-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vvr0OlAn2r8QjWR9/gXWe8AuzlQjAn/Zx/9k0IjiNTQctVXJnCnnzQf6i95CNWbI NB0wsJ94FSHsgPgRhgSMhw== /in/edgar/work/0001074140-00-000437/0001074140-00-000437.txt : 20001026 0001074140-00-000437.hdr.sgml : 20001026 ACCESSION NUMBER: 0001074140-00-000437 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001009 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20001025 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREATIVE HOST SERVICES INC CENTRAL INDEX KEY: 0000933098 STANDARD INDUSTRIAL CLASSIFICATION: [5812 ] IRS NUMBER: 330169494 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-22845 FILM NUMBER: 745107 BUSINESS ADDRESS: STREET 1: 6335 FERRIS SQUARE STREET 2: STES G-H CITY: SAN DIEGO STATE: CA ZIP: 92126 BUSINESS PHONE: 6195877300 MAIL ADDRESS: STREET 1: 6335 FERRIS SQUARE STREET 2: STES G-H CITY: SAN DIEGO STATE: CA ZIP: 92126 8-K 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): October 9, 2000 -------------------- Creative Host Services, Inc. --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California --------------------------------------------------------------------------- (State or other jurisdiction of incorporation) O00-22845 33-1069494 ---------------------- -------------------------------- (Commission File Number) (IRS Employer Identification No.) 6335 Ferris Square, Suite G-H San Diego, California 92126 --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (619) 587-7300 ----------------- Registrant's telephone number, including area code: Not applicable --------------------------------- (Former name, address and telephone number) 1 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS (a) On October 9, 2000, Creative Host Services, Inc. ("CHST") completed the closing of the acquisition of Gladco Enterprises, Inc. ("Gladco"), a company located in Pittsburgh, Pennsylvania that currently manages concessions in four airports. CHST completed the acquisition of Gladco in accordance with the terms of a Purchase Agreement (the "Purchase Agreement"). In accordance with the Purchase Agreement, CHST acquired 100% of the stock of Gladco, HLG Acquisition Corporation, a Pennsylvania corporation and an affiliate of Gladco and HLG Franchise Marketing Company, a Pennsylvania limited partnership and an affiliate of Gladco, from Edwin L. Klett, Louis Coccoli, Jr., Herbert H. Gill and the Virgil A. Gladieux Marital Trust (collectively, the "Sellers") in consideration for an aggregate amount equal to $7,000,000 (subject to adjustments as set forth in the Purchase Agreement), payable as follows: (i) $300,000 in cash which had been prepaid as a deposit, (ii) the payment of all outstanding principal and accrued interest of, or assumption of obligations under, liabilities as set forth in the Purchase Agreement which were not in excess of $2,500,000; (iii) the issuance of shares (the "Shares") of CHST common stock equal to $500,000 divided by the average of the closing prices of CHST Stock on the Nasdaq Small Cap exchange for each of the thirty trading days ending two days prior to closing of the transaction (this resulted in an average price of $7.18, which resulted in 69,638 shares issued); and approximately $3.7 million in cash. CHST agreed to register the Shares on Form S-3. The total issued shares to the Sellers was approximately 0.1% of the issued and outstanding stock of CHST immediately after the acquisition. CHST also agreed to permit the Sellers to elect, by written notice to CHST, to require CHST to repurchase the shares when they are freely tradeable and registered at a price equal to the per share issuance price times the number of shares repurchased. CHST also agreed to adjust the purchase price at any time up to one year from closing by (i) $280,000 upon execution of a definitive lease, sub-lease or other operating agreement with respect to each of the two retail sites and commercial operations at the Newark, New Jersey International Airport; (ii) $295,000 upon execution of a definitive lease, sub-lease or other operating agreement with respect to each of the two retail sites and commercial operations at the Harrisburg, Pennsylvania International Airport; and $120,000 upon execution of a definitive lease, sub-lease or other operating agreement with respect to each of the two retail sites and commercial operations at the Rensselaer Railroad Station in Albany, New York. CHST agreed to employ Coccoli in an executive capacity and as President of Gladco. The consideration exchanged pursuant to the Acquisition Agreement was negotiated between Gladco and CHST. In evaluating Gladco as a candidate for the acquisition, CHST Services used criteria such as the value of the airport concession assets of Gladco, its airport relationships, and its history with the various airport operations. Creative Host Services determined that the consideration for the merger was reasonable. CHST obtained the funds for the acquisition of Gladco by the sale of approximately $2,500,000 in 7% Convertible Debentures due September 26, 2003 (the "Debentures") to GCA Strategic Investment Fund Limited. The purchase price of the Debentures was 95% of the principal amount, or $2,375,000. The Debentures are convertible at the lower of 110% of the volume weighted average sales price of CHST common stock on the day immediately preceding closing or 85% of the five lowest volume weighted average sales prices of the CHST common stock during the 25 days immediately preceding the date of a notice of conversion. CHST also issued 125,000 warrants to purchase CHST common stock to GCA Strategic Investment Fund at an exercise price of 102% of the closing bid price on the day immediately preceding the Closing Date. CHST agreed to register the shares of common stock issuable upon conversion of the Debentures and the shares issuable upon exercise of the warrants on Form S-3. The agreements provide certain negative covenants requiring compliance with terms by CHST and are adjustable upon certain events. As part of the financing by GCA Strategic Investment Fund, CHST negotiated for and obtained the right to pay off the GCA investment through alternative financings. CHST presently intends to seek to repay the GCA investment no later than the end of October 2000. (b) CHST intends to continue the historical businesses and proposed businesses of Gladco. Gladco Enterprises, Inc. ("Gladco") is a Pittsburgh-based hospitality and service company with $10.5 million in annual revenues, that operates food and beverage concessions in four international airports, including Pittsburgh International; Atlantic City International; Albany International, in New York; and M.B.S. International in Freeland, Michigan. The Company operates 22 individual concessions within those airports. Those concessions, combined with CHST's current concessions, give the combined companies locations in a total of 25 airports nationally, and approximately 95 overall concessions within those airports. The Gladco acquisition also improves each company's available co-branding product mix. The Creative Host/Gladco business combination is both strategic and synergistic, providing an experienced management team, heightened East Coast presence, and creates an infrastructure that provides efficient management, setting the stage for additional growth both internally and through acquisition. With the Company's ability to raise equity, combined with years of experience of Mr. Coccoli and Mr. Ali, it may open up the doors for further opportunities. Upon completion of the acquisition, GladCo became a wholly-owned subsidiary of CHST, with no noticeable change to any of GladCo's storefronts, method of operation or GladCo's current management team, led by 30-year industry veteran, Louis Coccoli, Jr., who will remain President of GladCo. Through the acquisition, CHST quickly enhanced its presence on the East Coast through representation by GladCo's corporate office in Pittsburgh. GladCo currently manages concessions in four airports, including Pittsburgh International; Atlantic City International; Albany International, in New York; and M.B.S. International, located in Freeland, Michigan. The Company has also signed a letter of intent for two store locations in the Newark, New Jersey International Airport, with projected annual sales of more than $3.7 million. In addition to its own signature facilities, GladCo operates several national brands, including Schlotzky's Deli, Hot Licks Bar & Grill and Samuel Adams Brew Pub, and has an exclusive agreement with Yuengling Brewery, the oldest brewery in the United States. The combined Companies will realize the benefits of having East Coast and West Coast offices, providing geographically appealing management, operations consolidation, additional industry contacts and clout, and creativity enhancements from combined co-branding and airport concessions experience. As a Company, Gladco has focused its bids to include bar and lounge services that return higher margins than typical food service concessions, which compliments CHST's existing operations. Creative Host Services, Inc./ Gladco Enterprises, Inc. are engaged in the business of acquiring, managing and operating airport concessions such as food and beverage, news and gift, and other concessions throughout the United States. In addition, the Company also provides in-flight catering to certain national airlines at 9 of its airport locations and also manages Airline Clubs. Six of the Company's 95 operating concessions are food-courts, each consisting of several food and beverage restaurants that are located within each court. If the various food courts were separated and counted as individual concessions, Creative Host/Gladco operate approximately 95 concessions overall. To simplify accounting, the Company counts these food-courts as one concession. Creative Host Services, Inc. enjoys co-branding relationships with several national and regional companies such as Carl's Jr., Schlotzky's Deli, TCBY Yogurt, Samuel Adams Brew Pubs, Mrs. Fields Cookies, Pretzelmaker, Nathan's Famous Hotdogs, and Hot Licks Bar & Grill. ITEM 3. BANKRUPTCY OR RECEIVERSHIP Not applicable ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT Not applicable. 