) 322-2885

Email: proxy@mackenziepartners.com

EX-99.A.1.B

LETTER OF TRANSMITTAL

for

Tender of Shares of Common Stock

of

Creative Host Services, Inc.

Pursuant to the Offer to Purchase

Dated February 26, 2004

by

Yorkmont Five, Inc.,

a wholly owned indirect subsidiary of

Compass Group USA Investments, LLP

THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, MARCH 25, 2004, UNLESS THE OFFER IS EXTENDED.

The Depositary for the Offer is:

	By Facsimile	By Hand or
By Mail:	Transmission:	Overnight Courier:
Computershare Trust Company of New York Wall Street Station P.O. Box 1010 New York, NY 10268-1010	For Eligible Institutions Only: (212) 701-7636 For Confirmation Only Telephone: (212) 701-7600	Computershare Trust Company of New York Wall Street Plaza 88 Pine Street, 19th Floor New York, NY 10005

      DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE PROVIDED BELOW, WITH SIGNATURE GUARANTEE IF REQUIRED, AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW.

      THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.

DESCRIPTION OF SHARES TENDERED
Name(s) and Address(es) of Registered Holder(s) (Please Fill in, if Blank, Exactly as Name(s) and Address(es) Appear(s) on Share Certificate(s))	Shares Tendered (Attach Additional Signed List If Necessary)
	Share Certificate Number(s)*	Total Number of Shares Represented by Share Certificate(s)*	Number of Shares Tendered**
	Total Shares
* Need not be completed if transfer is made by book-entry transfer. ** Unless otherwise indicated, all Shares represented by certificates delivered to the Depositary will be deemed to have been tendered. See Instruction 4. o  CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE BEEN LOST OR DESTROYED. SEE INSTRUCTION 11.

      This Letter of Transmittal is to be used either if certificates for Shares (as defined below) are to be forwarded herewith or, unless an Agent’s Message (as defined in Section 2 of the Offer to Purchase (as defined below)) is utilized, if delivery of Shares is to be made by book-entry transfer to an account maintained by the Depositary at the Book-Entry Transfer Facility (as defined in and pursuant to the procedures set forth in Section 2 of the Offer to Purchase). Shareholders whose certificates for Shares are not immediately available or who cannot deliver either the certificates for, or a Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to, their Shares and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in the Offer to Purchase) must tender their Shares in accordance with the guaranteed delivery procedures set forth in Section 2 of the Offer to Purchase. See Instruction 2. Delivery of documents to a Book-Entry Transfer Facility does not constitute delivery to the Depositary.

o CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):

Name of Tendering Institution 

Account Number 

Transaction Code Number 

o CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY, ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:

Name(s) of Registered Owner(s) 

Date of Execution of Notice of Guaranteed Delivery 

Name of Institution that Guaranteed Delivery 

If delivered by book-entry transfer check box and give the following information: o

Account Number 

Transaction Code Number 

2

NOTE: SIGNATURES MUST BE PROVIDED BELOW

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

      The undersigned hereby tenders to Yorkmont Five, Inc., a California corporation (“Purchaser”) and a wholly owned indirect subsidiary of Compass Group USA Investments, LLP, a Delaware limited liability partnership, the above-described shares of common stock, no par value (the “Shares”), of Creative Host Services, Inc., a California corporation (the “Company”), upon the terms and subject to the conditions set forth in Purchaser’s Offer to Purchase dated February 26, 2004 (the “Offer to Purchase”), and this Letter of Transmittal (which, together with any amendments or supplements thereto or hereto, collectively constitute the “Offer”), receipt of which is hereby acknowledged.

      Upon the terms of the Offer, subject to, and effective upon, acceptance for payment of, and payment for, the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser all right, title and interest in and to all the Shares that are being tendered hereby (and any and all dividends, distributions, other Shares or other securities or rights issued in respect thereof on or after February 26, 2004 (collectively, “Distributions”)) and irrevocably constitutes and appoints Computershare Trust Company of New York (the “Depositary”), the true and lawful agent and attorney-in-fact of the undersigned, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to the full extent of the undersigned’s rights with respect to such Shares (and any and all Distributions) (a) to deliver certificates for such Shares (and any and all Distributions) or transfer ownership of such Shares (and any such Distributions) on the account books maintained by the Book-Entry Transfer Facility together, in any such case, with all accompanying evidences of transfer and authenticity to, or upon the order of, Purchaser, (b) to present such Shares (and any and all Distributions) for transfer on the Company’s books and (c) to receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any and all Distributions), all in accordance with the terms of the Offer.

      The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the tendered Shares (and any and all Distributions) and, when the same are accepted for payment by Purchaser, Purchaser will acquire good title thereto, free and clear of all liens, restrictions, claims and encumbrances and the same will not be subject to any adverse claim. The undersigned will, upon request, execute any additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the tendered Shares (and any and all Distributions). In addition, the undersigned shall remit and transfer promptly to the Depositary for the account of Purchaser any and all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and, pending such remittance and transfer or appropriate assurance thereof, Purchaser shall be entitled to all rights and privileges as owner of each such Distribution and may withhold the entire purchase price of the Shares tendered hereby, or deduct from such purchase price, the amount of value of such Distribution as determined by Purchaser in its sole discretion.

      All authority conferred or agreed to be conferred pursuant to this Letter of Transmittal shall be binding upon the successors, assigns, heirs, executors, administrators and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. Purchaser reserves the right to require that, in order for the Shares or other securities to be deemed validly tendered, immediately upon Purchaser’s acceptance for payment of such Shares, Purchaser must be able to exercise full voting, consent and other rights with respect to such Shares (and any and all Distributions), including voting at any meeting of the Company’s shareholders.

      The undersigned hereby irrevocably appoints Thomas G. Ondrof, Johnny C. Taylor, Jr. and Antony G. Shearer, and each of them, and any other designees of Purchaser, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution and resubstitution, to vote at any annual, special or adjourned meeting of the Company’s shareholders or otherwise in such manner as each such attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem proper with respect to, to execute any written consent concerning any matter as each such attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem proper with respect to, and to otherwise act as each such attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem

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proper with respect to, the Shares tendered hereby that have been accepted for payment by Purchaser prior to the time any such action is taken and with respect to which the undersigned is entitled to vote (and any and all Distributions). This appointment is effective when, and only to the extent that, Purchaser accepts for payment such Shares as provided in the Offer to Purchase. This power of attorney and proxy are irrevocable and are granted in consideration of the acceptance for payment of such Shares in accordance with the terms of the Offer. Upon such acceptance for payment, all prior powers of attorney, proxies and consents given by the undersigned with respect to such Shares (and any and all Distributions) will, without further action, be revoked and no subsequent powers of attorney, proxies, consents or revocations may be given (and, if given, will not be deemed effective) by the undersigned.

      The undersigned understands that the valid tender of Shares pursuant to any of the procedures described in Section 2 of the Offer to Purchase and in the Instructions hereto will constitute a binding agreement between the undersigned and Purchaser upon the terms and subject to the conditions of the Offer (and if the Offer is extended or amended, the terms or conditions of any such extension or amendment).

      Unless otherwise indicated herein under “Special Payment Instructions,” please issue the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment in the name(s) of the registered holder(s) appearing under “Description of Shares Tendered” on the cover page of this Letter of Transmittal. Similarly, unless otherwise indicated under “Special Delivery Instructions,” please mail the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under “Description of Shares Tendered.” In the event that both the “Special Delivery Instructions” and the “Special Payment Instructions” are completed, please issue the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment (and any accompanying documents, as appropriate) in the names of, and deliver such check and/or return such certificates (and any accompanying documents, as appropriate) to, the person or persons so indicated. Please credit any Shares tendered herewith by book-entry transfer that are not accepted for payment by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that Purchaser has no obligation pursuant to the “Special Payment Instructions” to transfer any Shares from the name of the registered holder(s) thereof if Purchaser does not accept for payment any of the Shares so tendered.

      If any of the certificates representing Shares that you own have been lost or destroyed, see Instruction 11.

SPECIAL PAYMENT INSTRUCTIONS

(See Instructions 1, 5, 6 and 7)

     To be completed ONLY if certificates for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment is/are to be issued in the name of someone other than the undersigned.

Issue  o check  o certificate(s) to:

Name 

(Please Print)

Address 

(Include Zip Code)

(Employer Identification or

Social Security Number)

SPECIAL DELIVERY INSTRUCTIONS

(See Instructions 1, 5, 6 and 7)

     To be completed ONLY if certificates for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment is/are to be sent to someone other than the undersigned or to the undersigned at an address other than that above.

Mail  o check  o certificate(s) to:

Name 

(Please Print)

Address 

(Include Zip Code)

(Employer Identification or

Social Security Number)

4

IMPORTANT

SHAREHOLDERS SIGN HERE

(Also Complete Substitute Form W-9 Below)

(Signature(s) of Shareholder(s))

Dated: 

 , 2004

     (Must be signed by registered holder(s) exactly as name(s) appear(s) on the certificate(s) for the Shares or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.)

Name(s) 

(Please Print)

Capacity (full title) 

Address 

(Include Zip Code)

Daytime Area Code and Telephone Number 

Taxpayer Identification or Social Security Number

(See Substitute Form W-9)

GUARANTEE OF SIGNATURE(S)

(If required — see Instructions 1 and 5)

FOR USE BY FINANCIAL INSTITUTIONS ONLY.

PLACE MEDALLION GUARANTEE IN SPACE BELOW,

Authorized Signature 

Name 

(Please Print)

Title 

Name of Firm 

Address 

(Include Zip Code)

Area Code and Telephone Number 

Dated: ______________________________ , 2004

5

INSTRUCTIONS

Forming Part of the Terms and Conditions of the Offer

      1. Guarantee of Signatures. No signature guarantee is required on this Letter of Transmittal if (a) this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this Instruction, includes any participant in the Book-Entry Transfer Facilities’ system whose name appears on a security position listing as the owner of the Shares) of Shares tendered herewith, unless such registered holder(s) has completed either the box entitled “Special Payment Instructions” or the box entitled “Special Delivery Instructions” on this Letter of Transmittal or (b) such Shares are tendered for the account of a firm that is a participant in the Security Transfer Agent’s Medallion Program or the Stock Exchange Medallion Program or by any other “eligible guarantor institution,” as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each, an “Eligible Institution”). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5.

      2. Requirements of Tender. This Letter of Transmittal is to be completed by shareholders either if certificates are to be forwarded herewith or, unless an Agent’s Message (as defined below) is utilized, if delivery of Shares is to be made pursuant to the procedures for book-entry transfer set forth in Section 2 of the Offer to Purchase. For a shareholder to validly tender Shares pursuant to the Offer, either (a) a Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, together with any required signature guarantees or, in the case of a book-entry transfer, an Agent’s Message, and any other required documents, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date (as defined in the Offer to Purchase) and either certificates for tendered Shares must be received by the Depositary at one of such addresses or Shares must be delivered pursuant to the procedures for book-entry transfer set forth herein (and a Book-Entry Confirmation (as defined in the Offer to Purchase) must be received by the Depositary), in each case, prior to the Expiration Date, or (b) the tendering shareholder must comply with the guaranteed delivery procedures set forth below and in Section 2 of the Offer to Purchase.

      Shareholders whose certificates for Shares are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary or complete the procedures for book-entry transfer prior to the Expiration Date may tender their Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in Section 2 of the Offer to Purchase. Pursuant to such procedures, (a) such tender must be made by or through an Eligible Institution, (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by Purchaser must be received by the Depositary prior to the Expiration Date and (c) the certificates for all tendered Shares in proper form for transfer (or a Book-Entry Confirmation with respect to all such Shares), together with a Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent’s Message, and any other required documents, must be received by the Depositary within three trading days after the date of execution of such Notice of Guaranteed Delivery as provided in Section 2 of the Offer to Purchase. A “trading day” is any day on which the Nasdaq Stock Market is open for business.

      “Agent’s Message” means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, that states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against such participant.

      THE METHOD OF DELIVERY OF SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL, WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.

6

      No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be accepted for payment. All tendering shareholders, by execution of this Letter of Transmittal (or manually signed facsimile thereof), waive any right to receive any notice of the acceptance of their Shares for payment.

      3. Inadequate Space. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto and separately signed on each page in the same manner as this Letter of Transmittal.

      4. Partial Tenders (Applicable to Certificate Shareholders only). If fewer than all the Shares evidenced by any certificate submitted are to be tendered, fill in the number of Shares that are to be tendered in the box entitled “Number of Shares Tendered.” In any such case, new certificate(s) for the remainder of the Shares that were evidenced by the old certificate(s) will be sent to the registered holder(s), unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the acceptance of payment of, and payment for the Shares tendered herewith. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated.

      5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name as written on the face of the certificate(s) without any change whatsoever.

      If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal.

      If any tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates.

      If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to Purchaser of their authority so to act must be submitted.

      When this Letter of Transmittal is signed by the registered owner(s) of the Shares listed and tendered hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to or certificates for Shares not tendered or accepted for payment are to be issued to a person other than the registered owner(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution.

      If this Letter of Transmittal is signed by a person other than the registered owner(s) of certificate(s) listed on the cover page of this Letter of Transmittal, the certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner(s) appear on the certificates. Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution.

      6. Stock Transfer Taxes. Except as otherwise provided in this Instruction 6, Purchaser will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificates for Shares not tendered or not accepted for payment are to be registered in the name of, any person(s) other than the registered owner(s), or if tendered certificate(s) are registered in the name of any person(s) other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered owner(s) or such person(s)) payable on account of the transfer to such person(s) will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted.

      Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter of Transmittal.

      7. Special Payment and Delivery Instructions. If a check is to be issued in the name of, and/or certificates for Shares not accepted for payment are to be returned to, a person other than the signer of this Letter of Transmittal, or if a check is to be sent and/or such certificates are to be returned to a person other than the person signing this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed.

7

      8. Waiver of Conditions. Subject to the terms and conditions of the Merger Agreement (as defined in the Offer to Purchase) Purchaser reserves the absolute right in its sole discretion to waive any of the specified conditions (other than the Minimum Condition (as defined in the Offer to Purchase)) of the Offer, in whole or in part, in the case of any Shares tendered.

      9. Backup Withholding. In order to avoid backup withholding of U.S. federal income tax on payments of cash pursuant to the Offer, a shareholder tendering Shares in the Offer who is a U.S. citizen or U.S. resident alien must, unless an exemption applies, provide the Depositary with such shareholder’s correct taxpayer identification number (“TIN”) on Substitute Form W-9 included below in this Letter of Transmittal and certify under penalties of perjury that such TIN is correct and that such shareholder is not subject to backup withholding. If a shareholder does not provide such shareholder’s correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the “IRS”) may impose a penalty on such shareholder and payment of cash to such shareholder pursuant to the Offer may be subject to backup withholding of 28%.

      Backup withholding is not an additional tax. Rather, the amount of the backup withholding will be credited against the Federal income tax liability of the person subject to the backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund can be obtained by the shareholder upon filing an income tax return.

      The shareholder is required to give the Depositary the TIN (i.e., social security number or employer identification number) of the record owner(s) of the Shares tendered hereby. If the Shares are held in more than one name or are not in the name of the actual owner(s), consult the enclosed “Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9” for additional guidance on which number to report.

      The box in Part 3 of the Substitute Form W-9 may be checked if the tendering shareholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the shareholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 28% on all payments made prior to the time a properly certified TIN is provided to the Depositary. However, such amounts will be refunded to such shareholder if a TIN is provided to the Depositary within 60 days.

      Certain shareholders (including, among others, certain corporations and certain foreign individuals and entities) are not subject to backup withholding. Noncorporate foreign shareholders should complete and sign the main signature form and a Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See the enclosed “Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9” for more instructions.

      10. Requests for Assistance or Additional Copies. Questions and requests for assistance may be directed to MacKenzie Partners, Inc. (the “Information Agent”) at the address or telephone numbers listed below. Additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be obtained from the Information Agent.

      11. Lost, Destroyed or Stolen Certificates. If any certificate representing Shares has been lost, destroyed or stolen, the shareholder should promptly contact the transfer agent for the Shares, Computershare Trust Company, Inc. (the “Transfer Agent”) at (303) 262-0600. The shareholder will then be instructed by the Transfer Agent as to the steps that must be taken in order to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been completed.

      IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE THEREOF) TOGETHER WITH ANY SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT’S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE AND EITHER CERTIFICATES FOR TENDERED SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SHARES MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER DESCRIBED IN THE OFFER TO PURCHASE, IN EACH CASE PRIOR TO THE EXPIRATION DATE, OR THE TENDERING SHAREHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY DESCRIBED IN THE OFFER TO PURCHASE.

8

PAYER’S NAME: COMPUTERSHARE TRUST COMPANY OF NEW YORK

SUBSTITUTE   Form W-9	Part 1 – PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW.	TIN Social Security Number(s) OR Employer Identification Number
Department of the Treasury Internal Revenue Service	Part 2 — Certification — Under Penalties of perjury, I certify that: (1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the “IRS”) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and (3) I am a U.S. person (including a U.S. resident alien).	Part 3 — Awaiting TIN o Part 4 — Exempt TIN o

Payer’s Request for
Taxpayer Identification
Number (“TIN”) Certification Instructions — You must cross out Item (2) in Part 2 above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax returns. However, if after being notified by the IRS that you are subject to backup withholding, you received another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out such item (2). If you are exempt from backup withholding, check the box in Part 4 above.

Signature of U.S. Person             Date 

NOTE:  FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 28% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL INFORMATION.

YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE

BOX IN PART 3 OF SUBSTITUTE FORM W-9.

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number to the Depositary, 28% of all reportable payments made to me will be withheld, but will be refunded to me if I provide a certified taxpayer identification number within 60 days.

Signature Date

9

      Manually signed facsimile copies of this Letter of Transmittal will be accepted. This Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each shareholder of the Company or such shareholder’s broker, dealer, bank, trust company or other nominee to the Depositary at one of its addresses set forth below.

The Depositary for the Offer is:

By Mail:

Computershare Trust Company
of New York
Wall Street Station
P.O. Box 1010
New York, NY 10268-1010 By Facsimile
Transmission:

For Eligible Institutions Only:
(212) 701-7636

For Confirmation Only Telephone:
(212) 701-7600 By Hand or
Overnight Courier:

Computershare Trust Company
of New York
Wall Street Plaza
88 Pine Street, 19^th Floor
New York, NY 10005

      Questions and requests for assistance may be directed to the Information Agent at the address or telephone numbers set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer.

The Information Agent for the Offer is:

105 Madison Avenue

New York, New York 10016

Call Collect: (212) 929-5500

or

Toll Free: (800) 322-2885

Email: proxy@mackenziepartners.com

EX-99.A.1.C

NOTICE OF GUARANTEED DELIVERY

for

Tender of Shares of Common Stock

of

Creative Host Services, Inc.

to

Yorkmont Five, Inc.,

a wholly owned indirect subsidiary of

COMPASS GROUP USA INVESTMENTS, LLP

(Not to be Used for Signature Guarantees)

THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY

TIME, ON THURSDAY MARCH 25, 2004, UNLESS THE OFFER IS EXTENDED.

      As set forth in Section 2 of the Offer to Purchase (as defined below), this Notice of Guaranteed Delivery or a form substantially equivalent hereto must be used to accept the Offer (as defined below) if certificates representing shares of common stock, no par value (the “Shares”), of Creative Host Services, Inc., a California corporation (the “Company”), are not immediately available or if the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach Computershare Trust Company of New York (the “Depositary”) prior to the Expiration Date (as defined in the Offer to Purchase). This form may be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution (as defined in the Offer to Purchase). See Section 2 of the Offer to Purchase.

The Depositary for the Offer is:

By Mail:

Computershare Trust Company
of New York
Wall Street Station
P.O. Box 1010
New York, NY 10268-1010 By Facsimile
Transmission:

For Eligible Institutions Only:
(212) 701-7636
For Confirmation Only
Telephone:
(212) 701-7600 By Hand or
Overnight Courier:

Computershare Trust Company
of New York
Wall Street Plaza
88 Pine Street, 19^th Floor
New York, NY 10005

      DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.

      THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.

      THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.

Ladies and Gentlemen:

      The undersigned hereby tenders to Yorkmont Five, Inc., a California corporation (“Purchaser”) and a wholly owned indirect subsidiary of Compass Group USA Investments, LLP, a Delaware limited liability partnership, upon the terms and subject to the conditions set forth in Purchaser’s Offer to Purchase dated February 26, 2004 (the “Offer to Purchase”), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the “Offer”), receipt of which is hereby acknowledged, the number of Shares set forth below, all pursuant to the guaranteed delivery procedures set forth in Section 2 of the Offer to Purchase.

Number of Shares Tendered 

Certificate Nos. (if available)

(Check box if Shares will be tendered by

book-entry transfer)

o The Depository Trust Company

Account Number 

Dated: 

Name(s) of Record Holder(s):

PLEASE PRINT

Address(es): 

(Zip Code)

Daytime Area Code and Telephone Number(s):

Signature(s):

2

GUARANTEE

(NOT TO BE USED FOR SIGNATURE GUARANTEE)

      The undersigned, a firm that is a participant in the Security Transfer Agent’s Medallion Program or the Stock Exchange Medallion Program or an “Eligible Guarantor Institution,” as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees to deliver to the Depositary either the certificates representing the Shares tendered hereby, in proper form for transfer, or a Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to such Shares, in any such case together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or an Agent’s Message (as defined in Section 2 of the Offer to Purchase), and any other required documents, within three Nasdaq Stock Market trading days (as defined in the Letter of Transmittal) after the date hereof.

      The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution.

Name of Firm:

Address:

(Zip Code)

Daytime Area Code and Telephone Number:

(Authorized Signature)

Name:

(Please Print Or Type)

Title:

Date:

NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES FOR SHARES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.

3 EX-99.A.1.D 6 g87249toexv99waw1wd.htm EX-99.A.1.D

Offer to Purchase for Cash

All Outstanding Shares of Common Stock

of

Creative Host Services, Inc.

at

$3.40 Net Per Share

by

Yorkmont Five, Inc.,

a wholly owned indirect subsidiary of

Compass Group USA Investments, LLP

THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, MARCH 25, 2004, UNLESS THE OFFER IS EXTENDED.

February 26, 2004

To Brokers, Dealers, Banks,

Trust Companies and other Nominees

      We have been engaged by Yorkmont Five, Inc., a California corporation (“Purchaser”) and a wholly owned indirect subsidiary of Compass Group USA Investments, LLP, a Delaware limited liability partnership (“Parent”), to act as Information Agent in connection with Purchaser’s offer to purchase all outstanding shares of common stock, no par value (the “Shares”), of Creative Host Services, Inc., a California corporation (the “Company”), at a price of $3.40 per share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in Purchaser’s Offer to Purchase dated February 26, 2004 (the “Offer to Purchase”), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the “Offer”). Please furnish copies of the enclosed materials to those of your clients for whom you hold Shares registered in your name or in the name of your nominee.

      Enclosed herewith are copies of the following documents:

      1. Offer to Purchase dated February 26, 2004;

      2. Letter of Transmittal to be used by shareholders of the Company to tender Shares in the Offer (facsimile copies of the Letter of Transmittal may be used to tender the Shares);

      3. The Letter to shareholders of the Company from the President and Chief Executive Officer of the Company accompanied by the Company’s Solicitation/Recommendation Statement on Schedule 14D-9;

      4. A printed form of letter that may be sent to your clients for whose account you hold shares in your name or in the name of a nominee, with space provided for obtaining such clients’ instructions with regard to the Offer;

      5. Notice of Guaranteed Delivery with respect to the Shares;

      6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and

      7. Return envelope addressed to Computershare Trust Company of New York, as Depositary.

      The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the Expiration Date (as defined below) that number of Shares that would represent at least 90% of the Shares outstanding on the date of purchase (the “Minimum Condition”). As described in the Offer to Purchase, upon the occurrence of certain events, Purchaser may reduce the number of Shares required to be tendered to 49.9%. The Offer is also subject to the receipt of consents from counterparties to customer contracts, as well as the satisfaction of various other conditions. See Section 14 of the Offer to Purchase.

      We urge you to contact your clients promptly. Please note that the Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Thursday, March 25, 2004 (the “Expiration Date”), unless extended by Purchaser, in which event the “Expiration Date” shall mean the latest time at which the Offer, as so extended by Purchaser, will expire.

      The Board of Directors of the Company has unanimously (a) determined that the Merger Agreement (as defined below) and the transactions contemplated by the Merger Agreement, including the Offer and the Merger (as defined below), are fair to, and in the best interest of, the Company’s shareholders, (b) approved and adopted the Merger Agreement, the Option Agreement (as defined in the Offer to Purchase), the Offer and the Merger and (c) recommended that the holders of the Shares accept the Offer and tender their Shares pursuant to, and subject to the terms and conditions of, the Offer.

      The Offer is being made under the terms of an Agreement and Plan of Merger dated February 18, 2004, as amended (the “Merger Agreement”), among Parent, Purchaser and the Company, under which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, Purchaser will be merged with and into the Company, with the Company surviving the merger as a wholly owned indirect subsidiary of Parent (the “Merger”). At the effective time of the Merger (the “Effective Time”) each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by Parent, Purchaser or the Company or by shareholders, if any, who are entitled to and properly exercise dissenters’ rights under California law) will be converted into the right to receive the price per Share paid pursuant to the Offer in cash, without interest.

      In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to such Shares, (b) a Letter of Transmittal (or a manually signed facsimile thereof), properly completed, and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer effected pursuant to the procedure set forth in Section 2 of the Offer to Purchase, an Agent’s Message (as defined in the Offer to Purchase), and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering shareholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. Under no circumstances will interest be paid on the purchase price of the Shares to be paid by Purchaser, regardless of any extension of the Offer or any delay in making such payment.

      None of Purchaser or Parent will pay any fees or commissions to any broker or dealer or other person (other than the Information Agent, as described in the Offer to Purchase) in connection with the solicitation of tenders of Shares pursuant to the Offer. You will be reimbursed by Purchaser upon request for customary mailing and handling expenses incurred by you in forwarding the enclosed Offering materials to your clients.

      Questions and requests for additional copies of the enclosed material may be directed to the Information Agent at the address and telephone numbers set forth on the back cover of the enclosed Offer to Purchase.

Very truly yours,

MACKENZIE PARTNERS, INC.

NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY OTHER PERSON THE AGENT OF PURCHASER, PARENT, THE DEPOSITARY OR THE INFORMATION AGENT OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER NOT CONTAINED IN THE OFFER TO PURCHASE OR THE LETTER OF TRANSMITTAL.

2 EX-99.A.1.E 7 g87249toexv99waw1we.htm EX-99.A.1.E

Offer to Purchase for Cash

All Outstanding Shares of Common Stock

of

Creative Host Services, Inc.

at

$3.40 Net Per Share

by

Yorkmont Five, Inc.,

a wholly owned indirect subsidiary of

Compass Group USA Investments, LLP

THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY

TIME, ON THURSDAY, MARCH 25, 2004, UNLESS THE OFFER IS EXTENDED.

February 26, 2004

To Our Clients:

      Enclosed for your consideration is an Offer to Purchase dated February 26, 2004 (the “Offer to Purchase”), and the related Letter of Transmittal (which, together with amendments or supplements thereto, collectively constitute the “Offer”) relating to the Offer by Yorkmont Five, Inc., a California corporation (“Purchaser”) and a wholly owned indirect subsidiary of Compass Group USA Investments, LLP, a Delaware limited liability partnership (“Parent”), to purchase all outstanding shares of common stock, no par value (the “Shares”), of Creative Host Services, Inc., a California corporation (the “Company”), at a price of $3.40 per Share, net to the Seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer. Also enclosed is the Letter to Shareholders of the Company from the President and Chief Executive Officer of the Company accompanied by the Company’s Solicitation/ Recommendation Statement on Schedule 14D-9.

      WE (OR OUR NOMINEES) ARE THE HOLDER OF RECORD OF THE SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.

      We request instructions as to whether you wish to tender any or all of the Shares held by us for your account pursuant to the terms and conditions set forth in the Offer.

      Your attention is directed to the following:

      1. The offer price is $3.40 per Share net to the seller in cash, without interest thereon, upon the terms and subject to the conditions of the Offer.

      2. The Offer is being made for all outstanding Shares.

      3. The Board of Directors of the Company has unanimously (a) determined that the Merger Agreement (as defined below) and the transactions contemplated by the Merger Agreement, including the Offer and the Merger (as defined below), are fair to, and in the best interest of, the Company’s shareholders, (b) approved and adopted the Merger Agreement, the Option Agreement (as defined in the Offer to Purchase), the Offer and the Merger and (c) recommended that the holders of the Shares accept the Offer and tender their Shares pursuant to, and subject to the terms and conditions of, the Offer.

      4. The Offer is being made under the terms of an Agreement and Plan of Merger dated February 18, 2004, as amended (the “Merger Agreement”), among Parent, Purchaser and the Company, under which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, Purchaser will be merged with and into the Company, with the Company surviving the merger as a wholly owned indirect subsidiary of Parent (the “Merger”). At the effective time of the Merger (the “Effective Time”) each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by Parent, Purchaser or the Company or by shareholders, if any, who are entitled to and properly exercise dissenters’ rights under California law) will be converted into the right to receive the price per Share paid pursuant to the Offer in cash, without interest.

      5. The Offer and withdrawal rights expire at 12:00 midnight, New York City time, on Thursday, March 25, 2004 (the “Expiration Date”), unless the Offer is extended by the Purchaser, in which event the term “Expiration Date” shall mean the latest time at which the Offer, as so extended by the Purchaser, will expire.

      6. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the Expiration Date that number of Shares that would represent at least 90% of the Shares outstanding on the date of purchase (the “Minimum Condition”). As described in the Offer to Purchase, upon the occurrence of certain events, Purchaser may reduce the number of Shares required to be tendered to 49.9%. The Offer is also subject to the receipt of consents from counterparties to customer contracts, as well as the satisfaction of various other conditions. See Section 14 of the Offer to Purchase.

      7. Any stock transfer taxes applicable to a sale of Shares to the Purchaser will be paid by the Purchaser, except as otherwise provided in Instruction 6 of the Letter of Transmittal.

      8. Tendering shareholders whose Shares are registered in their own names and who tender Shares directly to the Depositary will not be obligated to pay brokerage fees or commissions to the Depositary, or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by Purchaser pursuant to the Offer. However, federal income tax backup withholding at a rate of 28% may be required, unless an exemption is provided or unless the required taxpayer identification information is provided. See Instruction 9 of the Letter of Transmittal.

      Your instructions to us should be forwarded promptly to permit us to submit a tender on your behalf prior to the Expiration Date.

      If you wish to have us tender any of or all the Shares held by us for your account, please so instruct us by completing, executing, detaching and returning to us the attached instruction form. An envelope to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the detachable part hereof. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION DATE.

      Payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by Computershare Trust Company of New York (the “Depositary”) of (a) certificates for (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to) such Shares, (b) a Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer effected pursuant to the procedures set forth in Section 2 of the Offer to Purchase, an Agent’s Message, and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering shareholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.

      The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer is being made on behalf of the Purchaser by one or more registered brokers or dealers that are licensed under the laws of such jurisdiction to be designated by the Purchaser.

2

Instructions With Respect to the

Offer to Purchase for Cash

All Outstanding Shares of Common Stock

of

Creative Host Services, Inc.

             The undersigned acknowledge(s) receipt of your letter, the Offer to Purchase dated February 26, 2004 (the “Offer to Purchase”), and the related Letter of Transmittal relating to shares of common stock, no par value (the “Shares”), of Creative Host Services, Inc., a California corporation.

      This will instruct you to tender the number of Shares indicated below held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and related Letter of Transmittal.

Number of Shares to be Tendered⁽¹⁾:

             Shares

SIGN HERE

Signature(s)

Please Type or Print Name(s)

Please Type or Print Address(es)

Area Code and Telephone Number

Taxpayer Identification or Social Security No.

Dated: _________________, 2004

⁽¹⁾  Unless otherwise indicated, it will be assumed that all your Shares are to be tendered.

3 EX-99.A.1.F 8 g87249toexv99waw1wf.htm EX-99.A.1.F

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION

NUMBER ON SUBSTITUTE FORM W-9

Guidelines for Determining the Proper Identification Number to Give the Payer — Social Security numbers have nine digits separated by two hyphens: e.g., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: e.g., 00-0000000. The table below will help determine the number to give the payer.

For this type of account:
		Give the
		Social Security
		Number of—
1.	An individual	The individual
2.	Two or more individuals (joint account)	The actual owner of the account or, if combined funds, the first individual on the account(1)
3.	Custodian account of a minor (Uniform Gift to Minors Act)	The minor(2)
4.	a. The usual revocable savings trust (grantor is also trustee)	The grantor- trustee(1)
	b. So-called trust account that is not a legal or valid trust under state law	The actual owner(1)
5.	Sole proprietorship or single-owner LLC	The owner(3)
6.	Sole Proprietorship or single member LLC	The owner(3)
7.	A valid trust, estate, or pension trust	The legal entity(4)
8.	Corporate or LLC electing corporate status on Form 8832	The corporation
9.	Association, club, religious, charitable, educational, or other tax exempt organization	The organization
10.	Partnership or multi-member LLC	The partnership
11.	A broker or registered nominee	The broker or nominee
12.	Account with the Department of Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments	The public entity

(1)	List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person’s number must be furnished.
(2)	Circle the minor’s name and furnish the minor’s social security number.
(3)	You must show your individual name, but you may also enter your business or “doing business as” name. You may use either your social security number or your employer identification number (if you have one).
(4)	List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the taxpayer identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)

Note:  If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed.

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION

NUMBER ON SUBSTITUTE FORM W-9

Page 2

Obtaining a Number

If you don’t have a taxpayer identification number or you don’t know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at an office of the Social Security Administration or the Internal Revenue Service.

Payees Exempt from Backup Withholding

Payees specifically exempted from backup withholding on ALL payments include the following:

  •  An organization exempt from tax under section 501(a), or an individual retirement plan, or a custodial account under section 403(b)(7) if the account satisfies the requirements of section 401(f)(2).

  •  The United States or any agency or instrumentality thereof.

  •  A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof.

  •  A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof.

  •  An international organization or any agency or instrumentality thereof.

  Payees that may be exempt from backup withholding:

  •  A corporation.

  •  A foreign central bank of issue.

  •  A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States.

  •  A futures commission merchant registered with the Commodity Futures Trading Commission.

  •  A real estate investment trust.

  •  An entity registered at all times during the tax year under the Investment Company Act of 1940.

  •  A common trust fund operated by a bank under section 584(a).

  •  A financial institution.

  •  A middleman known in the investment community as a nominee or custodian.

  •  A trust exempt under section 664 or described in section 4947.

EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE FORM W-9 TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE “EXEMPT” ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.

  Certain payments other than interest dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A.

Privacy Act Notice. — Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 28% of taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply.

Penalties

(1) Penalty for Failure to Furnish Taxpayer Identification Number. — If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect.

(2) Civil Penalty for False Information with respect to Withholding. — If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500.

(3) Criminal Penalty for Falsifying Information. — Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment.

(4) Misuse of Taxpayer Identification Numbers. — If the payer discloses or uses taxpayer identification numbers in violation of Federal law, the payer may be subject to civil and criminal penalties.

FOR ADDITIONAL INFORMATION CONTACT YOUR TAX

CONSULTANT OR THE INTERNAL REVENUE SERVICE.

EX-99.A.1.G 9 g87249toexv99waw1wg.htm EX-99.A.1.G

FOR IMMEDIATE RELEASE

CONTACT:	Creative Host Services, Inc.	Compass Group
	(858) 675-7711	Cheryl Queen
		(704) 329-4018

COMPASS GROUP TO ACQUIRE CREATIVE HOST SERVICES

SAN DIEGO, CA (February 18, 2004) – Compass Group USA Investments, LLP, a wholly owned subsidiary of UK-based Compass Group PLC (CPG.L), and San Diego, California-based Creative Host Services, Inc. (NASDAQ: CHST) today announced that they have entered into a definitive agreement under which a subsidiary of Compass Group will acquire Creative Host in a cash tender offer and subsequent merger.

The Boards of Directors of both companies have unanimously approved the agreement, under which Yorkmont Five, Inc., an acquisition subsidiary of Compass Group USA Investments, LLP, will commence a tender offer to purchase all shares of Creative Host’s outstanding common stock for $3.40 per share, in cash. The tender offer, which is not subject to a financing condition, is expected to commence within the next six business days and will remain open for at least twenty business days following the commencement of the offer. In addition, certain principal shareholders of Creative Host, representing approximately 40.3% of the shares outstanding, have committed to tender their shares in the offer.

Gary Green, president and chief executive officer, Compass Group North America (a division of Compass Group PLC) said, “Creative Host’s management team and track record of growth in the airport concessions market fits nicely with our existing airport operations and provides us with a strategic position for further growth.”

Creative Host serves over 100 concession facilities at approximately 30 clients in the airport concessions markets through Creative Host Services and GladCo Enterprises, Inc. The management team of Creative Host will remain with the business following the acquisition.

Joining Gary Green in making the announcement, Sayed Ali, who continues as president and chief executive officer of Creative Host, commented, “This is a great move for our shareholders, the Creative Host team and our clients and customers. Compass Group is the largest foodservice company in the world and a major player in the US foodservice market. It brings tremendous opportunities for Creative Host and our employees to reach many of our goals. We share a commitment to excellent service, quality, team member development and growth. Our clients and team members stand only to gain through the strengths and benefits we’ll see as being part of this group.”

The closing of the tender offer is conditioned upon receiving in the tender offer at least 90% of the outstanding shares of Creative Host’s common stock on a fully diluted basis. However, if more than 50% but fewer than 90% of such shares are tendered, Yorkmont

Five will either extend the offer, exercise its option to purchase shares of Creative Host common stock so that it holds 90% of the shares following the offer, or amend the offer to reduce the number of shares required to be received to close the tender offer to 49.9% of the outstanding shares and subsequently pursue a merger with Creative Host. The offer is also subject to other customary conditions and to the receipt of consents relating to certain customer contracts. The tender offer is expected to be followed by a merger in which any remaining Creative Host shares will be converted into the right to receive $3.40 per share in cash.

Houlihan Lokey Howard & Zukin advised Creative Host in connection with this transaction.

Compass Group PLC is the world’s largest contract foodservice company with operations in more than 90 countries. Compass Group employs more than 425,000 associates and was recognized in 2003 by Fortune as the world’s tenth largest employer. The company reports annual revenues of $18 billion.

Creative Host Services, Inc. (including its wholly owned subsidiary, GladCo Enterprises, Inc.) is engaged in the business of acquiring, managing, and operating airport concessions such as food and beverage, cocktail and lounge, and news and gift retail facilities at various locations across the United States.

The tender offer described in this press release for the outstanding shares of Creative Host has not yet commenced. This press release is neither an offer to purchase nor a solicitation of an offer to sell securities. The tender offer will be made only through an Offer to Purchase and related Letter of Transmittal to be mailed to Creative Host shareholders. Creative Host shareholders are strongly advised to read both the tender offer statement and the solicitation/recommendation statement regarding the tender offer and the merger when they become available as those documents will contain important information. The tender offer statement (filed as Schedule TO) will be filed by Yorkmont Five, Inc. with the Securities and Exchange Commission (SEC), and the solicitation/recommendation statement (filed as Schedule 14D-9) will be filed by Creative Host with the SEC when the tender offer commences. Creative Host shareholders may obtain a free copy of these statements and other documents filed by Yorkmont Five and Creative Host at the SEC’s website at www.sec.gov.

This press release may contain “forward-looking statements” which represent expectations or beliefs concerning future events. Investors are cautioned that a number of important factors could, individually or in the aggregate, cause actual events to differ materially from such forward-looking statements. These factors include, without limitation, acceptance of the tender offer by Creative Host’s shareholders and the satisfaction or waiver of conditions contained in the agreement.

EX-99.A.1.D

EX-99.A.1.D

EX-99.A.1.E

EX-99.A.1.E

EX-99.A.1.F

EX-99.A.1.F

EX-99.A.1.G

EX-99.A.1.G

EX-99.A.1.H

This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as
defined below). The Offer (as defined below) is made only by the Offer to Purchase, dated February
26, 2004 and the related Letter of Transmittal and any amendments or supplements thereto, and is
being made to all holders of Shares. The Offer is not being made to (nor will tenders be accepted
from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the
acceptance thereof would not be in compliance with the securities, blue sky or other laws of such
jurisdiction. However, Purchaser (as defined below) may, in its discretion, take such action as it
may deem necessary to make the Offer in any jurisdiction and extend the Offer to holders of Shares
in such jurisdiction. In those jurisdictions where securities, blue sky or other laws require the
Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of
Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction
to be designated by Purchaser.

Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock

of

Creative Host Services, Inc.

at

$3.40 Net Per Share

by

Yorkmont Five, Inc.

a wholly owned indirect subsidiary of

Compass Group USA Investments, LLP

     Yorkmont Five, Inc., a California corporation (“Purchaser”) and wholly owned indirect subsidiary of Compass Group USA Investments, LLP, a Delaware limited liability partnership (“Parent”), is offering to purchase all the outstanding shares of common stock, no par value (“Shares”), of Creative Host Services, Inc., a California corporation (the “Company”), at a price of $3.40 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated February 26, 2004 (the “Offer to Purchase”), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the “Offer”). Tendering shareholders whose Shares are registered in their names and who tender directly to Computershare Trust Company of New York (the “Depositary”) will not be charged brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of the Shares pursuant to the Offer. Shareholders who hold their Shares through brokers, dealers, banks, trust companies or other nominees should consult such institutions to determine whether they charge any service fees for tendering such Shares. Purchaser will pay all fees and expenses of the Depositary and MacKenzie Partners, Inc., which is acting as the information agent (the “Information Agent”), incurred in connection with the Offer. Following the consummation of the Offer, Purchaser intends to effect the Merger described below.

     THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, MARCH 25, 2004, UNLESS THE OFFER IS EXTENDED.

     The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration date of the Offer that number of Shares that would represent at least 90% of all outstanding Shares on the date of purchase (the “Minimum Condition”). The Offer is also subject to the satisfaction of certain other conditions. See Section 14 of the Offer to Purchase. In the event the Minimum Condition is not satisfied on any scheduled Expiration Date of the Offer, and more than 50% but less than 90% of the Shares then outstanding are validly tendered pursuant to the Offer and not withdrawn, Purchaser and Parent will, as described in the Offer to Purchase, either extend the Offer, exercise the Option Agreement and purchase enough Shares such that Purchaser would own one Share more than 90% of all Shares outstanding, or amend the Offer so that it is conditioned upon there being validly tendered and not withdrawn before the expiration of the Offer a number of shares equal to 49.9% of the Shares then outstanding (“Revised Minimum Condition”).

     The Offer is being made under the terms of an Agreement and Plan of Merger dated February 18, 2004, as amended (the “Merger Agreement”), among Parent, Purchaser and the Company, under which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, Purchaser will be merged with and into the Company, with the Company surviving the merger as a wholly owned indirect subsidiary of Parent (the “Merger”). At the effective time of the Merger (the “Effective Time”) each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by Parent, Purchaser or the Company or by shareholders, if any, who are entitled to and properly exercise dissenters’ rights under California law) will be converted into the right to receive $3.40 per Share or such greater amount as may be paid pursuant to the Offer in cash, without interest. If, pursuant to the Offer, Purchaser does not acquire a sufficient number of Shares to satisfy the Minimum Condition, then under certain circumstances described in the Offer to Purchase, Parent and Purchaser will solicit the approval of the Merger and the Merger Agreement by a majority vote of the shareholders of the Company pursuant to the California General Corporation Law, as amended (the “CGCL”).

     In connection with the Merger Agreement, Parent and Purchaser entered into a Tender and Voting Agreement with a management shareholder and a Tender Agreement with another shareholder of the Company, each dated February 18, 2004 (collectively, the “Tender Agreements”). Pursuant to the Tender Agreements, these individuals have agreed to tender the 3,562,668 Shares owned by them (the “Committed Shares”) in the Offer. The Committed Shares represented approximately 40.3% of all outstanding Shares on February 18, 2004.

     The Board of Directors of the Company has unanimously (a) determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Offer and the Merger, are fair to, and in the best interest of, the Company’s shareholders, (b) approved and adopted the Merger Agreement, the Option Agreement (as defined in the Offer to Purchase), the Offer and the Merger and (c) recommended that the holders of Shares accept the Offer and tender their Shares pursuant to, and subject to the terms and conditions of, the Offer.

     For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered to Purchaser and not properly withdrawn as, if and when Purchaser gives oral or written notice to the Depositary of Purchaser’s acceptance for payment of such Shares. Upon the terms and subject to the conditions of the Offer, payment for Shares purchased pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as an agent for tendering shareholders for the purpose of receiving payment from Purchaser and transmitting payment to tendering shareholders whose Shares have been accepted for payment. Under no circumstances will interest be paid on the purchase price for tendered Shares, regardless of any extension or any amendment to the Offer or any delay in paying for such Shares. Payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (i) certificates for (or a timely book-entry confirmation with respect to) such Shares, (ii) a Letter of Transmittal (or manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent’s Message (as defined in the Offer to Purchase) in lieu of the Letter of Transmittal), and (iii) any other documents required by the Letter of Transmittal.

     If by the Expiration Date (as defined below), any of or all the conditions to the Offer have not been satisfied or waived, Purchaser, subject to the terms of the Merger Agreement and the applicable rules and regulations of the Securities and Exchange Commission (the “Commission”), reserves the right (but shall not be obligated) to (a) terminate the Offer and return all tendered Shares to tendering shareholders, (b) except with respect to the Minimum Condition, waive such unsatisfied conditions and accept for payment and pay for all Shares validly tendered prior to the Expiration Date or (c) to extend the Offer and, subject to the right of shareholders to withdraw Shares until the Expiration Date, retain the Shares that have been tendered during the period or periods for which the Offer is extended; provided that Purchaser will not be permitted to extend the Offer beyond July 2, 2004 without the prior written consent of the Company. The term “Expiration Date” means 12:00 midnight, New York City time, on March 25, 2004, unless Purchaser shall have extended the period of time for which the Offer is open, in which event the term “Expiration Date” shall mean the latest time and date at which the Offer, as so extended by Purchaser shall expire. Purchaser intends to include a subsequent offering period of no less than three business days in the event that the Minimum Condition and all other conditions to the Offer have been satisfied or waived as of the Expiration Date pursuant to Rule 14d-11 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

     Under the terms of the Merger Agreement, Purchaser may not, without the prior written consent of the Company, (a) reduce the number of Shares subject to the Offer, (b) reduce the price per Share to be paid pursuant to the Offer, (c) change or waive the Minimum Condition, (d) add any other conditions to the Offer other than the conditions set forth in the Merger Agreement, or modify any conditions set forth in the Merger Agreement, or amend, modify or supplement any other terms of the Offer in any manner adverse to the Company’s shareholders, (e) change the form of consideration payable in the Offer or (f) extend the Offer beyond July 2, 2004.

     If Purchaser extends the Offer, Purchaser will inform the Depositary of that fact and will make a public announcement of the extension not later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date.

     Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless previously accepted for payment pursuant to the Offer, also may be withdrawn at any time after March 25, 2004. Except as otherwise provided in Section 3 of the Offer to Purchase, tenders of Shares made pursuant to the Offer are irrevocable. For a withdrawal of Shares tendered pursuant to the Offer to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such certificates have been tendered by an Eligible Institution (as defined in the Offer to Purchase), any and all signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer as set forth in the Offer to Purchase, any notice of withdrawal must also specify the name and number of the account of the book-entry transfer facility to be credited with the withdrawn Shares and otherwise comply with the book-entry transfer facility’s procedures. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by Purchaser, in its sole discretion, and its determination will be final and binding on all parties.

     The receipt of cash in exchange for Shares pursuant to the Offer (or the Merger) will be a taxable transaction to the recipient shareholder for U.S. federal income-tax purposes and may also be a taxable transaction under applicable state, local or foreign tax laws. Generally, a shareholder who receives cash in exchange for Shares pursuant to the Offer (or the Merger) will recognize gain or loss for U.S. federal income-tax purposes equal to the difference between the amount of cash received and such shareholder’s adjusted tax basis in the Shares exchanged therefor. All shareholders should consult with their own tax advisors as to the particular tax consequences of the Offer and the Merger to them, including the applicability and effect of the alternative minimum tax and any state, local or foreign income and other tax laws and of changes in such tax laws. For a more complete description of certain U.S. federal income-tax consequences of the Offer and the Merger see Section 5 of the Offer to Purchase.

     The information required to be disclosed by Paragraph (d)(1) of Rule 14d-6 of the General Rules and Regulations under the Exchange Act, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided to Purchaser its list of shareholders and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase, the related Letter of Transmittal and other related materials are being mailed to record holders of Shares and will be mailed to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency’s security position listing, for subsequent transmittal to beneficial owners of Shares. The Offer to Purchase and the related Letter of Transmittal contain important information that should be read carefully before any decision is made with respect to the Offer.

     Questions and requests for assistance and copies of the Offer to Purchase, the Letter of Transmittal and all other tender offer materials may be directed to the Information Agent at the address and telephone number set forth below, and will be furnished promptly at Purchaser’s expense. Neither Parent nor Purchaser will pay any fees or commissions to any broker or dealer or any other person (other than the Information Agent) for soliciting tenders of Shares pursuant to the Offer.

The Information Agent for the Offer is:

Mackenzier Partners, Inc. {Logo}

105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)

or

Call Toll-Free (800) 322-2885
E-mail: proxy@mackenziepartners.com

February 26, 2004

EX-99.D.1

AGREEMENT AND PLAN OF MERGER

by and among

COMPASS GROUP USA INVESTMENTS, LLP,

YORKMONT FIVE, INC.,

and

CREATIVE HOST SERVICES, INC.

Dated as of February 18, 2004

TABLE OF CONTENTS

	Page
ARTICLE I THE OFFER AND THE MERGER		2
Section 1.1. The Offer		2
Section 1.2. Company Actions		4
Section 1.3. The Merger		5
Section 1.4. Closing		5
Section 1.5. Effective Time		5
Section 1.6. Effects of the Merger		6
Section 1.7. Articles of Incorporation and Bylaws		6
Section 1.8. Directors		6
Section 1.9. Officers		6
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES		6
Section 2.1. Effect on Capital Stock		6
Section 2.2. Exchange of Certificates		7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY		9
Section 3.1. Organization, Standing and Power		9
Section 3.2. Subsidiaries		9
Section 3.3. Capital Structure		10
Section 3.4. Authority and Enforceability		11
Section 3.5. No Violation; Consents		11
Section 3.6. Filings with the SEC; Financial Statements		12
Section 3.7. Absence of Certain Changes or Events		14
Section 3.8. Litigation		14
Section 3.9. Contracts		15
Section 3.10. Compliance with Laws		17
Section 3.11. Benefit Plans; Employment and Labor Relations		17
Section 3.12. Absence of Certain Business Practices		20
Section 3.13. Environmental Matters.		21
Section 3.14. Insurance		22
Section 3.15. Taxes		22

	Page
Section 3.16. Intellectual Property		24
Section 3.17. Property		25
Section 3.18. Takeover Provisions and Statutes		25
Section 3.19. Vote Required		25
Section 3.20. No Discussions		25
Section 3.21. Brokers; Schedule of Fees and Expenses		25
Section 3.22. Opinion of Financial Advisor		25
Section 3.23. Company Business		26
Section 3.24. Information Supplied		26
Section 3.25. Transactions with Affiliates		26
Section 3.26. Absence of Indemnifiable Claims, Etc		26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPASS AND MERGER SUB		26
Section 4.1. Organization		26
Section 4.2. Authority; Noncontravention		26
Section 4.3. Interim Operations of Merger Sub		27
Section 4.4. Financial Capability		27
Section 4.5. Director Recommendations		28
Section 4.6. Brokers; Schedule of Fees and Expenses		28
Section 4.7. No Untrue Representation; Information Supplied		28
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS		28
Section 5.1. Conduct of Business		28
Section 5.2. No Solicitation		33
ARTICLE VI ADDITIONAL AGREEMENTS		35
Section 6.1. Preparation of the Proxy Statement; Company Shareholders Meeting		35
Section 6.2. Access To Information; Confidentiality		36
Section 6.3. Additional Actions; Notification		36
Section 6.4. Indemnification and Insurance		37
Section 6.5. Fees and Expenses		38
Section 6.6. Company Stock Options, Company Warrants and Restricted Stock		39
Section 6.7. Benefits Matters		40

	Page
Section 6.8. Public Announcements		41
Section 6.9. Directors		41
Section 6.10. Fairness Hearing		42
ARTICLE VII CONDITIONS PRECEDENT		42
Section 7.1. Conditions to Each Party’s Obligation to Effect the Merger		42
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER		43
Section 8.1. Termination		43
Section 8.2. Effect of Termination		44
Section 8.3. Amendment		44
Section 8.4. Extension; Waiver		44
ARTICLE IX GENERAL PROVISIONS		45
Section 9.1. Nonsurvival of Representations and Warranties		45
Section 9.2. Notices		45
Section 9.3. Definitions		46
Section 9.4. Interpretation		47
Section 9.5. Counterparts		47
Section 9.6. Entire Agreement; No Third-Party Beneficiaries		47
Section 9.7. Governing Law		48
Section 9.8. Disclosure Schedules		48
Section 9.9. Safe Harbor		48
Section 9.10. Assignment		48
Section 9.11. Specific Performance		48
Section 9.12. Severability		48
ANNEX I CONDITIONS OF THE OFFER

AGREEMENT AND PLAN OF MERGER

     This AGREEMENT AND PLAN OF MERGER (this “Agreement”) is dated as of February 18, 2004 by and among COMPASS GROUP USA INVESTMENTS, LLP, a Delaware limited liability partnership (“Compass”), YORKMONT FIVE, INC., a California corporation and a wholly owned indirect subsidiary of Compass (“Merger Sub”), and CREATIVE HOST SERVICES, INC., a California corporation (the “Company”).

     WHEREAS, the general partner of Compass and the respective Boards of Directors of Merger Sub and the Company have each determined that it is in the best interests of their respective partners and shareholders for Compass to acquire the Company on the terms and subject to the conditions set forth in this Agreement;

     WHEREAS, in furtherance of such acquisition, it is proposed that Merger Sub will make a cash tender offer (as it may be amended from time to time as permitted under this Agreement, the “Offer”) to purchase all of the outstanding shares of common stock, no par value, of the Company (the “Company Common Stock”), on the terms and subject to the conditions set forth in this Agreement;

     WHEREAS, as an inducement to Compass and Merger Sub to enter into this Agreement, Compass, Merger Sub and the Company have entered into a Stock Option Agreement (the “Option Agreement”), pursuant to which the Company has granted to Merger Sub an option to purchase newly issued shares of Company Common Stock under certain circumstances;

     WHEREAS, the Board of Directors of the Company has approved the Offer and the transactions contemplated by this Agreement and has resolved to recommend that holders of the Company Common Stock approve this Agreement, accept the Offer and tender their shares of Company Common Stock pursuant to the Offer;

     WHEREAS, the general partner of Compass and the respective Boards of Directors of Merger Sub and the Company have approved this Agreement, the Option Agreement and the transactions contemplated hereby and the merger of Merger Sub into the Company in accordance with the General Corporation Law of California (the “CGCL”) and on the terms and subject to the conditions set forth in this Agreement (the “Merger”);

     WHEREAS, Compass, Merger Sub and the Company hereby make certain representations, warranties, covenants and agreements in connection with the Offer and the Merger and prescribe various conditions to the consummation of the Offer and the Merger;

     NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth herein, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE I

THE OFFER AND THE MERGER

     Section 1.1. The Offer.

          (a) Subject to the conditions of this Agreement, as promptly as practicable, but in no event later than six business days after the date of this Agreement, Merger Sub shall, and Compass shall cause Merger Sub to, commence the Offer within the meaning of the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) at a price per share of Company Common Stock equal to $3.40 (such amount, or any greater amount paid per share pursuant to the Offer, the “Offer Price”), net to the sellers in cash, without interest. The obligations of Merger Sub to, and of Compass to cause Merger Sub to, accept for payment, and pay for, any shares of Company Common Stock tendered pursuant to the Offer are subject only to the satisfaction or waiver of the conditions set forth in Annex I. The initial expiration date of the Offer shall be 20 business days following the commencement of the Offer (as it may be extended in accordance with this Agreement, the “Expiration Date”). Merger Sub expressly reserves the rights to waive any condition to the Offer and to modify the terms of the Offer in a manner not inconsistent with the provisions of this Agreement, except that, without the prior written consent of the Company, Merger Sub shall not, except as otherwise expressly provided in this Agreement, (i) reduce the number of shares of Company Common Stock subject to the Offer, (ii) reduce the price per share of Company Common Stock to be paid pursuant to the Offer, (iii) change or waive the Minimum Tender Condition (as defined in Annex I), (iv) add to the conditions set forth in Annex I or modify any condition set forth in Annex I or amend, modify or supplement any other terms of the Offer in any manner adverse to the holders of Company Common Stock, (v) change the form of consideration payable in the Offer or (vi) extend the Offer beyond the date specified below in this Section 1.1. Unless extended as provided in this Agreement, the Offer shall expire on the Expiration Date. If any of the conditions to the Offer are not satisfied on any scheduled Expiration Date of the Offer, then Merger Sub may extend or re-extend the Offer for one or more periods of time that Merger Sub reasonably believes are necessary to cause the conditions to the Offer to be satisfied from time to time until such conditions are satisfied or waived (each such extension period not to exceed 10 business days at a time), or shall otherwise act in accordance with Section 1.1(b); provided that Merger Sub may not extend the Offer beyond 90 business days following the commencement of the Offer without the prior written consent of the Company (the “Final Expiration Date”). In addition, Merger Sub may, without the consent of the Company, elect to provide a subsequent offering period for the Offer of at least three but not more than 20 business days in accordance with Rule 14d-11 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), following its acceptance of shares of Company Common Stock in exchange for payment thereof pursuant to the Offer. Upon the terms and subject to the conditions of the Offer and this Agreement, Merger Sub shall, and Compass shall cause Merger Sub to, accept for payment and pay for all shares of Company Common Stock validly tendered and not withdrawn pursuant to the Offer as soon as practicable after the earliest date as of which each of the conditions of the Offer set forth in Annex I has been satisfied, but only to the extent such conditions relate to the Company. The term “Specified Date” means the date on which Merger Sub accepts for payment the shares of Company Common Stock tendered pursuant to and subject to the conditions of the Offer.

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          (b) Notwithstanding any other provision contained herein, in the event the Minimum Tender Condition is not satisfied on any scheduled Expiration Date of the Offer, subject to any right of Compass or Merger Sub to terminate this Agreement pursuant to its terms (except for the termination right arising under Section 1 of Annex I of this Agreement for failure to meet the Minimum Tender Condition (unless the Revised Minimum Number (as defined below in this Section 1.1(b)) has not been tendered (taking into account any withdrawals) as of such Expiration Date)), Merger Sub shall, and Compass shall cause Merger Sub to, take one of the actions set forth in the following clauses (x), (y) or (z) (provided that Merger Sub shall have complete discretion as to which actions among the three clauses to take) as follows: (x) extend the Offer pursuant to Section 1.1(a), (y) amend the Offer in contemplation of the exercise of the Option Agreement (to the extent the Option Agreement is exercisable at such time) to reduce the Minimum Tender Condition to that number of shares (the “Option Exercise Minimum Number”) equal to the number of shares which, when combined with the number of shares issued upon exercise of the Option Agreement, equals 90% of the shares of Company Common Stock then outstanding; provided, however, that the number of shares issued upon exercise of the Option Agreement may not exceed 2,099,200 shares of Company Common Stock, or (z) amend the Offer to provide that, in the event (i) the Minimum Tender Condition is not satisfied at the next scheduled Expiration Date of the Offer, after giving effect to the issuance of any shares of Company Common Stock theretofore acquired by Compass or Merger Sub, and (ii) the number of shares of Company Common Stock tendered pursuant to the Offer and not withdrawn as of such next scheduled Expiration Date is more than 50% of the then-outstanding shares of Company Common Stock, Merger Sub shall waive the Minimum Tender Condition and amend the Offer to reduce the number of shares of Company Common Stock subject to the Offer to 49.9% of the shares of Company Common Stock then outstanding (the “Revised Minimum Number”) and, subject to the prior satisfaction or waiver of the other conditions of the Offer, either (A) purchase, on a pro rata basis, the Revised Minimum Number of shares or (B) (1) purchase all shares of Company Common Stock that have been tendered and not withdrawn as of such Expiration Date, (2) prepare and file a permit application under Section 25142 of the CGCL and a related information statement or other disclosure document (together, a “Permit Application”), and shall request a hearing on the fairness of the terms and conditions of the Merger pursuant to Section 25142 of the CGCL (a “Fairness Hearing”), and (3) otherwise comply with the CGCL (it being understood that Merger Sub shall not in any event be required to accept for payment, or pay for, any shares of Company Common Stock if less than the Revised Minimum Number of shares are tendered pursuant to the Offer and not withdrawn at the Expiration Date).

          (c) On the date the Offer commences, Compass and Merger Sub shall file with the SEC a Tender Offer Statement on Schedule TO (together with all amendments and supplements thereto, the “Schedule TO”) with respect to the Offer. The Schedule TO shall contain or shall incorporate by reference an offer to purchase and form of the related letter of transmittal and any related summary advertisement (the Schedule TO, the offer to purchase and such other documents, together with all supplements and amendments thereto, are, collectively, the “Offer Documents”). The Company and its counsel shall be given reasonable opportunity to review and comment upon the Offer Documents prior to their filing with the SEC or dissemination to the Company’s shareholders. To the extent required by applicable federal securities laws, Compass, Merger Sub and the Company shall promptly correct any information provided by any of them for use in the Offer Documents that shall have become false or

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misleading, and shall take all steps necessary to cause the Offer Documents, as so corrected, to be filed with the SEC and to be disseminated to holders of shares of Company Common Stock, in each case as and to the extent required by applicable federal securities laws. Compass and Merger Sub shall provide the Company and its counsel in writing with any written comments (and orally, any oral comments), Compass, Merger Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments and shall consult with the Company and its counsel prior to responding to any such comments.

          (d) Compass shall provide or cause to be provided to Merger Sub on a timely basis the funds necessary to purchase any shares of Company Common Stock that Merger Sub becomes obligated to purchase pursuant to this Agreement and the Offer.

     Section 1.2. Company Actions.

          (a) The Company hereby approves of and consents to the Offer and represents that its Board of Directors at a meeting duly called and held on February 12, 2004, has by unanimous vote of the members thereof present and voting: (i) determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger (collectively, the “Transactions”), are fair to, and in the best interest of, the Company’s shareholders, (ii) approved, adopted and declared advisable this Agreement, the Option Agreement and the Transactions (such approval and adoption having been made in accordance with the CGCL and the Company’s Articles of Incorporation) and (iii) recommended that the holders of Company Common Stock accept the Offer and tender their Company Common Stock pursuant to, and subject to the terms and conditions of, the Offer, and approve and adopt this Agreement and the Merger.

          (b) On the date the Offer commences, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and supplements thereto, the “Schedule 14D-9”) containing the recommendation of the Board of Directors of the Company described in Section 1.2(a), and shall disseminate the Schedule 14D-9 to the extent required by Rule 14d-9 promulgated under the Exchange Act and any other applicable federal securities laws; provided, that, notwithstanding anything to the contrary contained in this Agreement, the Board of Directors of the Company may withdraw or amend such recommendation in accordance with Section 5.2(b). Compass and its counsel shall be given reasonable opportunity to review and comment upon the Schedule 14D-9 prior to its filing with the SEC or dissemination to the Company’s shareholders. To the extent required by applicable federal securities laws, the Company, Compass and Merger Sub shall promptly correct any information provided by any of them for use in the Schedule 14D-9 that is or shall have become false or misleading, and shall take all steps necessary to cause the Schedule 14D-9, as so corrected, to be filed with the SEC and disseminated to holders of shares of Company Common Stock, in each case as and to the extent required by applicable federal securities laws. The Company shall provide Compass and its counsel in writing with any written comments (and orally, any oral comments) the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments and shall consult with Compass and its counsel prior to responding to such comments.

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          (c) In connection with the Offer and the Merger, the Company shall cause its transfer agent to promptly furnish Merger Sub with an appropriate number of mailing labels containing the names and addresses of the record holders of shares of Company Common Stock, warrants or similar rights to purchase Company Common Stock (“Company Warrants”) and stock options to purchase Company Common Stock (“Company Stock Options”) as of the most recent practicable date and of those Persons becoming record holders subsequent to such date, together with copies of all lists of shareholders, security position listings and computer files and all other information in the Company’s possession or control regarding the beneficial owners of Company Common Stock, Company Warrants and Company Stock Options, and shall furnish to Merger Sub such information and assistance (including updated lists of shareholders, security position listings and computer files) as Compass may reasonably request in communicating the Offer to the Company’s shareholders. Subject to the requirements of applicable law, and, except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer, the Merger and the other transactions contemplated by this Agreement, Compass and Merger Sub shall hold in confidence the information contained in any such labels, listings and files, shall use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, shall, upon request, use reasonable efforts to deliver to the Company or destroy all copies of such information then in their possession.

     Section 1.3. The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the CGCL, Merger Sub shall be merged with and into the Company at the Effective Time (as defined in Section 1.5). At the Effective Time, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation (the “Surviving Corporation”).

     Section 1.4. Closing. Upon the terms and subject to the conditions set forth in this Agreement, the closing of the Merger (the “Closing”) shall take place at 11:00 a.m., within five business days after the satisfaction or (to the extent permitted by applicable law) waiver of the last to be satisfied of the conditions set forth in Article VII (other than those that by their terms cannot be satisfied until the time of the Closing but subject to the fulfillment or waiver of such conditions), at the offices of Helms Mulliss & Wicker, PLLC, 201 North Tryon Street, Charlotte, North Carolina, unless this Agreement has been earlier terminated pursuant to its terms or unless another time, date or place are agreed to in writing by Compass and the Company. The date on which the Closing occurs is referred to in this Agreement as the “Closing Date”.

     Section 1.5. Effective Time. Upon the terms and subject to the conditions set forth in this Agreement, as soon as practicable on or after the Closing Date, an agreement of merger and officers’ certificate or other appropriate documents (in any such case, the “Agreement of Merger”) shall be duly prepared, executed and acknowledged by the parties in accordance with the relevant provisions of the CGCL and filed with the Secretary of State of the State of California. The Merger shall become effective upon the filing of the Agreement of Merger and officers’ certificate with the Secretary of State of the State of California or at such subsequent time or date as Compass and the Company shall agree and specify in the Agreement of Merger. The time at which the Merger becomes effective is referred to in this Agreement as the “Effective Time”.

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     Section 1.6. Effects of the Merger. The Merger shall have the effects set forth in this Agreement and in Chapter 11 of the CGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as otherwise provided herein, all the rights and property of Merger Sub shall vest in the Surviving Corporation, and all debts and liabilities of the Merger Sub shall become the debts and liabilities of the Surviving Corporation.

     Section 1.7. Articles of Incorporation and Bylaws.

          (a) The Articles of Incorporation of the Company as in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation until, subject to Section 6.4, thereafter changed or amended as provided therein or under applicable law.

          (b) The Bylaws of the Merger Sub as in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or under applicable law.

     Section 1.8. Directors. The Members of the Board of Directors of Merger Sub immediately prior to the Effective Time shall be the Members of the Board of Directors of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

     Section 1.9. Officers. The officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

ARTICLE II

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES

     Section 2.1. Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of capital stock of the Company, Compass or Merger Sub:

          (a) Conversion of Company Common Stock. Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 2.1(c) and the Dissenting Shares (as defined in Section 2.1(d)) shall be converted into the right to receive from the Surviving Corporation in cash, without interest, the price per share paid pursuant to the Offer (the “Merger Consideration”). At the Effective Time all such shares shall no longer be outstanding and shall automatically be canceled, retired and cease to exist, and each holder of a certificate that immediately prior to the Effective Time represented any such shares (a “Certificate”) shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration.

          (b) Capital Stock of Merger Sub. Each issued and outstanding share of common stock of Merger Sub shall be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation.

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          (c) Cancellation of Treasury Stock and Compass-Owned Stock. Each share of Company Common Stock that is owned by the Company (as treasury stock), Compass or Merger Sub immediately prior to the Effective Time shall automatically be canceled and retired and shall cease to exist and no consideration shall be delivered in exchange therefor.

          (d) Dissenters’ Rights. Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock issued and outstanding immediately prior to the Effective Time that are held by any holder who is entitled to demand and properly demands payment (the “Dissenting Shares”) of the value (“Payment”) of such shares pursuant to, and who complies in all respects with, the provisions of Chapter 13 of the CGCL (the “Dissenters’ Rights Statute”) and as of the Effective Time has not effectively withdrawn or lost such right to such Payment shall not be converted into the right to receive the Merger Consideration as provided in Section 2.1(a), but instead such holder will have, by virtue of the Merger and without further action on the dissenting shareholder’s part, the right to receive and be paid the Payment and no further rights other than those provided by the Dissenters’ Rights Statute. The Company shall give Compass prompt written notice of all written demands for Payment, withdrawals of demand, and other written communications received by the Company pursuant to the Dissenters’ Rights Statute. After the amount of the Payment has been agreed on or finally determined pursuant to the Dissenters’ Rights Statute, all dissenting shareholders entitled to the Payment pursuant to the Dissenters’ Rights Statute will receive the payment from the Company, and the Dissenting Shares shall thereupon be canceled. The Company shall serve prompt notice to Compass of any demands for Payment, and Compass shall have the right to participate in and direct all negotiations and proceedings with respect to such demands. Prior to the Effective Time, the Company shall not, without the prior written consent of Compass, make any Payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing.

          (e) Notwithstanding the foregoing subsections (a) through (d) of this Section 2.1, if Compass elects to seek a Fairness Hearing pursuant to Section 1.1(b)(z)(ii)(B) and the fairness of the Merger is not approved by the California Commissioner of Corporations (the “California Commissioner”) for any reason, Merger Sub shall promptly seek to consummate the Merger in a manner that complies with the CGCL; provided that in any event the value of the Merger Consideration shall not be less than the Offer Price.