8 ITEM 5. OTHER EVENTS Not applicable. ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS Not applicable. ITEM 7. FINANCIAL STATEMENTS The financial statements of Gladco for the fiscal years ending December 31, 1998 and 1999 and for the six months ended June 30, 2000 will be provided within the time periods required under Form 8-K. Pro forma financial statements will also be provided at such time. ITEM 8. CHANGE IN FISCAL YEAR Not applicable. EXHIBITS 2.1. Purchase Agreement between Creative Host Services, Inc. and Edwin L. Klett, Louis Coccoli, Jr., Herbert H. Gill and the Virgil Gladieux Marital Trust dated as of September 28, 2000 4.1 Securities Purchase Agreement, dated as of September 26, 2000, between Creative Host Services, Inc. and GCA Strategic Investment Fund Limited 4.2 Convertible Debenture, dated as of September 26, 2000, issued by Creative Host Services, Inc. to GCA Strategic Investment Fund Limited 4.3 Warrant, dated as of September 26, 2000, issued by Creative Host Services, Inc. to GCA Strategic Investment Fund Limited 4.4 Registration Rights Agreement, dated as of September 26, 2000, between Creative Host Services, Inc. and GCA Strategic Investment Fund Limited 4.5 Escrow Agreement, dated as of September 26, 2000, between Creative Host Services, Inc., GCA Strategic Investment Fund Limited and The Law Offices of Kim T. Stephens. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CREATIVE HOST SERVICES, INC. By /s/ Sayed Ali ---------------------------------- President Date: October 22, 2000 EX-2.1 2 0002.txt PURCHASE AGREEMENT TABLE OF CONTENTS ARTICLE I - PURCHASE AND SALE OF SELLER EQUITY Section 1.1 Seller Equity 1 Section 1.2 Purchase Price 2 Section 1.3 Adjustment to Purchase Price 4 Section 1.4 Allocation 5 Section 1.5 Employment Agreement 5 ARTICLE II - CLOSING Section 2.1 Time and Place of the Closing 5 Section 2.2 Procedure at the Closing 5 ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLER Section 3.1 Sellers' Representations and Warranties 9 Section 3.1.1 Organization; Power and Authority; Subsidiaries 9 Section 3.1.2 Due Authorization; Binding Obligation; No Conflicts; Consents 10 Section 3.1.3 Company Capital Structure; Sellers 11 Section 3.1.4 Financial Statements 12 Section 3.1.5 Real Estate 12 Section 3.1.6 Franchise Rights 13 Section 3.1.7 Good Title to and Condition of the Assets 14 Section 3.1.8 Licenses and Permits 14 Section 3.1.9 Documents of and Information with Respect to the Companies 14 Section 3.1.10 Litigation 15 Section 3.1.11 No Adverse Change 15 Section 3.1.12 Absence of Certain Acts or Events 16 Section 3.1.13 Compliance with Laws 17 Section 3.1.14 Environmental Matters 17 Section 3.1.15 Labor Relations 18 Section 3.1.16 Employee Benefits 18 Section 3.1.17 Securities Representation 19 Section 3.1.18 Tax Matters 19 Section 3.1.19 Proprietary Rights 19 Section 3.2 Disclaimer of Other Representations and Warranties 20 Section 3.3 Broker's Fee 20 ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER Section 4.1 General 20 Section 4.2 Organization, Power and Authority 20 Section 4.3 Due Authorization; Binding Obligations; No Conflict 20 Section 4.4 Litigation 21 Section 4.5 Seller Shares 21 Section 4.6 Accuracy of SEC Documents 21 Section 4.7 Broker's Fee 21 ARTICLE V - ADDITIONAL COVENANTS OF THE SELLER Section 5.1 Conduct of Business Pending the Closing 22 Section 5.2 Access to Properties and Records 22 Section 5.3 Retention of Seller Equity 23 Section 5.4 Best Efforts 23 ARTICLE VI - ADDITIONAL COVENANTS OF THE PURCHASER Section 6.1 Best Efforts 23 Section 6.2 Additional Information 23 Section 6.3 Satisfaction of Debt 23 ARTICLE VII - ADDITIONAL MUTUAL COVENANTS Section 7.1 No Disclosure 23 Section 7.2 Seller Tax Distribution 24 Section 7.3 Cooperation to Effect Company 24 ARTICLE VIII - CONDITIONS TO OBLIGATIONS OF THE PURCHASER Section 8.1 Accuracy of Representations and Warranties and Compliance with Obligations 25 Section 8.2 Receipt of Necessary Consents 25 Section 8.3 No Adverse Litigation 25 Section 8.4 Delivery of Documents 26 Section 8.5 No Adverse Charge 26 ARTICLE IX - CONDITIONS TO OBLIGATIONS OF THE SELLERS Section 9.1 Accuracy of Representations and Warranties and Compliance with Obligations 26 Section 9.2 Securities Laws 26 Section 9.3 Opinions of Counsel 27 Section 9.4 Delivery of Documents 27 Section 9.5 No Adverse Charge 27 ARTICLE X - CERTAIN ACTIONS AFTER THE CLOSING Section 10.1 Execution of Further Documents 27 Section 10.2 Employment Matters 27 Section 10.3 Responsibility for Taxes 27 ARTICLE XI - INDEMNIFICATION Section 11.1 Agreement to Indemnify 28 Section 11.2 Agreement by Seller to Indemnify 28 Section 11.3 Agreement by the Purchaser to Indemnify 29 Section 11.4 Notice and Resolution of Claim 30 Section 11.5 Exclusive Remedies` 30 ARTICLE XII - SECURITIES LAW MATTERS Section 12.1 Disposition of Seller Shares 31 Section 12.2 Legend 32 Section 12.3 Registration Rights for Seller Shares; Filing of Registration Statement 32 Section 12.4 Amendments and Supplements 32 Section 12.5 Furnishing of Documents 33 Section 12.6 Duration 33 Section 12.7 Indemnification 33 ARTICLE XIII - MISCELLANEOUS Section 13.1 Transaction Expenses 34 Section 13.2 Amendment and Modification 34 Section 13.3 Specific Performance 34 Section 13.4 Termination 34 Section 13.5 Entire Agreement 36 Section 13.6 Interpretation 36 Section 13.7 Execution in Counterpart 36 Section 13.8 Notices 36 Section 13.9 Governing Law 37 Section 13.10 Severability 37 Section 13.11 Assignment 38 Section 13.12 Binding Effect; No Third Party Beneficiaries 38 SCHEDULES Schedule 1.2.2 - Scheduled Debt Schedule 1.4 - Participating Percentages Schedule 2.2.1(g) - Excluded Seller Contracts Schedule 2.2.2(e) - Seller Share Registration Instructions Schedule 3.1.1 - Foreign Business Qualifications Schedule 3.1.2 - Consents Schedule 3.1.3 - Capitalization; Shareholder Information Schedule 3.1.4 - Financial Statements Schedule 3.1.5 - Real Estate Schedule 3.1.6 - Franchise Systems Schedule 3.1.7 - Liens Schedule 3.1.8 - Licenses and Permits Schedule 3.1.9 - Documents and Information Schedule 3.1.10 - Seller Litigation Schedule 3.1.12 - Acts or Events since date of Financial Statements Schedule 3.1.16 - Employee Benefit Plans Schedule 3.1.19 - Proprietary Rights Schedule 4.4 - Purchaser Litigation EXHIBITS Exhibit 1.5 - Coccoli Employment Agreement Exhibit 2.2.1(e) - Sellers' Counsel Opinion Items Exhibit 2.2.3(c) - Amendment to Agreement of Limited Partnership Exhibit 3.1.17 - SEC Documents Exhibit 10.3.1 - Section 1362(e)(3) Election Exhibit 13.6 - Definitions Table PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of this 28th day of September, 2000 between and among Creative Host Services, Inc., a California corporation (the "PURCHASER") and Edwin L. Klett ("KLETT"), Louis Coccoli, Jr. ("COCCOLI"), Herbert H. Gill ("GILL") and the Virgil A. Gladieux Marital Trust ("TRUST") (and together with Klett, Coccoli and Gill collectively referred to as the "SELLERS"). RECITALS WHEREAS, the Sellers own all of the issued and outstanding shares of capital stock of GladCo Enterprises, Inc., a Pennsylvania corporation ("GLADCO"); and WHEREAS, the Sellers own all of the issued and outstanding shares of capital stock of HLG Acquisition Corporation, a Pennsylvania corporation ("HLG ACQUISITION"); and WHEREAS, the Sellers own all of the issued and outstanding limited partnership interests in HLG Franchise Marketing Company, a Pennsylvania limited partnership ("HLG MARKETING" and together with GladCo and HLG Acquisition, collectively referred to as the "COMPANIES"); and WHEREAS, the Sellers desire to sell, transfer and assign to the Purchaser and the Purchaser desires to purchase from the Sellers all of the issued and outstanding shares of capital stock of GladCo and HLG Acquisition and all of the outstanding limited partnership interests of HLG Marketing for the consideration as herein provided and on the terms and conditions hereinafter set forth (the "TRANSACTION"). NOW, THEREFORE, in consideration of the mutual representations, warranties and covenants and subject to the conditions herein contained, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I PURCHASE AND SALE OF SELLER EQUITY 1.1. SELLER EQUITY. At the Closing (as defined in Section 2.1 hereof), the Sellers shall sell, convey, transfer, assign and deliver to the Purchaser, and the Purchaser shall purchase from the Sellers, free and clear of all liens, mortgages, pledges, security interests, claims, assessments, restrictions, encumbrances and charges of every kind (collectively, "LIENS"), on the terms and subject to the conditions set forth in this Agreement, the following: (a) all of the issued and outstanding shares of all classes of capital stock of GladCo (the "GLADCO SHARES"); (b) all of the issued and outstanding shares of all classes of capital stock of HLG Acquisition (the "HLG SHARES"); and (c) all of the outstanding limited partnership interests of HLG Marketing (the "HLG PARTNERSHIP INTEREST," and together with the GladCo Shares and the HLG Shares, hereinafter collectively referred to as the "SELLER EQUITY"). 1.2. PURCHASE PRICE. The Purchaser agrees to pay to the Sellers and shall deliver in the manner provided in Section 2.2.2 hereof, subject to and upon the terms and conditions set forth in this Agreement, an aggregate amount equal to Seven Million and 00/100 Dollars ($7,000,000.00) (the "PURCHASE PRICE"), plus any Adjustment Amount due pursuant to Section 1.3 hereof, as follows: 1.2.1. The Purchaser has previously paid to Sellers, upon the execution of the letter of intent dated July 19, 2000, three hundred thousand and 00/100 dollars ($300,000.00) (the "DEPOSIT") which is being held in escrow with Pennsylvania Capital Bank pending the Closing of the Transaction. Upon Closing or the occurrence of any other event which the Purchaser and Sellers have agreed herein would require the release of the Deposit to the Sellers, the Purchaser shall perform all things necessary on the part of the Purchaser to cause the release of the Deposit to the Seller. Upon Closing or the occurrence of any other event which the Purchaser and Sellers have agreed herein would require the release of the Deposit to the Purchaser, the Sellers shall perform all things necessary on the part of the Sellers to cause the release of the Deposit to the Purchaser. The Deposit is non-refundable by the Sellers, except in the event of the following: (i) the Closing does not occur as a direct result of Sellers' failure to obtain any third party consent or authorization as required pursuant to this Agreement; or (ii) the Closing does not occur for reasons other than the Purchaser's default under the terms of this Agreement. 1.2.2. At the Closing, the Purchaser shall repay all outstanding principal and accrued interest of, or assume obligations under, all liabilities set forth in Schedule 1.2.2 (the "SCHEDULED DEBT"). The total aggregate amount of outstanding principal and accrued interest of the Scheduled Debt shall not be in excess of two million five hundred thousand and 00/100 dollars ($2,500,000.00). The Purchaser shall cause (at Purchaser's sole cost and expense) the release and termination at the Closing of all corresponding guarantees or security agreements of the Sellers (or any one or more of them) associated with any such Scheduled Debt (collectively, the "SELLER SECURITY DOCUMENTS"). 1.2.3. At the Closing, the Purchaser shall issue to the Sellers shares of common stock of the Purchaser of the same class as the common stock of the Purchaser which is currently registered under the Securities Exchange Act of 1934, as amended, (the "EXCHANGE ACT") and currently traded on the NASDAQ small cap exchange ("CHST STOCK"), as determined in accordance with this Section 1.2.3 and further subject to the provisions of Article XII hereof. The number of shares of CHST Stock issueable and to be registered to the Sellers hereunder (the "SELLER SHARES") shall be determined by dividing: (i) Five hundred thousand dollars ($500,000.00) (the "GROSS STOCK CONSIDERATION"); by (ii) the average of closing prices of CHST Stock on the NASDAQ small cap exchange for each of the thirty (30) trading days ending two trading days prior to Closing Date (the "CHST CLOSING SHARE PRICE") 1.2.4. In addition to the Purchaser's obligations with respect to the Seller Shares contained elsewhere in this Agreement, the Purchaser hereby agrees as follows: (i) Gill, Klett and the Trust (each individually referred to as an "ELECTING SELLER") may elect, by written notice to the Purchaser delivered within three (3) days after the date on which the Seller Shares then held by such Electing Seller, first become tradable without any restriction imposed under the Securities Act of 1933 (the "SECURITIES ACT") or this Agreement (the "EFFECTIVE DATE") on a United States stock exchange (the "LISTING EXCHANGE") to require the Purchaser to repurchase from such Electing Seller all (but not less than all) of the Seller Shares then owned by such Electing Seller at a price equal to (hereinafter, the "OPTION REPURCHASE PRICE"): (A) the CHST Closing Share Price, multiplied by (B) the number of Seller Shares then owned by such Electing Seller. The Purchaser shall pay to an Electing Seller the Option Repurchase Price with respect to the Seller Shares repurchased from such Electing Seller in immediately available funds upon the Electing Seller's delivery to the Purchaser (or the Purchaser's transfer agent or other representative) of all Seller Shares subject to repurchase from such Electing Seller. (ii) In the event that the CHST Closing Share Price on the Effective Date is greater than the average closing prices of the CHST Stock on the Listing Exchange for the thirty (30) day period ending on the last trading day of the Listing Exchange immediately prior to the Effective Date (the "EFFECTIVE DATE SHARE PRICE"), then the Purchaser shall pay to Coccoli in immediately available funds, an amount equal to: (A) the difference between (x) the CHST Closing Share Price, and (y) Effective Date Share Price; multiplied by (B) the total number of Seller Shares then owned by Coccoli. (iii) In the event that the Proposed Registration Statement (as defined in Article XII hereof) does not become effective on or before the date which is one hundred eighty (180) days after the date on which the Proposed Registration Statement is filed with the Securities and Exchange Commission, or the CHST Stock is not listed on (or has been delisted from) the NASDAQ or any other United States stock exchange at any time on or before the date which is one year after the date on which the Proposed Registration Statement is filed with the Securities and Exchange Commission (each such date hereinafter referred to as the "MANDATORY REDEMPTION DATE"), then the Purchaser shall redeem the Seller Shares then held by the Sellers for an aggregate amount equal to the number of Seller Shares then held by the Sellers multiplied by the greater of: (x) the Gross Stock Consideration divided by the total number of Seller Shares initially issued to Sellers pursuant to Section 1.2.3 hereof; or (y) the average of the closing prices of CHST Stock on the NASDAQ Stock Market (or other Listing Exchange if the CHST is no longer listed on the NASDAQ Stock Market) for each of the thirty (30) trading days ending on the last trading day prior to the Mandatory Redemption Date. 1.3. ADJUSTMENT TO PURCHASE PRICE. The Purchase Price shall be subject to positive adjustment at any time prior to the date which is one calendar year after the Closing Date (the "ADJUSTMENT EXPIRATION DATE") by the amounts stated below (collectively, the "ADJUSTMENT AMOUNT") upon the execution of a definitive lease, sub-lease or other operating agreement by any one or more of the Companies, the Purchaser or any of their respective affiliates (collectively the "CONSOLIDATED GROUP") with respect to each of the following prospective operations: (a) two hundred eighty thousand and 00/100 dollars ($280,000.00) due upon the execution of a definitive lease, sub-lease or other operating agreement by any one or more of the Consolidated Group with respect to each of two retail sites and commercial operations of any one or more of the Consolidated Group to be located at the Newark, New Jersey International Airport (each such payment referred to as a "NEWARK INSTALLMENT"); and (b) two hundred ninety-five thousand six hundred and 00/100 dollars ($295,600.00) due upon the execution of a definitive lease, sub-lease or other operating agreement by any one or more of the Consolidated Group with respect to any retail sites and commercial operations of any one or more of the Consolidated Group to be located at the Harrisburg, Pennsylvania International Airport (the "HARRISBURG INSTALLMENT"); and (c) one hundred twenty thousand and 00/100 dollars ($120,000.00) due upon the execution of a definitive lease, sub-lease or other operating agreement by any one or more of the Consolidated Group with respect to any retail sites and commercial operations of any one or more of the Consolidated Group to be located at the Rensselaer Railroad Station in Albany, New York (the "ALBANY INSTALLMENT"). The Purchaser shall pay to the Sellers within thirty (30) days after Closing, and in immediately available funds, the Adjustment Amount then due pursuant to clauses (a) through (c) above. If at any time after Closing any payment of any installment of Adjustment Amount becomes due as specified in clauses (a) through (c) of this Section, than the Purchaser shall pay to the Sellers, in immediately available funds, the applicable installment of Adjustment Amount within thirty (30) days after the date on which such amount becomes due as specified above. 1.4. ALLOCATION. The Sellers shall be permitted to allocate the Purchase Price and any Adjustment Amount (or any portion thereof) as consideration for the Sellers' obligations under this Agreement as the Sellers may determine between and among themselves and as to the GladCo Shares, the HLG Shares and the HLG Partnership Interest. All payments of the Purchase Price and any Adjustment Amount shall be paid to Sellers, pro-rata in accordance with the percentages specified in Schedule 1.4 (the "PARTICIPATING PERCENTAGES"). 