     Section 2.2. Exchange of Certificates.

          (a) Paying Agent. Prior to the Specified Date, Compass shall designate, or shall cause to be designated, a bank, trust company or other depositary with at least $100,000,000 in assets to act as agent for the payment of the Merger Consideration upon surrender of Certificates (the “Paying Agent”), and, from time to time after the Effective Time, Compass shall provide, or cause the Surviving Corporation to provide, to the Paying Agent funds in amounts and at the times necessary for the payment of the Merger Consideration upon surrender of Certificates, it being understood that any and all interest or income earned on funds made available to the Paying Agent pursuant to this Agreement shall be the sole property of Compass.

          (b) Exchange Procedure. Promptly after the Effective Time, Compass shall instruct the Paying Agent to mail to each Certificate holder of record (i) a form of letter of

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transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates held by such Person shall pass, only upon proper delivery of the Certificates to the Paying Agent and shall be in customary form and have such other provisions as Compass may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Compass shall instruct that upon surrender of a Certificate to the Paying Agent for cancellation or to such other agent or agents as may be appointed by Compass, together with such letter of transmittal, duly completed and validly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the shares formerly represented by such Certificate shall have been converted pursuant to Section 2.1(a), and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Company Common Stock that is not registered in the stock transfer books of the Company, the proper amount of cash may be paid in exchange therefor to a Person other than the Person in whose name the Certificate so surrendered is registered if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of Compass that such tax has been paid or is not applicable. No interest shall be paid or shall accrue on the cash payable upon surrender of any Certificate.

          (c) Closing of Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed, and no transfer of shares of Company Common Stock shall be made thereafter. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Paying Agent for transfer or any other reason, they shall be canceled and exchanged as provided in this Article II.

          (d) No Liability. None of Compass, Merger Sub, the Company or the Paying Agent shall be liable to any Person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered within two years after the Effective Time (or immediately prior to such earlier date on which any Merger Consideration would otherwise escheat to or became the property of any Governmental Entity (as defined in Section 3.5)), any such Merger Consideration in respect thereof shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any Person previously entitled thereto.

          (e) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such Person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, Compass shall instruct the Paying Agent to pay the Merger Consideration in respect of such lost, stolen or destroyed Certificate.

          (f) Withholding. Compass, the Company, the Surviving Corporation or the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock and each holder of a Company Stock Option or Company Warrant such amounts as Compass, the Company, the

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Surviving Corporation or the Paying Agent is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “Code”), or any provision of state, local or foreign tax law. To the extent that amounts are so withheld and paid over to the appropriate taxing authority by Compass, the Company, the Surviving Corporation or the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock and each holder of a Company Stock Option or Company Warrant in respect of which such deduction and withholding was made by Compass, the Company the Surviving Corporation or the Paying Agent. Compass, the Company, the Surviving Corporation or the Paying Agent, as the case may be, shall file all payroll tax reports or wage statements that are required to be filed with the appropriate Governmental Entity.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

          Except as set forth on the Schedules hereto (with specific reference to the Section or Subsection of this Agreement to which the information stated in such disclosure relates) delivered by the Company to Compass upon the execution of this Agreement, the Company represents and warrants to Compass and Merger Sub as follows:

     Section 3.1. Organization, Standing and Power. Except as set forth on Schedule 3.1, Each of the Company and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite corporate, company or partnership power and authority to carry on its business as now being conducted and (c) is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, other than where the failure to be so organized, existing, qualified or licensed or in good standing, individually and in the aggregate, would not reasonably be expected to have a Material Adverse Effect (as defined in Section 9.3). The Company has made available to Compass true and complete copies of the Articles of Incorporation and Bylaws for it and each of its Subsidiaries, in each case, as amended as of the date of this Agreement.

     Section 3.2. Subsidiaries. Schedule 3.2 lists each Subsidiary (as defined in Section 9.3) of the Company. All the outstanding shares of capital stock or other equity or voting interests of each Subsidiary of the Company are owned by the Company free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, “Liens”) other than (a) liens for current taxes, payments of which are not yet due or delinquent, (b) imperfections or irregularities in title, if any, as do not materially affect the use of the properties or assets subject thereto or affected thereby, or otherwise materially impair the Company’s business operations ((a) and (b) are collectively referred to as the “Permitted Liens”) and (c) the pledge of all equity interests under the Credit Agreement dated as of January 17, 2003 among the Company, various lenders, and ING Capital LLC (the “Senior Credit Agreement”), and are duly authorized, validly issued, fully paid and nonassessable. Except for the capital stock of, or other equity or voting interests in, its Subsidiaries, the Company does not own, directly or indirectly, any capital stock of, or other equity or voting interests in, any Person.

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     Section 3.3. Capital Structure. The authorized capital stock of the Company consists of 20,000,000 shares of Company Common Stock and 2,000,000 shares of Preferred Stock (the “Preferred Stock”). As of the date of this Agreement, (a) 8,830,140 shares of Company Common Stock were issued and outstanding and (b) no shares of Preferred Stock were issued and outstanding. As of the date hereof, (x) not more than 535,000 shares of Company Common Stock are subject to outstanding Company Stock Options granted under the 1997 Stock Option Plan and the 2001 Stock Option Plan (such plans, collectively, the “Company Stock Plans”) and (y) not more than 1,340,800 shares of Company Common Stock are subject to Company Warrants. There are no outstanding stock appreciation rights or other similar rights outstanding under the Company Stock Plans or otherwise. Except as set forth above and except as set forth in Schedule 3.3, as of the date of this Agreement, no shares of capital stock of, or other equity or voting interests in, the Company, or options, warrants or other rights to acquire any such stock or securities were issued, reserved for issuance or outstanding. No shares of Company Common Stock are owned by any Subsidiary of the Company. All outstanding shares of capital stock of the Company are, and all shares that may be issued pursuant to the Company Stock Plans or Company Warrants shall be when issued in accordance with the terms thereof, duly authorized, validly issued, fully paid and nonassessable and not subject to and not issued in violation of preemptive rights. Except as set forth in Schedule 3.3, there are no bonds, debentures, notes or other indebtedness of the Company or any of its Subsidiaries, and no securities or other instruments or obligations of the Company or any of its Subsidiaries the value of which is in any way based upon or derived from any capital or voting stock of the Company, having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which shareholders of the Company may vote. Except as set forth above, and except as specifically permitted under Section 5.1(a), there are no Contracts (as defined in Section 3.5) of any kind, including any shareholder rights plan, to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound, obligating the Company or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of, or other equity or voting interests in, or securities convertible into, or exchangeable or exercisable for, shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries or obligating the Company or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right or Contract. There are no outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries or vote or dispose of any shares of the capital stock of, or other equity or voting interests in, any of its Subsidiaries. Except as set forth on Schedule 3.3, there are no securities of the Company that are subject to antidilution protection. After September 26, 2000, neither the Company nor any of its Subsidiaries has issued any equity securities or Derivative Securities (as such phrase is defined in Section 8.6 of that certain Securities Purchase Agreement between the Company and GCA Strategic Investment Fund Limited dated as of September 26, 2000 (the “GCA Agreement”)) in a Discounted Equity Offering (as defined in the GCA Agreement). To the knowledge of the Company as of the date of this Agreement, there are no proxies and no voting agreements with respect to any shares of the capital stock or other voting securities of the Company or any of its Subsidiaries. All outstanding shares of Company Common Stock, Preferred Stock, Company Options, Company Warrants and other securities of the Company and its Subsidiaries have been

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issued and granted in material compliance with all federal and state securities laws and all requirements set forth in any applicable Contracts.

     Section 3.4. Authority and Enforceability. The Company has all requisite corporate power and authority to execute and deliver this Agreement and, subject only to approval of the Merger by an affirmative vote of the holders of a majority of the outstanding shares of the Company Common Stock (the “Company Shareholder Approval”), to consummate the transactions contemplated hereby; provided, however, that if the Company seeks Company Shareholder Approval after Merger Sub acquires more than 50% of the voting power of the Company, then this Agreement and the Agreement of Merger must comply with Section 1101(e) of the CGCL. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject only to the Company Shareholder Approval and no other corporate proceedings on the part of the Company are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by Compass and Merger Sub, constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, fraudulent conveyance or other similar laws relating to creditors’ rights and general principles of equity.

     Section 3.5. No Violation; Consents. Except as set forth on Schedule 3.5, the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby and compliance with the provisions hereof do not conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien in or upon any of the properties or assets of the Company or any of its Subsidiaries under, or give rise to any increased, additional, accelerated or guaranteed rights or entitlements under, any provision of (a) the Articles of Incorporation or Bylaws of the Company or the articles of incorporation or bylaws or similar organizational documents of any of its Subsidiaries, (b) any loan or credit agreement, bond, debenture, note, mortgage, indenture, guarantee, lease or other contract, commitment, agreement, instrument, arrangement, understanding, obligation, undertaking, permit, concession, franchise or license, whether written or, if material, oral (each, including all amendments thereto, a “Contract”), to which the Company or any of its Subsidiaries is a party or any of their respective properties or assets is subject or (c) subject to the governmental filings and other matters referred to in the following sentence, any (i) statute, law, ordinance, rule or regulation or (ii) judgment, order or decree, in each case applicable to the Company or any of its Subsidiaries or their respective properties or assets, other than consents required under the terms of any Customer Contract (as defined in Section 3.9(a)) (the “Customer Consents”) or, in the case of clauses (b) and (c), any such conflicts, violations, breaches, defaults, rights, losses, Liens or entitlements that, individually and in the aggregate, would not reasonably be expected to have a Material Adverse Effect or to prevent, impede or delay the consummation of the Offer, the Merger or the other transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, any domestic or foreign (whether national, federal, state, provincial, local or otherwise) government or any court, administrative agency or commission or other governmental or

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regulatory authority or agency, domestic, foreign or supranational (a “Governmental Entity”), is required by the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby or compliance with the provisions hereof, except for (u) Customer Consents from any customer that is a Governmental Entity, (w) the filing with the SEC of (i) the Schedule 14D-9, (ii) a proxy statement or information statement relating to the Company Shareholder Approval (as amended or supplemented from time to time, the “Proxy Statement”) and (iii) such reports under the Exchange Act as may be required in connection with this Agreement, the Offer, the Merger and the other transactions contemplated hereby or thereby, (x) the filing of the Articles of Merger with the Secretary of State of the State of California and appropriate documents with the relevant authorities of other states in which the Company or any of its Subsidiaries is qualified to do business, (y) any filings required under the rules and regulations of the Nasdaq Stock Market, Inc. (“Nasdaq”) and (z) such other consents, approvals, orders, authorizations, registrations, declarations and filings (including those required under Environmental Laws (as defined in Section 3.13(c) the failure of which to be obtained or made, individually and in the aggregate, would not reasonably be expected to have a Material Adverse Effect or to prevent, impede or delay the consummation of the Offer, the Merger or the other transactions contemplated by this Agreement.

     Section 3.6. Filings with the SEC; Financial Statements.

          (a) The Company has timely filed with the SEC all forms, reports, schedules, statements and other documents required to be filed with the SEC by the Company since January 1, 2000 (together with and giving effect to, any amendments, supplements and exhibits thereto and any information incorporated therein by reference, the “SEC Documents”). No Subsidiary of the Company is required to file any form, report, schedule, statement or other document with the SEC. As of their respective dates, the SEC Documents complied as to form in all material respects with the requirements of the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, as the case may be, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the rules and regulations of the SEC promulgated thereunder. None of the SEC Documents filed under the Exchange Act when filed and none of the registration statements filed under the Securities Act when they became effective (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

          (b) The financial statements (including the related notes) included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as in effect on the dates the SEC Documents were filed, were prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto), and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods

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then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments).

          (c) Other than as disclosed in the financial statements (including the related notes) included in the SEC Documents, since January 1, 2003, the Company and its Subsidiaries have incurred no material liabilities or obligations (net of the benefits or assets obtained by the Company in connection with the incurrence of such liabilities or obligations) of any nature (whether accrued, absolute, contingent or otherwise), other than (i) liabilities and obligations in connection with the transactions contemplated by this Agreement, (ii) liabilities and obligations incurred in the ordinary course of business consistent with past practice, (iii) those liabilities and obligations that were not required under GAAP to be reflected or reserved against in the financial statements (including the related notes) included in the SEC Documents, or with respect to the period following the date of the SEC Documents filed prior to the date hereof (the “Filed SEC Documents”), those liabilities and obligations that would not be required under GAAP to be reflected or reserved in those financial statements of the Company prepared as of a fiscal year end; (iv) liabilities, the existence of which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect, or (v) as set forth in Schedule 3.6.

          (d) Each of the principal executive officer and principal financial officer of the Company (or each former principal executive officer and principal financial officer of the Company, as applicable) has made the certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act and the rules and regulations of the SEC promulgated thereunder with respect to the Company’s filings pursuant to the Exchange Act. For purposes of the preceding sentence, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes-Oxley Act.

          (e) The Company has in place the “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) required in order for the Chief Executive Officer and Principal Financial and Accounting Officer of the Company to engage in the review and evaluation process mandated by the Exchange Act in connection with the Company’s preparation of the Company SEC Documents. The Company’s “disclosure controls and procedures” are reasonably designed to ensure that all material information (both financial and nonfinancial) required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such material information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure and to make the certifications of the Chief Executive Officer and Principal Financial and Accounting Officer of the Company required under the Exchange Act with respect to such reports.

          (f) The Company has in place internal controls that are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP, including policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company and its Subsidiaries; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the

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Company and its Subsidiaries are being made only in accordance with authorization of management and the advisors of the Company and its Subsidiaries, as applicable; and (iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of the assets of the Company or its Subsidiaries that could have a material effect on the financial statements.

          (g) At all times following the effective date of the Sarbanes-Oxley Act, the Audit Committee of the Company’s Board of Directors has complied in all material respects with the applicable provisions of the Sarbanes-Oxley Act and rules and regulations of the SEC and Nasdaq as they relate to the composition, charter and conduct of the Audit Committee.

          (h) The stock trading policy of the Company applicable to trading in Company Common Stock by insiders of the Company provides for blackout periods that prohibit transactions in Company Common Stock by insiders during applicable plan blackout periods.

     Section 3.7. Absence of Certain Changes or Events. Except as disclosed in the Filed SEC Documents or on Schedule 3.7, since January 1, 2003, the Company and its Subsidiaries have conducted their respective businesses only in the ordinary course consistent with past practice, and there has not been, except as set forth in Schedule 3.7, (i) any declaration, setting aside or payment of any dividend on, or other distribution (whether in cash, stock or property) in respect of, any of the Company’s or any of its Subsidiaries’ capital stock, (ii) other than in connection with the exercise of Company Stock Options or Company Warrants described in Schedule 3.7, any purchase, redemption or other acquisition of any shares of capital stock or any other securities of the Company or any of its Subsidiaries or any options, warrants, calls or rights to acquire such shares or other securities, (iii) any split, combination or reclassification of any of the Company’s or any of its Subsidiaries’ capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock or other securities of the Company or any of its Subsidiaries, (iv) (A) any granting by the Company or any of its Subsidiaries to any current or former director or executive officer of any increase, or to any current or former officer of any material increase, in compensation or other benefits, except in each case for increases of compensation in the ordinary course of business consistent with past practice and that, in the aggregate, do not result in any material increase in compensation expense or required under any agreement or Benefit Plan (as defined in Section 3.11) in effect as of January 1, 2003, (B) any granting by the Company or any of its Subsidiaries to any current or former director or officer of any right to receive any material severance or termination pay or any material increase therein, or (C) any entry by the Company or any of its Subsidiaries into, or any material amendment of, any Benefit Plan with any current or former director or officer of the Company or any of its Subsidiaries, (v) any change in financial or tax accounting methods, principles or practices by the Company or any of its Subsidiaries, (vi) any material election with respect to taxes by the Company or any of its Subsidiaries or (vii) any settlement or compromise of any material tax liability or refund.

     Section 3.8. Litigation. Except as disclosed in Schedule 3.8, there is no suit, claim, action, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries or any of their respective assets that, individually, involves a claim in excess of $50,000, nor is there any judgment, order, injunction or decree of any Governmental Entity or arbitrator outstanding against, or, to the knowledge of the Company,

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investigation, proceeding, notice of violation, order of forfeiture or complaint by any Governmental Entity involving, the Company or any of its Subsidiaries that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect.

     Section 3.9. Contracts.

          (a) The term “Customer Contract” means a contract to provide contract food and contract catering services to customers of the Company or its Subsidiaries as to which the Company or any Subsidiary was a party. A list of the Company’s Customer Contracts is set forth on Schedule 3.9(a).

          (b) The term “Material Contract” means any contract, agreement, arrangement or understanding to which the Company or any Subsidiary is a party or by which the Company, any Subsidiary, or any of their respective assets is bound that is or contains any of the following:

     (i) any of the Company’s Customer Contracts;

     (ii) a contract purporting to be binding upon the Company, any of its Subsidiaries or any of its affiliates that contains a covenant restricting the ability of the Company or any of its Subsidiaries (or which, following the consummation of the Offer or the Merger, would reasonably be expected to restrict the ability of Compass or any of its Subsidiaries, including the Company and its Subsidiaries) to compete with any Person or engage in any business or activity in any geographic area or pursuant to which any material benefit is required to be given or lost as a result of so competing or engaging;

     (iii) a loan, guarantee or similar agreement relating to the borrowing of money from, or extension of credit to, any other Person in excess of $100,000;

     (iv) any lease or sublease relating to real property involving rent in excess of $50,000 per year;

     (v) any contract not fully performed, including contracts for the purchase of any commodity, material, services, equipment or fixed assets, or the construction of any improvements, to the extent that the Company’s future obligations under such contract exceed $100,000 in the aggregate over the remaining life of the contract;

     (vi) any vehicle master lease or other personal property master lease involving annual payments in excess of $50,000 per year;

     (vii) any contract that obligates the Company or its Subsidiaries to obtain all or a substantial portion of its requirements of any goods or services from, or, except for Customer Contracts, supply all or a substantial portion of the requirements for any goods or services of, any other Person and that is not terminable without penalty on less than 90 days’ notice; or

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     (viii) any contract pertaining to the Intellectual Property Rights of the Company or any of its Subsidiaries.

          (c) On the date of this Agreement, except as set forth in the Schedules hereto:

     (i) Each Material Contract together with all modifications and amendments thereto, is the valid and binding obligation of the Company or its Subsidiaries, as applicable, in full force and effect, and to the Company’s knowledge, enforceable against the other parties thereto, in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and other laws of general application affecting creditors’ rights generally and by equitable principles;

     (ii) Neither the Company nor any of its Subsidiaries is in material breach or default under any Material Contract; and, to the knowledge of the Company, no other party is in material breach or default thereunder;

     (iii) neither the Company nor any of its Subsidiaries has received any written or, to the Company’s knowledge, oral notice of any event or condition that constitutes, or with the passage of time would constitute, a material default by the Company under any Material Contract; and

     (iv) To the knowledge of the Company, neither it nor any of its Subsidiaries has received written notice or other notice or advice of termination, cancellation, nonrenewal or material adverse price adjustment of, or a request for proposal or bid with respect to, any Material Contract.

          (d) Schedule 3.9(d) contains a true and complete list of all Material Contracts, and true and complete copies of each Material Contract have been made available to Compass.

          (e) Schedule 3.9(e) contains a true and complete list of all Customer Contracts awarded to the Company under any minority-owned business enterprise or disadvantaged-business enterprise program or policy of any Governmental Entity.

          (f) Schedule 3.9(f) contains a true and complete list of all agreements in effect between the Company and any directors, officers, employees or agents of the Company pursuant to which the Company or any Subsidiary thereof may be obligated to provide indemnification to such Person, a true and correct copy of each of which has been provided to Compass.

          (g) Schedule 3.9(g) contains a true and complete list of all agreements between the Company or any Subsidiary thereof and any officer, director or consultant of the Company or any Subsidiary thereof that contains a provision entitling such Person to compensation, bonus or other consideration upon the signing of this Agreement, the commencement or completion of the Offer or the consummation of the Merger (each, a “Change of Control Agreement”). The Company has provided a true and correct copy of each Change of Control Agreement to Compass. Except as disclosed on Schedule 3.9(g), none of the signing of this Agreement, the commencement or completion of the Offer or the consummation of the

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Merger will trigger a payment to any Person in excess of $50,000 under any Change of Control Agreement.

     Section 3.10. Compliance with Laws. The Company and its Subsidiaries are in compliance with all statutes, laws, ordinances, rules, regulations, judgments, orders and decrees of any Governmental Entity that are material to the operation of the business of the Company. None of the Company or any of its Subsidiaries has received, since January 1, 2000, a written communication alleging or relating to a possible violation by the Company or any of its Subsidiaries of any statute, law, ordinance, rule, regulation, judgment, order or decree of any Governmental Entity applicable to its businesses or operations. The Company and its Subsidiaries have in effect all permits, licenses, variances, exemptions, authorizations, franchises, orders, registrations and approvals of all Governmental Entities that are material to the operation of the business of the Company, necessary for them to own, lease or operate their properties and assets and to carry on their businesses as now conducted (collectively, “Permits”), and, since January 1, 2003, there has occurred no violation of, default (with or without notice or lapse of time or both) under, or event with respect to such Permits giving to such Governmental Entities any right of termination, amendment or cancellation of, with or without notice or lapse of time or both, any such Permit, except to the extent that such violation, default or event would not reasonably be expected to have a Material Adverse Effect on the Company.

     Section 3.11. Benefit Plans; Employment and Labor Relations.

          (a) Schedule 3.11(a) contains an accurate and complete list of all “employee pension benefit plans” (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) (collectively, the “Pension Plans”), “employee welfare benefit plans” (as defined in Section 3(1) of ERISA) and all other plans, agreements, policies or arrangements relating to Company Stock Options, stock purchases, compensation, deferred compensation, bonus, severance and other employee benefits, in each case maintained or contributed to as of the date of this Agreement by the Company or any Subsidiary for the benefit of any current or former employees, officers or directors of the Company or any Subsidiary or for which the Company or any Subsidiary is or could be liable, as a result of its status as an ERISA Affiliate (as defined below) (collectively, the “Benefit Plans”). Neither the Company nor any ERISA Affiliate currently sponsors or contributes to, nor has ever sponsored or contributed to, any “multiemployer plan” as described in Section 37(A) of ERISA. Each Benefit Plan has been duly authorized by all necessary corporate action by the Company or any participating Subsidiary or ERISA Affiliate. The Company has delivered to Compass true, complete and correct copies of the Benefit Plans listed on Schedule 3.11(a) and has no other Benefit Plans. “ERISA Affiliate” means, with respect to any entity, trade or business, any other entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or business, or that is a member of the same “controlled group” as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA, at any time. “DOL” means the United States Department of Labor. “IRS” means the Internal Revenue Service. “PBGC” means the Pension Benefit Guaranty Corporation.

          (b) The Benefit Plans are on the date hereof in material compliance with the applicable provisions of ERISA and the Code, the rules and regulations promulgated thereunder,

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all other applicable laws and the terms of all applicable collective bargaining agreements. There are no investigations by any federal or state entity, or other claims (except routine claims for benefits payable under the Benefit Plans), suits or proceedings against or with respect to which any Benefit Plan is a party or asserting any rights to or claims for benefits under any Benefit Plan. There are no involuntary termination proceedings that have been instituted against any Pension Plan.

          (c) Each of the Company and its Subsidiaries has performed all of its material obligations under all Benefit Plans and has made appropriate entries in its financial records and statements prepared in accordance with generally accepted accounting practices for all obligations and liabilities under such Benefit Plans that have accrued but are not yet due. Other than any Pension Plan amendment with respect to which the remedial amendment period described under Section 401(b) of the Code has not expired, each Pension Plan that is intended to be a tax-qualified plan is the subject of a favorable determination letter from the IRS (a “Determination Letter Request”), and was filed with the IRS within the remedial amendment period described under Section 401(b) of the Code, each such favorable determination letter stating to the effect that such Pension Plan is qualified under Section 401(a) of the Code, subject to the reservation as to the Pension Plan’s operational compliance with Code requirements. No such determination letter on any Pension Plan has been revoked, and the IRS has not issued written notice of its intent to revoke the qualified status of any such Pension Plan. No event has occurred and no circumstance exists that would reasonably be expected to result in the disqualification of such Pension Plan or, with respect to each Determination Letter Request, would reasonably be expected to cause the IRS not to issue a favorable determination letter. The Company has delivered or made available to Compass a copy of the most recent determination letter received with respect to each Pension Plan for which a letter has been issued, as well as any Determination Letter Request still pending.

          (d) No statement, either written or oral, has been made by the Company or any Subsidiary to any individual with regard to any Benefit Plan that was not in accordance with the respective Benefit Plan and that would reasonably be expected to have a Material Adverse Effect on the Company or the Surviving Corporation.

          (e) Each Benefit Plan is and has been administered, and the Company and its Subsidiaries, with respect to all Benefit Plans are, in compliance in all material respects with ERISA, the Code and other applicable laws and with applicable collective bargaining agreements. This statement specifically means, but is not limited to, the following matters:

     (i) No material transaction prohibited by Section 406 of ERISA and no material “prohibited transaction” under Section 4975 of the Code have occurred with respect to any Benefit Plan for which an exemption does not apply.

     (ii) The Company and its Subsidiaries have had no liability to the PBGC with respect to any plan or have any liability under Sections 502 or 4071(c) of ERISA. All filings required by ERISA and the Code as to each Benefit Plan have been timely filed, and all notices and disclosures to participants under such Benefit Plans required by either ERISA or the Code have been timely provided.

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          (f) Each of the following statements is true and correct regarding each Benefit Plan:

     (i) No event or circumstance specific to the Company or its Subsidiaries (as opposed to general economic or industry events that impact the Company or its Subsidiaries as members of an affected group or class of business enterprises), except for ordinary course matters such as workers compensation adjustments, has occurred since the close of the Benefit Plan year immediately preceding the date of this Agreement that could result in a material increase in premium costs of any Benefit Plan that are insured, or material increase in benefit costs of such Benefit Plans that are self-insured.

     (ii) Except to the extent required under Section 601 et seq. of ERISA and Section 4980B of the Code, neither the Company nor any of its Subsidiaries provides health or welfare benefits for any retired or former employee or is obligated to provide health or welfare benefits to any active employee or beneficiary following such employee’s retirement or other termination of service.

     (iii) The Company and its Subsidiaries have the right to modify and terminate benefits to retirees (other than benefits provided under Pension Plans) with respect to both retired and active employees. Each Benefit Plan has complied in all material respects with the provisions of Section 601 et seq. of ERISA and Section 4980B of the Code.

          (g) Neither the Company nor any of its Subsidiaries now sponsors, maintains, contributes to or has an obligation to contribute to, and has not at any time since January 1, 1995, sponsored, maintained, contributed to, or been obligated to contribute to, any Pension Plan subject to the provisions of Section 302 or Title IV of ERISA or Sections 412 or 4971 of the Code. No liability currently exists, and under no circumstances could the Company or any of its ERISA Affiliates incur a liability (other than liabilities arising in accordance with the terms of the Benefit Plans) pursuant to the provisions of Title I, II or IV of ERISA or Section 412, 4971 or 4980B of the Code that could become a liability of the Surviving Corporation or Compass after the Transactions. Without limiting the generality of the foregoing, neither the Company nor any of its ERISA Affiliates has engaged in any transaction described in Section 4069 or Section 4204 of ERISA for the purpose of evading liability under subtitle D of Title IV of ERISA.

          (h) Neither the Company nor any of its Subsidiaries has incurred any material liability, nor has any event occurred that would reasonably result in any material liability, under Title I or Title IV of ERISA.

          (i) Since January 1, 2003, there has not been any adoption of or amendment to any Benefit Plan.

          (j) Except as set forth on Schedule 3.11(j), neither the Company nor any of its Subsidiaries is a party to, or bound by, any contract with any labor union or association, including, without limitation, any collective bargaining, labor or similar agreement. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated

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hereby will (i) constitute a breach or default under any such agreement, (ii) give rise to any right to terminate, amend or modify any such agreement or (iii) create any withdrawal liability. There is not currently, pending or existing and there is not and has not been threatened (A) any strike, slow-down, picketing, work stoppage or formal employee grievance or arbitration process; (B) any proceeding against the Company or any Subsidiary relating to the alleged violation of any legal requirement pertaining to labor relations or employment matters, including any charge, claim or action or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission, the DOL or any other federal or state governmental body, any organizational activity or other labor or unemployment dispute against the Company, any Subsidiary or the Surviving Corporation; (C) any application for certification of a collective bargaining agent; or (D) any formal or other organizational activity by the Company’s or any Subsidiary’s employees. To the knowledge of the Company and its Subsidiaries, no event has occurred or circumstance exists that is reasonably likely to provide the basis for any work stoppage or other labor dispute. There is no lockout of any employees by the Company or any Subsidiary, and no such action is contemplated by the Company or any Subsidiary. The Company and its Subsidiaries are in compliance with all applicable laws relating to employment and employment practices, terms and conditions of employment, wages and hours, nondiscrimination, employee leave, hours, benefits, the payment of social security taxes, and occupational health. Neither the Company nor any of its Subsidiaries is engaged in any unfair labor practice.

          (k) Except as disclosed in the Filed SEC Documents, since January 1, 2003, there has not been any adoption of or amendment to any collective bargaining agreement.

          (l) Schedule 3.11(l) contains a true and correct list of all salaried employees of each of the Company and its Subsidiaries as of the date hereof, the salaries and all other compensation for all such Persons, their dates of employment and positions. Except as indicated on Schedule 3.11(l), all of the employees of the Company and its Subsidiaries are “at-will” employees. The Company has provided to Compass a true and complete copy of all employment and consulting agreements that obligate the Company or any Subsidiary to make payments aggregating $50,000 or more per year between the Company or any of its Subsidiaries and any employee, officer, consultant or director or thereof.

          (m) Each of the Company and its Subsidiaries is in compliance in all material respects with all applicable contracts relating to employment, employment practices, wages, bonuses and terms and conditions of employment.

     Section 3.12. Absence of Certain Business Practices. Since January 1, 2001, neither the Company nor any of its Subsidiaries, nor, to the knowledge of the Company and its Subsidiaries (other than solely as a result of the knowledge of any individual who engages in such conduct), any officer, employee or agent thereof, or any other Person acting on either of their behalf, has, directly or indirectly, given or agreed to give any payment, gift or similar benefit to any customer, supplier, governmental employee or other Person who is or may be in a position to help or hinder the business or operations of the Company or any Subsidiary (or assist the Company or any Subsidiary in connection with any actual or proposed transaction relating to its business and operations) (i) that subjected or might have subjected the Company or any Subsidiary to any damage or penalty in any criminal or governmental litigation or proceeding or

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(ii) that, in case of a payment made directly or indirectly to an official or employee of any government or of an agency or instrumentality of any government, constitutes an illegal bribe or kickback (or, if made to an official or employee of a foreign government, is unlawful under the Foreign Corrupt Practices Act of 1977) or, in the case of a payment made directly or indirectly to a Person other than an official or employee of a government or of an agency or instrumentality of a government, constitutes an illegal bribe, illegal kickback or other illegal payment under any law of the United States or under the law of any state that subjects the payor to a criminal penalty or the loss of a license or privilege to engage in a trade or business or the termination of a Customer Contract.

     Section 3.13. Environmental Matters.

          (a) (i) The Company and its Subsidiaries are in material compliance with all Environmental Laws (as defined below) and are subject to no continuing agreements, orders or judgments with respect to compliance with Environmental Laws (as defined below); (ii) neither the Company nor any of its Subsidiaries has received any written notices of material unremedied violations from any Governmental Entity, and there are no governmental investigations or audits, whether pending or, to the knowledge of the Company, threatened, with respect thereto, the violation of which could result in the imposition of a material fine, penalty, liability, cost or expense; and (iii) the Company and its Subsidiaries have obtained or made application and paid for all material permits, licenses, orders and approvals of governmental or administrative authorities that either are required by applicable Environmental Laws (as defined below) to permit it to carry on its business and operations in substantially the same manner as currently conducted and the Company and its Subsidiaries are in material compliance with the requirements set out in such permits, licenses, orders and approvals.

          (b) Neither the Company nor any of its Subsidiaries has used, stored, disposed or Released any Hazardous Material (as defined below), except for such use, storage, disposal or Releases as are in compliance in all material respects with Environmental Laws (as defined below).

          (c) Definitions.

     “Environmental Laws” means all applicable laws, rules, regulations, orders, decrees, common law, judgments or binding agreements issued, promulgated or entered into by or with any Governmental Entity relating to pollution or protection of the environment (including ambient air, surface water, groundwater, soils or subsurface strata) or protection of human health as it relates to Hazardous Materials, including laws and regulations relating to Releases or threatened Releases of Hazardous Materials or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, transport, handling of or exposure to Hazardous Materials.

     “Hazardous Materials” means all hazardous, toxic, explosive or radioactive substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing material, polychlorinated biphenyls (“PCBs”) or PCB-containing materials or equipment, radon gas,

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infectious or medical wastes and all other substances or wastes of any nature that, in each case, is regulated pursuant to any Environmental Law.

     “Release” means, with respect to any Hazardous Material, any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration of such Hazardous Materials into or through the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture.

     Section 3.14. Insurance. Schedule 3.14 contains a list of all insurance policies held by, or maintained on behalf of, the Company or any Subsidiary, indicating for each policy the carrier, the insured, the type of insurance, the amounts of coverage and the expiration date. Except as set forth in Schedule 3.14, neither the Company nor any of its Subsidiaries has received any written notice of cancellation, material amendment or material dispute as to coverage with respect to any such policies.

     Section 3.15. Taxes. Except as set forth in Schedule 3.15:

          (a) (i) Each of the Company and its Subsidiaries has timely filed or caused to be filed with appropriate taxing authorities all domestic and foreign (whether national, federal, state, provincial, local or otherwise) Tax returns and reports required to be filed by or with respect to it and, as of the time of filing, such Tax returns and reports were true and complete in all material respects; (ii) each of the Company and its Subsidiaries has timely paid in full all Taxes shown as due on such returns and reports; (iii) the most recent financial statements contained in the Filed SEC Documents reflect an adequate reserve for all current Taxes payable by the Company and each of its Subsidiaries (in addition to any reserve for deferred Taxes established to reflect timing differences between book and Tax items) for all taxable periods and portions thereof through the date of such financial statements; and (iv) neither the Company nor any of its Subsidiaries currently is the beneficiary of any extension of time in which to file any Tax return.

          (b) Except as set forth in Schedule 3.15(b), no material domestic or foreign (whether national, federal, state, provincial, local or otherwise) income or franchise Tax return or report or any other Tax return or report of the Company or any of its Subsidiaries is under audit or examination by any taxing authority, and no written or, to the knowledge of the Company, unwritten notice of such an audit or examination has been received by the Company or any of its Subsidiaries. The Company has received no notice of deficiency, refund litigation, proposed adjustment or matter in controversy with respect to any amount of Taxes due and owing by the Company or any of its Subsidiaries. Each deficiency resulting from any completed audit or examination relating to any amount of Taxes by any taxing authority or any concluded litigation has been timely paid in full.

          (c) With respect to each of the Company and its Subsidiaries, there is no currently effective agreement or other document extending, or having the effect of extending, the period of assessment or collection of any Taxes and no power of attorney with respect to any Taxes has been executed or filed with any taxing authority.