1.5. EMPLOYMENT AGREEMENT. The Purchaser and Coccoli have previously entered into the agreement attached hereto at Exhibit 1.5 (the "COCCOLI EMPLOYMENT AGREEMENT"), pursuant to which the Purchaser and/or GladCo shall continue to employ Coccoli in an executive capacity and as President of GladCo. The Coccoli Employment Agreement shall remain in effect in accordance with its terms from and after Closing. ARTICLE II CLOSING 2.1 TIME AND PLACE OF THE CLOSING. Subject to and after the fulfillment or waiver of the conditions set forth in Articles VIII and IX, the closing of the sale and purchase of the Seller Equity shall take place at the offices of Klett Rooney Lieber & Schorling, 40th Floor, One Oxford Centre, Pittsburgh, Pennsylvania 15219, on Monday, October 2, 2000, and shall be effective as of Midnight, 12:00 a.m., Eastern Standard Time, on Saturday, September 30, 2000 or on such other date and at such other time and place as the parties may agree. In this Agreement, such event is referred to as the "CLOSING" and such date and time are referred to as the "CLOSING DATE." 2.2 PROCEDURE AT THE CLOSING. At the Closing, the parties shall take the following actions and all such actions shall be deemed to have occurred simultaneously: 2.2.1 THE SELLERS' DELIVERIES. (a) The Sellers shall deliver to the Purchaser a certificate of Sellers and any other evidence reasonably required by the Purchaser, in such form as is satisfactory to the Purchaser, that each of the conditions to the obligations of the Purchaser to purchase the Seller Equity from the Sellers which is set forth in Article VIII has been satisfied. (b) The Sellers shall deliver to the Purchaser the certificate required pursuant to Section 8.1. (c) The Sellers shall deliver to the Purchaser a certificate of good standing with respect to each of the Companies, if applicable, issued by the Secretary of State of each of New York and Pennsylvania dated not earlier than thirty (30) days prior to the Closing Date. (d) With the exception of those consents identified in Schedule 3.1.2 hereof, the Sellers shall deliver to the Purchaser copies of all necessary consents and approvals of third parties to any of the transactions contemplated hereby, in form and substance satisfactory to the Purchaser; provided however, that the Sellers shall not be required to deliver any such consent or approval which is expressly waived or excluded from this delivery requirement pursuant to the terms hereof or by the Purchaser's consent or written waiver delivered to the Sellers at any time prior to Closing. (e) The Sellers shall deliver to the Purchaser copies of: (i) resolutions adopted by the board of directors of GladCo and by the Sellers authorizing the transactions contemplated by this Agreement; (ii) the certificate of incorporation and by-laws of GladCo, as in effect on the Closing Date, certified in each case by the secretary or assistant secretary of GladCo; (iii) resolutions adopted by the board of directors of HLG Acquisition and by the Sellers authorizing the transactions contemplated by this Agreement; (iv) the certificate of incorporation and by-laws of HLG Acquisition, as in effect on the Closing Date, certified in each case by the secretary or assistant secretary of HLG Acquisition; (v) resolutions adopted by the board of directors of HLG Acquisitions, acting as general partner of HLG Marketing, authorizing the transactions contemplated in this agreement; and (vi) the certificate and the agreement (as amended) of limited partnership of HLG Marketing, as in effect on the Closing Date, certified in each case by the general partner. (f) The Sellers shall deliver to the Purchaser all stock certificates and/or other documents evidencing the Seller Equity, accompanied by all necessary and appropriate transfer powers duly endorsed. (g) The Sellers shall deliver to Purchaser satisfactory evidence that all outstanding shareholders agreements, employment agreements, consulting agreements, and any other agreements among the Sellers and/or between any of the Sellers and any of the Companies, other than those agreements identified on Schedule 2.2.1 (g) hereto have been terminated. (h) The Sellers shall execute and deliver such amendments to the HLG Partnership Agreement as necessary and appropriate to evidence and effect their withdrawal from HLG Marketing as limited partners. (i) The Sellers shall deliver to the Purchaser duly executed resignations of each of the directors and officers of GladCo and HLG Marketing (other than Coccoli and Robert van Snik) as required by the Purchaser. (j) The Companies and the Sellers shall deliver to the Purchaser an opinion dated the Closing Date from counsel for the Companies and the Sellers, subject to counsel's reasonable assumptions and qualifications, containing the opinions set forth on Exhibit 2.2.1(j) hereto. (k) The Sellers (other than the Trust) shall deliver to the Purchaser the written consent of their respective spouses to the Transaction in form and substance acceptable to the Purchaser. 2.2.2 THE PURCHASER'S DELIVERIES. (a) The Purchaser shall deliver to the Sellers evidence, in such form as is satisfactory to the Sellers, that each of the conditions to the obligations of the Sellers to sell the Seller Equity to the Purchaser which is set forth in Article IX has been satisfied. (b) The Purchaser shall deliver to the Sellers the certificate required pursuant to Section 9.1. (c) The Purchaser shall pay to Sellers upon the Closing, in immediately available funds, an amount equal to: (i) the Purchase Price plus any Adjustment Amount due and then payable pursuant to Section 1.3 above; minus (ii) the Deposit; minus (iii) the amount of the Scheduled Debt (in the amounts set forth on Schedule 1.2.2 attached hereto) which is paid, credited to or assumed by the Purchaser as of the Closing Date; minus (iv) the Gross Stock Consideration. (d) The Purchaser shall do all things necessary on the part of the Purchaser to cause the immediate release of the Deposit to the Sellers. (e) The Purchaser shall deliver to the Sellers the Seller Shares, issued in the names of the Sellers and representing that number of shares as specified in Schedule 2.2.2(e), hereto. (f) The Purchaser shall deliver to the Sellers a certificate of good standing of the Purchaser issued by the appropriate officer of the State of California, dated not earlier than thirty (30) days prior to the Closing Date. (g) The Purchaser shall deliver to the Seller copies of resolutions adopted by the board of directors of the Purchaser authorizing the transactions contemplated by this Agreement. (h) The Purchaser shall deliver to the Sellers evidence of the payment and/or assumption of the outstanding principal and accrued interest of the Scheduled Debt set forth in Schedule 1.2.2. (i) The Purchaser shall deliver to the Sellers evidence of the release and termination of all Seller Security Documents. (j) The Purchaser shall deliver to Sellers evidence of the Purchaser's fulfillment of its obligations under Section 6.3 hereof. 2.2.3 JOINT DELIVERIES. (a) The Purchaser and the Sellers shall execute and deliver a cross receipt acknowledging their respective receipt of the Seller Equity, the amounts due pursuant to Sections 2.2.2(c) and 2.2.2(e) above, and the Seller Shares. (b) The Purchaser and Sellers shall execute and deliver the Section 1362(e)(3) Election in the form attached hereto as Exhibit 10.3.1. (c) The Purchaser, Sellers and HLG Marketing shall execute and deliver as the Amendment to Agreement of Limited Partnership and assignment of limited partnership interests in the form attached hereto as Exhibit 2.2.3(c). ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLERS 3.1. To induce the Purchaser to enter into this Agreement and to consummate the transactions contemplated hereby, each Seller with respect to himself individually and not jointly, to the best of his knowledge, makes the representations and warranties contained in Sections 3.1.1 through 3.1.19 below, which representations and warranties shall survive the Closing for a period of one (1) year. 3.1.1. ORGANIZATION, POWER AND AUTHORITY; SUBSIDIARIES. 3.1.1.1. GLADCO. GladCo is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has all requisite corporate power and authority to own or lease its properties and assets and to carry on its business as it is now being conducted. Except as set forth on Schedule 3.1.1 hereto, GladCo is legally qualified to transact business as a foreign corporation in each of the jurisdictions in which its business or property is such as to require that it be thus qualified, and it is in good standing in each of the jurisdictions in which it is so qualified. GladCo does not own, of record or beneficially, any capital stock or equity interest or investment in any corporation, partnership, joint venture, association or other business entity. 3.1.1.2. HLG ACQUISITION. HLG Acquisition is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has all requisite corporate power and authority to own or lease its properties and assets and to carry on its business as it is now being conducted. Except as set forth on Schedule 3.1.1 hereto, HLG Acquisition is legally qualified to transact business as a foreign corporation in each of the jurisdictions in which its business or property is such as to require that it be thus qualified, and it is in good standing in each of the jurisdictions in which it is so qualified. Except for its general partner interest in HLG Marketing, HLG Acquisition does not own, of record or beneficially, any capital stock or equity interest or investment in any corporation, partnership, joint venture, association or other business entity. 3.1.1.3. HLG MARKETING. HLG Marketing is a limited partnership duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has all requisite power and authority to own or lease its properties and assets and to carry on its business as it is now being conducted. Except as set forth on Schedule 3.1.1 hereto, HLG Marketing is legally qualified to transact business in each of the jurisdictions in which its business or property is such as to require that it be thus qualified, and it is in good standing in each of the jurisdictions in which it is so qualified. HLG Marketing does not own, of record or beneficially, any capital stock or equity interest or investment in any corporation, partnership, joint venture, association or other business entity. 3.1.2. DUE AUTHORIZATION; BINDING OBLIGATION; NO CONFLICTS; CONSENTS. The delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Companies to the extent necessary to effect the Transaction. Each Seller, with respect to himself, hereby represents that he has the full power, authority and capacity to enter into this Agreement and to perform their respective obligations hereunder. This Agreement has been duly executed and delivered by the Sellers and is a valid and binding obligation of the Sellers, enforceable against each of them in accordance with its terms. Except as set forth in Schedule 3.1.2 hereto, the execution and delivery of this Agreement by the Sellers does not, and the consummation of the transactions contemplated hereby will not: (a) contravene any provision of the Companies' charter or by-laws; (b) violate or conflict with any federal, state or local law, statute, ordinance, rule, regulation or any decree, writ, injunction, judgment or order of any court or administrative or other governmental body or of any arbitration award which is either applicable to, binding upon or enforceable against the Companies, any of the Sellers or the Seller Equity; (c) conflict with, result in any breach of, or constitute a default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or accelerate, any mortgage, contract, agreement, lease, license, indenture, trust or other instrument which is either binding upon or enforceable against the Companies, the Sellers or the Seller Equity; (d) violate any legally protected right arising in the operation of the Companies' business of any person or entity or give to any person or entity (including in each case the Sellers) a right or claim against the Seller Equity; (e) result in or require the creation or imposition of any Lien upon or with respect to the Seller Equity or the property of the Companies; (f) require the consent, approval or authorization of any governmental authority or any other person or entity; or (g) result in the loss of, or require the repayment by the Companies (or any one or more of them) of any government grant, subsidy or tax credit previously received or claimed by any of the Companies. 3.1.3. COMPANY CAPITAL STRUCTURE; SELLERS. 3.1.3.1. The authorized capital stock of GladCo consists of 1,000 shares of common stock, $1.00 par value per share, all of which shares are issued and outstanding. The authorized capital stock of HLG Acquisition consists of 1,000 shares of common stock, $1.00 par value per share, all of which shares are issued and outstanding. Except as set forth on Schedule 3.1.3, there are no: (a) existing preemptive rights, options, warrants, rights of first refusal or other rights, or other agreements or commitments obligating or prohibiting any of GladCo, HLG Acquisition or any Sellers to issue, repurchase, redeem transfer or sell any shares of capital stock of GladCo or HLG Acquisition; or (b) voting trusts, shareholder agreements or other agreements or understandings to which GladCo or HLG Acquisition or any Sellers are a party with respect to the voting of capital stock of GladCo or HLG Acquisition 3.1.3.2. HLG Acquisition is the sole general partner of HLG Marketing. The Sellers comprise all of the owners of the limited partner interests in HLG Marketing. Except as set forth on Schedule 3.1.3, there are no: (a) existing preemptive rights, options, warrants, rights of first refusal or other rights, or other agreements or commitments obligating or prohibiting HLG Marketing or any Sellers to issue, repurchase, redeem transfer or sell any interest in HLG Marketing; or (b) voting trusts, partnership agreements or other agreements or understandings to which HLG Marketing or any Sellers are a party with respect to the voting of the partnership interests in HLG Marketing. 3.1.3.3. The Sellers own the Seller Equity as set forth on Schedule 3.1.3, free and clear of all Liens (other than those Liens specified on Schedule 3.1.3). The Seller Equity set forth on Schedule 3.1.3 constitutes all of the authorized, issued and outstanding shares of capital stock of GladCo and HLG Acquisition and all of the authorized, issued and outstanding partnership interests of HLG Marketing. The Seller Equity owned by the Sellers has been duly and validly authorized and issued and is in each case fully paid and non-assessable. Other than as specified on Schedule 3.1.3 hereto, the Sellers are the sole beneficial and record owners of the Seller Equity, and each Seller has (and will have) the unrestricted right to deliver the Seller Equity to the Purchaser at Closing. 3.1.4. FINANCIAL STATEMENTS. The Sellers previously have furnished, or shall furnish prior to Closing, to the Purchaser the financial statements identified on Schedule 3.1.4, including the notes pertaining thereto (collectively, the "FINANCIAL STATEMENTS"), of the Companies. The Financial Statements present fairly, and are true, correct and complete statements of, the financial position of the Companies at each of the balance sheet dates specified therein and the results of operations for each of the said periods covered. The Companies do not have any liabilities or obligations, either accrued, absolute, contingent or otherwise, except: (i) to the extent reflected or taken into account in the Financial Statements and not heretofore paid or discharged; (ii) to the extent specifically set forth in any of the schedules to this Agreement; (iii) liabilities incurred in the ordinary course of business of a type not required to be reflected in financial statements prepared in accordance with generally accepted accounting principles; and (iv) contract liabilities of a type not required to be reflected in financial statements prepared in accordance with generally accepted accounting principles (collectively, "EXCLUDED LIABILITIES"). The Financial Statements have been prepared in accordance with generally accepted accounting principles and have been verified to such effect by the Companies' internal comptroller. The books and records of the Companies properly and accurately reflect all material transactions, properties, assets and liabilities of the Companies. As of the Closing Date, the Companies will have no material liabilities of any nature, whether accrued, contingent or otherwise, and whether due or to become due ("LIABILITIES"), which are not specifically disclosed or provided for in the Financial Statements, or listed on Schedule 3.1.4. Since the date of the Financial Statements identified in Schedule 3.1.4, and except as set forth on Schedule 3.1.12 hereto, the Companies have not incurred any Liabilities other than accounts payable and accrued expenses incurred in the ordinary course of business consistent with historical levels (subject to any increases from such historical levels attributable to business expansion), and Excluded Liabilities. All such Liabilities incurred since the date of the Financial Statement are fully reflected or reserved on the books and records of the Companies. 3.1.5. REAL ESTATE 3.1.5.1. None of the Companies own any real estate. 3.1.5.2. Schedule 3.1.5 contains an accurate and complete listing of each lease sublease, concession agreement and similar agreement with respect to premises leased by the Companies (the "LEASEHOLD PREMISES"). A true and complete copy of each lease agreement listed on Schedule 3.1.5, including all amendments thereto and modifications thereof as of the date of this Agreement (collectively, the "LEASES"), has been delivered to (or made available to) the Purchaser prior to the date hereof. Schedule 3.1.5 also sets forth a description of the nature and amount of all Liens on the Companies' interest in the Leasehold Premises and on the underlying real property and all improvements to and buildings thereon. The Leases are in full force and effect, the Companies are not in material default or material breach under any Lease and no event has occurred which with the passage of time or the giving of notice, or both, would cause a material breach of or default under any Lease. There is no breach or anticipated breach of any Lease by any other party to such Lease. 3.1.5.3. The Companies have not received notice of: (a) any condemnation proceeding with respect to any portion of the Leasehold Premises or any access thereto, and no proceeding is contemplated by any governmental authority; or (b) any special assessment which may affect any of the Leasehold Premises, and no such special assessment is contemplated by any governmental authority. 3.1.6. FRANCHISE RIGHTS. Schedule 3.1.6 contains an accurate and complete description of each franchise agreement with respect to the franchise systems and/or rights licensed to the Companies (the "FRANCHISE SYSTEMS"). A true and complete copy of each franchise agreement listed on Schedule 3.1.6, including all amendments thereto and modifications thereof as of the date of this Agreement (collectively, the "FRANCHISE AGREEMENTS"), has been delivered to (or made available to) the Purchaser prior to the date hereof. Except as identified on Schedule 3.1.6, the Franchise Agreements are in full force and effect, the Companies are not in material default or material breach under any Franchise Agreement and no event has occurred which, with the passage of time or the giving of notice, or both, would cause any material breach of, or default under any Franchise Agreement. Purchaser acknowledges that Sellers and the Companies have not obtained any consents (the "SCHLOTZSKY'S CONSENT") which may required under that certain Schlotzsky's Unit Franchise Agreement dated December 30, 1997 (the "SCHLOTZSKY'S FRANCHISE AGREEMENT") between GladCo and Schlotzsky's, Inc., in connection with the transactions contemplated under this Agreement. Purchaser hereby agrees that receipt of the any Schlotzsky's Consent will not be a prerequisite to Purchaser's obligations under this Agreement and that any Schlotzsky's Consent shall be excluded from the items which Sellers are required to deliver to Purchaser pursuant to Section 2.2.1(d) hereof. 