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          (d) No Liens for Taxes exist upon any assets or properties of the Company or any of its Subsidiaries, except for statutory Liens for Taxes not yet due and Liens for Taxes that the Company or any of its Subsidiaries is contesting in good faith for which adequate reserves have been established.

          (e) None of the Company or any of its Subsidiaries is a party to or bound by any tax sharing or allocation agreement, tax indemnity obligation or any similar agreement, arrangement or practice with respect to Taxes (including any advance pricing agreement, gain recognition agreement or other agreement relating to Taxes with any taxing authority).

          (f) Neither the Company nor any of its Subsidiaries has executed or entered into with the Internal Revenue Service, or any taxing authority, a closing agreement pursuant to Section 7121 of the Code, or any similar provision of law, that will require any increase in the taxable income or alternative minimum taxable income, or any reduction in Tax credits, for any taxable period ending after the Closing Date.

          (g) None of the Company or any of its Subsidiaries was, at any time during a period specified in Section 897(c)(1)(A)(ii) of the Code, a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code.

          (h) None of the Company or any of its Subsidiaries has at any time since January 1, 1993 been a member of a Company Affiliated Group (as defined in Section 3.15(n), and none of the Company or any of its Subsidiaries has any liability for Taxes of any other Person that is not a Subsidiary of the Company under Treasury Regulation Section 1.1502-6 (or comparable provisions of foreign, state or local law), as a transferee or successor, by contract or otherwise.

          (i) Except as otherwise disclosed in the Filed SEC Documents, none of the Company or any of its Subsidiaries has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying or intended to qualify for tax-free treatment under Section 355 of the Code in the two years prior to the date of this Agreement.

          (j) All Taxes that the Company or any of its Subsidiaries is (or was) required by law to withhold or collect have been duly withheld or collected, and have been timely paid over to the proper authorities to the extent due and payable.

          (k) There are not currently pending any claims made by a taxing authority in a jurisdiction where the Company or any of its Subsidiaries does not file tax returns and reports, that the Company or any of its Subsidiaries is or may be subject to taxation by that jurisdiction.

          (l) Neither the Company nor any of its Subsidiaries has applied for, been granted, or agreed to any accounting method change for which it will be required to take into account any adjustment under Section 481 of the Code or any similar provision of the Code or the corresponding tax laws of any nation, state or locality.

          (m) Neither the Company nor any of its Subsidiaries is a party to any agreement that would require the Company or any of its Subsidiaries or any affiliate thereof to make any payment of (1) any “excess parachute payment” for purposes of Sections 280G and

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4999 of the Code and (2) any amount that would not be fully deductible pursuant to Section 162(m) of the Code.

          (n) As used in this Agreement, (i) “Taxes” shall include all (A) domestic and foreign (whether national, federal, state, provincial, local or otherwise) income, franchise, property, sales, excise, employment, payroll, social security, value-added, ad valorem, transfer, withholding, license, severance, stamp, premium, environmental, customs, duties, capital stock, unemployment, disability, registration, estimated, alternative, add-on minimum and other taxes, including taxes based on or measured by gross receipts, profits, sales, use or occupation, tariffs, levies, impositions, assessments or governmental charges of any nature whatsoever, including any interest penalties or additions with respect thereto, (B) liability for the payment of any amounts of the type described in clause (A) as a result of being a member of an affiliated, consolidated, combined or unitary group, and (C) liability for the payment of any amounts as a result of being party to any tax sharing agreement or as a result of any express or implied obligation to indemnify any other Person with respect to the payment of any amounts of the types described in clause (B) or (C) and (ii) “Company Affiliated Group” means each group of which the Company or any of its Subsidiaries is or has been a member during a period for which such group filed a Tax return or report on an affiliated, combined, consolidated or unitary basis.

     Section 3.16. Intellectual Property.

          (a) The Company and its Subsidiaries own, free and clear of all Liens except Permitted Liens, or have valid licenses with respect to or otherwise have the right to use all the trademarks, service marks, trade names, brands, copyrights and patents, all applications for registration and registrations for such trademarks, copyrights and patents and all mask works, trade secrets, confidential and proprietary information, compositions of matter, formulas, designs, proprietary rights, software, know-how and processes owned by or licensed to or used by the Company or any of its Subsidiaries that are material to the conduct of the business of the Company and its Subsidiaries (collectively, the “Intellectual Property Rights”). To the Company’s knowledge, all the Intellectual Property Rights are valid, enforceable and in full force and effect. Attached to Schedule 3.16 is a list of all trademarks, copyrights, patents, trade names and service marks owned or licensed by the Company or any of its Subsidiaries, other than licenses to commercially available “off the shelf” software or other third-party software used by the Company or any of its Subsidiaries.

          (b) To the Company’s knowledge, none of the Company or any of its Subsidiaries has infringed upon or misappropriated any Intellectual Property Rights or other proprietary information of any other Person. Since January 1, 2000, with respect to such material infringement or misappropriation, none of the Company or any of its Subsidiaries has received any written charge, complaint, claim, demand or notice alleging any infringement, misappropriation or other conflict (including any claim that the Company or any of its Subsidiaries must license or refrain from using any Intellectual Property Rights of any other Person) that has not been settled or otherwise fully resolved. To the Company’s knowledge, no other Person has infringed upon or misappropriated any Intellectual Property Rights of the Company or any of its Subsidiaries.

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     Section 3.17. Property. Neither the Company nor any of its Subsidiaries own any real property. Schedule 3.17 contains a true and complete list of each real property lease for premises occupied by the Company or any of its Subsidiaries other than any such lease that arises from or in connection with a Customer Contract, identifying the location, landlord, annual rental, expiration date and any options to renew. Except as set forth on Schedule 3.17, the Company and each of its Subsidiaries has a valid leasehold interest in and to the real and material personal property leased by it, free and clear of all mortgages, liens, pledges, charges or encumbrances of any nature whatsoever, except Permitted Liens.

     Section 3.18. Takeover Provisions and Statutes. The Board of Directors of the Company has taken all actions necessary to exempt this Agreement, the Transactions or the other transactions contemplated hereby from all applicable takeover and supermajority provisions of the Company’s Articles of Incorporation and Bylaws and from California law. No other provision in any organizational document or agreement of the Company or any Subsidiary nor any other state takeover or similar statute or regulation is applicable to this Agreement and the Transactions or the other transactions contemplated hereby.

     Section 3.19. Vote Required. The Company Shareholder Approval is the only vote or consent of the holders of any class or series of Company capital stock, Company Stock Option or Company Warrant necessary to approve the Merger except that that if the Company seeks Company Shareholder Approval after Merger Sub acquires more than 50% of the voting power of the Company, then (a) this Agreement and the Agreement of Merger must comply with Section 1101(e) of the CGCL and (b) the consent of all shareholders may be required for the Merger Consideration to be paid in cash unless the California Department of Corporations has approved the terms and conditions of the Merger and the fairness of the terms and conditions pursuant to Section 25142 of the CGCL.

     Section 3.20. No Discussions. None of the Company or any of its Subsidiaries or Representatives is engaged, directly or indirectly, in any discussion or negotiations with any other Person relating to any Takeover Proposal or any inquiry or indication of interest that could lead to a Takeover Proposal.

     Section 3.21. Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor, finder or other similar Person, other than Houlihan Lokey Howard & Zukin Capital and Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (together, “Houlihan”), the fees and expenses of which shall be paid by the Company, is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. The Company has delivered to Compass true and complete copies of all agreements under which any such fees or expenses are payable and all indemnification and other agreements related to the engagement of the Persons to whom such fees are payable.

     Section 3.22. Opinion of Financial Advisor. The Board of Directors of the Company has received the written opinion of Houlihan, substantially to the effect that, as of the date hereof, the consideration to be received in the Offer and the Merger by the Company’s shareholders is fair to the Company’s shareholders from a financial point of view, a copy of which opinion has been delivered to Compass.

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     Section 3.23. Company Business. The Company owns no assets and conducts no business outside of the continental United States.

     Section 3.24. Information Supplied.

          (a) The Schedule 14D-9 (and any amendment or supplement thereto) will not, on the date of its filing with the SEC and the date it is first published, sent or given to the Company’s shareholders, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that the Company makes no representation or warranty with respect to any information that Compass and Merger Sub will supply, or that will be supplied on behalf of Compass or Merger Sub, for use in the Offer Documents. The Schedule 14D-9 will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder.

          (b) The information supplied or to be supplied in writing by or on behalf of the Company for inclusion in the Offer Documents will not, on the date the Offer Documents are filed with the SEC or on the date the Offer Documents are first published, sent or given to shareholders, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.

     Section 3.25. Transactions with Affiliates. Except as set forth in the SEC Documents filed prior to the date hereof, since the date of the Company’s last proxy statement filed with the SEC, no event has occurred that would be required to be reported by the Company pursuant to Item 404 of Regulation S-K of the SEC.

     Section 3.26. Absence of Indemnifiable Claims, Etc. There are no pending claims and, to the knowledge of the Company, no facts that would reasonably entitle any director, officer or employee of the Company or its Subsidiaries to indemnification by the Company or its Subsidiaries under applicable law, the Articles of Incorporation or Bylaws of the Company or its Subsidiaries or any insurance policy maintained by the Company or its Subsidiaries.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPASS AND MERGER SUB

     Compass and Merger Sub represent and warrant to the Company as follows:

     Section 4.1. Organization. Each of Compass and Merger Sub is a corporation duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated or organized and has all requisite corporate power and authority to carry on its business as now being conducted.

     Section 4.2. Authority; Noncontravention. Compass and Merger Sub have the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Compass and Merger Sub, the consummation by Compass and Merger Sub of the transactions contemplated hereby, have been duly authorized by all necessary corporate action

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on the part of Compass and Merger Sub and no other corporate proceedings on the part of Compass or Merger Sub are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Compass and Merger Sub and constitutes a valid and binding obligation of Compass and Merger Sub enforceable against Compass and Merger Sub in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, fraudulent conveyance or other similar laws relating to creditors’ rights and general principles of equity. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and compliance with the provisions hereof do not and will not conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of Compass under, or give rise to any increased, additional, accelerated or guaranteed rights or entitlements under, any provision of (i) the articles of organization or bylaws or similar organizational documents of Compass or Merger Sub, (ii) any Contract to which Compass or Merger Sub is a party or any of their respective properties or assets is subject or (iii) subject to the governmental filings and other matters referred to in the following sentence, any (A) statute, law, ordinance, rule or regulation or (B) judgment, order or decree, in each case applicable to Compass or Merger Sub or their respective properties or assets, other than, in the case of clauses (ii) and (iii), any such conflicts, violations, breaches, defaults, rights, losses, Liens or entitlements that, individually and in the aggregate, would not reasonably be expected to prevent or materially impede or delay the consummation of the Offer, the Merger or the other transactions contemplated hereby. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by Compass or Merger Sub in connection with the execution and delivery of this Agreement by Compass and Merger Sub and the consummation by Compass and Merger Sub of the transactions contemplated hereby and thereby or the compliance with the provisions hereof or thereof, except for (1) the filing of the Articles of Merger with the Secretary of State of the State of California and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (2) the filing of the Offer Documents with the SEC and (3) such other consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made, individually and in the aggregate, would not impair in any material respect the ability of Compass or Merger Sub to perform its obligations under this Agreement or prevent, or materially impede or delay the consummation of any of the transactions contemplated by this Agreement.

     Section 4.3. Interim Operations of Merger Sub. Merger Sub was formed solely for the purpose of engaging in the transactions contemplated hereby and has engaged in no business other than in connection with the transactions contemplated by this Agreement.

     Section 4.4. Financial Capability. Compass has available sufficient funds to purchase, or permit Merger Sub to purchase, all shares of the Company Common Stock validly tendered into and not withdrawn from the Offer, to permit Compass and Merger Sub to consummate the Transactions and to pay the Merger Consideration and all associated costs and expenses and to permit Compass and Merger Sub to comply with all of the covenants of this Agreement to be performed by such parties.

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     Section 4.5. Director Recommendations. The Board of Directors of Compass (or a duly authorized committee) has duly and adopted resolutions that are still in full force and effect as of the date hereof approving and declaring advisable the Offer, the Merger, this Agreement and the Transactions. The Board of Directors and sole stockholder of Merger Sub have adopted resolutions approving the Offer, the Merger, this Agreement and the Transactions.

     Section 4.6. Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor, finder or other similar Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Compass or Merger Sub.

     Section 4.7. No Untrue Representation; Information Supplied.

          (a) The Offer Documents will not, on the date filed with the SEC and first published, sent or given to shareholders of the Company, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that Compass and Merger Sub make no representation or warranty with respect to any information that the Company will supply, or that will be supplied on the Company’s behalf, for use in the Offer Documents. The Offer Documents will comply as to form in all material respects with the requirements of the Exchange Act and the regulations thereunder.

          (b) The information supplied or to be supplied in writing by or on behalf of Compass or Merger Sub for inclusion in the Schedule 14D-9 (and any amendments or supplements thereto) will not, on the date the Schedule 14D-9 is filed with the SEC and is first published, sent or given to shareholders of the Company, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.

ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS

     Section 5.1. Conduct of Business.

          (a) Conduct of Business by the Company. During the period from the date of this Agreement to the Effective Time, except (i) as consented to in writing by Compass, (ii) as expressly contemplated or permitted by this Agreement, (iii) as expressly provided for in the Company’s fiscal 2004 budget, a true and correct copy of which has been provided to Compass and is attached to Schedule 5.1 (the “2004 Budget”) or (iv) as disclosed in Schedule 5.1 (with specific reference to the Subsection of this Section 5.1 to which the information stated in such disclosure relates), the Company shall, and shall cause its Subsidiaries to, carry on their respective businesses in the ordinary course consistent with past practice and comply with all applicable laws, rules and regulations and, to the extent consistent therewith, use their commercially reasonable efforts to preserve their assets and technology and preserve their

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relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them in all material respects; provided, however, that the Company shall not be obligated to make any material expenditures under any Customer Contracts that are not required by such Customer Contract in order to preserve any such Customer Contract. Without limiting the generality of the foregoing, the Company shall not, and shall not permit any of its Subsidiaries to:

     (i) (A) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its capital stock (B) purchase, redeem or otherwise acquire any shares of capital stock or any other securities of the Company or its Subsidiaries or any options, warrants, calls or rights to acquire any such shares or other securities, (C) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or any of its other securities or (D) liquidate or merge with any Subsidiaries of the Company;

     (ii) issue, deliver, sell, pledge or otherwise encumber any             shares of its capital stock, any other equity or voting interests or any securities convertible into, or exchangeable for, or any options, warrants, calls or rights to acquire, any such shares, voting securities or convertible securities or any stock appreciation rights or other rights that are linked to the price of Company Common Stock (other than the issuance of shares of Company Common Stock upon the exercise of Company Warrants or Company Stock Options pursuant to the Benefit Plans that are in existence on the date of this Agreement);

     (iii) amend its articles of incorporation or bylaws (or similar organizational documents);

     (iv) directly or indirectly acquire or agree to acquire (A) by merging or consolidating with, or by purchasing all or a substantial portion of the assets of, or by any other manner, any assets constituting a business or any corporation, partnership, limited liability company, joint venture or association or other entity or division thereof, or any direct or indirect interest in any of the foregoing, or (B) any assets other than purchases of assets in the ordinary course of business consistent with past practice, including capital expenditures permitted under other subsections;

     (v) directly or indirectly sell, lease, license, sell and leaseback, mortgage or otherwise encumber or subject to any Lien (except for purchase money security interests and other Liens arising in the ordinary course of business, including Liens under the Senior Credit Agreement) or otherwise dispose of any of its properties or assets or any interest therein, except sales of (A) inventory and obsolete assets in the ordinary course of business consistent with past practice and (B) immaterial assets in the ordinary course of business consistent with past practice (but specifically excluding joint venture investments);

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     (vi) (A) repurchase, accelerate, prepay or incur any indebtedness or guarantee any indebtedness of another Person or issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of the Company or any of its Subsidiaries, guarantee any debt securities of another Person, enter into any “keep well” or other agreement to maintain any financial statement condition of another Person or enter into any arrangement having the economic effect of any of the foregoing, other than in the ordinary course of business consistent with past practice and other than borrowings under the Senior Credit Agreement, provided that Net Indebtedness, including the debt owing to ING Capital LLC or pursuant to capital leases (calculated using the accounting practices traditionally used by the Company and its Subsidiaries), shall not exceed $9,900,000 as of the Specified Date, (B) make any loans, advances or capital contributions to, or investments in, any other Person, other than any direct or indirect wholly owned Subsidiary of the Company, or (C) enter into any hedging agreement or other financial agreement or arrangement designed to protect the company against fluctuations in commodities prices or current exchange rates, except agreements or arrangements in respect of contractual commitments of the Company entered into in the ordinary course of business consistent with past practice;

     (vii) incur or commit to incur any capital expenditures in excess of $50,000 individually, or $100,000 in the aggregate, whether by acquisition or internal investment, or any obligations or liabilities in connection therewith, other than capital expenditures that are reflected on the Company’s 2004 Budget;

     (viii) pay, discharge, settle or satisfy any claims (including claims of shareholders), liabilities or obligations (whether absolute, accrued, asserted or unasserted, contingent or otherwise), in excess of $50,000 (net of any insurance proceeds) in the aggregate other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or as required by their terms as in effect on the date of this Agreement of trade payables and other similar liabilities and of claims, liabilities or obligations reflected, reserved against or otherwise disclosed in the most recent audited financial statements (or the notes thereto) of the Company included in the Filed SEC Documents (for amounts not in excess of such reserves or as otherwise disclosed) or incurred since the date of such financial statements in the ordinary course of business consistent with past practice, or waive, release, grant or transfer any right of material value, other than in the ordinary course of business consistent with past practice, or waive any material benefits of, or agree to modify in any adverse respect, or fail to enforce, or consent to any matter with respect to which its consent is required under, any confidentiality, standstill or similar agreement to which the Company or any of its Subsidiaries is a party;

     (ix) (A) grant to any employee, officer, director, consultant or independent contractor of the Company or any of its Subsidiaries any increase in compensation or pay any bonus, other than in the ordinary course of business consistent with past practice, (B) establish any program for or grant to any

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employee, officer, director, consultant or independent contractor of the Company or any of its Subsidiaries any increase in severance or termination pay, (C) establish, adopt, enter into or amend any Pension Plan, (D) establish, adopt, enter into or amend in any material respect any collective bargaining agreement or Benefit Plan, (E) take any action to accelerate or increase any rights or benefits, take any action to fund or in any other way secure the payment of compensation or benefits under any Pension Plan or Benefit Plan, or make any material determinations not in the ordinary course of business consistent with past practice, under any collective bargaining agreement or Benefit Plan or Pension Plan, other than pursuant to the provisions of Section 6.7 hereof, including any payment of cash pursuant thereto or (F) amend or modify or grant any Company Stock Option or Company Warrant, in each case above other than (1) changes that are required by applicable law, (2) to satisfy obligations existing as of the date hereof or (3) any amendments that may be necessary to complete the cancellation and settlement of the Company Stock Options, as described in Section 6.6;

     (x) fail to maintain existing insurance at levels substantially comparable to current levels or otherwise in a manner inconsistent with past practice, except to the extent available coverage changes in connection with any insurance renewals;

     (xi) transfer or license to any Person or entity or otherwise extend, amend or modify any rights to the Intellectual Property Rights of the Company and its Subsidiaries;

     (xii) enter into or amend any agreements pursuant to which any Person is granted marketing, manufacturing or other rights with respect to any material Company product, process or technology;

     (xiii) enter into or amend any contract or other agreement, whether written or oral, that (A) contains any guarantees as to the Company’s or any Subsidiary’s future revenues or (B) obligates the Company to purchase a material amount of goods or supplies and is not terminable on 90 days’ notice or less except for any capital expenditures permitted under another subsection;

     (xiv) extend, renew, amend or otherwise modify any Material Contract;

     (xv) obtain any real property, whether through acquisition, lease, sublease or otherwise, other than in the ordinary course of business consistent with past practice in connection with contracts with customers;

     (xvi) hire in excess of that number of additional employees required in the good faith judgment of the Company;

     (xvii) except insofar as may be required by a change in GAAP or changes in applicable law, make any changes in accounting methods, principles or practices;

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     (xviii) take any action that would reasonably be expected to result in (A) any representation and warranty of the Company set forth in this Agreement that is qualified as to materiality becoming untrue, (B) any such representation and warranty that is not so qualified becoming untrue in any material respect or (C) any condition to the Offer or the Merger not being satisfied (unless such action is expressly permitted by this Agreement); or

     (xix) authorize any of, or commit, resolve or agree to take any of, the foregoing actions.

          (b) Certain Tax Matters. During the period from the date of this Agreement to the Effective Time, the Company shall, and shall cause each of its Subsidiaries to, (i) timely file all Tax returns (“Post-Signing Returns”) required to be filed by or with respect to each such entity; (ii) timely pay all Taxes due and payable in respect of such Post-Signing Returns that are so filed; (iii) accrue a reserve in the books and records and financial statements of any such entity in accordance with past practice for all Taxes payable through the Effective Time by such entity for which no Post-Signing Return is due prior to the Effective Time; (iv) promptly notify Compass of any suit, claim, action, investigation, proceeding or audit (collectively, “Actions”) pending against or with respect to the Company or any of its Subsidiaries in respect of any Tax, the nonpayment of which would be reasonably likely to have a Material Adverse Effect, and not settle or compromise any such Action in excess of $50,000 without Compass’s consent; and (v) not make any material Tax election without Compass’s consent, which consent shall not be unreasonably withheld or delayed.

          (c) Advice of Changes; Filings. The Company shall, subject to Section 5.1(d), (i) confer with Compass on a regular and frequent basis to report on operational matters of materiality and the general status of ongoing operations, which shall in no event give Compass or Merger Sub, directly or indirectly, the rights to control or direct the Company’s operations before the Specified Date, (ii) use commercially reasonable efforts to promptly advise Compass orally and in writing of any change or event that would reasonably be expected to have a Material Adverse Effect and (iii) timely make all required filings with the SEC or any other Governmental Entity. The Company and Compass shall each promptly provide the other copies of all filings made by such party with any Governmental Entity in connection with this Agreement and the transactions contemplated hereby. The Company will promptly furnish Compass with copies of all filings and correspondence with or from the SEC or any other Governmental Entity that are germane to the transactions contemplated by this Agreement.

          (d) No Disclosure. Notwithstanding Section 5.1(c), with respect to any business in which Compass and the Company (or any of their respective Subsidiaries) compete with each other, the Company shall not provide to Compass or Merger Sub information (in documentary or other form) that outside counsel to the Company (after consultation with outside counsel to Compass) determines should not be exchanged because of the competitive sensitivity of the information.

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          Section 5.2. No Solicitation.

          (a) The Company shall not, nor shall it authorize or permit any of its Subsidiaries or Representatives to, directly or indirectly, (i) solicit, initiate or encourage (or, with respect to Representatives who are nonsalaried employees of the Company, knowingly encourage), or take any other action to facilitate (or, with respect to Representatives who are nonsalaried employees of the Company, intentionally facilitate), any Takeover Proposal (as defined below) or (ii) enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any Person any information with respect to, or otherwise cooperate in any way with, or assist or participate in any effort or attempt by any Person with respect to, any Takeover Proposal; provided that at any time prior to the Specified Date, the Board of Directors of the Company may, in response to a Superior Proposal (as defined below) or a bona fide Takeover Proposal that such Board of Directors determines in good faith is reasonably likely to lead to a Superior Proposal (a “Likely Superior Proposal”), in each case that was unsolicited, and subject to compliance with Section 5.2(c), (x) furnish information with respect to the Company and its Subsidiaries to the Person making such Superior Proposal or Likely Superior Proposal (and its representatives) pursuant to a customary confidentiality agreement (which confidentiality agreement contains terms that are no less favorable to the Company than the terms of the Confidentiality Agreement dated December 2, 2003, between Compass and the Company (as it may be amended from time to time, the “Confidentiality Agreement”)), provided that all such information is provided on a prior or substantially current basis to Compass; and (y) participate in discussions or negotiations with the Person making such Superior Proposal or Likely Superior Proposal (and its representatives) regarding such Superior Proposal or Likely Superior Proposal.

     For purposes of this Agreement, “Superior Proposal” means any offer not solicited by the Company, or any Subsidiary or Representative thereof (provided that any offer made by any third party contacted by the Company’s Representative in connection with a market check shall not be deemed to have been solicited so long as no contacts with such party were made by the Company, or any Subsidiary or Representative thereof, after February 1, 2004) made by a third party to consummate a tender offer, exchange offer, merger, consolidation or similar transaction that would result in such third party (or its shareholders) owning, directly or indirectly, more than 50% of the shares of Company Common Stock then outstanding (or of the surviving entity in a merger) or all or substantially all of the assets of the Company and its Subsidiaries and otherwise on terms that the Board of Directors of the Company determines in good faith (following receipt of the advice of a financial advisor of nationally recognized reputation) to be more favorable to the holders of Company Common Stock than the terms of the Offer taking into account any changes to the terms of this Agreement proposed in writing by Compass in response to any Superior Proposal or otherwise.

     For purposes of this Agreement, “Takeover Proposal” means any inquiry, proposal or offer from any Person relating to any direct or indirect acquisition or purchase of 20% or more of the assets of the Company and its Subsidiaries, taken as a whole, or 20% or more of any class or series of equity securities of the Company or any of its Subsidiaries, any tender offer or exchange offer that if consummated would result in any Person beneficially owning 20% or more of any class or series of equity securities of the Company or any of its Subsidiaries, or any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar

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transaction involving the Company or any of its Subsidiaries, other than the transactions contemplated by this Agreement.

          (b) Except as set forth below, neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw (or modify in a manner adverse to Compass or Sub) the approval or recommendation by such Board of Directors or any such committee of this Agreement, the Offer or the Merger, (ii) adopt, approve or recommend, or propose to adopt, approve or recommend, any Takeover Proposal, (iii) cause or permit the Company to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other similar agreement (each, an “Acquisition Agreement”) constituting or related to, or that is intended to or is reasonably likely to lead to, any Takeover Proposal (other than a confidentiality agreement referred to in Section 5.2(a) entered into under the circumstances referred to in such Section or (iv) agree or resolve to take any of the actions set forth in clauses (i), (ii) or (iii) of this sentence. Notwithstanding the foregoing, at any time prior to the Specified Date, the Board of Directors of the Company may, in response to a Superior Proposal, withdraw or modify the recommendation by such Board of Directors of this Agreement, the Offer or the Merger or terminate this Agreement, if such Board of Directors determines in good faith (after taking into account any changes to the terms of this Agreement proposed in writing by Compass in response to such Superior Proposal and after consultation with counsel) that failure to do so would be a breach by the Company’s Board of Directors of its fiduciary duties to the Company’s shareholders (and concurrently with or after such termination, if it so chooses, cause the Company to enter into any Acquisition Agreement with respect to such Superior Proposal), but only at a time that is prior to the Specified Date and is after the third business day following Compass’s receipt of written notice advising Compass that the Board of Directors of the Company is prepared to accept a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the Person making such Superior Proposal.

          (c) In addition to the obligations of the Company set forth in paragraphs (a) and (b) of this Section 5.2, the Company shall promptly (and in any event within 24 hours) advise Compass orally and in writing of any request for information or inquiry that the Company reasonably believes could lead to or contemplates a Takeover Proposal or of any Takeover Proposal, the terms and conditions of such request, Takeover Proposal or inquiry (including any subsequent amendment or other modification to such terms and conditions) and the identity of the Person making any such request, Takeover Proposal or inquiry. The Company shall promptly keep Compass informed in all material respects of the status and details (including amendments or proposed amendments) of any such request, Takeover Proposal or inquiry.

          (d) Nothing contained in this Section 5.2 or elsewhere in this Agreement shall prohibit the Company from (i) taking and disclosing to its shareholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or (ii) making any disclosure to the Company’s shareholders if, in the good faith judgment of the Board of Directors of the Company, after consultation with outside counsel, failure so to disclose would violate applicable law; provided, however, that, except as set forth in Section 5.2(b), in no event shall the Board of Directors of the Company or any committee thereof withdraw or modify, or propose to withdraw or modify, its position with respect to this Agreement, the Offer or the Merger or adopt, approve or recommend, or propose to adopt, approve or recommend, any Takeover Proposal.

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ARTICLE VI
ADDITIONAL AGREEMENTS

     Section 6.1. Preparation of the Proxy Statement; Company Shareholders Meeting.

          (a) If the adoption of this Agreement by the Company’s shareholders is required by law or the Company’s Articles of Incorporation or Bylaws, the Company and Compass shall, as promptly as practicable following the expiration of the Offer, prepare and file the Proxy Statement with the SEC. The Company shall use its commercially reasonable efforts to respond as promptly as practicable to any comments of the SEC with respect thereto and to cause the Proxy Statement to be mailed to the Company’s shareholders as promptly as practicable following the expiration of the Offer. The Company shall promptly notify Compass upon the receipt of any comments from the SEC or its staff or any request from the SEC or its staff for amendments or supplements to the Proxy Statement and shall provide Compass with copies of all correspondence between the Company and its representatives, on the one hand, and the SEC and its staff, on the other hand. Notwithstanding the foregoing, prior to filing or mailing the Proxy Statement (or any amendment or supplement thereto) or responding to any comments of the SEC with respect thereto, the Company (i) shall provide Compass an opportunity to review and comment on such document or response, (ii) shall include in such document or response all comments reasonably proposed by Compass and (iii) shall not file or mail such document or respond to the SEC prior to receiving Compass’s approval, which approval shall not be unreasonably withheld or delayed.

          (b) If the adoption of this Agreement by the Company’s Shareholders is required by law or the Company’s Articles of Incorporation or Bylaws, the Company shall, as promptly as practicable following the acceptance of Shares for purchase pursuant to this Agreement, establish a record date (which will be as promptly as reasonably practicable following the expiration of the Offer) for, duly call, give notice of, convene and hold a meeting of its shareholders (the “Company Shareholders Meeting”) for the purpose of obtaining the Company Shareholder Approval. Subject to Section 5.2(b), the Company shall, through its Board of Directors, recommend to its shareholders that they adopt this Agreement, and shall include such recommendation in the Proxy Statement. Without limiting the generality of the foregoing, the Company agrees that its obligations pursuant to the first sentence of this Section 6.1(b) shall not be affected by (x) the commencement, public proposal, public disclosure or communication to the Company or any other Person of any Takeover Proposal or (y) the withdrawal or modification by the Board of Directors of the Company or any committee thereof of such Board’s or committee’s approval or recommendation of the Offer, the Merger or this Agreement. Notwithstanding the foregoing, if Merger Sub or any other Subsidiary of Compass shall acquire at least 90% of the outstanding shares of Company Common Stock, the parties shall take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the expiration of the Offer without the Company Shareholders Meeting in accordance with Section 1110 of the CGCL.

          (c) Compass agrees to cause all shares of Company Common Stock purchased pursuant to the Offer and all other shares of Company Common Stock owned by Compass or any Subsidiary of Compass to be voted in favor of the Company Shareholder Approval.

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     Section 6.2. Access To Information; Confidentiality. Except as required by applicable law and as otherwise provided in Section 5.1(d), the Company shall, and shall cause each of its Subsidiaries to, upon reasonable advance notice by Compass to the Company, afford to Compass, and to Compass’s officers, employees, investment bankers, attorneys, accountants and other advisors and representatives, reasonable and reasonably prompt access during normal business hours during the period prior to the Effective Time or the earlier termination of this Agreement to all their respective properties, assets, books, contracts, commitments, Representatives and records and, during such period, the Company shall, and shall cause each of its Subsidiaries to, make available to Compass on a prompt basis (a) a copy of each report, schedule, form, statement and other document filed or received by it during such period pursuant to the requirements of domestic or foreign (whether national, federal, state, provincial, local or otherwise) laws and (b) all other information concerning its business, properties and personnel as Compass may reasonably request (including access to, but not copies of, the work papers of Deloitte & Touche LLP or any prior auditors). Notwithstanding the foregoing, the Company shall not be required to permit any inspection, or to disclose any information, that in the reasonable judgment of the Company would (i) result in the disclosure of any trade secrets of third parties protected by a fully executed written agreement, a copy of which shall be promptly provided to Compass upon request, (ii) violate any obligation of the Company with respect to confidentiality arising pursuant to a fully executed written agreement with a customer or supplier of the Company, a copy of which shall be promptly provided to Compass upon request (provided that such information may not be withheld if the applicable confidentiality agreement permits the information to be disclosed to a third party that agrees in writing to keep such information confidential, and Compass does so) or (iii) except as otherwise provided in the Confidentiality Agreement, jeopardize protections afforded the Company under the attorney-client privilege or the attorney-work-product doctrine. Except as required by law, Compass will hold, and will direct its officers, employees, investment bankers, attorneys, accountants and other advisors and representatives to hold, any and all information received from the Company, directly or indirectly, in confidence in accordance with the Confidentiality Agreement.

     Section 6.3. Additional Actions; Notification.

          (a) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions, that are necessary to consummate and make effective the Offer, the Merger and the other transactions contemplated by this Agreement, including the following: (x) the taking of all acts necessary to cause the conditions to the Offer and the Merger to be satisfied, (y) the obtaining of all necessary actions or nonactions, waivers, consents, approvals, orders and authorizations from Governmental Entities and the making of all necessary registrations, declarations and filings, as promptly as reasonably practicable, and in any event, within 15 business days after the date hereof, and (z) the obtaining of all necessary consents, approvals or waivers from third parties. In connection with and without limiting the foregoing, the Company and its Board of Directors shall, if any provision of the Company’s Articles of Incorporation, Bylaws or any state takeover statute or similar statute or regulation is or becomes applicable to this Agreement, the Transactions or the other transactions contemplated hereby or thereby, take all acts necessary to ensure that this Agreement, the Transactions or the other transactions contemplated hereby or thereby may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such provision, statute

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or regulation on this Agreement, the Transactions or the other transactions contemplated hereby or thereby. The Company and Compass shall keep the other apprised of the status of matters relating to the completion of the transactions contemplated hereby and work cooperatively in connection with obtaining any such waivers, consents, approvals, orders and authorizations, including, without limitation: (i) promptly notifying the other of, and if in writing, furnishing the other with copies of (or, in the case of material oral communications, advise the other orally of) any communications from or with any Governmental Entity with respect to the Offer, the Merger or any of the other transactions contemplated by this Agreement (except such communications that counsel to the Company advises the Company are privileged under the attorney-client privilege or similar privilege), (ii) permitting the other party to review and discuss in advance, and considering in good faith the views of one another in connection with, any proposed written (or material proposed oral) communication with any Governmental Entity, (iii) not participating in any meeting with any Governmental Entity unless it consults with the other party in advance and to the extent permitted by such Governmental Entity gives the other party the opportunity to attend and participate, (iv) furnishing the other party with copies of all correspondence, filings and communications (and memoranda setting forth the substance thereof) between it and any Governmental Entity with respect to this Agreement, the Offer and the Merger and (v) furnishing the other party with such necessary information and reasonable assistance as such other party may reasonably request in connection with its preparation of necessary filings or submissions of information to any Governmental Entity, and that is not of a privileged nature or that contains competitively sensitive information.