3.1.7. GOOD TITLE TO AND CONDITION OF ASSETS. Except as set forth in Schedule 3.1.7, the Companies have good and marketable title to all of their properties and assets (other than the Leasehold Premises, Franchise Systems and personal property which are leased by, or licensed to, any of the Companies), free and clear of any Liens. The property and assets of the Companies constitute, in the aggregate, all of the property necessary for the conduct of the business of the Companies in the manner, and to the extent, currently being conducted. The inventory of the Company consists of items of a quality and quantity usable and saleable in the ordinary course of the Company's business and have been valued on the books of the Companies in a manner consistent with the valuation methods employed in prior years. 3.1.8. LICENSES AND PERMITS. The Companies possess all licenses and required governmental or official approvals, permits or authorizations (including licenses or permits for the sale of alcoholic beverages) (collectively, the "PERMITS") for the business and operations of the Companies as currently conducted. All such Permits are valid and in full force and effect, the Companies are in material compliance with their requirements, and no proceeding is pending or threatened to revoke or amend any of them. Schedule 3.1.8 contains a complete list of all such Permits. Except as indicated on Schedule 3.1.2, none of such Permits is or will be impaired or in any way affected by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 3.1.9. DOCUMENTS OF AND INFORMATION WITH RESPECT TO THE COMPANIES. Schedule 3.1.9 is an accurate and complete list of the following: (a) each policy of insurance in force with respect to the assets and properties of the Companies and each of the performance or other surety bonds maintained by the Companies in the conduct of their respective business; (b) each loan, credit agreement, guarantee, security agreement or similar document or instrument to which the Companies are a party or by which they are bound; (c) each lease of personal property to which the Companies are a party or by which they are bound; (d) any other agreement, contract or commitment to which the Companies are a party or by which they are bound which involves a future commitment by the Companies in excess of Fifteen Thousand Dollars ($15,000) and which cannot be terminated without liability on thirty (30) days or less notice; (e) the name and current annual salary of each officer or other employee of the Companies and the profit sharing, bonus or any other form of compensation (other than salary) paid or payable by the Companies to or for the benefit of each such person through the Closing Date, and any employment or other agreement of the Companies with any of its officers or employees; (f) the names of the directors and officers of GladCo and HLG Acquisition and the names of the limited partners of HLG Marketing; (g) all agreements currently in effect between any of the Companies and any of the Sellers (or other officer, director or affiliate of the Companies), including without limitation any promissory notes, leases, consulting agreement, or license; and (h) the name of each bank in which the Companies have an account or safe-deposit box, the name in which the account or box is held and the names of all persons authorized to draw thereon or to have access thereto. The Sellers have previously furnished or made available to the Purchaser an accurate and complete copy of each such agreement, contract or commitment listed on Schedule 3.1.9. There has not been any material breach of or material default in any obligation to be performed under any such instrument. All of such instruments are valid, binding and enforceable and in full force and effect in accordance with their respective terms. 3.1.10. LITIGATION. Except as set forth on Schedule 3.1.10, there are no actions, suits, claims, governmental investigations or arbitration proceedings pending or threatened against or affecting the Companies, the Seller Equity or any of the assets or liabilities of the Companies, or which question the validity or enforceability of this Agreement or any action contemplated hereby, and there is no basis for any of the foregoing. There are no outstanding orders, decrees or stipulations issued by any federal, state, local or foreign judicial or administrative authority in any proceeding to which the Companies are or were a party or which affect the Seller Equity or any of the assets or liabilities of the Companies. 3.1.11. NO ADVERSE CHANGE. Except with respect to any adverse change which may occur (or which may have occurred) as the proximate result of any action or inaction of the Purchaser, since the date of the Financial Statements of the Companies attached hereto at Exhibit 3.1.4, there has not been: (a) any change in the business or properties of the Companies, or in the financial condition of the Companies, other than changes occurring in the ordinary course of business which have not had a materially adverse effect on the business, properties, financial condition, or operating results of the Companies taken as a whole; or (b) any threatened event or condition of any character whatsoever which could have a materially adverse effect on the assets, business, financial condition or results of operations of the Companies taken as a whole. 3.1.12. ABSENCE OF CERTAIN ACTS OR EVENTS. Except as disclosed in Schedule 3.1.12, since the date of the Financial Statements, the Companies have not: (a) authorized or issued any of its shares of capital stock (including any held in its treasury) of GladCo or HLG Acquisition, or limited partnership interests on HLG Marketing, or any other securities; (b) declared or paid any dividend or made any other distribution of or with respect to the Seller Equity or other securities or purchased or redeemed any of the Seller Equity; (c) paid any bonus or increased the rate of compensation of any of their respective salaried management employees, other than as may have been agreed to or approved prior to the date of the Financial Statements; (d) sold or transferred any of their respective assets other than in the ordinary course of business; (e) incurred any material obligations or liabilities (including any indebtedness) or entered into any material transaction, except for this Agreement and the transactions contemplated hereby; (f) suffered any theft, damage, destruction or casualty loss in excess of Twenty-five thousand Dollars ($25,000); or (g) suffered any extraordinary losses. 3.1.13. COMPLIANCE WITH LAWS. 3.1.13.1. The Companies are in compliance with all laws, regulations and orders applicable to it or its assets or business except where such non-compliance would not have a materially adverse effect. The Companies have not been cited, fined or otherwise notified of any asserted past or present failure to comply with any laws and no proceeding with respect to any such violation is contemplated. 3.1.13.2. The Companies are and at all times have been in full compliance with the terms and provisions of the Immigration Reform and Control Act of 1986 (the "IMMIGRATION ACT"). 3.1.13.3. The Companies have not been cited, fined, served with a Notice of Intent to Fine or with a Cease and Desist Order, nor has any action or administrative proceeding been initiated or threatened against the Companies by reason of any actual or alleged failure to comply with the Immigration Act or any other laws. 3.1.14. ENVIRONMENTAL MATTERS. 3.1.14.1. None of the Companies have transported, stored, handled, treated or disposed, nor have any of the Companies allowed or arranged for any third parties to transport, store, handle, treat or dispose of Hazardous Substances or other waste to or at any location other than a site lawfully permitted to receive such Hazardous Substances or other waste for such purposes. The Companies have not stored, handled, treated or disposed of, or allowed or arranged for any third parties to store, handle, treat or dispose of, Hazardous Substances or other waste upon property owned or leased by it, except as permitted by law. As used in this Agreement, "HAZARDOUS SUBSTANCE" means any pollutant, contaminant, petroleum or petroleum product, toxic substance, hazardous or extremely hazardous substance or chemical, solid or hazardous waste, liquid, industrial or other waste, hazardous material, or other material, substance or agent that is designated as such or otherwise regulated under the Environmental Laws (as defined below) as of the Closing Date. 3.1.14.2. The Companies have not received notice of any facts which could give rise to any notice, that the Companies are a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA or any other applicable law or regulation. The Companies have not received any written or oral request for information in connection with any federal or state environmental cleanup site. 3.1.14.3. The Companies do not use, and have not used, any Underground Storage Tanks. For purposes of this Section 3.1.14 the term "Underground Storage Tanks" shall have the meaning given it in the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.). 3.1.14.4. The Companies have not received any citations issued under the Occupational Safety and Health Act (29 U.S.C. Section 651 et. seq.) relating to or affecting the Companies or any of the Leasehold Premises. The Companies have not had any of the following performed or prepared: (a) environmental audits, assessments or occupational health studies undertaken by the Companies or their agents or undertaken by governmental agencies relating to or affecting the Companies or any of the Leasehold Premises; (b) ground, water, soil, air or asbestos monitoring undertaken by the Companies or its agents or undertaken by governmental agencies relating to or affecting the Companies or any of the Leasehold Premises; and (c) written communications between the Companies and environmental agencies; 3.1.14.5. As used in this Agreement, "ENVIRONMENTAL LAWS" means those federal, state and local laws, rules, regulations, or ordinances including common law, in effect and as interpreted as of the Closing Date, which are applicable to the Companies and which relate to: (a) pollution, or loss of or injury to, or adverse effect upon, the environment; (b) the protection, cleanup or restoration of, or removal, remediation or mitigation of conditions affecting the environment; (c) the release, discharge, emission, generation, handling, transportation, use, treatment, storage or disposal of any Hazardous Substances as defined in Section 3.1.14.1; or (d) the protection of the safety or health of humans, including, but not limited to, exposure to Hazardous Substances; or (e) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Toxic Substances Control Act, 15 U.S.C. 2601 et seq. ("TSCA"), the Resource Conservation and Recovery Act of 1976, 42 U.S.C. 6901 et seq. as amended ("RCRA"), the Clean Air Act, 42 U.S.C. 7401 et seq., as amended, and the Clean Water Act, 33 U.S.C. 1251 et seq., as amended. 3.1.15. LABOR RELATIONS. The Companies are not a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and there has been no effort by any labor union during the twenty-four (24) months prior to the date hereof to organize any employees of the Companies (or any one of them) into one or more collective bargaining units. There is not pending or, threatened any labor dispute, strike or work stoppage which affects or which may affect the business of the Companies or which may interfere with the continued operation of any one or more of the Companies. Neither the Companies nor any agent, representative or employee of any of the Companies has within the last twenty-four (24) months committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is not now pending or threatened any charge or complaint against any of the Companies by or with the National Labor Relations Board or any representative thereof. There has been no strike, walkout or work stoppage involving any of the employees of the Companies during the twenty-four (24) months prior to the date hereof. 3.1.16. EMPLOYEE BENEFITS. Except as set forth on Schedule 3.1.16, the employees of the Companies do not participate (and have not participated in the preceding five calendar years) in any "employee benefit plan", as defined in section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), nor in any other retirement, profit-sharing, deferred compensation, bonus, stock option, stock purchase or similar plan, program or arrangement of the Companies. None of the Companies has terminated, or will terminate before the Closing Date, any plan subject to Title IV of ERISA. None of the Companies contribute to any "multi-employer plan," as defined in section 414(f) of the Code or section 3(37) of ERISA. 3.1.17. SECURITIES REPRESENTATIONS. The Sellers have received the following documents from the Purchaser (collectively, the "SEC DOCUMENTS"), copies of which are attached hereto as Exhibit 3.1.17: (a) an annual report to stockholders of the Purchaser for the fiscal year ended December 31, 1999; (b) an annual report of the Purchaser on Form 10-QSB for the year ended December 31, 1999; and (c) quarterly reports of the Purchaser on Form 10-QSB for each of the quarters ended March 31, 2000 and June 30, 2000 3.1.18. TAX MATTERS. The Companies have timely filed all tax returns and reports required to be filed by such Companies prior to the Closing Date, and have paid in full or made adequate provision by the establishment of reserves for all taxes and other charges which are or will become due and payable by the Companies for any tax period ending on or before the Closing Date. 3.1.19. PROPRIETARY RIGHTS. The proprietary rights of the Company, including all copyrights and copyright registrations, trademarks, trade names, trademark and trademark registrations, service marks and service mark registrations, , licenses thereof, trade secrets, technology, know-how, computer software, processes, operating rights, other licenses and permits with respect to any of the foregoing, and other similar intangible property and rights relating to the products or business of the Company (collectively, the "PROPRIETARY RIGHTS"), include all proprietary rights the failure to possess which would have an adverse effect on the business, financial condition or results of operations of the Company. Schedule 3.1.19 contains an accurate and complete list of all of the Proprietary Rights, including a list of: (i) all United States and foreign trademarks and trade names, trademark and trade name registrations, service marks and service mark registrations, copyrights and copyright registrations, unexpired as of the date hereof, all United States applications pending on said date for trademark or trade name registrations, service mark registrations, or copyright registrations, and all trademark and trade names, service marks, labels and other trade rights in use on said date, all of the foregoing being owned in whole or in part as noted thereon on said date by the Companies; (ii) all licenses granted by or to the Companies and all other agreements to which the Companies (or any one of them) are a party, which relate in whole or in part to any items of the categories mentioned in clause (i) above or to any other Proprietary Rights, whether owned by the Companies (or any one of them) or otherwise. Except as set forth on Schedule 3.1.19: (i) the Companies own all right, title and interest in and to all of the Proprietary Rights; and (ii) there have been no claims made against the Companies (or any one of them) for the assertion of the invalidity, abuse, misuse, infringement or unenforceability of any such rights. 3.2. DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES. Except as expressly set forth in Section 3.1, none of the Sellers make any representations or warranty express or implied, at law or in equity, in respect of the Companies or any of their respective assets, liabilities or operations, including with respect to merchantability or fitness for any particular purpose, and any such other representations or warranties are hereby expressly disclaimed. All representations of each of the Sellers contained herein are given by each of them to the best of his individual knowledge. 3.3. BROKER'S FEE. Seller (nor any one of them) has any liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Purchaser could become liable or obligated. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 4.1. GENERAL. To induce the Sellers to enter into this Agreement and to consummate the transactions contemplated hereby, the Purchaser makes the representations and warranties set forth in Sections 4.2 through 4.7 below, which representations and warranties shall survive the Closing for a period of one year. 4.2. ORGANIZATION, POWER AND AUTHORITY. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has all requisite corporate power and authority to enter into this Agreement and all other agreements contemplated hereby and to perform its obligations hereunder and thereunder. 4.3. DUE AUTHORIZATION; BINDING OBLIGATION; NO CONFLICTS. The execution, delivery and performance of this Agreement and all other agreements contemplated hereby and the consummation of the transactions contemplated hereby (including the obligations of the Purchaser under Article XII hereof) have been duly authorized by all necessary corporate action of the Purchaser. This Agreement has been duly executed and delivered by the Purchaser and is a valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will: (a) contravene any provision of the certificate of incorporation or by-laws of the Purchaser; (b) violate or conflict with any federal, state or local law, statute, ordinance, rule, regulation or any decree, writ, injunction, judgment or order of any court or administrative or other governmental body or of any arbitration award which is either applicable to, binding upon or enforceable against the Purchaser; (c) conflict with, result in any breach of or default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under any material mortgage, contract, agreement, lease, license, indenture, will, trust or other instrument which is either binding upon or enforceable against the Purchaser; or (d) require the consent, approval or authorization of, or the registration, recording, filing or qualification with, or notice to, or the taking of any other action in respect of, any governmental authority or any other person or entity (other than any reporting requirements under the Securities Exchange Act of 1934, as amended, and any applicable state securities law filings, approvals by the boards of directors of the transactions contemplated hereby). 4.4. LITIGATION. Except as set forth on Schedule 4.4, there are no actions, suits, claims, governmental investigations, arbitration proceedings, or action by or before any self-regulatory organization or public securities exchange pending or threatened against or affecting the Purchaser, the CHST Stock or any of the assets or liabilities of the Purchaser, or which question (or otherwise would adversely affect) the validity or enforceability of this Agreement or any action contemplated hereby, and there is no basis for any of the foregoing. There are no outstanding orders, decrees or stipulations issued by any federal, state, local or foreign judicial or administrative authority or self-regulatory organization or public security exchange in any proceeding to which the Purchaser is or was a party or which affect the Purchaser, CHST Stock or any of the assets or liabilities of the Purchaser. 