          (b) The Company shall give prompt notice to Compass, and Compass shall give prompt notice to the Company, of (i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect or (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition agreement to be complied with or satisfied by it under this Agreement; provided that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement.

     Section 6.4. Indemnification and Insurance.

          (a) All rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time now existing in favor of the current or former directors or officers of the Company and its Subsidiaries (the “Indemnified Parties”) as provided in their respective articles of incorporation or bylaws (or similar organizational documents) and any indemnification agreement in effect between the Company and any Indemnified Party shall be assumed and continued by the Surviving Corporation and Compass in the Merger, without further action, at the Effective Time and shall survive the Merger and shall continue in full force and effect in accordance with their terms. The articles of incorporation and bylaws of the Surviving Corporation shall contain the provisions with respect to indemnification and exculpation from liability set forth in the Company’s articles of incorporation and bylaws on the date of this Agreement, and, during the period commencing on the Specified Date and ending on the sixth anniversary of the Effective Time, such provisions shall not be amended, repealed or otherwise modified in any manner that would adversely affect the rights thereunder of any Indemnified Party. Notwithstanding any other provisions in any such articles of incorporation or

37

bylaws to the contrary, any Indemnified Party who is an officer or director of the Company as of the date hereof will provide notice to the Surviving Corporation and Compass of any third-party claim that may give rise to an indemnity obligation, and the Surviving Corporation and Compass shall have the ability to participate in the defense of any such claim.

          (b) Compass shall not effect, or cause the Company to effect, any change in the Company’s directors’ and officers’ liability insurance policy during the period beginning with the Specified Date and ending as of the Effective Time. For six years after the Effective Time, Compass shall maintain in effect the Company’s current directors’ and officers’ liability insurance covering each Person currently covered by the Company’s directors’ and officers’ liability insurance policy for acts or omissions occurring prior to the Effective Time on terms with respect to such coverage and in amounts no less favorable in any material respect to such directors and officers than those of such policy as in effect on the date of this Agreement; provided, however, that (i) Compass may substitute therefor policies of a reputable insurance company the material terms of which, including coverage and amount, are no less favorable in any material respect to such directors and officers than the insurance coverage otherwise required under this Section 6.4(b) and (ii) in no event shall Compass be required to pay annual premiums for insurance under this Section 6.4(b) in excess of 200% of the amount of the annual premiums paid by the Company for 2003 for such purpose, which 2003 premiums are identified in Schedule 6.4(b), it being understood that if the annual premiums payable for such insurance coverage exceed such amount, Compass shall be obligated to obtain a policy with the greatest coverage available for a cost equal to such amount.

          (c) This Section 6.4 shall survive the acquisition of shares of Company Common Stock pursuant to the Offer and shall also survive consummation of the Merger and the Effective Time. This Section 6.4 is intended to benefit, and may be enforced by, the Indemnified Parties and their respective heirs, representatives, successors and assigns, and shall be binding on all successors and assigns of Compass and the Surviving Corporation.

     Section 6.5. Fees and Expenses.

          (a) Except as set forth in Section 6.5(b) and (c), all fees and expenses incurred in connection with this Agreement, the Offer, the Merger and the other transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated.

          (b) In the event that:

     (i) (A) first, a Takeover Proposal shall have been publicly proposed or announced or any Person has publicly announced an intention (whether or not conditional and whether or not withdrawn) to make a Takeover Proposal, thereafter (B) this Agreement is terminated by either Compass or the Company pursuant to Section 8.1(b)(i) and (C) within 12 months after such termination, the Company or any of its Subsidiaries enters into any Acquisition Agreement with respect to, or consummates, any Takeover Proposal; or

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     (ii) this Agreement is terminated by Compass pursuant to Section 8.1(c) or by the Company pursuant to Section 8.1(f),

then the Company shall pay Compass a fee equal to $1,500,000 (the “Termination Fee”) by wire transfer of same day funds to an account designated by Compass in the case of a payment as a result of any event referred to in Section 6.5(b)(i), upon the consummation of the transaction constituting a Takeover Proposal, and in the case of payment as a result of any event referred to in Section 6.5(b)(ii), promptly, but in no event later than the date of such termination. For purposes of Section 6.5(b), a “Takeover Proposal” shall have the meaning assigned to such term in Section 5.2(a), except that references to “20%” in such definition shall be deemed to be references to “50%”. The parties acknowledge that the agreements contained in this Section 6.5(b) and in Section 6.5(c) are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, the parties would not enter into this Agreement; accordingly, if the Company fails to promptly pay the amounts due pursuant to this Section 6.5(b) or Section 6.5(c) and, in order to obtain such payment, Compass commences a suit that results in a judgment against the Company for the amounts set forth in this Section 6.5(b) or Section 6.5(c), the Company shall pay to Compass interest on the amounts set forth in this Section 6.5(b) or Section 6.5(c), at the prime rate of Bank of America, N.A. in effect on the date such payment was required to be made and all of Compass’s costs and expenses (including reasonable attorneys’ fees) of bringing such suit.

          (c) In addition, the Company shall reimburse Compass and Merger Sub for all their expenses actually and reasonably incurred in connection with this Agreement, the Offer, the Merger and the other transactions contemplated by this Agreement (i) in the event this Agreement is terminated in the circumstances described in Section 6.5(b)(i) upon the consummation of the transaction constituting a Takeover Proposal, (ii) in the event this Agreement is terminated in the circumstances described in Section 6.5(b)(ii), or (iii) if this Agreement is terminated pursuant to Section 8.1(d), promptly, but in no event later than the date of such termination; provided, that the aggregate amount of such reimbursement together with the Termination Fee shall not exceed $1,700,000. All payments made pursuant to this Section 6.5(c) shall be made by wire transfer of same day funds to an account designated by Compass.

     Section 6.6. Company Stock Options, Company Warrants and Restricted Stock.

          (a) Upon payment by Merger Sub for shares of Common Stock pursuant to the Offer, each holder of a Company Stock Option that will terminate on the Specified Date pursuant to Section 6.2 of the Company’s 1997 Stock Option Plan or Section 19 of the Company’s 2001 Stock Option Plan, as applicable, whether or not such Company Stock Option is exercisable on the Specified Date, shall be entitled to receive, in cancellation and full settlement of the Company Stock Option, an amount equal to the product of (i) the number of shares of Company Common Stock for which the Company Stock Option is exercisable and (ii) the excess, if any, of the Offer Price over the exercise price per share of Company Common Stock provided for in the Company Stock Option (the “Option Consideration”), if such product is a positive number. At the Effective Time, the Company shall pay (or cause to be paid, as the case may be) the Option Consideration in cash to each holder of a Company Stock Option to whom the Option Consideration is payable. The Company shall take such other actions available under the Company Stock Plans to effect the cancellation of all Company Stock Options. The

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Company agrees to use commercially reasonable efforts to obtain consents from the holders of such Company Stock Options to their cancellation to the extent Compass determines such consents to be advisable.

          (b) Upon payment by Merger Sub for shares of Common Stock pursuant to the Offer, each Company Warrant outstanding immediately prior to the Specified Date, whether or not then exercisable, shall be converted into an obligation of the Surviving Corporation to pay upon exercise thereof, and a right of each holder thereof to receive in full satisfaction of such Company Warrant, cash in an amount equal to the product of (i) the number of shares of Company Common Stock for which the Company Warrant is exercisable and (ii) the excess, if any, of the Offer Price over the exercise price per share of Company Common Stock provided for in the Company Warrant (the “Warrant Consideration”), if such product is a positive number. As soon as practicable following payment by Merger Sub for shares of Common Stock pursuant to the Offer, but no later than the Effective Time, the Company shall pay (or cause to be paid, as the case may be) the Warrant Consideration in cash to each holder of a Company Warrant to whom the Warrant Consideration is payable. The Company shall take such other actions necessary to effect the cancellation of all Company Warrants. The Company agrees to use commercially reasonable efforts to obtain consents from the holders of such Company Warrants to their cancellation to the extent Compass determines such consents to be advisable.

          (c) Notwithstanding any provision in any granting agreement or other document to the contrary, all restrictions on shares of restricted Company Common Stock granted under any company incentive plans shall lapse at the Specified Date, and the holder of such restricted Company Common Stock shall be entitled to tender such shares in the Offer or receive for each share of restricted Company Common Stock, in cancellation and full settlement of such share, the Merger Consideration.

     Section 6.7. Benefits Matters.

          (a) Except as otherwise provided herein, from and after the Effective Date (but for no longer than a 12-month period), the Surviving Corporation shall continue to honor in accordance with their respective terms the Benefit Plans, Pension Plans and all of the Company’s other employee benefit, compensation, employment, severance and termination agreements, plans and policies, including any rights or benefits arising as a result of the transactions contemplated by this Agreement (either alone or in combination with any other event). Closing will not affect the Benefit Plans and Pension Plans offered to employees of the Company as of the date of this Agreement. If the Surviving Corporation or Compass terminates any or all of such Benefit Plans and Pension Plans after Closing, the Surviving Corporation will offer employees of the Surviving Corporation benefits that are comparable to those offered under such Benefit Plans and Pension Plans.

          (b) Nothing contained in this Section 6.7 or elsewhere in this Agreement shall be construed to prevent the termination of employment of any individual Company employee or any change in the employee benefits available to any individual Company employee or the amendment or termination of any particular Benefit Plan, Pension Plan or other employee benefit plan, program, policy or arrangement to the extent permitted by its terms as in effect immediately prior to the Specified Date.

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          (c) During the period from the date of this Agreement to the Effective Time, the Company will permit no discounted purchases of Company Common Stock with director fees or deferred compensation for Company Directors.

     Section 6.8. Public Announcements. Subject to applicable securities and other laws, Compass and Merger Sub, on the one hand, and the Company, on the other hand, shall, to the extent reasonably practicable, consult with each other before issuing, and give each other a reasonable opportunity to review and comment upon, any press release or other public statements with respect to this Agreement, the Offer, the Merger and the other transactions contemplated by this Agreement. Subject to applicable securities and other laws, the parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement shall be in the form and at the time agreed to by the parties.

     Section 6.9. Directors.

          (a) Promptly upon the acceptance for payment of, and payment by Merger Sub for at least 49.9% of the shares of Company Common Stock pursuant to the Offer and Section 1.1 of this Agreement, Merger Sub shall be entitled to designate such number of directors on the Board of Directors of the Company as will give Merger Sub, subject to compliance with Section 14(f) of the Exchange Act, representation on the Board of Directors of the Company equal to that number of directors, rounded up to the next whole number, that is the product of (i) the total number of directors on the Board of Directors of the Company (giving effect to the directors elected pursuant to this sentence) multiplied by (ii) the percentage that (A) such number of shares of Company Common Stock so accepted for payment and paid for by Merger Sub bears to (B) the number of such shares outstanding, and the Company shall, at such time, cause Merger Sub’s designees to be so elected; provided, however, that in the event that Merger Sub’s designees are appointed or elected to the Board of Directors of the Company, until the Effective Time, the Board of Directors of the Company shall have at least a sufficient number of independent directors to comply with Nasdaq rules in effect from time to time (the “Independent Directors”); provided, further that, in such event, if the number of Independent Directors shall be reduced below the number required by Nasdaq rules for any reason whatsoever, any remaining Independent Directors (or Independent Director, if there shall be only one remaining) shall be entitled to designate Persons to fill such vacancies who shall be deemed to be Independent Directors for purposes of this Agreement or, if no Independent Directors then remain, the other directors shall designate a sufficient number of Persons to fill such vacancies who are not officers, shareholders or affiliates of the Company, Compass or Merger Sub, and such Persons shall be deemed to be Independent Directors for purposes of this Agreement. Subject to applicable law, the Company shall take all action requested by Compass necessary to effect any such election, including mailing to its shareholders the Information Statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and the Company shall make such mailing with the mailing of the Schedule 14D-9 (provided that Merger Sub shall have provided to the Company on a timely basis all information required to be included in the Information Statement with respect to Merger Sub’s designees). In connection with the foregoing, the Company shall promptly, at the option of Merger Sub, either increase the size of the Board of Directors of the Company or obtain the resignation of such number of its current directors as is necessary to enable Merger Sub’s

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designees to be elected or appointed to the Board of Directors of the Company as provided above.

          (b) Prior to the Effective Time, the Company shall cause each member of its Board of Directors, other than Merger Sub’s designees, to execute and deliver a letter effectuating his or her resignation as a director of such Board of Directors effective immediately prior to the Effective Time.

     Section 6.10. Fairness Hearing. In the event that Merger Sub elects to file a Permit Application pursuant to Section 1.1(b)(z)(ii)(B), Compass and the Company shall prepare the Permit Application and cause it to be filed with the California Commissioner and shall request a Fairness Hearing. Each of Compass, Merger Sub and the Company shall use all commercially reasonable efforts to cause the California Commissioner to approve the fairness of the terms and conditions of the Merger at the Fairness Hearing; provided that none of the parties to this Agreement shall be obligated to amend this Agreement to change the Merger Consideration. The Company shall provide and include in the Permit Application such information relating to the Company as may be required pursuant to the rules of the California Commissioner, including a copy of the fairness opinion and valuation reports received by the Company in connection with the Merger. The Permit Application shall also include the recommendation of this Agreement, the Offer and the Merger by the Board of Directors of the Company.

ARTICLE VII
CONDITIONS PRECEDENT

     Section 7.1. Conditions to Each Party’s Obligation to Effect the Merger. The obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions:

          (a) Shareholder Approval. The Company Shareholder Approval shall have been obtained if required by applicable law.

          (b) No Injunctions or Legal Restraints. No temporary restraining order, preliminary or permanent injunction or other order or decree issued by any court of competent jurisdiction or other legal restraint or prohibition (collectively, “Legal Restraints”) that has the effect of preventing the consummation of the Merger shall be in effect; provided, however, that, prior to invoking this provision, each of the parties shall have used reasonable efforts to prevent the entry of any such injunction or other order and to appeal as promptly as practicable any injunction or other order that may be entered.

          (c) Purchase of Shares in the Offer. Merger Sub shall have previously accepted for payment and paid for the shares of Company Common Stock tendered pursuant to the Offer.

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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER

     Section 8.1. Termination. This Agreement may be terminated, and the Offer and the Merger contemplated hereby may be abandoned, at any time prior to the Effective Time, whether before or after the Company Shareholder Approval has been obtained:

          (a) by mutual written consent of Compass, Merger Sub and the Company;

          (b) by either Compass or the Company:

     (i) if (A) as a result of the failure of any of the conditions to the Offer set forth in Annex I, the Offer shall have terminated or expired in accordance with its terms without Merger Sub, in accordance with this Agreement, having accepted for payment any Shares pursuant to the Offer within the time period for acceptance specified by this Agreement or (B) Merger Sub, in accordance with this Agreement, shall not have accepted for payment any Shares pursuant to the Offer by the business day after the Final Expiration Date (provided that the right to terminate this Agreement pursuant to this Section 8.1(b)(i) shall not be available to any party whose breach of or failure to fulfill any obligation under this Agreement has been a principal reason the Offer has not been consummated by such date); or

     (ii) if any Governmental Entity shall have issued an order, injunction or other decree or ruling or taken any other action enjoining, restraining or otherwise prohibiting the acceptance for payment of, or payment for the Company Common Stock pursuant to the Offer or the Merger.

          (c) by Compass if the Board of Directors of the Company or any committee thereof shall have (i) withdrawn the recommendation of such Board of Directors of this Agreement, the Offer or the Merger or modified such recommendation in a manner adverse to Compass or Merger Sub or (ii) failed to confirm its recommendation to the Company’s shareholders that they accept the Offer and give the Company Shareholder Approval within ten business days after a written request by Compass that it do so if such request is made following the making of a Takeover Proposal, provided that Compass may not make more than one such request in respect of a Takeover Proposal unless such proposal has been materially modified;

          (d) prior to the Specified Date by Compass (i) if the Company has breached any of its representations, warranties or covenants contained in this Agreement, which breach would give rise to the failure of a condition set forth in paragraphs 3(c), 3(d), 3(e) of Annex I, which breach has not been or is incapable of being cured by the Company within 10 business days after its receipt of written notice thereof from Compass, or (ii) if any suit, action or proceeding set forth in paragraph 3(a) of Annex I shall have prevailed and become final and nonappealable;

          (e) prior to the Specified Date by the Company if any of Compass’s representations and warranties contained in this Agreement shall not be true and correct, except for such failures to be true and correct that (without giving effect to any limitation as to

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“materiality” set forth therein), individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect, which failure has not been or is incapable of being cured by Compass within 10 business days after its receipt of written notice thereof from the Company; or

          (f) by the Company prior to the Specified Date in accordance with Section 5.2(b) subject to compliance by the Company with the notice provisions herein and payment of the Termination Fee and expense reimbursement provided for in Section 6.5.

          (g) by the Company if Merger Sub shall have failed to commence (within the meaning of Rule 14d-2 under the Exchange Act) the Offer within six business days after the date of this Agreement;

          (h) by the Company if (i) any material covenant of Compass or Merger Sub contained in this Agreement shall have been breached, (ii) the Company shall have delivered to Compass written notice of the breach in such covenant and (iii) at least 10 business days shall have elapsed since the date of delivery of such written notice to Compass and such breach shall not have been cured in all material respects.

     Section 8.2. Effect of Termination. In the event of termination of this Agreement by either the Company or Compass as provided in Section 8.1, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of Compass, Merger Sub or the Company, other than the provisions of the last sentence of Section 6.2, Section 6.5, this Section 8.2 and Article IX; provided that no such termination shall relieve any party hereto from any liability or damages resulting from a willful breach by a party of any of its representations, warranties or covenants set forth in this Agreement.

     Section 8.3. Amendment. This Agreement may be amended by the parties hereto at any time by an instrument in writing, whether before or after the Company Shareholder Approval has been obtained; provided that, after the Specified Date, no amendment shall be made that decreases the Merger Consideration and, after the Company Shareholder Approval has been obtained, there shall be made no amendment that by law requires further approval by shareholders or shareholders of the parties without the further approval of such shareholders or shareholders. Following the election or appointment of Merger Sub’s designees pursuant to Section 6.9 and prior to the Effective Time, the affirmative vote of a majority of the Independent Directors then in office shall be required by the Company to (i) amend or terminate this Agreement by the Company, (ii) exercise or waive any of the Company’s rights or remedies under this Agreement or (iii) extend the time for performance of Compass and Merger Sub’s respective obligations under this Agreement.

     Section 8.4. Extension; Waiver. At any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or (c) waive compliance with any of the agreements or conditions contained herein; provided that after the Company Shareholder Approval has been obtained, there shall be made no waiver that by law requires further approval by shareholders or shareholders of the parties without the further approval of such shareholders or shareholders.

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Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure or delay by any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights nor shall any single or partial exercise by any party to this Agreement of any of its rights under this Agreement preclude any other or further exercise of such rights or any other rights under this Agreement.

ARTICLE IX
GENERAL PROVISIONS

     Section 9.1. Nonsurvival of Representations and Warranties. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This Section 9.1 shall not limit any covenant or agreement of the parties that by its terms contemplates performance after the Effective Time.

     Section 9.2. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

     if to Compass or Merger Sub, to:

Compass Group USA Investments, LLP
c/o Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, North Carolina 28217
Fax: (704) 329-4010
Attention: General Counsel

     with a copy to:

Helms Mulliss & Wicker, PLLC
201 North Tryon Street
Charlotte, North Carolina 28202
Fax: (704) 343-2300
Attention: Boyd C. Campbell, Jr.

     if to the Company, to:

Creative Host Services, Inc.
16955 Via del Campo
Suite 100
San Diego, CA 92127
Fax: (858) 675-7720
Attention: Sayed Ali, Chief Executive Officer

     with a copy to:

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Cooley Godward LLP
4401 Eastgate Mall
San Diego, California 92121-1909
Fax: (858) 550-6420
Attention: Barbara L. Borden and
Jeremy D. Glaser

     Section 9.3. Definitions. For purposes of this Agreement:

          (a) an “Affiliate” of any Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person.

          (b) “business day” means any day other than a Saturday, Sunday or U.S. federal holiday.

          (c) The phrases “to the Company’s knowledge,” “known to the Company” and similar formulations mean the actual knowledge of Sayed Ali, Tasneem Vakharia or Michael Zybala after conducting a reasonable investigation concerning the existence of such fact or other matter. For the avoidance of doubt, if any such Person has not conducted a reasonable investigation with respect to a representation or warranty qualified “to the Company’s knowledge” or a similar formulation, such representation or warranty shall be deemed not so qualified.

          (d) “Material Adverse Effect” means any state of facts, change, inaccuracy, development, effect, event, violation, condition, circumstance or occurrence (considered together with all other matters that would constitute a breach of the representations and warranties of the Company set forth in the Agreement, disregarding any “Material Adverse Effect” or other materiality qualifications, or any similar qualifications, in such representations and warranties) that is materially adverse to (i) the business, condition, assets, liabilities, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole, or (ii) the ability of the Company to consummate the Merger or any of the other transactions contemplated by the Agreement or to perform any of its material obligations under the Agreement, other than adverse changes resulting from (w) general national, international or regional economic, financial or market conditions, (x) conditions, circumstances or changes affecting the food-service industry in general and not the Company and its Subsidiaries specifically, (y) any change in accounting requirements or principles or any change in applicable law, rules or regulations or interpretation thereof or (z) any adverse effect that results from the commencement or pendency of the Offer, the Merger or any of the other transaction contemplated by the Agreement (which shall in no event include the Company’s failure to obtain any third-party consent to the transactions contemplated by this Agreement); provided, however, notwithstanding the foregoing, if Section 3.3 (as qualified by Schedule 3.3) is inaccurate and in connection with such inaccuracy there are or could reasonably be one or more claims against Compass involving in excess of 50,000 shares of Company Common Stock (or securities exercisable for or convertible into in excess of 50,000 shares of Company Common Stock), a Material Adverse Effect on the Company shall be deemed to have occurred.

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          (e) “Net Indebtedness” means with respect to the Company and its Subsidiaries, (i) all indebtedness for borrowed money (both long-term and short-term), plus (ii) all leases that have been, or should be, in accordance with United States generally accepted accounting principles, recorded as capitalized leases (including capitalized leases identified on Schedule 3.9(d)), minus (iii) all cash, cash equivalents and marketable securities.

          (f) “Person” means an individual, corporation, partnership, joint venture, association, trust, limited liability company, Governmental Entity, unincorporated organization or other entity.

          (g) “Representative” means any officer, director, employee, attorney, accountant, investment banker, agent, advisor or representative of the Company or any of its Subsidiaries.

          (h) a “Subsidiary” of another Person means an entity in which such Person directly or indirectly owns or purports to own, beneficially or of record, (i) an amount of voting securities or other interests in such entity that is sufficient to enable such Person to elect at lease a majority of the members of such entity’s board of directors or other governing body or (ii) at least 50% of the outstanding equity or financial interests of such entity.

     Section 9.4. Interpretation. When a reference is made in this Agreement to a Section, Subsection or Schedule, such reference shall be to a Section or Subsection of, or a Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term “or” is not exclusive. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. Any agreement or instrument defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement or instrument as from time to time amended, modified or supplemented. References to a Person are also to its permitted successors and assigns.

     Section 9.5. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

     Section 9.6. Entire Agreement; No Third-Party Beneficiaries. This Agreement, the Confidentiality Agreement and the other agreements referred to in this Agreement constitute the entire agreement among the parties and supersede all prior agreements and understandings, both written and oral, with respect to the subject matter of hereof and thereof. Except for the provisions of Section 6.4 and Section 6.6, this Agreement is not intended to and does not confer upon any Person other than the parties hereto (and their respective successors and assigns) any rights, benefits or remedies of any nature whatsoever.

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     Section 9.7. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, regardless of the laws that might otherwise govern under applicable conflict-of-laws principles.

     Section 9.8. Disclosure Schedules. The Schedules to this Agreement shall be arranged in separate parts corresponding to the numbered and lettered Sections in Article III, and the information disclosed in any numbered or lettered part shall be deemed to relate to and to qualify only the particular representation or warranty set forth in the corresponding numbered or lettered Section in Article III, and shall not be deemed to relate to or to qualify any other representation or warranty.

     Section 9.9. Safe Harbor. Notwithstanding anything to the contrary contained in this Agreement or in any other agreement related to the transactions contemplated hereby, the parties and their respective representatives (and representatives, employees and agents of such representatives) may disclose to any and all Persons the Tax treatment and Tax structure of consummated transactions contemplated hereby and all materials of any kind (including opinions or other Tax analysis) that are provided to the parties and their representatives relating to such Tax treatment and Tax structure, all as permitted by applicable law and as contemplated by Treasury Regulation Section 1.6011-4(b)(3)(iii) and nothing contained in this Agreement shall be deemed to limit any such disclosure; provided, however, that such disclosure may not be made to the extent reasonably necessary to comply with any applicable federal or state securities laws. The preceding disclosure authorization shall not affect, or prevent any Person from asserting, any attorney-client privilege, work-product doctrine or other applicable privilege or defense against disclosure of such information.

     Section 9.10. Assignment. Neither this Agreement nor any of the rights, interests or obligations under it may be assigned, in whole or in part by any party without the prior written consent of the other parties, except that Merger Sub may assign, in its sole discretion, any of or all its rights, interests and obligations under this Agreement to Compass or to any direct or indirect wholly owned Subsidiary of Compass. No such assignment shall relieve Merger Sub of any of its obligations hereunder. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by, the parties and their respective successors and assigns.

     Section 9.11. Specific Performance. The parties recognize that in the event that a party should refuse to perform any provisions of this Agreement, monetary damages alone will not be adequate. The parties shall therefore be entitled, in addition to any other remedies that may be available, including money damages, to obtain specific performance of the terms of this Agreement. In the event of any action to enforce this Agreement specifically, all of the parties hereby waive the defense that there is an adequate remedy at law and any requirement for bond or other security in connection therewith.

     Section 9.12. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect

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the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

[Signature page follows.]

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     IN WITNESS WHEREOF, Compass, Merger Sub and the Company have caused this Agreement to be signed by their respective duly authorized officers, all as of the date first written above.

COMPASS GROUP USA INVESTMENTS, LLP
By:	/s/ Tom Ondrof
Name:	Tom Ondrof
Title:	Authorized Representative
YORKMONT FIVE, INC.
By:	/s/ Tom Ondrof
Name:	Tom Ondrof
Title:	Chief Financial Officer
CREATIVE HOST SERVICES, INC.
By:	/s/ Sayed Ali
Name:	Sayed Ali
Title:	President/CEO

S-1

ANNEX I

CONDITIONS OF THE OFFER

     Notwithstanding any other provision of the Offer or the Agreement to which this Annex I is attached, and in addition to (and not in limitation of) Merger Sub’s rights to extend and amend the Offer (subject to the provisions of the Agreement), and subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) relating to Merger Sub’s obligation to pay for or return tendered shares after termination of the Offer, Merger Sub shall not be required to accept for payment or pay for any shares of Company Common Stock tendered pursuant to the Offer and may terminate the Offer and the Agreement, if

(1) the Minimum Tender Condition (as defined below) or the Revised Minimum Number, as applicable, has not been satisfied. The phrase “Minimum Tender Condition” means that there shall have been validly tendered and not withdrawn prior to the expiration of the Offer that number of shares of Company Common Stock which, together with any shares of Company Common Stock beneficially owned by Compass, Merger Sub, or any of their affiliates, would represent 90% of the issued and outstanding Company Common Stock determined on a fully diluted basis on the date of purchase;

(2) there shall be in effect any voluntary agreement between Compass and the United States Federal Trade Commission or the United States Department of Justice pursuant to which Compass has agreed not to accept for payment shares of Company Common Stock pursuant to the Offer for any period of time; or

(3) at any time after the date of the Agreement, and before acceptance for payment of any shares of Company Common Stock, Compass shall have determined in its reasonable good faith discretion that any of the following events shall have occurred and be continuing:

     (a) there shall be pending or formally threatened any suit, action or proceeding by any Governmental Entity, (i) challenging the acquisition by Compass or Merger Sub of any shares of Company Common Stock, seeking to restrain or prohibit consummation of the Offer or the Merger or seeking to place limitations on the ownership of shares of Company Common Stock (or shares of common stock of the Surviving Corporation) by Compass or Merger Sub, (ii) seeking to prohibit or limit the ownership or operation by the Company or Compass and their respective Subsidiaries of the business or assets of the Company or Compass and their respective Subsidiaries, or to compel the Company or Compass and their respective Subsidiaries to dispose of or hold separate any material portion of the business or assets of the Company or Compass and their respective Subsidiaries, as a result of the Offer, the Merger, the Transactions or any of the other transactions contemplated by the Agreement, (iii) seeking to prohibit Compass or any of its Subsidiaries from effectively controlling in any material respect the business or operations of the Company or (iv) that otherwise is reasonably expected to have a Material Adverse Effect; in the case of

each of (i) through (iv) above, subject to the obligations set forth in Section 6.3 of the Agreement;

     (b) any Legal Restraint or any action or proceeding that may result in the filing of any injunction or other order that has the effect of preventing the purchase of shares of Company Common Stock pursuant to the Offer or the Merger shall be in effect;

     (c) the representations and warranties of the Company contained in the Agreement shall not have been accurate in all respects as of the date of the Agreement, except that any inaccuracies in such representations and warranties will be disregarded if the inaccuracies or the circumstances giving rise to all such inaccuracies (considered collectively) do not constitute, and would not reasonably be expected to have, a Material Adverse Effect on the Company; provided, however, that, for purposes of determining the accuracy of such representations and warranties, all “Material Adverse Effect” qualifications and other materiality qualifications contained in such representations and warranties shall be disregarded;

     (d) the representations and warranties of the Company contained in the Agreement shall not be accurate in all respects as of the Specified Date as if made on and as of the Specified Date, except that any inaccuracies in such representations and warranties will be disregarded if the inaccuracies or the circumstances giving rise to all such inaccuracies (considered collectively) do not constitute, and would not reasonably be expected to have, a Material Adverse Effect on the Company; provided, however, that, for purposes of determining the accuracy of such representations and warranties, all “Material Adverse Effect” qualifications and other materiality qualifications contained in such representations and warranties shall be disregarded and any modification to the Schedules to this Agreement made after the date of this Agreement shall be disregarded;

     (e) the Company shall have breached or failed in any material respect to perform or comply with any covenant or obligation that the Company is required to comply with or to perform at or prior to the Specified Date;

     (f) except as set forth in the Schedules to the Agreement or in the Filed SEC Documents, since the date of the Agreement, there shall have been any state of facts, change, development, effect, event, condition or occurrence that, individually or in the aggregate, constitutes or would reasonably be expected to have, a Material Adverse Effect on the Company;

     (g) the Company shall have failed to obtain an appropriate consent to the Merger from the counterparties to Customer Contracts that represent aggregate projected 2004 revenue of at least $40,000,000 as set forth in Schedule I.

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     (h) the Net Indebtedness exceeds $9,900,000;

     (i) Compass and Merger Sub shall not have received each of the following agreements and documents (i) a certificate executed on behalf of the Company by its Chief Executive Officer and Chief Financial Officer confirming that the conditions set forth in paragraphs 3(b), 3(c) , 3(d), 3(e), 3(f), 3(g), 3(h) and 3(j) of this Annex I have been duly satisfied and (ii) the written resignations of all directors of the Company and its Subsidiaries as and to the extent required by Section 6.9(b) of the Agreement;

     (j) the Agreement shall have been terminated in accordance with its terms.

     The foregoing conditions are for the sole benefit of Merger Sub and Compass and may be asserted by Merger Sub or Compass regardless of the circumstances giving rise to such condition or may be waived by Merger Sub and Compass in whole or in part at any time and from time to time in their reasonable discretion; provided, that Compass and Merger Sub may only waive or modify the Minimum Tender Condition as set forth in Section 1.1. The failure by Compass, Merger Sub or any other affiliate of Compass at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right. The waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. Capitalized terms used in this Annex I but not defined herein shall have the meanings set forth in the Agreement.

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AMENDMENT NO. 1
TO AGREEMENT AND PLAN OF MERGER

      This AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this “Amendment”) is dated as of February 24, 2004 by and among COMPASS GROUP USA INVESTMENTS, LLP, a Delaware limited liability partnership (“Compass”), YORKMONT FIVE, INC., a California corporation and a wholly owned indirect subsidiary of Compass (“Merger Sub”), and CREATIVE HOST SERVICES, INC., a California corporation (the “Company”).

      WHEREAS, the Company, Compass and Merger Sub entered into the Agreement and Plan of Merger dated as of February 18, 2004 (the “Merger Agreement”);

      WHEREAS, Section 8.3 of the Merger Agreement provides that the Merger Agreement may be amended with the written agreement of the parties; and

      WHEREAS, the parties desire to amend the Merger Agreement to provide for certain additional agreements between them.

      NOW, THEREFORE, in consideration of the mutual covenants and premises described herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

W I T N E S S E T H

      1.     Section 3.3 of the Merger Agreement shall be amended by replacing the number “535,000” in the fifth line thereof with the number “535,500”.

      2.     Annex I of the Merger Agreement shall be amended by deleting Section (1) and replacing it with the following:

"(1) the Minimum Tender Condition (as defined below) or the Revised Minimum Number, as applicable, has not been satisfied. The phrase “Minimum Tender Condition” means that there shall have been validly tendered and not withdrawn prior to the expiration of the Offer that number of shares of Company Common Stock which, together with any shares of Company Common Stock beneficially owned by Compass, Merger Sub, or any of their affiliates, would represent 90% of the issued and outstanding Company Common Stock determined on the date of purchase;”

      3.     The amendments made by this Amendment shall be effective as of the date hereof and for all times hereafter. Except as amended hereby, the Agreement shall remain in full force and effect.

      4.     This Amendment may be executed in two or more counterparts (including by facsimile) each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.

      IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 to the Agreement and Plan of Merger on the date first above written.

COMPASS GROUP USA INVESTMENTS, LLP
By:	/s/ Tom Ondrof
Name:	Tom Ondrof
Title:	Authorized Representative
YORKMONT FIVE, INC.
By:	/s/ Tom Ondrof
Name:	Tom Ondrof
Title:	Chief Financial Officer
CREATIVE HOST SERVICES, INC.
By:	/s/ Sayed Ali
Name:	Sayed Ali
Title:	President

EX-99.D.2 12 g87249toexv99wdw2.htm EX-99.D.2

TENDER AND VOTING AGREEMENT

     This Tender and Voting Agreement, dated as of February 18, 2004 (this “Agreement”), is made by and among COMPASS GROUP USA INVESTMENTS, LLP, a Delaware limited liability partnership (“Parent”), YORKMONT FIVE, INC., a California corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and SAYED ALI, a resident of the State of California and a shareholder of CREATIVE HOST SERVICES, INC., a California corporation (the “Company”) (the “Shareholder”).

RECITALS

     A.     Parent, Merger Sub and the Company are entering into an Agreement and Plan of Merger, dated as of the date hereof (as it may be amended from time to time, the “Merger Agreement”, that provides (subject to the conditions set forth therein) that (i) Merger Sub shall commence a cash tender offer (as such tender offer may be amended from time to time in accordance with the Merger Agreement, the “Offer”) to acquire all of the issued and outstanding shares of common stock, no par value per share, of the Company (“Common Stock”) in exchange for $3.40 per share in cash (the “Offer Price”) and (ii) following consummation of the Offer, Merger Sub shall merge with and into the Company (the “Merger”). Capitalized terms used and not otherwise defined in this Agreement have the respective meanings ascribed to such terms in the Merger Agreement.

     B.     Shareholder is the record or beneficial owner of the number of shares of Common Stock set forth on Schedule A (all such shares of Common Stock and any shares of Common Stock hereafter acquired by such Shareholder, including upon exercise of any Company Stock Option, Company Warrant or other securities of the Company, the “Shares”); and

     C.     In order to induce Parent and Merger Sub to enter into the Merger Agreement, the Shareholder has agreed to enter into this Agreement.

AGREEMENT

     The parties to this Agreement, intending to be legally bound hereby, agree as follows:

ARTICLE I

TENDER OF SHARES

     1.01     Tender of Shares. Unless Parent shall otherwise request in writing, the Shareholder agrees to promptly (and, in any event, not later than five business days after commencement of the Offer) tender or cause to be tendered into the Offer, pursuant to and in accordance with the terms of the Offer, and not withdraw or cause to be withdrawn (except following the termination of the Offer in accordance with its terms), all of such Shareholder’s Shares. The Shareholder acknowledges and agrees that Merger Sub’s obligation to accept for payment shares of Common Stock in the Offer, including any Shares tendered by the Shareholder, is subject to the terms and conditions of the Merger Agreement and the Offer.

ARTICLE II

VOTING AGREEMENT

     2.01     Voting Agreement. The Shareholder hereby agrees that, from and after the date hereof and until the earlier of (x) the Effective Time or (y) the termination of the Merger Agreement pursuant to its terms (such earlier date, the “Termination Date”), at any meeting of the shareholders of the Company, however called, it will cause the Shares such Shareholder beneficially owns to be counted as present (or absent if requested by Parent or Merger Sub) thereat for purposes of establishing a quorum and to vote or consent and that at any meeting of the shareholders of the Company, however called, and in any action by consent of the shareholders of the Company, such Shareholder shall vote (or cause to be voted) all of such Shareholder’s Shares (a) in favor of the approval and adoption of the Merger Agreement, the Merger and all the transactions contemplated by the Merger Agreement and this Agreement and otherwise in such manner as may be necessary to consummate the Merger; (b) against any action, proposal, agreement or transaction that would result in a breach of any covenant, obligation, agreement, representation or warranty of the Company under the Merger Agreement or of such Shareholder contained in this Agreement; and (c) against any action, agreement, transaction (other than the Merger Agreement or the transactions contemplated thereby) or proposal (including any Takeover Proposal) that could reasonably be expected to result in any of the conditions to the Offer or to the Company’s obligations under the Merger Agreement not being fulfilled or that is intended, or could reasonably be expected, to impede, interfere with, delay, discourage or adversely affect the Merger Agreement, the Offer, the Merger or this Agreement. Any vote by such Shareholder that is not in accordance with this Section 2.01 shall be considered null and void, and the provisions of Section 2.02 shall be deemed to take immediate effect.

     2.02     Irrevocable Proxy. If the Shareholder fails to comply with the provisions of Section 2.01, such Shareholder hereby agrees that such failure shall result, without any further action by such Shareholder effective as of the date of such failure, in the constitution and appointment of Parent, and Thomas G. Ondrof and Johnny C. Taylor, Jr., in their respective capacities as authorized agents of Parent, from and after the date of such failure until the Termination Date (at which point such constitution and appointment shall automatically be revoked) as such Shareholder’s attorney, agent and proxy (such constitution and appointment, the “Irrevocable Proxy”), with full power of substitution, to vote and otherwise act with respect to all such Shareholder’s Shares at any meeting of the shareholders of the Company (whether annual or special and whether or not an adjourned or postponed meeting), however called, and in any action by written consent of the shareholders of the Company, on the matters and in the manner specified in Section 2.01. Without limiting the foregoing, in any such vote or other action pursuant to such proxy, neither Parent nor any other person listed in the immediately preceding sentence shall in any event have the right (and such proxy shall not confer the right) to vote against the Merger or to vote to reduce the Offer Price. This proxy and power of attorney is irrevocable and deemed to be coupled with an interest sufficient in law as required by Section 705 of the California General Corporation Law. To the extent permitted under applicable law, this proxy and power of attorney shall be valid and binding on any person to whom a Shareholder may transfer any of its Shares in breach of this Agreement. The Shareholder hereby revokes all other proxies and powers of attorney with respect to all such

2

Shareholder’s Shares that may have heretofore been appointed or granted, and no subsequent proxy or power of attorney shall be given (and if given, shall not be effective) by such Shareholder with respect thereto. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of such Shareholder and any obligation of such Shareholder under this Agreement shall be binding upon the heirs, personal representatives, successors and assigns of such Shareholder.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER

     The Shareholder hereby represents and warrants to Parent and Merger Sub, as of the date of this Agreement as of the date Merger Sub purchases shares of Company Common Stock pursuant to the Offer, as follows:

     3.01     Organization and Authority of the Shareholder. The Shareholder has full legal capacity, power and authority to execute and deliver this Agreement and to perform his obligations hereunder. This Agreement has been duly and validly executed and delivered by the Shareholder and this Agreement constitutes a legal, valid and binding obligation of the Shareholder enforceable against the Shareholder in accordance with its terms, except as limited by bankruptcy, insolvency and other similar laws or equitable principles (but not those concerning fraudulent conveyance) generally affecting creditors’ rights and remedies.

     3.02     No Conflict; Required Filings and Consents.

                  (a)     The execution and delivery of this Agreement by the Shareholder does not, and the performance of this Agreement by the Shareholder will not, (i) conflict with or violate any agreement to which the Shareholder is a party, (ii) conflict with or violate any law applicable to such Shareholder or by which any property or asset of such Shareholder is bound or affected or (iii) result in any breach of, or constitute a default (or event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of an Lien on any Shares (other than pursuant to this Agreement) pursuant to, any note, bond, mortgage, indenture, pledge, contract, agreement, lease, license, permit, franchise or other instrument or obligation of such Shareholder.

                  (b)     The execution and delivery of this Agreement by the Shareholder does not, and the performance of this Agreement by the Shareholder will not, require any consent, approval, authorization or permit of, or filing with, or notification to, any Governmental Entity.

     3.03     Ownership of Shares. As of the date hereof, the Shareholder is the record or beneficial owner (as defined in Rule 13d-3 under the Exchange Act, which meaning will apply for all purposes of this Agreement) of, and has good, valid and marketable title to, the number of Shares set forth opposite such Shareholder’s name on Schedule A. Except as set forth on Schedule A, such Shares are all of the securities (as defined in Section 3(a)(10) of the Exchange Act, which definition will apply for all purposes of this Agreement) of the Company owned, either of record or beneficially, by such Shareholder as of the date hereof and such Shareholder

3

does not have any option or other right (including any Company Stock Option or Company Warrant) to acquire any other securities of the Company. The Shares owned by such Shareholder are owned free and clear of all Liens, other than any Liens created by this Agreement. Except as provided in this Agreement, such Shareholder has not appointed or granted any proxy, which appointment or grant is still effective, with respect to the Shares owned by such Shareholder.

     3.04     Reliance by Parent and Merger Sub. The Shareholder understands and acknowledges that Parent is entering into, and causing Merger Sub to enter into, the Merger Agreement in reliance upon such Shareholder’s execution, delivery and performance of this Agreement.

     3.05     No Finder’s Fees. No broker, finder, investment banker or financial advisor is entitled to any brokerage, finder’s, financial advisor’s or other fee or commission in connection with the transactions contemplated by this Agreement or the Merger Agreement based upon arrangements made by or on behalf of such Shareholder that is or will be payable by Parent, Merger Sub, the Company or any of their respective Subsidiaries.

     3.06     Absence of Litigation. As of the date of this Agreement, there is no litigation, suit, claim, action, proceeding or investigation pending, or, to the knowledge of the Shareholder, threatened against the Shareholder, or any property or asset of the Shareholder, before any Governmental Entity that seeks to delay or prevent the consummation of the transactions contemplated by this Agreement or the Merger Agreement.

ARTICLE IV

COVENANTS OF THE SHAREHOLDER

     4.01     No Disposition or Encumbrance of Shares. The Shareholder hereby agrees that, except as contemplated by this Agreement, such Shareholder shall not (a) sell, transfer, tender (except into the Offer), pledge, assign, contribute to the capital of any entity, hypothecate, give or otherwise dispose of, grant a proxy or power of attorney (other than the Irrevocable Proxy) with respect to, deposit into any voting trust, enter into any voting agreement, or create or permit to exist any Liens of any nature whatsoever (other than pursuant to this Agreement) with respect to, any of such Shareholder’s Shares (or agree or consent to, or offer to do, any of the foregoing), or (b) take any action that would make any representation or warranty of such Shareholder herein untrue or incorrect or have the effect of preventing, delaying or disabling such Shareholder from performing such Shareholder’s obligations hereunder.

     4.02     No Solicitation. The Shareholder shall not, directly or indirectly, through any other Person (a “Representative”), or otherwise, (a) solicit, initiate, facilitate or encourage, directly or indirectly, any inquiries relating to, or the submission of, any Takeover Proposal, (b) participate in any discussions or negotiations regarding any Takeover Proposal, or in connection with any Takeover Proposal, or furnish to any Person any information or data with respect to or provide access to the properties of the Company or any of its Subsidiaries, or take any other action to facilitate the making of any proposal that constitutes, or may reasonably be expected to

4

lead to, any Takeover Proposal or (c) enter into any agreement with respect to any Takeover Proposal or approve or resolve to approve any Takeover Proposal; provided, however, that nothing herein shall prevent the Shareholder from acting in such Shareholder’s capacity as a director or officer of the Company, or taking any action in such capacity (including at the direction of the Company’s board of directors), but only in either such case as and to the extent permitted by Section 5.2 of the Merger Agreement. Except as otherwise provided by Section 5.2 of the Merger Agreement, the Shareholder shall, and shall direct or cause such Shareholder’s Representatives to, immediately cease any existing activities, discussions or negotiations with any Person conducted heretofore with respect to any of the foregoing actions described in (a), (b) and (c) of this Section 4.02.

     4.03     Cooperation. The Shareholder agrees to cooperate fully with Parent and Merger Sub and to execute and deliver such further documents, certificates, agreements and instruments and to take such other actions as may be reasonably requested by Parent or Merger Sub to evidence or reflect the transactions contemplated by this Agreement and to carry out the intent and purposes of this Agreement. The Shareholder further agrees that, to the extent the Shareholder has a beneficial interest in any shares of Company Common Stock other than those set forth on Schedule A, he shall use his best efforts to cause such shares of Common Stock to be tendered into the Offer as soon as possible after its commencement.

ARTICLE V

MISCELLANEOUS

     5.01     Termination. This Agreement shall automatically terminate on the earliest of (a) the Effective Time, (b) the termination of the Merger Agreement in accordance with its terms or (c) such date and time as any amendment to the Merger Agreement is effected without the Shareholder’s consent that decreases the Offer Price.

     5.02     Shareholder Capacity and Fiduciary Duties. Notwithstanding anything in this Agreement to the contrary: (a) no Shareholder who is or becomes a director or officer of the Company during the term hereof makes any agreement or understanding herein in his or her capacity as such a director or officer, and the Shareholder makes no agreement or understanding herein in any capacity other than in the Shareholder’s capacity as a record holder and beneficial owner of Shares, (b) nothing herein shall limit or affect any actions taken or omitted to be taken by the Shareholder in his or her capacity as an officer or director of the Company in exercising the Company’s rights under the Merger Agreement or in performing such Shareholder’s fiduciary obligations in his or her capacity as a director or officer of the Company; provided, however, that no obligation of the Shareholder to the Company shall affect, impair or impede the Shareholder’s obligations under this Agreement, including the obligation to vote the Shares in accordance with Article II hereof; provided, further, that nothing in this Section 5.02 shall be deemed to permit any Shareholder to take any action on behalf of the Company that is prohibited by the Merger Agreement, (c) nothing herein shall be construed to limit or affect any action or inaction by any officer, partner, member or employee, as applicable, of the Shareholder serving on the Company’s board of directors acting in such person’s capacity as a director or fiduciary of the Company and (d) the Shareholder shall have no liability to Parent or any of its affiliates under this Agreement or otherwise as a result of any action or inaction by

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any officer, partner, member or employee, as applicable, of the Shareholder serving on the Company’s board of directors acting in such person’s capacity as a director or fiduciary of the Company.

     5.03     Legending of Certificates; Nominees Shares; Stop Transfer. Upon request by Parent, the Shareholder agrees to submit to Parent contemporaneously with or promptly following execution of this Agreement all certificates representing the Shares so that Parent may note thereon a legend referring to the rights granted to it under this Agreement. If any of the Shares beneficially owned by the Shareholder are held of record by a brokerage firm in “street name” or in the name of any other nominee (a “Nominee,” and, as to such Shares, “Nominee Shares”), the Shareholder agrees that, upon written request by Parent, such Shareholder will within five days of such request execute and deliver to Parent a limited power of attorney, in form and substance reasonably satisfactory to Parent, enabling Parent to require such Nominee to (a) enter into an agreement to the same effect as Article II with respect to the Nominee Shares held by such Nominee, (b) tender such Nominee Shares in the Offer pursuant to Section 1.01 and (c) submit to Parent the certificates representing such Nominee Shares for notation of the above-referenced legend thereon.

     5.04     Certain Events.

                  (a)     In the event (i) of any increase or decrease or other change in the Shares by reason of stock dividend, stock split, reverse stock split, recapitalizations, combinations, exchanges of shares or the like or (ii) that the Shareholder becomes the beneficial owner of any additional shares of Common Stock or other securities of the Company, then (x) the terms of this Agreement shall apply to the shares of capital stock and other securities of the Company held by the Shareholder immediately following the effectiveness of the events described in clause (i), or the Shareholder becoming the beneficial owner thereof pursuant to clause (ii), and (y) the amount payable per Share shall be equitably adjusted to reflect the impact of any event described in clause (i).

                  (b)     The Shareholder hereby agrees to promptly notify Parent and Merger Sub of the number of any new Shares or other securities acquired by such Shareholder, if any, after the date hereof.

     5.05     Waiver of Dissenters’ Rights. The Shareholder hereby irrevocably and unconditionally waives any appraisal rights or dissenters’ rights relating to the Merger or any related transaction that the Shareholder may have.

     5.06     Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy, by express delivery service or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 5.06):

                  (a)     if to the Shareholder:

                            To the address set forth on Schedule A;

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                  (b)      if to Parent or Merger Sub:

Compass Group USA Investments, LLP
c/o Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, North Carolina 28217
Fax #: (704) 329-4010
Attention: General Counsel

                            with a copy to:

Helms Mulliss & Wicker, PLLC
201 North Tryon Street
Charlotte, North Carolina 28202
Fax: (704) 343-2300
Attention: Boyd C. Campbell, Jr.

     5.07     Amendment. This Agreement may not be amended except by an instrument in writing signed by all the parties.

     5.08     Waiver. No failure on the part of any party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. No party shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such party; and any such waiver shall not apply or have any effect except in the specific instance in which it is given.

     5.09     Entire Agreement. This Agreement (together with the Schedule hereto) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof, other than the Merger Agreement and the other agreements contemplated thereby.

     5.10     Applicable Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, regardless of the laws that might otherwise govern under applicable conflict-of-laws principles. In any action between any of the parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement: (a) each of the parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the state and federal courts located in the State of California (and agrees not to commence any such action except in such courts) and irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action brought in such court has been brought in an inconvenient forum; (b) if any such action is

7

commenced in a state court, then, subject to applicable law, no party shall object to the removal of such action to any federal court located in the State of California; (c) each of the parties irrevocably waives the right to trial by jury; and (d) each of the parties irrevocably consents to service of process by first-class certified mail, return receipt requested, postage prepaid, to the address at which such party is to receive notice in accordance with Section 5.06.

     5.11     Specific Performance; Nonexclusivity.

                  (a)     The parties agree that irreparable damage would occur in the event any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity, without necessity of proof that there is no adequate remedy at law or requirement to post any security bond.

                  (b)     The rights and remedies of Parent under this Agreement are not exclusive of or limited by any other rights or remedies which it may have, whether at law, in equity, by contract or otherwise, all of which shall be cumulative (and not alternative).

     5.12     Costs and Expenses. Except as otherwise provided in the Merger Agreement, all costs and expenses of the parties, including fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred.

     5.13     Parties in Interest; Assignability. This Agreement shall be binding upon, and shall be enforceable by and inure solely to the benefit of, the parties and their respective successors and assigns; provided, however, that neither this Agreement nor any of the Shareholder’s rights hereunder may be assigned by the Shareholder without the prior written consent of Parent, and any attempted assignment of this Agreement or any of such rights by the Shareholder without such consent shall be void and of no effect; provided, further, that Parent may assign this Agreement to any direct or indirect subsidiary of Parent, but any such assignment shall not relieve Parent of any of its obligations hereunder. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person (other than the parties) any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. Any assignment prohibited under this Section shall be null and void.

     5.14     Severability. Any term or provision of this Agreement that is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction or other authority declares that any term or provision hereof is invalid, void or unenforceable, the parties agree that the court making such determination shall have the power to reduce the scope, duration, area or applicability of the term or provision, to delete specific words or phrases, or to replace any invalid, void or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.

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     5.15     Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

     5.16     Interpretation; Construction.

                  (a)     When a reference is made in this Agreement to a Section, Article or Schedule, such reference shall be to a Section or Article of, or a Schedule to, this Agreement unless otherwise indicated. The Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term “or” is not exclusive. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. Any agreement or instrument defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement or instrument as from time to time amended, modified or supplemented.

                  (b)     The parties agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

[Signature page follows.]

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     IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written.

COMPASS GROUP USA INVESTMENTS, LLP
By:	/s/ Tom Ondrof
Name:	Tom Ondrof
Title:	Authorized Representative
YORKMONT FIVE, INC.
By:	/s/ Tom Ondrof
Name:	Tom Ondrof
Title:	Chief Financial Officer
/s/ Sayed Ali
Sayed Ali

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Schedule A

		Number of Shares
		Issuable Upon
		Exercise of Company
	Number of Shares of	Stock Options or
Name	Common Stock	Company Warrants	Address
			16955 Via del Campo
			Suite 100
Sayed Ali	900,000	135,000	San Diego,CA 92127

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EX-99.D.2

EX-99.D.2

EX-99.D.3

TENDER AGREEMENT

     This Tender Agreement, dated as of February 18, 2004 (this “Agreement”), is made by and among COMPASS GROUP USA INVESTMENTS, LLP, a Delaware limited liability partnership (“Parent”), YORKMONT FIVE, INC., a California corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and JOHN STEWART JACKSON, IV, a resident of the State of Colorado and a shareholder of CREATIVE HOST SERVICES, INC., a California corporation (the “Company”) (the “Shareholder”).

RECITALS

     A.      Parent, Merger Sub and the Company are entering into an Agreement and Plan of Merger, dated as of the date hereof (as it may be amended from time to time, the “Merger Agreement”, that provides (subject to the conditions set forth therein) that (i) Merger Sub shall commence a cash tender offer (as such tender offer may be amended from time to time in accordance with the Merger Agreement, the “Offer”) to acquire all of the issued and outstanding shares of common stock, no par value per share, of the Company (“Common Stock”) in exchange for $3.40 per share in cash (the “Offer Price”) and (ii) following consummation of the Offer, Merger Sub shall merge with and into the Company (the “Merger”). Capitalized terms used and not otherwise defined in this Agreement have the respective meanings ascribed to such terms in the Merger Agreement.

     B.     Shareholder is the record or beneficial owner of the number of shares of Common Stock set forth on Schedule A (all such shares of Common Stock and any shares of Common Stock hereafter acquired by such Shareholder, including upon exercise of any Company Stock Option, Company Warrant or other securities of the Company, the “Shares”); and

     C.     In order to induce Parent and Merger Sub to enter into the Merger Agreement, the Shareholder has agreed to enter into this Agreement.

AGREEMENT

     The parties to this Agreement, intending to be legally bound hereby, agree as follows:

ARTICLE I

TENDER OF SHARES

     1.01     Tender of Shares. Unless Parent shall otherwise request in writing, the Shareholder agrees to promptly (and, in any event, not later than five business days after commencement of the Offer) tender or cause to be tendered into the Offer, pursuant to and in accordance with the terms of the Offer, and not withdraw or cause to be withdrawn (except following the termination of the Offer in accordance with its terms), all of such Shareholder’s Shares. The Shareholder acknowledges and agrees that Merger Sub’s obligation to accept for payment shares of Common Stock in the Offer, including any Shares tendered by the Shareholder, is subject to the terms and conditions of the Merger Agreement and the Offer.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER

     The Shareholder hereby represents and warrants to Parent and Merger Sub, as of the date of this Agreement as of the date Merger Sub purchases shares of Common Stock pursuant to the Offer, as follows:

     2.01     Organization and Authority of the Shareholder. The Shareholder has full legal capacity, power and authority to execute and deliver this Agreement and to perform his obligations hereunder. This Agreement has been duly and validly executed and delivered by the Shareholder and this Agreement constitutes a legal, valid and binding obligation of the Shareholder enforceable against the Shareholder in accordance with its terms, except as limited by bankruptcy, insolvency and other similar laws or equitable principles (but not those concerning fraudulent conveyance) generally affecting creditors’ rights and remedies.

     2.02     No Conflict; Required Filings and Consents.

          (a)     The execution and delivery of this Agreement by the Shareholder does not, and the performance of this Agreement by the Shareholder will not, (i) conflict with or violate any agreement to which the Shareholder is a party, (ii) conflict with or violate any law applicable to such Shareholder or by which any property or asset of such Shareholder is bound or affected or (iii) result in any breach of, or constitute a default (or event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of an Lien on any Shares (other than pursuant to this Agreement) pursuant to, any note, bond, mortgage, indenture, pledge, contract, agreement, lease, license, permit, franchise or other instrument or obligation of such Shareholder.

          (b)     The execution and delivery of this Agreement by the Shareholder does not, and the performance of this Agreement by the Shareholder will not, require any consent, approval, authorization or permit of, or filing with, or notification to, any Governmental Entity.

     2.03     Ownership of Shares. As of the date hereof, the Shareholder is the record or beneficial owner (as defined in Rule 13d-3 under the Exchange Act, which meaning will apply for all purposes of this Agreement) of, and has good, valid and marketable title to, the number of Shares set forth opposite such Shareholder’s name on Schedule A. Except as set forth on Schedule A, such Shares are all of the securities (as defined in Section 3(a)(10) of the Exchange Act, which definition will apply for all purposes of this Agreement) of the Company owned, either of record or beneficially, by such Shareholder as of the date hereof and such Shareholder does not have any option or other right (including any Company Stock Option or Company Warrant) to acquire any other securities of the Company. The Shares owned by such Shareholder are owned free and clear of all Liens, other than any Liens created by this Agreement. Such Shareholder has not appointed or granted any proxy, which appointment or grant is still effective, or entered into any voting agreement with respect to the Shares owned by such Shareholder.

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     2.04     Reliance by Parent and Merger Sub. The Shareholder understands and acknowledges that Parent is entering into, and causing Merger Sub to enter into, the Merger Agreement in reliance upon such Shareholder’s execution, delivery and performance of this Agreement.

     2.05     No Finder’s Fees. No broker, finder, investment banker or financial advisor is entitled to any brokerage, finder’s, financial advisor’s or other fee or commission in connection with the transactions contemplated by this Agreement or the Merger Agreement based upon arrangements made by or on behalf of such Shareholder that is or will be payable by Parent, Merger Sub, the Company or any of their respective Subsidiaries.

     2.06     Absence of Litigation. As of the date of this Agreement, there is no litigation, suit, claim, action, proceeding or investigation pending, or, to the knowledge of the Shareholder, threatened against the Shareholder, or any property or asset of the Shareholder, before any Governmental Entity that seeks to delay or prevent the consummation of the transactions contemplated by this Agreement or the Merger Agreement.

ARTICLE III

COVENANTS OF THE SHAREHOLDER

     3.01     No Disposition or Encumbrance of Shares. The Shareholder hereby agrees that, except as contemplated by this Agreement, such Shareholder shall not (a) sell, transfer, tender (except into the Offer), pledge, assign, contribute to the capital of any entity, hypothecate, give or otherwise dispose of, grant a proxy or power of attorney with respect to, deposit into any voting trust, enter into any voting agreement, or create or permit to exist any Liens of any nature whatsoever (other than pursuant to this Agreement) with respect to, any of such Shareholder’s Shares (or agree or consent to, or offer to do, any of the foregoing), or (b) take any action that would make any representation or warranty of such Shareholder herein untrue or incorrect or have the effect of preventing, delaying or disabling such Shareholder from performing such Shareholder’s obligations hereunder.

     3.02     No Solicitation. The Shareholder shall not, directly or indirectly, through any other Person (a “Representative”), or otherwise, (a) solicit, initiate, facilitate or encourage, directly or indirectly, any inquiries relating to, or the submission of, any Takeover Proposal, (b) participate in any discussions or negotiations regarding any Takeover Proposal, or in connection with any Takeover Proposal, or furnish to any Person any information or data with respect to or provide access to the properties of the Company or any of its Subsidiaries, or take any other action to facilitate the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal or (c) enter into any agreement with respect to any Takeover Proposal or approve or resolve to approve any Takeover Proposal. Effective on the date hereof, the Shareholder shall, and shall direct or cause such Shareholder’s Representatives to, immediately cease any existing activities, discussions or negotiations with any Person conducted heretofore with respect to any of the foregoing actions described in (a), (b) and (c) of this Section 3.02.

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     3.03     Cooperation. The Shareholder agrees to cooperate fully with Parent and Merger Sub and to execute and deliver such further documents, certificates, agreements and instruments and to take such other actions as may be reasonably requested by Parent or Merger Sub to evidence or reflect the transactions contemplated by this Agreement and to carry out the intent and purposes of this Agreement. The Shareholder further agrees that, to the extent the Shareholder has a beneficial interest in any shares of Common Stock other than those set forth on Schedule A, he shall use his best efforts to cause such shares of Common Stock to be tendered into the Offer as soon as possible after its commencement.

ARTICLE IV

MISCELLANEOUS

     4.01     Termination. This Agreement shall automatically terminate on the earliest of (a) the Effective Time, (b) the termination of the Merger Agreement in accordance with its terms or (c) such date and time as any amendment to the Merger Agreement is effected without the Shareholder’s consent that decreases the Offer Price.

     4.02     Legending of Certificates; Nominees Shares; Stop Transfer. Upon request by Parent, the Shareholder agrees to submit to Parent contemporaneously with or promptly following execution of this Agreement all certificates representing the Shares so that Parent may note thereon a legend referring to the rights granted to it under this Agreement. If any of the Shares beneficially owned by the Shareholder are held of record by a brokerage firm in “street name” or in the name of any other nominee (a “Nominee,” and, as to such Shares, “Nominee Shares”), the Shareholder agrees that, upon written request by Parent, such Shareholder will within five days of such request execute and deliver to Parent a limited power of attorney, in form and substance reasonably satisfactory to Parent, enabling Parent to require such Nominee to (a) enter into an agreement to the same effect as Article II with respect to the Nominee Shares held by such Nominee, (b) tender such Nominee Shares in the Offer pursuant to Section 1.01 and (c) submit to Parent the certificates representing such Nominee Shares for notation of the above-referenced legend thereon.

     4.03     Certain Events.

                  (a)     In the event (i) of any increase or decrease or other change in the Shares by reason of stock dividend, stock split, reverse stock split, recapitalizations, combinations, exchanges of shares or the like or (ii) that the Shareholder becomes the beneficial owner of any additional shares of Common Stock or other securities of the Company, then (x) the terms of this Agreement shall apply to the shares of capital stock and other securities of the Company held by the Shareholder immediately following the effectiveness of the events described in clause (i), or the Shareholder becoming the beneficial owner thereof pursuant to clause (ii), and (y) the amount payable per Share shall be equitably adjusted to reflect the impact of any event described in clause (i).

                  (b)     The Shareholder hereby agrees to promptly notify Parent and Merger Sub of the number of any new Shares or other securities acquired by such Shareholder, if any, after the date hereof.

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                  4.04     Waiver of Dissenters’ Rights. The Shareholder hereby irrevocably and unconditionally waives any appraisal rights or dissenters’ rights relating to the Merger or any related transaction that the Shareholder may have.

                  4.05     Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy, by express delivery service or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 4.05):

                    (a)     if to the Shareholder:

                              To the address set forth on Schedule A;

                    (b)     if to Parent or Merger Sub:

Compass Group USA Investments, LLP
c/o Compass Group USA, Inc.
2400 Yorkmont Road
Charlotte, North Carolina 28217
Fax #: (704) 329-4010
Attention: General Counsel

                              with a copy to:

Helms Mulliss & Wicker, PLLC
201 North Tryon Street
Charlotte, North Carolina 28202
Fax: (704) 343-2300
Attention: Boyd C. Campbell, Jr.

     4.06      Amendment. This Agreement may not be amended except by an instrument in writing signed by all the parties.

     4.07     Waiver. No failure on the part of any party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. No party shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such party; and any such waiver shall not apply or have any effect except in the specific instance in which it is given.

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     4.08     Entire Agreement. This Agreement (together with the Schedule hereto) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof, other than the Merger Agreement and the other agreements contemplated thereby.

     4.09     Applicable Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, regardless of the laws that might otherwise govern under applicable conflict-of-laws principles. In any action between any of the parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement: (a) each of the parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the state and federal courts located in the State of California (and agrees not to commence any such action except in such courts) and irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action brought in such court has been brought in an inconvenient forum; (b) if any such action is commenced in a state court, then, subject to applicable law, no party shall object to the removal of such action to any federal court located in the State of California; (c) each of the parties irrevocably waives the right to trial by jury; and (d) each of the parties irrevocably consents to service of process by first-class certified mail, return receipt requested, postage prepaid, to the address at which such party is to receive notice in accordance with Section 4.05.

     4.10     Specific Performance; Nonexclusivity.

                  (a)     The parties agree that irreparable damage would occur in the event any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity, without necessity of proof that there is no adequate remedy at law or requirement to post any security bond.

                  (b)     The rights and remedies of Parent under this Agreement are not exclusive of or limited by any other rights or remedies which it may have, whether at law, in equity, by contract or otherwise, all of which shall be cumulative (and not alternative).

     4.11     Costs and Expenses. Except as otherwise provided in the Merger Agreement, all costs and expenses of the parties, including fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred.

     4.12     Parties in Interest; Assignability. This Agreement shall be binding upon, and shall be enforceable by and inure solely to the benefit of, the parties and their respective successors and assigns; provided, however, that neither this Agreement nor any of the Shareholder’s rights hereunder may be assigned by the Shareholder without the prior written consent of Parent, and any attempted assignment of this Agreement or any of such rights by the Shareholder without such consent shall be void and of no effect; provided, further, that Parent may assign this Agreement to any direct or indirect subsidiary of Parent, but any such assignment shall not relieve Parent of any of its obligations hereunder. Nothing in this

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Agreement, express or implied, is intended to or shall confer upon any Person (other than the parties) any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. Any assignment prohibited under this Section shall be null and void.

     4.13     Severability. Any term or provision of this Agreement that is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction or other authority declares that any term or provision hereof is invalid, void or unenforceable, the parties agree that the court making such determination shall have the power to reduce the scope, duration, area or applicability of the term or provision, to delete specific words or phrases, or to replace any invalid, void or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.

     4.14     Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

     4.15     Interpretation; Construction.

                  (a)     When a reference is made in this Agreement to a Section, Article or Schedule, such reference shall be to a Section or Article of, or a Schedule to, this Agreement unless otherwise indicated. The Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term “or” is not exclusive. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. Any agreement or instrument defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement or instrument as from time to time amended, modified or supplemented.

                  (b)     The parties agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

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     IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written.

COMPASS GROUP USA INVESTMENTS, LLP
By:	/s/ Tom Ondrof
Name:	Tom Ondrof
Title:	Authorized Representative
YORKMONT FIVE, INC.
By:	/s/ Tom Ondrof
Name:	Tom Ondrof
Title:	Chief Financial Officer
/s/ John Stewart Jackson, IV
John Stewart Jackson, IV

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Schedule A

	Number of Shares of
Name	Common Stock	Address
		c/o Jackson Burglar Alarm
		100 East 20th Avenue
John Stewart Jackson, IV	2,662,668	Denver, CO 80205-3102

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EX-99.D.4

STOCK OPTION AGREEMENT

     This STOCK OPTION AGREEMENT (this “Agreement”), dated as of February 18, 2004, is made and entered into by and among COMPASS GROUP USA INVESTMENTS, LLP, a Delaware limited liability partnership (“Parent”), YORKMONT FIVE, INC., a California corporation and a wholly owned indirect subsidiary of Parent (“Merger Sub”), and CREATIVE HOST SERVICES, INC., a California corporation (the "Company”).

WITNESSETH:

     WHEREAS, concurrently with the execution and delivery of this Agreement, the parties hereto are entering into an Agreement and Plan of Merger (the "Merger Agreement”) which provides, upon the terms and subject to the conditions set forth therein, for (i) the commencement by Merger Sub of a cash tender offer (as it may be amended from time to time as permitted under the Merger Agreement, the “Offer”) to purchase all of the outstanding shares of the common stock, no par value (the “Shares”), of the Company at a price of $3.40 per Share in cash, net to the shareholders of the Company (such price, or such greater amount which may be paid pursuant to the Offer, the “Offer Price”) and (ii) the subsequent merger of Merger Sub with and into the Company (the "Merger”), whereby each Share issued and outstanding (other than Shares owned by Parent, Merger Sub or any other subsidiary of Parent and other than Shares that are held by shareholders exercising dissenters’ rights pursuant to Chapter 13 of the General Corporation Law of California (the “CGCL”)) shall be converted into the right to receive the Offer Price;

     WHEREAS, Parent and Merger Sub have required that the Company agree, and in order to induce Parent and Merger Sub to enter into the Merger Agreement, the Company has agreed, to grant to Merger Sub an option to purchase newly issued Shares upon the terms and subject to the conditions set forth in this Agreement; and

     WHEREAS, capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them in the Merger Agreement.

     NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I
THE TOP-UP STOCK OPTION

     Section 1.1     Grant of Top-Up Stock Option. Subject to the terms and conditions set forth herein, the Company hereby grants to Merger Sub an irrevocable option (the “Top-Up Stock Option”) to purchase up to that number of Shares (the “Top-Up Option Shares”) equal to the number of Shares that, when added to the number of Shares owned by Merger Sub, Parent and any other subsidiary of Parent immediately following consummation of the Offer, shall constitute one Share more than ninety percent (90%) of the Shares outstanding on a fully diluted basis (assuming the issuance of the Top-Up Option Shares), and shall permit Merger Sub to effect the Merger pursuant to Section 1110 of the CGCL (assuming the issuance of the Top-Up Option Shares), at a purchase price per Top-Up Option Share equal to the Offer Price; provided, however, that the Top-Up Stock Option shall not be exercisable if the number of Shares subject thereto exceeds the number of authorized shares of common stock of the Company available for

issuance. The Company agrees to provide Parent and Merger Sub with information regarding the number of Shares available for issuance on an ongoing basis.

     Section 1.2     Exercise of Top-Up Stock Option.

                  (a)     Subject to the conditions set forth in Section 2.1 below, Merger Sub may, at its election, exercise the Top-Up Stock Option at any one time after the occurrence of a Top-Up Exercise Event (as defined in Section 1.2(b) below) and prior to the Top-Up Termination Date (as defined in Section 1.2(c) below).

                  (b)     A “Top-Up Exercise Event” shall occur, for purposes of this Agreement, only upon Merger Sub’s acceptance for payment pursuant to the Offer of Shares constituting, together with Shares already owned directly or indirectly by Merger Sub, Parent and any other subsidiary of Parent, at least eighty-eight percent (88%) of the Shares then outstanding but less than ninety percent (90%) of the Shares then outstanding on a fully diluted basis.

                  (c)     Except as provided in the last sentence of this Section 1.2(c), the "Top-Up Termination Date” shall occur, for purposes of this Agreement, upon the earliest to occur of: (i) the Effective Time; (ii) the date that is 20 business days after the Specified Date; (iii) the termination of the Merger Agreement; and (iv) the date on which Merger Sub reduces the Minimum Condition to the Revised Minimum Number and accepts for payment a number of Shares equal to the Revised Minimum Number.

                  (d)     Notwithstanding the occurrence of the Top-Up Termination Date, Merger Sub shall be entitled to purchase the Top-Up Option Shares if it has exercised the Top-Up Stock Option in accordance with the terms hereof prior to such occurrence, and the occurrence of the Top-Up Termination Date shall not affect any rights hereunder that by their terms do not terminate or expire prior to or as of such date.

                  (e)     In the event Merger Sub wishes to exercise the Top-Up Stock Option, Merger Sub shall send to the Company a written notice (a “Top-Up Exercise Notice,” the date of which notice is referred to herein as the “Top-Up Notice Date”) specifying the denominations of the certificate or certificates evidencing the Top-Up Option Shares that Merger Sub wishes to receive, the place for the closing of the purchase and sale pursuant to the Top-Up Stock Option (the “Top-Up Closing”) and a date not earlier than one day nor later than 10 business days after the Top-Up Notice Date for the Top-Up Closing; provided, however, that (i) if the Top-Up Closing cannot be consummated by reason of any applicable law or order, the period of time that otherwise would run pursuant to this sentence shall run instead from the date on which such restriction on consummation has expired or been terminated and (ii) without limiting the foregoing, if prior notification to or approval of any Governmental Entity is required in connection with such purchase, Merger Sub and the Company shall promptly file the required notice or application for approval and shall cooperate in the expeditious filing of such notice or application, and the period of time that otherwise would run pursuant to this sentence shall run instead from the date on which, as the case may be, (A) any required notification period has expired or been terminated or (B) any required approval has been obtained, and in either event, any requisite waiting period has expired or been terminated. The Company shall, promptly after receipt of the Top-Up Exercise Notice, deliver a written notice to Merger Sub confirming the number of Top-Up Option Shares and the aggregate purchase price therefor.

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ARTICLE II
CLOSING

     Section 2.1     Conditions to Closing. The obligation of the Company to issue the Top-Up Stock Option and deliver Top-Up Option Shares upon the exercise of the Top-Up Stock Option is subject to the following conditions:

                  (a)     no provision of any Contract, Benefit Plan, instrument, applicable law or regulation, and no judgment, injunction, order or decree, shall prohibit the issuance of the Top-Up Stock Option, the exercise of the Top-Up Stock Option or the delivery of the Top-Up Option Shares in respect of any such exercise;

                  (b)     there shall not be pending or formally threatened any suit, action or proceeding by any Governmental Entity or other third party, (i) challenging the acquisition by Compass or Merger Sub of any shares of Company Common Stock, seeking to restrain or prohibit consummation of the Offer or the Merger or seeking to place limitations on the ownership of shares of Company Common Stock (or shares of common stock of the Surviving Corporation) by Compass or Merger Sub, (ii) seeking to prohibit or limit the ownership or operation by the Company or Compass and their respective Subsidiaries of the business or assets of the Company or Compass and their respective Subsidiaries, or to compel the Company or Compass and their respective Subsidiaries to dispose of or hold separate any material portion of the business or assets of the Company or Compass and their respective Subsidiaries, as a result of the Offer, the Merger, the Transactions or any of the other transactions contemplated by the Agreement, (iii) seeking to prohibit Compass or any of its Subsidiaries from effectively controlling in any material respect the business or operations of the Company or (iv) that otherwise is reasonably expected to have a Material Adverse Effect; in the case of each of (i) through (iv) above, subject to the obligations set forth in Section 6.3 of the Merger Agreement; and

                  (c)     delivery of the Top-Up Option Shares would not violate, or otherwise cause a violation of the rule of Nasdaq set forth in Section 4350(i)1(D) of the National Association of Securities Dealers Manual; provided, however, that Merger Sub, in its sole discretion, may waive this condition.

     Section 2.2     Closing.

                  (a)     At the Top-Up Closing (i) the Company shall deliver to Merger Sub a certificate or certificates evidencing the applicable number of Top-Up Option Shares (in the denominations designated by Merger Sub in the Top-Up Exercise Notice) and (ii) Merger Sub shall purchase each Top-Up Option Share from the Company at the Offer Price. Payment by Merger Sub of the purchase price for the Top-Up Option Shares shall be made by delivery of immediately available funds by wire transfer to an account designated by the Company.

                  (b)     The Company shall pay all expenses, and any and all federal, state and local taxes and other charges, that may be payable in connection with the preparation, issuance and delivery of stock certificates under this Section 2.2.

     Section 2.3     Securities Law Compliance. Merger Sub understands that the Shares that Merger Sub may acquire hereunder will not be registered under the Securities Act in reliance

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upon an exemption thereunder for transactions not involving a public transaction. Merger Sub is, or will be upon the purchase of the Top-Up Option Shares, an “accredited investor” for purposes of federal securities laws. The Top-Up Stock Option and the Top-Up Option Shares to be acquired upon exercise of the Top-Up Stock Option are being and will be acquired by Merger Sub without a view to public distribution thereof otherwise than in compliance with the Securities Act and applicable state securities laws and will not be transferred or otherwise disposed of except in a transaction registered or exempt from registration under the Securities Act and in compliance with applicable state securities laws. Merger Sub will not effect any offer or sale of Top-Up Option Shares that would cause the Company to violate the registration requirements of the Securities Act or the registration or qualification requirements of the securities laws of any jurisdiction. Merger Sub will comply with all obligations under applicable securities law in connection with the receipt of the Top-Up Stock Option or the purchase of the Top-Up Option Shares or otherwise with respect to the consummation of the transactions contemplated by this Agreement.

     Section 2.4     Representations and Warranties.

                  (a)     Parent and Merger Sub. All corporate action on the part of Parent and Merger Sub, and their respective officers, directors and shareholders, that is necessary for (i) the authorization, execution and delivery of this Agreement and (ii) the performance of all obligations of Parent and Merger Sub under this Agreement has been taken or will be taken prior to the Top-Up Closing. This Agreement has been duly executed and delivered by Parent and Merger Sub and constitutes the legal, valid and binding obligation of Parent and Merger Sub, enforceable in accordance with its terms.

                  (b)     The Company. All corporate action on the part of the Company and its officers, directors and shareholders that is necessary for (i) the authorization, execution and delivery of this Agreement, (ii) the performance of all the Company’s obligations under this Agreement and (iii) the authorization, issuance (or reservation for issuance) and delivery of the Top-Up Stock Option and the Top-Up Option Shares to be acquired upon exercise of the Top-Up Stock Option has been taken or will be taken prior to the Top-Up Closing. This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms. When issued in compliance with the provisions of this Agreement and the Company’s Articles of Incorporation, the Top-Up Stock Option and, upon exercise of the Top-Up Stock Option, the Top-Up Option Shares, (x) will be duly and validly issued and outstanding, fully paid and nonassessable and free and clear of any Liens whatsoever, (y) shall not be subject to preemptive rights, rights of first offer or refusal or similar rights, and shall not be restricted in any way with respect to voting rights thereof or other incidents of record or beneficial ownership pertaining thereto and (z) shall not give rise to or trigger any conversion, antidilution or similar rights pertaining to any of the Company’s securities outstanding or authorized on or before the Top-Up Closing.

ARTICLE III
ADDITIONAL AGREEMENTS

     Section 3.1     Restrictive Legends. Certificates evidencing the Shares to be delivered hereunder may include legends legally required including the legend in substantially the following form:

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     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF FEBRUARY 18, 2004, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER UPON REQUEST.

     It is understood and agreed that (i) the reference to the resale restrictions of the Securities Act and state securities or blue sky laws in the foregoing legend shall be removed by delivery of substitute certificate(s) without such reference if the Company or Merger Sub, as the case may be, shall have delivered to the other party an opinion of counsel, in form and substance reasonably satisfactory to the other party, to the effect that such legend is not required for purposes of the Securities Act or such laws; (ii) the reference to the provisions of this Agreement in the foregoing legend shall be removed by delivery of substitute Certificate(s) without such reference if the Shares have been sold or transferred in compliance with the provisions of this Agreement and under circumstances that do not require the retention of such reference; and (iii) the legend shall be removed in its entirety if the conditions in the preceding clauses (i) and (ii) are both satisfied. In addition, such certificates shall bear any other legend as may be required by law.

     Section 3.2     Reasonable Best Efforts. Subject to the terms and conditions of this Agreement, Parent, Merger Sub and the Company will use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement.

     Section 3.3     Further Assurances. Each party shall perform such further acts and execute such further documents and instruments as may reasonably be required to vest in the Company, Merger Sub and Parent the power to consummate the transactions contemplated by this Agreement, including, but not limited to, the securing of (a) all Company consents and approvals required to authorize and issue the Top-Up Stock Option and the Top-Up Option Shares to be issued upon exercise thereof, and (b) all Merger Sub and Parent consents and approvals required to purchase the Top-Up Stock Option and the Top-Up Option Shares to be issued upon exercise thereof. If Merger Sub shall exercise the Top-Up Stock Option granted hereunder in accordance with the terms of this Agreement, each party shall, without additional consideration, execute and deliver all such further documents and instruments and take all such further actions as any other party may reasonably request to consummate the transactions contemplated by this Agreement.

ARTICLE IV
MISCELLANEOUS

     Section 4.1     Waiver of Conditions. The conditions to each of the parties’ obligations to consummate this Agreement are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law.

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     Section 4.2     Expenses. Each of the parties hereto shall pay its own expenses incurred in connection with this Agreement. Each of the parties hereto warrants and covenants to the others that it will bear all claims for brokerage fees attributable to action taken by it.

     Section 4.3     Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, and be enforceable by, the parties hereto and their respective representatives and permitted successors and assigns.

     Section 4.4     Entire Agreement. This Agreement and the Merger Agreement contain the entire understanding of the parties and supersedes all prior agreements and understandings, whether written or oral, between the parties with respect to its subject matter. This Agreement may be amended only by a written instrument duly executed by the parties hereto.

     Section 4.5     Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Time is of the essence with respect to all provisions of this Agreement.

     Section 4.6     Assignment. No party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other parties, which approval shall not be unreasonably withheld; provided, however, that each of Parent and Merger Sub may freely assign its rights to another direct or indirect wholly owned subsidiary of Parent or Merger Sub without such prior written approval. Any purported assignment without such consent shall be void.

     Section 4.7     Counterparts. This Agreement may be executed in one or more counterparts (including by facsimile), each of which shall be an original, but all of which, taken together, shall constitute one and the same Agreement.

     Section 4.8     Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given if so given) by delivery, fax or mail (registered or certified mail, postage prepaid, return receipt requested), or by any national courier service. All communications hereunder shall be delivered to the respective parties at the following addresses (or at such other address for a party as shall be specified by like notice, provided that notices of a change of address shall be effective only upon receipt thereof):

(a)	If to Parent or	Compass Group USA Investments, LLP
	Merger Sub:	c/o Compass Group USA, Inc.
		2400 Yorkmont Road
		Charlotte, North Carolina 28217
		Fax: (704) 329-4010
		Attention: General Counsel
	With a copy	Helms Mulliss & Wicker, PLLC
	(which does	201 North Tryon Street
	not constitute	Charlotte, North Carolina 28202
	notice) to:	Fax: (704) 343-2300 Attention: Boyd C. Campbell, Jr.

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(b)	If to	Creative Host Services, Inc.
	the Company:	16955 Via del Campo
		Suite 100
		San Diego, CA 92127
		Fax: (858) 675-7720
		Attention: Sayed Ali, Chief Executive Officer
	with a copy to:	Cooley Godward LLP
		4401 Eastgate Mall
		San Diego, California 92121-1909
		Fax: (858) 550-6420
		Attention: Barbara L. Borden and Jeremy D. Glaser

     Section 4.9     Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California, without regard to its principles of conflicts of laws.

     Section 4.10     Enforceability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

     Section 4.11     Remedies Not Exclusive. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity will be cumulative and not alternative, and the exercise of any thereof by either party will not preclude the simultaneous or later exercise of any other such right, power or remedy by such party.

     Section 4.12     Waiver of Jury Trial. EACH PARTY HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     Section 4.13     Specific Performance. The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof, in addition to any other remedy to which they are entitled at law or in equity.

[Signature page follows.]

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     IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written.

COMPASS GROUP USA INVESTMENTS, LLP
By:	/s/ Tom Ondrof
Name:	Tom Ondrof
Title:	Authorized Representative
YORKMONT FIVE, INC.
By:	/s/ Tom Ondrof
Name:	Tom Ondrof
Title:	Chief Financial Officer
CREATIVE HOST SERVICES, INC.
By:	/s/ Sayed Ali
Name:	Sayed Ali
Title:	President/CEO

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EX-99.D.5

MUTUAL NONDISCLOSURE AGREEMENT

     THIS MUTUAL NONDISCLOSURE AGREEMENT (this “Agreement") is made as of December 2, 2003 by and between Compass Group USA, Inc., a Delaware corporation (“Compass"), and Creative Host Services, Inc., a California corporation (“Creative Host").

     1.     Purpose. Compass and Creative Host wish to explore a potential business combination (a “Transaction”) in connection with which each may disclose its Confidential Information to the other. Each party is willing to furnish such information to the other only for the purpose of evaluating such business combination and only pursuant to the terms of this Agreement.

     2.     Definitions. As used in this Agreement:

     A party’s “Associates” shall include such party’s subsidiaries and other affiliates and the respective directors, officers, employees, agents, representatives, consultants, accountants, attorneys, and financial or other advisors of such party and its affiliates.

     “Confidential Information” means (i) any information that relates, directly or indirectly to the business or operations of the disclosing party or any predecessor entity, subsidiary or affiliate of the disclosing party (including but not limited to, information concerning technical data, know-how and other intellectual property rights, developments, inventions, processes, designs, drawings, engineering, product plans, products, services, employees, suppliers, customers, markets, software, hardware configuration information, marketing, finances, projections, budgets, notes, analyses or studies and all tangible and intangible embodiments thereof of any kind whatsoever, whether conveyed in writing or orally) that is or has been conveyed or made available to the receiving party or any Associate of the receiving party by or on behalf of the disclosing party or any Associate of the disclosing party, (ii) any memorandum, analysis, compilation, summary, interpretation, study, report or other document, record or material that is or has been prepared by or for the receiving party or any Associate of the receiving party and that contains, reflects or interprets or is based directly or indirectly upon any information of the type referred to in clause “(i)” of this sentence, (iii) the existence and terms of this Agreement, and the fact that information of the type referred to in clause “(i)” of this sentence has been made available to the receiving party or any of its Associates, and (iv) the fact that discussions or negotiations are or may be taking place with respect to a possible transaction involving the receiving party and the disclosing party, and the proposed terms of any such transaction. Notwithstanding the foregoing, Confidential Information shall include all information which due to its nature would cause a reasonable person to know that it is confidential and proprietary to the disclosing party. Confidential Information does not include information, technical data or know-how which: (i) is in the possession of the receiving party at the time of disclosure as shown by the receiving party’s files and records immediately prior to the time of disclosure; provided that the source of such information was not bound by a confidentiality agreement with respect to such information or was not otherwise in violation of any applicable legal requirement with respect to the disclosure of such information; (ii) prior to or after the time of disclosure becomes part of the public knowledge or literature, not as a result

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of any inaction or action of the receiving party or its Associates; (iii) is approved for release by the disclosing party in writing; or (iv) is independently developed by the receiving party without knowledge of the disclosing party’s Confidential Information.

     “Person” shall mean any individual, corporation, limited liability company, partnership, or other business entity, tribunal or governmental authority.

     3.     Nondisclosure of Confidential Information.

          (a)  Each of Compass and Creative Host agrees to maintain in trust and confidence the Confidential Information disclosed to it by the other party or its Associates, and not to use such Confidential Information for its own use or for any purpose except solely to carry out discussions concerning, and the undertaking of, any negotiated business combination between the parties approved by the board of directors of each of the parties (“Negotiated Transaction"). Neither party will disclose any Confidential Information of the other party to third parties except those Associates of such party who are required to have the information in order to carry out the discussions conduct due diligence and other activities related to the contemplated Negotiated Transaction. Each party has informed or will inform those Associates of such party to whom Confidential Information of the other party is disclosed or who have access to Confidential Information of the other party of the existence of this Agreement and such party’s obligations under this Agreement with respect to Confidential Information. A breach of the terms of this Agreement by any Associate of a party shall be deemed a breach of this Agreement by such party. Each party agrees that it will take all reasonable measures to protect the secrecy of and avoid disclosure or use of Confidential Information of the other party in order to prevent it from falling into the public domain or the possession of Persons other than those Persons authorized hereunder to have any such information, which measures shall include the degree of care that either party utilizes to protect its own Confidential Information of a similar nature. Each party agrees to notify promptly the other party in writing of any misuse or misappropriation of such Confidential Information of the other party which may come to its attention.

          (b)  Neither this Agreement nor any action taken prior to or in connection with this Agreement will give rise to any obligation on the part of Compass or Creative Host (i) to engage in any discussions or negotiations with the other party or with any of the other party’s Associates or (ii) to pursue or enter into any transaction of any nature with the other party. Each party acknowledges that neither the other party nor any of its Associates makes any express or implied representation or warranty as to the accuracy or completeness of the Confidential Information, or that it has provided the other party with all of the information such party has requested. Except as may be provided in a definitive written agreement with respect to a Negotiated Transaction between the parties, if any, (A) Creative Host agrees that neither Compass nor its Associates shall have any liability to Creative Host or any of its Associates resulting from the use of the Confidential Information by Creative Host or its Associates or their reliance thereon, and (B) Compass agrees that neither Creative Host nor its Associates shall have any liability to Compass or any of its Associates resulting from the use of the Confidential Information by Compass or its Associates or their reliance thereon. Each party agrees that unless and until a definitive written agreement with respect to a Negotiated Transaction has been executed and delivered (if ever), neither party is under any legal obligation or liability of any kind whatsoever

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with respect to any transaction between the parties whatsoever (including, but not limited by virtue of any written or oral expressions of interest by their respective Associates), other than the parties’ obligations to each other under this Agreement.

     4.     Mandatory Disclosure.

          (a)  In the event that Compass or its Associates become legally compelled under the United States securities laws or as may be required by the Securities and Exchange Commission or in a proceeding before a court, arbitrator or administrative agency to disclose (A) any portion of the Confidential Information of Creative Host, (B) that such Confidential Information has been made available to Compass or its Associates, (C) that discussions or negotiations between Creative Host, Compass and their respective Associates are taking place, or (D) any of the terms, conditions or other facts with respect to any transaction between the parties hereto, including the status thereof, Compass will, and will direct its Associates to, provide Creative Host with prompt written notice (to the extent permitted by law) of such legal compulsion and its intent to disclose any Confidential Information of Creative Host, and shall delay disclosure, if and to the extent practicable and permitted by law, until Creative Host has had an opportunity to seek a protective order or other appropriate remedy or to waive compliance by Compass and/or its Associates with the relevant provisions of this Agreement; provided, that no such delay or waiver shall be required as to any disclosure that Compass is advised by its counsel that it is then required to make under applicable law. Compass also agrees, to the extent permitted by law, to provide Creative Host, reasonably far in advance of making any such disclosure, with copies of any Confidential Information that it intends to disclose (and, if applicable, the text of the disclosure language itself) and to cooperate with Creative Host, at the expense of Creative Host, in order to seek to obtain a protective order, if available, and to take any other legally available steps to limit such disclosure. In the event that a protective order or other remedy is not obtained in such a proceeding, or Creative Host fails to waive compliance with the relevant provisions of this Agreement, Compass agrees that it will, and will cause its Associates to, disclose only that Confidential Information of Creative Host which its counsel advises (except that no advice of counsel shall be required in the case of oral testimony where (X) it is impracticable to obtain such advice and (Y) counsel has advised the testifying witness of the obligations imposed by this Section 4 prior to his or her testimony) is legally required to be disclosed and will exercise its best efforts, and will cause its Associates to exercise their best efforts, at the request and expense of Creative Host, to cooperate with Creative Host to obtain reliable assurance that confidential treatment will be accorded the Confidential Information which is so disclosed.

          (b)  In the event that Creative Host or its Associates become legally compelled under the United States securities laws or as may be required by the Securities and Exchange Commission or in a proceeding before a court, arbitrator or administrative agency to disclose (A) any portion of the Confidential Information of Compass, (B) that such Confidential Information has been made available to Creative Host or its Associates, (C) that discussions or negotiations between Creative Host, Compass and their respective Associates are taking place, or (D) any of the terms, conditions or other facts with respect to any transaction between the parties hereto, including the status thereof, Creative Host will, and will direct its Associates to, provide Compass with prompt written notice (to the extent permitted by law) of such legal compulsion

3.

and its intent to disclose any Confidential Information of Compass, and shall delay disclosure, if and to the extent practicable and permitted by law, until Compass has had an opportunity to seek a protective order or other appropriate remedy or to waive compliance by Creative Host and/or its Associates with the relevant provisions of this Agreement provided, that no such delay or waiver shall be required as to any disclosure that Creative Host is advised by its counsel that it is then required to make under applicable law. Creative Host also agrees, to the extent permitted by law, to provide Compass, reasonably far in advance of making any such disclosure, with copies of any Confidential Information that it intends to disclose (and, if applicable, the text of the disclosure language itself) and to cooperate with Compass, at the expense of Compass, in order to seek to obtain a protective order, if available, and to take any other legally available steps to limit such disclosure. In the event that a protective order or other remedy is not obtained in such a proceeding, or Compass fails to waive compliance with the relevant provisions of this Agreement, Creative Host agrees that it will, and will cause its Associates to, disclose only that Confidential Information of Compass which its counsel advises (except that no advice of counsel shall be required in the case of oral testimony where (X) it is impracticable to obtain such advice and (Y) counsel has advised the testifying witness of the obligations imposed by this Section 4 prior to his or her testimony) is legally required to be disclosed and will exercise its best efforts, and will cause its Associates to exercise their best efforts, at the request and expense of Compass, to cooperate with Compass to obtain reliable assurance that confidential treatment will be accorded the Confidential Information which is so disclosed.

          (c)  Notwithstanding anything herein to the contrary, any party to this Agreement (and any Associate of any party to this Agreement) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure; provided, however, that such disclosure may not be made (i) until the earlier of (x) the date of the public announcement of discussions relating to the Transaction, if any, (y) the date of the public announcement of the Transaction, if any and (z) the date of the execution of an agreement to enter into the Transaction, if any and (ii) to the extent required to be kept confidential to comply with any applicable federal or state securities laws, provided, however, that neither party (nor its Associates) may disclose any other information that is not relevant to understanding the tax treatment and tax structure of the Transaction.

     5.     Return of Materials. Promptly upon request by the disclosing party, the receiving party will, and will cause its Associates to, deliver to the disclosing party any written Confidential Information of the disclosing party and all copies or modifications thereof, except for that portion of the Confidential Information which consists of analyses, compilations, studies or other documents prepared by the receiving party or its Associates, without retaining any copy thereof. That portion of the Confidential Information or any modification thereof which consists of analyses, compilations, studies or other documents prepared by the receiving party or its Associates and that is not returned to the other party shall be destroyed and no copy thereof shall be retained and such receiving party shall certify in writing that such destruction has occurred. Notwithstanding the foregoing, legal counsel to each of Compass and Creative Host may retain one copy of all Confidential Information possessed by such legal counsel for their records.

4.

     6.     No License Granted; Privileged Information. Nothing in this Agreement is intended to grant any rights to either party under any patent, copyright, trade secret or other intellectual property right nor shall this Agreement grant either party any rights in or to the other party’s Confidential Information, except the limited right to review such Confidential Information solely for the purposes of determining whether to enter into the proposed business relationship between the parties. To the extent that any Confidential Information includes materials or other information that may be subject to the attorney-client privilege, work product doctrine or any other applicable privilege or doctrine concerning any Confidentiality Information or any pending, threatened or prospective action, suit, proceeding, investigation, arbitration or dispute, it is acknowledged and agreed that the parties have a commonality of interest with respect to such Confidential Information or action, suit, proceeding, investigation, arbitration or dispute and that it is the parties’ mutual desire, intention and understanding that the sharing of such materials and other information is not intended to, and shall not, affect the confidentiality of any of such materials or other information or waive or diminish the continued protection of any of such materials or other information under the attorney-client privilege, work product doctrine or other applicable privilege or doctrine. Accordingly, all Confidential Information that is entitled to protection under the attorney-client privilege, work product doctrine or other applicable privilege or doctrine shall remain entitled to protection thereunder and shall be entitled to protection under the joint defense doctrine, and the parties agree to take all measures necessary to preserve, to the fullest extent possible, the applicability of all such privileges or doctrines.

     7.     Nonpublicity. The existence and the terms of this Agreement, the transactions contemplated hereby, and the existence and nature of the discussions between the parties shall be maintained in confidence by the parties hereto and by their respective Associates and shall not be disclosed to any third party. Neither party hereto shall take, or cause to be taken, any action which might require the other party to make a public announcement regarding the transactions contemplated under this Agreement. By executing and delivering this agreement each of Creative Host and Compass confirms to the other that it is aware and that its Associates have been advised that the federal and state securities laws prohibit any person who possesses material, non-public information about a company from purchasing or selling securities of such company, so long as such information remains material and non-public.

     8.     Mutual Nonsolicitation. Creative Host and Compass each covenants and agrees that for a period expiring one (1) year after the date of this Agreement, the parties will not directly or indirectly solicit, induce, recruit or encourage any then-current employees of the other party that they came in contact with in connection with their consideration of the Transaction to terminate their employment, or attempt to solicit, induce or recruit such specified employees of the other party. The publication of advertisements in newspapers and/or other publications of general circulation (including trade publications) shall not in any event be deemed a violation of any provision of this Agreement so long as such advertisements do not specifically target any above-referenced employee of Creative Host or Compass.

     9.     Standstill Provisions. During the one-year period commencing on the date of this letter agreement (the “Standstill Period"), except pursuant to a Negotiated Transaction, neither Compass nor any of Compass’s Associates will, in any manner, directly or indirectly:

5.

     (a) make, effect, initiate, cause or participate in (i) any acquisition of beneficial ownership of any securities of Creative Host or any securities of any subsidiary or other affiliate of Creative Host, (ii) any acquisition of any assets of Creative Host or any assets of any subsidiary or other affiliate of Creative Host, (iii) any tender offer, exchange offer, merger, business combination, recapitalization, restructuring, liquidation, dissolution or extraordinary transaction involving Creative Host or any subsidiary or other affiliate of Creative Host, or involving any securities or assets of Creative Host or any securities or assets of any subsidiary or other affiliate of Creative Host, or (iv) any “solicitation” of “proxies” (as those terms are used in the proxy rules of the Securities and Exchange Commission) or consents with respect to any securities of Creative Host;

     (b) form, join or participate in a “group” (as defined in the Securities Exchange Act of 1934 and the rules promulgated thereunder) with respect to the beneficial ownership of any securities of Creative Host;

     (c) act, alone or in concert with others, to seek to control or influence the management, board of directors or policies of Creative Host;

     (d) take any action that might require Creative Host to make a public announcement regarding any of the types of matters set forth in clause “(a)” of this sentence;

     (e) agree or offer to take, or encourage or propose (publicly or otherwise) the taking of, any action referred to in clauses “(a)”, “(b)”, “(c)” or “(d)” of this sentence;

     (f) assist, induce or encourage any other Person to take any action of the type referred to in clauses “(a)”, “(b)”, “(c)”, “(d)” or “(e)” of this sentence;

     (g) enter into any discussions, negotiations, arrangement or agreement with any other Person relating to any of the foregoing; or

     (h) publicly request or propose that Creative Host or any of Creative Host’s Associates amend, waive or consider the amendment or waiver of any provision set forth in this Section 9.

     Notwithstanding this Section 9, if (a)(i) the Board of Directors of Creative Host approves a transaction with any person and (ii) such transaction would result in such person beneficially owning more than 50% of the outstanding voting securities of Creative Host or all or substantially all of Creative Host’s assets, or (b) any person or “group” within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, shall have commenced or publicly announced its intention to commence a tender or exchange offer for more than 50% of the outstanding voting securities of Creative Host, or any securities convertible into more than 50% of the outstanding voting securities of Creative Host, or any options, warrants or other rights to acquire more than 50% of the outstanding voting securities of Creative Host, then Compass or any of Compass’s Associates shall not be prohibited thereafter from taking any of the actions described in this Section 9.

6.

     The expiration of the Standstill Period will not terminate or otherwise affect any of the other provisions of this letter agreement.

     10.     Term. The covenants and commitments of either party in this Agreement shall survive any termination of discussions between the parties, and shall continue for a period of two (2) years following the date of this Agreement.

     11.     Successors and Assigns; Waiver and Amendment. The provisions of this Agreement shall inure to the benefit of and be binding upon Creative Host, Compass and their respective affiliates, successors and assigns, including any successor to Creative Host or Compass of substantially all of Creative Host’s or Compass’ assets or business, by merger, consolidation, purchase of assets, purchase of stock or otherwise. No failure or delay by either party or any of its Associates in exercising any right, power or privilege under this Agreement will operate as a waiver thereof, and no single or partial exercise of any such right, power or privilege will preclude any other or future exercise thereof or the exercise of any other right, power or privilege under this Agreement. No provision of this Agreement can be waived or amended except by means of a written instrument that is validly executed on behalf of each of the parties and that refers specifically to the particular provision or provisions being waived or amended.

     12.     Dispute Resolution and Governing Law. Should any dispute between the parties arise under this Agreement, Compass and Creative Host, through appropriately senior persons, shall first meet and attempt to resolve the dispute in face-to-face negotiations. This meeting shall occur within thirty days of the time the dispute arises.

          If no resolution is reached, Compass and Creative Host shall, within forty-five days of the first meeting, attempt to settle the dispute by formal mediation. If the parties cannot agree upon the appointment of a mediator and the place of the mediation within sixty days of the first meeting, the mediation shall be administered by the American Arbitration Association in Wilmington, Delaware with the parties splitting the cost of the mediator.

          If no resolution is reached in mediation, the dispute shall be resolved by binding arbitration before a three-arbitrator panel, administered by the American Arbitration Association.

          This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, and shall be binding upon the parties hereto in the United States and worldwide.

          Notwithstanding the foregoing dispute resolution and governing law provisions, Compass and Creative Host shall each retain the right to seek judicial injunctive and other equitable relief, as provided in Section 13, where appropriate.

     13.     Remedies; Severability. Each party agrees that its obligations hereunder are necessary and reasonable in order to protect the other party and the other party’s business, and expressly agrees that monetary damages may be inadequate to compensate the other party for any breach by either party of any covenants and agreements set forth herein. Accordingly, each party

7.

agrees and acknowledges that any such violation or threatened violation will cause irreparable injury to the other party and that, in addition to any other remedies that may be available, in law, in equity or otherwise, the other party shall be entitled to injunctive relief against the threatened breach of this Agreement or the continuation of any such breach, without the necessity of proving actual damages. Each party also agrees that it will not seek and agrees to waive any requirement for the securing or posting of a bond in connection with the aggrieved party’s obtaining of equitable relief pursuant to this Section 13. The equitable remedies referred to above will not be deemed to be the exclusive remedy for a breach of this Agreement, but rather will be in addition to all other remedies available at law or in equity to the parties. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

     14.     Complete Agreement. This Agreement constitutes the entire agreement between Compass and Creative Host regarding the subject matter hereof and supersedes any prior agreement between the parties hereto, including the Confidential Disclosure Agreement dated August 21, 2003, regarding the subject matter hereof.

     15.     Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.

[SIGNATURE PAGE TO FOLLOW]

8.

     In witness whereof, the parties have executed this Agreement as of the day and year first above written.

Compass Group USA, Inc.
By:	/s/ C. Palmer Brown
Title:	VP Corporate Development
Creative Host Services, Inc.
By:	/s/ Sayed Ali
Title:	President

[SIGNATURE PAGE TO MUTUAL NONDISCLOSURE AGREEMENT]

EX-99.D.6 16 g87249toexv99wdw6.htm EX-99.D.6

EMPLOYMENT AGREEMENT

     This Employment Agreement (this “Agreement”), effective as of the 1st day of November 2002, by and between, Creative Host Services, Inc., a California corporation (“Company”), and Sayed Ali (“Executive”), and is made with respect to the following facts:

RECITALS

     A.     Company and Executive wish to ensure that Company will receive the benefit of Executive’s loyalty and service.

     B.     In order to help ensure that Company receives the benefit of Executive’s loyalty and service, the parties desire to enter into this formal Employment Agreement to provide Executive with appropriate compensation arrangements and to assure Executive of employment stability.

     C.     The parties have entered into this Agreement for the purpose of setting forth the terms of employment of Executive by Company.

     D.     This Agreement entirely supercedes the existing Employment Agreement by and between Company and Executive, dated January 1, 2000, which is hereby terminated in its entirety.

     NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, THE PARTIES AGREE AS FOLLOWS:

     1.     Employment of Executive and Duties. Company hereby hires Executive and Executive hereby accepts employment upon the terms and conditions described in this Agreement. Executive shall be the President of Company with all of the duties, privileges and authorities usually attendant upon such office, including but not limited to responsibility for the day-to-day management and oversight of Company and its subsidiaries. Subject to (a) the general supervision of the Board of Directors of Company, and (b) Executive’s duty to report to the Board of Directors periodically, as specified by it from time-to-time, Executive shall have all of the authority and discretion in the conduct of Company’s business and affairs that can lawfully be delegated by the Board of Directors.

     2.     Time and Effort. Executive agrees to devote his full working time and attention to the management of Company’s business affairs, the implementation of its strategic plan as determined by the Board of Directors, and the fulfillment of his duties and responsibilities as Company’s primary representative. Expenditure of a reasonable amount of time for personal matters and business and charitable activities shall not be deemed to be a breach of this Agreement, provided that those activities do not materially interfere with the services required to be rendered to Company under this Agreement.

     3.     Company’s Authority. Executive agrees to comply with Company’s rules and regulations as adopted by Company’s Board of Directors regarding performance of his duties, and to carry out and perform those orders, directions and policies established by Company with

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respect to his engagement. Executive shall promptly notify Company’s Board of Directors of any objection he has to the Board’s directives and the reasons for such objection.

     4.     Noncompetition by Executive. During the term of this Agreement and during any period in which Executive is receiving material severance benefits, if any, Executive shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, material stockholder (in a private company), corporate officer, director, or in any other, individual or representative capacity, engage or participate in any business that is in competition with the business of Company or its affiliates.

     5.     Term of Agreement. This Agreement shall commence to be effective on the date first above written (the “Commencement Date”), and shall-continue until a date five years from the Commencement Date.

     6.     Compensation. During the term of this Agreement, Company shall pay the following compensation to Executive:

          6.1 Annual Compensation. Executive shall be paid a fixed salary of $248,000 per year during the first year of this Agreement, $275,000 per year during the second year of this Agreement, $300,000 per year during the third year of this Agreement, $325,000 per year during the fourth year of this Agreement, and $350,000 per year during the fifth year of this Agreement. Subject to applicable withholdings, Executive’s salary shall be payable in two installments per month on the 15th and last day of each month, commencing on January 15, 2003 for the first period after the Commencement Date of this Agreement.

          6.2 Additional Compensation. Executive may be paid a bonus or bonuses during each year, as determined at the sole discretion of Company’s Board of Directors based on the Board’s evaluation of Executive’s efforts, accomplishments and similar contributions.

          6.3 Stock Incentives. Executive may be granted stock options or stock incentive compensation from time to time during the term of this Agreement, as determined in the sole discretion of Company’s Board of Directors.

          6.4 Deferral of Compensation. Company and Executive will cooperate to permit Executive to defer any portion of his bonus, if any, and/or salary; provided, however, that Company shall have no obligation to permit any deferral unless either (i) approved in advance by Company’s Certified Public Accountants or (ii) if such deferral is made in accordance with any Deferred Compensation Plan that may be adopted by Company.

     7.     Fringe Benefits. Executive shall be entitled to all fringe benefits that Company or its subsidiaries may make available from time to time for persons with comparable positions and responsibilities. Without limitation, such benefits shall include participation in any life and disability insurance programs, profit incentive plans, pension or retirement plans, and bonus plans as are maintained or adopted from time to time by Company. Company shall also provide Executive with medical group insurance coverage or equivalent coverage for Executive and his dependents.

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     8.     Office and Staff. In order to enable Executive to discharge his obligations and duties pursuant to this Agreement, Company agrees that it shall provide suitable office space for Executive in the San Diego Metropolitan Area, together with all necessary and appropriate supporting staff and secretarial assistance, equipment, stationery, books and supplies. Executive agrees that the supporting staff in place is suitable for the purposes of this Agreement.

     9.     Reimbursement of Expenses. Other than automobile expenses, Company shall reimburse Executive for all reasonable travel, mobile telephone, promotional and entertainment expenses incurred in connection with the performance of Executive’s duties hereunder. Executive’s reimbursable expenses shall be paid promptly by Company upon presentment by Executive of an itemized list of invoices describing such expenses.

     10.     Automobile. Notwithstanding anything else herein to the contrary, Company shall pay to Executive a fixed amount equal to $1,500 per month on the last day of each month during the term of this Agreement, as reimbursement to Executive on a nonaccountable basis of all expenses incurred by Executive for the use of his automobile for Company business purposes, including but not limited to depreciation, repairs, maintenance, gasoline and insurance. Executive shall not be entitled to any other reimbursement for the use of his automobile for business purposes.

     11.     Vacation. Executive shall be entitled to four weeks of paid vacation per year or pro rata portion of each year of service by Executive under this Agreement. Executive shall be also entitled to the paid holidays provided in Company’s established corporate policy for employees.

     12.     Rights In and To Inventions and Patents.

          12.1 Description of Parties’ Rights. Executive agrees that with respect to any inventions made by him or Company during the term of this Agreement, solely or jointly with others, (i) which are made with Company’s equipment, supplies, facilities, trade secrets or time, or (ii) which relate to the business of Company or Company’s actual or demonstrably anticipated research or development, or (iii) which result from any work performed by Executive for Company, such inventions shall belong to Company. Executive also agrees that Company shall have the right to keep such inventions as trade secrets, if Company chooses. However, the foregoing does not apply to any invention that qualifies fully under the provisions of California Labor Code Section 2870.

          12.2 Disclosure Requirements. In order to permit Company to claim rights to which it may be entitled, Executive agrees to disclose to Company in confidence all inventions which Executive makes during the term of this Agreement and all patent applications filed by Executive within one year after termination of this Agreement.

     13.     Arbitration. Any and all unresolved controversies or claims arising regarding the employment of Executive, including without limitation discrimination claims under state and federal law, shall be determined by binding arbitration under the American Arbitration Association National Rules for the Resolution of Employment Disputes, The arbitrator shall have a minimum of five years experience in hearing employment disputes, and shall have the

3

authority to award all forms of damages including, without limitation, punitive damages. The Company shall be responsible to pay the applicable American Arbitration Association fees and costs, but such fees and costs shall be reimbursed to the Company by the Executive if the Company is the prevailing party in such proceeding. The location of the arbitration shall be San Diego County, California. Any court having jurisdiction over the matter may enter a judgment upon the award of the arbitrator. The award must include a written statement of facts and reasons for the decision. Service of a petition to confirm the arbitration award may be made by United States Mail, postage prepaid, or by any regularly conducted commercial express mail service, to the attorney for the party or, if not so represented, to the party at the party’s last-known business address.

     14.     Termination. This Agreement may be terminated in the following manner and not otherwise:

          14.1 Mutual Agreement. This Agreement may be terminated by the mutual written agreement of Company and Executive to terminate.

          14.2 Termination by Executive for Breach. Executive may at his option and in his sole discretion terminate this Agreement for (i) the material breach by Company of the terms of this Agreement, or (ii) any material change by Company in the working environment or conditions of Executive, or any material change in the duties or authority of Executive under this Agreement. In the event of such termination, Executive shall give Company 30 days’ prior written notice.

          14.3 Termination by Company. Company may at its option terminate this Agreement in the event that Executive is deemed by a court of law to have committed fraud against Company or to have breached his fiduciary duty to Company.

          14.4 Termination Upon Death. This Agreement shall terminate upon the death of Executive.

          14.5 Termination Upon the Disability of Executive. This Agreement shall terminate upon the disability of Executive. In the event of termination due to disability, Company shall then commence paying to Executive the sum of $350,000 (the annual base compensation payable to Executive during the fifth year of this Agreement), payable semi-monthly on the 15th and last day of each month. As used in this paragraph, the term “disability” shall mean the complete inability to discharge Executive’s duties and responsibilities for a continuous period of not less than six continuous months during any twelve month period.

     15.     Improper Termination. If at any time during the term of this Agreement, this Agreement is terminated by Executive for any reason pursuant to Section 14.2, or by Company in any manner except specifically in accordance with Section 14.1 or 14.3, then:

          A.     Company shall pay to Executive the cumulative total of Executive’s entire salary and accrued but unpaid bonus (if any, with respect to bonus) payable through the end of the; .term of this Agreement; but in no event less than $350,000 (the annual base compensation payable to Executive during the fifth year of this Agreement) and in no event more than 300% of Executive’s annual taxable compensation for the calendar year in which the termination occurs.

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Commencing upon the termination, payments shall be made to Executive semi-monthly on the 15th and last day, of each month until paid in full; and

          B.     Executive shall be entitled to all of the benefits under Section 7 of this Agreement through the end of the term of this Agreement including, without limitation, that Company shall continue to pay the premiums on Executive’s personal term life insurance policies, Nos. 9000055970 and 9000077560; and

          C.     Executive shall be entitled to exercise all stock options (once they vest) that he owns as of the termination of his employment for the entire remaining exercise period of the stock options. No such stock options shall terminate prior to said expiration dates, all nonvested stock options shall continue to vest in accordance with their original schedules, and no “severance” shall be deemed to have occurred under Company’s Stock Option Plan, under then existing stock option agreements covering said stock options.

It is specifically agreed that in the event of a termination under this Section 15, Executive shall have no duty to mitigate his damages by seeking comparable, inferior or different employment.

     16.     Indemnification of Executive. Pursuant to the provisions and subject to the limitations of the California Corporations Code, and in particular Sections 204 and 317 therein, Company shall indemnify and hold Executive harmless as provided in Sections 16.1, 16.2 and 16.3 of this Agreement. Company shall, upon the request of Executive, assume the defense and directly bear all of the expense of any action or proceedings that may arise for which Executive is entitled to indemnification pursuant to this Section.

          16.1 Indemnification of Executive for Actions by Third Parties. Company hereby agrees to indemnify and hold Executive harmless from any liability, claims, fines, damages, losses, expenses, judgments or settlements actually incurred by him, including but not limited to reasonable attorneys’ fees and costs actually incurred by him as they are incurred, as a result of Executive being made at any time a party to, or being threatened to be made a party to, any proceeding (other than an action by or in the right of Company, which is addressed in Section 16.2 of this Agreement), relating to actions Executive takes within the scope of his employment as the President of Company or in his role as a director of Company, provided that Executive acted in good faith and in a manner he reasonably believed to be in the best interest of Company and, in the case of a criminal proceeding, had no reasonable cause to believe his conduct was unlawful.

          16.2 Indemnification of Executive for Actions in the Right of Company. Company hereby agrees to indemnify and hold Executive harmless from any liability, claims, damages, losses, expenses, judgments or settlements actually incurred by him, including but not limited to reasonable attorney’s fees and costs actually incurred by him as they are incurred, as a result of Executive being made a party to, or being threatened to be made a party to, any proceeding by or in the right of Company to procure a judgment in its favor by reason of any action taken by Executive as an officer, director or agent of Company, provided that Executive acted in good faith and in a manner he reasonably believed to be in the best interests of Company and its shareholders, and provided further, that no indemnification by Company shall be required pursuant to this Section 16.2(i) for acts or omissions that involve intentional misconduct or a

5

knowing and culpable violation of law, (ii) for any transaction from which Executive derived an improper personal benefit (iv) for acts or omissions that show a reckless disregard by Executive of his duties to Company or its shareholders in circumstances in which Executive was aware or should have been aware, in the ordinary course of performing his duties of a risk of serious injury to Company or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of Executive’s duties to Company or its shareholders, (vi) for any violation by Executive of Section 310 of the California Corporations Code, or (vii) for any violation by Executive of Section 316 of the California Corporations Code. Furthermore, Company has no obligation to indemnify Executive pursuant to this Section 16.2 in any of the following circumstances:

          A.     In respect of any claim, issue, or matter as to which Executive is adjudged to be liable to Company in the performance of his duties to Company and its shareholders, unless and only to the extent that the court in which such action was brought determines upon application that, in view of all the circumstances of the case, he is fairly and reasonably entitled to indemnity for the expenses and then only in the amount that the court shall determine.

          B.     For amounts paid in settling or otherwise disposing of a pending action without court approval.

          C.     For expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval.

          16.3 Reimbursement. In the event that it is determined that Executive is not entitled to indemnification by Company pursuant to Sections 16.1 or 16.2 of this Agreement, then Executive is obligated to reimburse Company for all amounts paid by Company on behalf of Executive pursuant to the indemnification provisions of this Agreement. In the event that Executive is successful on the merits in the defense of any proceeding referred to in Sections 16.1 or 16.2 of this Agreement, or any related claim, issue or matter, then Company will indemnify and hold Executive harmless from all fees, costs and expenses actually incurred by him in connection with the defense of any such proceeding, claims, issues or matter.

     17.     Assignability of Benefits. Except to the extent that this provision may be contrary to law, no assignment, pledge, collateralization or attachment of any of the benefits under this Agreement shall be valid or recognized by Company. Payment provided for by this Agreement shall not be subject to seizure for payment of any debts or judgments against Executive, nor shall Executive have any right to transfer, modify, anticipate or encumber. any rights or benefits hereunder; provided that any stock issued by Company to Executive pursuant to this Agreement shall not be subject to Section 17 of this Agreement.

     18.     Directors’ and Officers’ Liability Insurance. Company will utilize its best efforts in good faith to purchase directors and officers liability insurance for the officers and directors of Company, which would include the same coverage for Executive.

     19.     Notice. Except as otherwise specifically provided, any notices to be given hereunder shall be deemed given upon personal delivery, air courier or mailing hereof, if mailed by certified mail, return receipt requested; to the last known address of the respective party.

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     20.     Attorney’s Fees. In the event that any of the parties resort to legal action in order to enforce or interpret the provisions of this Agreement, the prevailing party shall be entitled to receive reimbursement from the nonprevailing party for all reasonable attorneys’ fees and all other costs incurred in commencing or defending such suit.

     21.     Entire Agreement. This Agreement embodies the entire understanding among the parties and merges all prior discussions or communications among them, and no party shall be bound by any definitions, conditions, warranties, or representations other than as expressly stated in this Agreement or as subsequently set forth in a writing signed by the duly authorized representatives of all of the parties hereto.

     22.     No Oral Change; Amendment. This Agreement may only be changed or modified and any provision hereof may only be waived by a writing signed by the party against whom enforcement of any waiver, change or modification is sought. This Agreement may be amended only in writing by mutual consent of the parties.

     23.     Severability. In the event that any provision of this Agreement is held to be void or unenforceable for any reason whatsoever, then such provision shall be stricken and of no force and effect. The remaining provisions of this Agreement shall, however, continue in full force and effect.

     24.     Applicable Law. This Agreement shall be interpreted in accordance with the laws of the State of California, and venue for any action or proceedings brought with respect to this Agreement shall be in the County of San Diego in the State of California.

     25.     Successors and Assigns. Each covenant and condition of this Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, personal representatives, assigns, and successors in interest. Without limiting the generality of the foregoing sentence, this Agreement shall be binding upon any successor to Company whether by merger, reorganization or otherwise.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written.

COMPANY	CREATIVE HOST SERVICES, INC.
	A California corporation
	By:	/s/ Sayed Ali
		Sayed Ali, Chairman of the Board of Directors
Attest:
	/s/ Booker Graves
	Booker Graves, Director
	/s/ John Donahue
	John Donahue, Director

7

	/s/ Chuck Radloff
	Chuck Radloff, Director
EXECUTIVE:
	/s/ Sayed Ali
	Sayed Ali

8

ADDENDUM TO EMPLOYMENT AGREEMENT

     THIS ADDENDUM (“Addendum”) is effective as of the 18th day of February, 2004, and is entered into by and between Creative Host Services, Inc. (“the Company”), Compass Group USA, Inc. (“Compass”) and Sayed Ali (“Executive”).

WITNESSETH

     WHEREAS, under the terms of an Agreement and Plan of Merger by and among Compass Group USA Investments, LLP (“Investments”), Yorkmont Five, Inc. (an indirect subsidiary of Investments) and the Company, the Company intends to become a wholly owned subsidiary of Compass Holdings, Inc. (an indirect subsidiary of Investments) (the “Acquisition”); and

     WHEREAS, Executive and the Company have entered into that certain Employment Agreement dated the 1st day of November, 2002, (“Agreement”), whereby the Company desires to employ the Executive and the Executive to be employed to provide services to the Company, all on the terms and subject to the conditions as set forth in the Employment Agreement; and

     WHEREAS, the parties have discussed and agreed upon this Addendum to the Employment Agreement, which Addendum shall become effective only upon the completion of the Acquisition.

     NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, contract and agree as follows:

     The parties agree, in addition to the provisions previously set forth in the Agreement, except as provided in Paragraph 7 below, that:

1)	The term of the Agreement shall continue until March 31, 2008.
2)	Executive shall be paid an Annual Based Salary of $300,000.00 during the period of March 2004 to March 31, 2005; $325,000.00 during the period of April 1, 2005 to March 31, 2006; $350,000.00 during the period of April 1, 2006 to March 31, 2007; and $375,000.00 during the period of April 1, 2007 to March 31, 2008.
3)	In addition, Executive shall be paid a discretionary annual bonus based on factors to be determined.
4)	Executive shall initially be employed as the Chief Executive Officer of the Company and shall assume such responsibilities and positions as the executives of Compass shall determine from time to time.
5)	Executive shall receive all benefits provided by Compass to similarly situated executives of Compass including vacation, automobiles, any incentive compensation plans and all group health, hospitalization, and permanent disability plans or other employee welfare benefit plans provided by action of the Board of Directors of Compass or pursuant to Compass policy.

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6)	If at any time during the term of the Agreement, the Agreement is terminated by Executive for any reason pursuant to Section 14.2 of the Agreement, or by the Company in any manner except specifically in accordance with Section 14.1 or 14.3 of the Agreement, then, the Executive shall be paid severance in an amount equal to the monthly equivalent of Executive’s Annual Base Salary then in effect multiplied by the number of full months of the Non-Competition Period (as defined in paragraph 6 below). The severance shall be payable, in the discretion of the Company, either over the Non-Competition Period in monthly installments when payroll is normally distributed or in a lump sum no later than thirty (30) days following the date of termination less applicable withholdings required by law.
7)	For a period of the greater of twenty-four (24) months or the number of full months remaining from Executive’s last day of employment by the Company until March 31, 2008, Executive shall not, directly or indirectly, without the written consent of the Company, knowingly solicit, entice, or persuade any other employee of the Company, or any employee of an affiliate of the Company, to leave the services of the Company or such affiliate for any reason.
	Executive will not for a period of the greater of twenty-four (24) months or the number of full months remaining from Executive’s last day of employment by the Company until March 31, 2008 (the “Non-Competition Period”): (i) directly or indirectly engage in “Competitive Activity” (as defined below) within the “Territory” (as defined below), or (ii) directly or indirectly engage in “Competitive Activity” (as defined below) with any business that was a customer of the Company or a potential customer of the Company during the period including the same number of full months as in the Non-Competition Period prior to the time this Agreement expires or is otherwise terminated up through and including the time this Agreement expires or is otherwise terminated, or (iii) enter into any relationship whatsoever, alone or in a partnership, or as an officer, director, employee, stockholder (beneficially owning the stock or options to acquire stock totaling more that five percent (5%) of the outstanding shares) of any corporation, or acquire or agree to acquire a significant present or future equity or other proprietorship interests, whether as a stockholder, partner, proprietor, or otherwise, with any enterprise, business or division thereof, which is engaged in “Competitive Activity,” hereby defined as the provision of contract food or vending services like that engaged in by the Company or any parent, subsidiary or affiliate company, during the term of the Agreement. “Territory” means the geographic area over which Executive had management and/or financial responsibility at the time the Agreement expires or is otherwise terminated; provided, however, that in the case of an employee whose duties and responsibilities relate to accounts nation-wide, “Territory” shall mean the states in which said accounts are located.
	Executive’s obligations under this Paragraph 6 shall survive termination of the Agreement and shall be in addition to any restrictions imposed upon the Executive by statute or at common law.

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8) If there are any discrepancies between the provisions of the Agreement and this Addendum, the provisions of this Addendum shall prevail.

     IN WITNESS WHEREOF, the parties have duly executed this Addendum as of the date first above written.

CREATIVE HOST SERVICES, INC
By:	/s/ John P. Donahue, Jr.
	John P. Donahue, Jr., Director
COMPASS GROUP USA, INC
By:	/s/ Tom Ondrof
	Tom Ondrof, Chief Financial Officer
EXECUTIVE
By:	/s/ Sayed Ali
	Sayed Ali

11 EX-99.D.7 17 g87249toexv99wdw7.htm EX-99.D.7

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made as of the 18th day of February 2004, by and between Compass Group USA, Inc. and its affiliated entities (collectively, the “Company”) and Tasneem Vakharia (the “Employee”);

WITNESSETH:

     WHEREAS, the Company desires to employ the Employee and the Employee desires to be employed to provide services to the Company, all on the terms and subject to the conditions, as hereinafter set forth;

     NOW, THEREFORE, in consideration of the promises and the mutual covenants and obligations hereinafter set forth, the parties agree as follows:

     1.     Employment. The Company agrees to employ the Employee as Executive Vice President and Secretary—Creative Host Services, Inc. during the Employment Term (as defined in Section 3) and the Employee hereby accepts such employment and agrees to serve the Company subject to the general supervision and direction of the Employee’s immediate supervisor.

     2.     Duties. During the Employment Term, the Employee shall perform such services and duties as his immediate supervisor may from time to time designate, shall devote the Employee’s full time and best efforts to the business affairs of the Company, and shall not become engaged, as an employee or otherwise, in any other business or commercial activities. The Employee shall comply with all stated standards of performance, policies, rules, regulations and manuals of the employer, receipt of which is hereby acknowledged. The Employee shall also comply with such future Employer policies, rules, regulations, performance standards and manuals as may be published or amended from time to time.

     3.     Employment Term. The Employee shall be employed pursuant to the terms of this Agreement for a period beginning on the date that the Company acquires Creative Host Services, Inc., and continuing for an initial term of one year and thereafter for a term which does not end until the Agreement is terminated pursuant to Section 6 (the “Employment Term”).

     4.     Compensation.

          (a)  Base Compensation. During the Employment Term, the Company will pay the Employee an annual base salary as compensation for the services hereunder of One Hundred Twelve Thousand and No/100 Dollar ($112,000.00) (the “Annual Base Salary”), payable in biweekly installments, minus applicable withholding. The Annual Base Salary shall be reviewed at the Company’s discretion, but in no event less than once per year, and may be increased at the Company’s discretion.

          (b)  Other Benefits. Employee shall receive all other benefits provided by the

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Company including bonuses, vacation, automobiles, any incentive compensation plans and all group health, hospitalization, and permanent disability plans or other employee welfare benefit plans provided by action of the Board of Directors of the Company or pursuant to Company policy.

     5.     Reimbursement of Expenses Incurred in Performance of Employment. Upon submission of proper vouchers, the Company shall pay or reimburse the Employee for all normal and reasonable expenses, including travel expenses, incurred by the Employee during the Employment Term in accordance with the Company policy then in effect. The Company shall reimburse the Employee for necessary and reasonable moving expenses, in accordance with the Company’s relocation policy in effect, in the event the Company requests that the Employee relocate during the term of this Agreement.

     6.     Termination.

          (a)  The Employment Term shall terminate upon the occurrence of any of the following events: (i) immediately upon the retirement or death of the Employee; (ii) upon the effective date of Resignation by the Employee (as defined below); (iii) upon notice given by the Company of Termination Without Cause (as defined below), which notice the Company shall provide at least thirty (30) days prior to the Termination Without Cause; (iv) upon the close of business on the date the Company gives the Employee notice of Termination for Just Cause (as defined below); or (v) immediately upon the occurrence of the Permanent Disability of the Employee (as defined below).

          (b)  For the purposes of this Agreement:

          (1)  “Resignation by the Employee” shall mean any voluntary termination or resignation by the Employee. Employee is required to give at least thirty (30) days written notice of Resignation and the Company is entitled, upon receiving such notice, to accept such Resignation any time prior to the Resignation date proposed by the Employee. The effective date of the Resignation shall be the date the Resignation is accepted by the Company or the Resignation date proposed by the Employee, whichever is earlier.

          (2)  “Termination Without Cause” shall mean any termination by the Company for any reason which in its own discretion it deems appropriate.

          (3)  “Termination for Just Cause” shall mean termination of the employment of the Employee for “just cause” pursuant to applicable law. In addition, the termination of the Employee’s employment shall be deemed to have been for just cause if termination of said employment shall have been the result of: (i) an act or acts by the Employee, or any omission by the Employee, constituting a felony; (ii) any act of fraud, dishonesty or willful misconduct by the Employee; (iii) the material breach of any provision of this Agreement by the Employee; or (iv) any attempt to usurp corporate benefits or opportunities for the Employee’s own gain.

          (4)  “Permanent Disability” shall mean the Employee is unable to perform the

2

essential functions of Employee’s job with or without reasonable accommodation as a result of a physical or mental disability or infirmity which has continued for more than one hundred eighty (180) consecutive days. Employee agrees to submit to such medical evidence regarding any disability or infirmity, including making himself available for medical examination, as is reasonably requested by the Company.

          (c)  Except for the payment of any unused vacation and earned but unpaid salary due at the time of termination of the Employment Term, and except for any payments which may be due as set forth below, Employee shall not be entitled to receive any additional compensation of any kind from the Company upon the termination of the Employment Term. These payments are in lieu of any severance or similar payments which may be provided by Company from time to time.

          (1)  If termination of the Employment Term is due to the death of the Employee, the Employee’s estate or legal representative shall be paid the Annual Base Salary in monthly installments for a period of one (1) year commencing immediately upon the death of the Employee, any bonus which is accrued, but unpaid at the time of death shall be paid at the end of the second month following the end of the fiscal year in accordance with the terms of any bonus plan available to the Employee.

          (2)  If termination of the Employment Term is due to Termination Without Cause by the Company, then provided the Employee complies with and continues to comply with Sections 7 and 8 of this Agreement and signs a release of any and all claims Employee has against the Company on a form to be prepared by the Company, then the Employee shall be paid severance in an amount equal to the Employee’s Annual Base Salary then in effect. The severance shall be payable, in the discretion of the Company, either over a twelve (12) month period in monthly installments when payroll is normally distributed or in a lump sum no later than thirty (30) days following the date of termination less applicable withholdings required by law. Any bonus which is accrued but unpaid at the time of termination shall be paid at the end of the second month following the end of the fiscal year in accordance with the terms of any bonus plan available to the Employee. The Company, at its expense, will provide the Employee with outplacement counseling and the support services of an executive outplacement firm for a period until re-employment, but no longer than twelve (12) months after termination. If the Company proposes to change the responsibilities of the Employee and the change would result in a reduction in the Employee’s Annual Base Salary, the Employee shall have the option to refuse the change of responsibilities and resign. In that case, the Employee shall be paid severance equal to the Annual Base Salary the Employee was making prior to the proposed change of responsibilities and reduction in pay. If the Employee accepts the change of responsibilities, this Agreement shall continue in full force and effect subject to such revisions consistent with the change of responsibilities as Employee shall agree in writing.

          (3)  If termination of the Employment Term is due to Termination for Just Cause, the Company’s obligation to compensate the Employee shall cease immediately.

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     7.     Confidential Information.

          (a)  The Employee recognizes and acknowledges that during the course of the Employee’s employment by the Company, the Company has disclosed and will furnish, disclose, or make available to the Employee confidential and proprietary information related to the Company’s business including, without limitation, customer lists, financial information, ideas, processes, inventions, devices and the like, as well as such information relating to any customer, client, vendor, licensee or other party transacting business with the Company, (the “Confidential Information”), that the Confidential Information has been developed and will be developed through the expenditure by the Company of substantial time and money, and that all such Confidential Information, except to the extent it is in the public domain, shall constitute trade secrets protected under applicable law. The Employee further acknowledges that said Confidential Information is and shall remain the sole property of the Company, and agrees to use the Confidential Information only for the purpose of carrying out his duties with the Company and agrees that the Employee will not, during the term of this Agreement and forever thereafter, use for him or others or disclose to any third party, either directly or indirectly, voluntarily or involuntarily, for any purpose whatsoever any Confidential Information. Employee shall not be in breach of this Section 7(a) for any disclosure he is required to make by virtue of a legal process, provided that Employee provides prompt notice to the Company of any such legal process so as to allow the Company to seek appropriate limitations and protections in connection with such disclosure.

          (b)  Employee further covenants and agrees that every document, computer disk, computer software program, notation, record, diary, memorandum, development, investigation, or the like, and any method or manner of doing business of Company (or containing Confidential Information) made or acquired by Employee during said employment, is and shall be the sole and exclusive property of Company. The Employee will deliver the same (and every copy, disk, abstract, summary, or reproduction of same made by or for Employee or acquired by Employee) whenever Company may so require and in any event prior to or at the termination of said employment.

     8.     Covenant Not To Compete

          (a)  For a period of twelve (12) months following the Employee’s last day of employment by the Company, Employee shall not, directly or indirectly, without the written consent of the Company, knowingly solicit, entice, or persuade any other employee of the Company, or any employee of an affiliate of the Company, to leave the services of the Company or such affiliate for any reason.

          (b)  Employee will not for a period of twelve (12) months following Employee’s last day of employment by the Company: (i) directly or indirectly engage in “Competitive Activity” (as defined below) within the “Territory” (as defined below), or (ii) directly or indirectly engage in “Competitive Activity” (as defined below) with any business that was a customer of the Company or a potential customer of the Company during the period including twelve (12) months prior to the time this Agreement expires or is otherwise terminated up through and including the time this Agreement expires or is otherwise terminated, or (iii) enter into any relationship whatsoever, alone or in a partnership, or as an officer, director, employee, stockholder (beneficially owning the stock or options to acquire stock totaling more

4

than five percent (5%) of the outstanding shares) of any corporation, or acquire or agree to acquire a significant present or future equity or other proprietorship interests, whether as a stockholder, partner, proprietor, or otherwise, with any enterprise, business or division thereof, which is engaged in “Competitive Activity,” hereby defined as the provision of contract food or vending services in Airports like that engaged in by the Company or any parent, subsidiary or affiliate company, during the term of this Agreement. “Territory” means the geographic area over which Employee had management and/or financial responsibility at the time this Agreement expires or is otherwise terminated; provided, however, that in the case of an employee whose duties and responsibilities relate to accounts nation-wide, “Territory” shall mean the states in which said accounts are located.

          (c)  The Employee acknowledges that the restrictions placed upon the Employee by this Section 8 are reasonable, given the nature of Employee’s position, and that there is sufficient consideration promised Employee pursuant to this Agreement to support these restrictions. The Employee further acknowledges that under the law of North Carolina, which governs this agreement, the above non-competition provision is enforceable, as it, inter alia: (1) is in writing, (2) is part of a contract of employment, (3) is based on valuable consideration (4) is reasonably necessary for the protection of the Company’s legitimate business interest, and (5) is reasonable as to time and territory.

5

          (d)  The restrictions of this Section 8 shall survive Employee’s last day of employment by the Company and shall be in addition to any restrictions imposed upon the Employee by statute or at common law.

     9.     Inventions/ Developments. Employee agrees that he shall have no proprietary interest in any idea, invention, design, technical or business innovation, computer program and related documentation, or any other work product developed, conceived, or used by him, in whole or in part, that arises out of his employment with the Company, or that was otherwise made through the use of the Company’s time, facilities or materials (all collectively called “Developments”). Employee acknowledges that all Developments are and shall be the sole property of the Company, and that the Company is not required to designate Employee as the author thereof. Employee shall promptly disclose all Developments to his supervisor, and shall at the Company’s request and expense, do all things that may be necessary and appropriate to establish or document the Company’s ownership of the Developments (including, but not limited to, the execution of the appropriate copyright or patent applications or assignments).

     10.     Consideration. Employee acknowledges that the consideration to Employee in this Agreement is valuable consideration for the Employee’s covenants and obligations in this Agreement and is in addition to any consideration currently due to Employee from the Company.

     11.     Injunctive Relief. The Employee expressly acknowledges that any breach or threatened breach by the Employee of any of the terms set forth in Sections 2, 7 and 8 of this Agreement may result in significant and continuing injury to the Company, the monetary value of which may be impossible to establish. Therefore, the Employee agrees to submit to the jurisdiction of the courts (federal or state) of the State of North Carolina and the courts (federal and state) of any states within the Territory and agrees that the Company shall be entitled to apply for injunctive relief in North Carolina or any state within the Territory and any other court of appropriate jurisdiction. The provisions of this Section 11 shall survive the Employment Term.

     12.     Parties Benefited; Assignments. This Agreement shall be binding upon the Employee, the heirs and personal representative or representatives of the Employee, and upon the Company and its successors and assigns. Neither this Agreement nor any rights or obligations hereunder may be assigned by the Employee.

     13.     Notices. Any notice required or permitted by this Agreement shall be in writing, sent by personal delivery, or by registered or certified mail, return receipt requested, addressed to the CEO and the Company at its then principal office, or to the Employee at the Employee’s then current address, as the case may be, or to such other address or addressees as any party may from time to time specify in writing. Notices shall be deemed given when received.

     14.     Governing Law and Venue. This Agreement takes effect on the date provided in Section 3 upon acceptance and execution by the Company in North Carolina, and shall be governed by, construed and enforced, in accordance with the laws of the State of North Carolina without regard to conflict of law principles.

6

     15.     Arbitration of Disputes. The parties agree that except for claims barred by the applicable statute of limitations and except for claims for injunctive relief which the Company may elect to pursue in state or federal court, any and all disputes between them, including any disputes or controversies arising out of or involving this Agreement or any of its provisions, and any claim by either party that cannot be otherwise amicably settled, shall be determined solely and exclusively by arbitration in accordance with the Employment Dispute Resolution Rules then pertaining of the American Arbitration Association, or any successor thereto, at its office nearest Employee’s residence. The arbitration shall be conducted by three arbitrators, one of whom shall be chosen by each party hereto and the third, who will serve as chairman of the arbitration panel, shall be chosen by the two so appointed. The arbitrators in any such proceeding will be without authority to alter, amend or otherwise depart from the terms of this Agreement, and shall strictly enforce the terms hereof. Judgment upon an award by the majority of the arbitrators shall be binding, and shall be entered in a court of competent jurisdiction. The arbitrators, however, shall not have authority to award punitive damages or damages for pain and suffering.

     16.     Release. Except for the express obligations of the Company under this Agreement, Employee hereby releases and forever discharges the Company, its present or former parents, subsidiaries and affiliates, and their respective officers, employees, agents, directors, successors and assigns from all claims or actions of any kind. This general release and waiver shall include, but not be limited to, all claims or actions arising out of, or relating in any way to, the Employee’s employment and severance of Employee’s employment with the Company, including any claim for compensation or employee benefits, any non-pending claim for workers’ compensation (Employee is acknowledging that Employee is currently able to work without any physical or mental limitations, except for any pending workers’ compensation claim filed by Employee), or any claim of discrimination under any state, federal, or local law or regulation, or any claim for wrongful termination, breach of contract, breach of covenant of good faith and fair dealing, negligent or intentional infliction of emotional distress, misrepresentation, or defamation. If Employee files, maintains, or participates in any claim or action, in any court or agency, based wholly or partially upon a claim or action Employee has released or waived under this Agreement, Employee agrees to pay all expenses and costs (including reasonable attorney’s fees) incurred by the Company and those associated with the Company in defense of such claim or action. Employee waives any rights Employee may have under the laws of any state (such as California Civil Code Section 1542) which provide as follows (or which are similar in wording or effect):

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

     17.     Miscellaneous. This Agreement contains the entire agreement of the parties and supersedes any prior written or oral agreements or understandings between the parties relating to the employment of Employee, and the compensation or benefits promised to Employee. No modification or amendment of this Agreement shall be valid unless in writing and signed by or on behalf of the party who is bound. A waiver of the breach of any term or condition of this

7

Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any person or circumstance, shall, for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforceability shall not affect the remaining provisions hereof and the application of such provision to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. The compensation provided to the Employee pursuant to this Agreement shall be subject to any withholdings and deductions required by any applicable tax laws. Any amounts payable to the Employee hereunder after the death of the Employee shall be paid to the Employee’s estate or legal representative. The headings in this Agreement are inserted for convenience of reference only and shall not be part of or control or affect the meaning of any provision.

     IN WITNESS WHEREOF the parties have duly executed and delivered this Agreement as of the day and year first above written.

COMPASS GROUP USA, INC

/s/ Tom Ondrof

Tom Ondrof, CFO

EMPLOYEE

/s/ Tasneem Vakaharia

Tasneem Vakharia

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EX-99.D.6

EX-99.D.6

EX-99.D.7

EX-99.D.7