4.5. SELLER SHARES. The shares of CHST Stock representing the Seller Shares have been reserved for issuance by the Purchaser in accordance with its obligations under the provisions of this Agreement. Upon the issuance and delivery of the Seller Shares in accordance with this Agreement, such Seller Shares will constitute legally and validly authorized and issued, fully paid and non-assessable shares of CHST Stock; and upon the effective date of the proposed Registration Statement such shares of the CHST Stock shall be fully registered for trading on the NASDAQ or other Listing Exchange. 4.6. ACCURACY OF SEC DOCUMENTS. As of their respective dates, the SEC Documents did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.7. BROKER'S FEE. Purchaser has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Sellers (or any one of them) could become liable or obligated. ARTICLE V ADDITIONAL COVENANTS OF THE SELLERS 5.1. CONDUCT OF BUSINESS PENDING THE CLOSING. From and after the execution and delivery of this Agreement and until the Closing Date, except as otherwise provided by the prior written consent of the Purchaser: 5.1.1. The Companies will conduct their respective business and operations in the manner in which the same have heretofore been conducted, and Sellers will use their best efforts to: (a) preserve the Companies' respective business organizations; (b) keep available to the Purchaser the services of the Companies' respective officers, employees and agents; and (c) preserve the Companies' respective relationships with customers, suppliers and others having dealings with the Companies. 5.1.2. The Companies will maintain all of their respective properties in customary repair, order and condition, reasonable wear and use and damage by unavoidable casualty excepted, and will maintain insurance of such types and in such amounts upon all of its properties and with respect to the conduct of its business as are in effect on the date of this Agreement. 5.1.3. The Companies will not: (a) authorize or issue any additional Seller Equity or any other securities; (b) except as set forth in Section 3.1.9, pay any bonus or increase the rate of compensation of any of its employees or enter into any new employment agreement or amend any existing employment agreement; (c) sell or transfer any of its assets other than in the ordinary course of business; or (d) amend the Companies' respective charters, by-laws or partnership agreements. 5.2. ACCESS TO PROPERTIES AND RECORDS. From and after the execution and delivery of this Agreement, the Companies will afford to representatives of the Purchaser: (i) access, upon reasonable notice, to the Companies' premises sufficient to enable the Purchaser to inspect the assets and to make available to the Purchaser such information reasonably requested by the Purchaser which concerns the business and operations of the Companies; and (ii) the opportunity to ask questions of, and receive answers and documentation from representatives of the Companies concerning the business and operations of the Companies; provided, however, that any furnishing of such information to the Purchaser remains confidential pursuant to the terms of this Agreement. 5.3. RETENTION OF SELLER EQUITY. The Sellers will not, prior to the Closing Date, sell, assign, transfer, pledge, encumber or otherwise dispose any of the Seller Equity which they own or their voting rights with respect thereto. 5.4. BEST EFFORTS. The Sellers will use their best efforts to cause to be satisfied as soon as practicable and prior to the Closing Date all of the conditions set forth in Article VIII to the obligation of the Purchaser to purchase the Seller Equity hereunder. ARTICLE VI ADDITIONAL COVENANTS OF THE PURCHASER 6.1 BEST EFFORTS. The Purchaser will use its best efforts to cause to be satisfied as soon as practicable and prior to the Closing Date all of the conditions set forth in Article IX to the obligations of the Sellers to sell the Seller Equity hereunder. The Purchaser shall use its best efforts to perform in accordance with the time limitations and requirements for such performance set forth in Section 9.2 and Article XII. 6.2 ADDITIONAL INFORMATION. At any time prior to the Closing, the Purchaser will provide the Sellers the opportunity to ask questions of, and receive answers and receive documentation from the Purchaser, and its officers and directors concerning the Purchaser and to make available to the Sellers such information reasonably requested by the Sellers which concerns the Purchaser. 6.3 SATISFACTION OF DEBT. Upon Closing, the Purchaser shall pay, or cause to be paid or assumed, in full, the Scheduled Debt which is listed on Schedule 1.2.2 hereto. The Purchaser and shall obtain, upon Closing or immediately thereafter all releases, satisfactions, terminations or other documents necessary and appropriate (in the Sellers' sole reasonable determination) to effect and evidence the Sellers release of the Seller Security Documents. The obligations of the Purchaser pursuant to Section 1.2.2 are not made in limitation of the continuing obligation of the Companies to perform the Companies respective obligations under any agreement which is in effect as of the Closing Date, and nothing contained in this Agreement shall be deemed to impose any obligation on the Sellers (or any one of them) for any obligations of the Companies except as expressly provided herein. ARTICLE VII ADDITIONAL MUTUAL COVENANTS 7.1. NO DISCLOSURE. Without prior written consent of the other party, the parties hereto will not, prior to the Closing Date, disclose the existence of or any term or condition of this Agreement to any person or entity, except that such disclosure may be made to any lender to or other person or entity in a business relationship with the Companies or Purchaser to whom such disclosure is necessary in order to satisfy any of the conditions to the consummation of the purchase of the Seller Equity which are set forth in this Agreement. Purchaser shall be permitted to make such public disclosure which it believes in good faith to be required by applicable securities laws or regulations or by the terms of any listing agreement with a securities exchange (in which case Purchaser will consult with Seller prior to making such disclosure). If any public notice is required by law, the party which is required to give such notice shall provide the other parties hereto with written notice of any such public disclosure at least four (4) business days prior to the date on which such public notice is expected to be made. 7.2. SELLER TAX DISTRIBUTION. The Purchaser agrees and consents to the Companies (or any one of them) declaring and paying a special dividend or distribution at any time prior to the Closing Date to the Sellers in an aggregate amount not in excess of Two hundred seventy-five thousand and 00/100 dollars ($275,000.00) (the "TAX DISTRIBUTION") for the purposes of providing the Sellers with funds necessary to pay any tax liability imposed upon the Sellers (or to become due) with respect to the business of the Companies for any tax period(s) (or portion thereof) prior to the Closing Date; provided, however, that such dividends or distributions shall not include any taxes due (or to become due) from the Sellers for capital gains or other types related to the sale of the Seller Equity pursuant hereto. In order to allow the Companies to plan and manage the short-term capital needs of the Companies for the period immediately following the Closing Date, the Companies may make the Tax Distribution (or any portion thereof) payable to any one or more of the Sellers pursuant to a promissory note providing for a maturity date no later than December 31, 2000 and in form and substance acceptable to the Companies and the Sellers (each such promissory note referred to as a "TAX DISTRIBUTION PROMISSORY NOTE"). The Purchaser acknowledges and agrees that after the Closing Date each Tax Distribution Promissory Note shall be an obligation of the respective Companies issuing any such promissory note., and the Purchaser shall guaranty, for the benefit of the holders of any Tax Distribution Promissory Note, the full payment and performance of the Companies obligations thereunder. 7.3. COOPERATION TO EFFECT OBLIGATIONS. Immediately following Closing, the Purchaser shall take all action reasonably necessary to effect the release and termination, without recourse to any of the Sellers, of: (i) the Seller Security Documents; (ii) the obligations of any Seller under any guaranty or surety with respect to GladCo's obligations under the Schlotzsky's Franchise Agreement; and (iii) any other obligation, security agreement, guaranty, surety or other agreement which obligates any of the Sellers (and/or their spouses or affiliates) (individually or jointly) with respect to the payment or performance of any of the Companies' respective obligations under any debt instrument, financing arrangement or contractual commitment. The Sellers and the Purchaser shall cooperate, in good faith, to effect the Purchaser's obligations under Sections 6.3 and 7.3 hereof. In the event that the Purchaser is not able to fulfill its obligations under Section 6.3 on the Closing Date, the Purchaser and Sellers hereby agree to establish an escrow for the purpose of holding funds deposited by the Purchaser as necessary and to be used for effecting such satisfaction or release. ARTICLE VIII CONDITIONS TO OBLIGATIONS OF THE PURCHASER The obligation of the Purchaser to purchase the Seller Equity shall be subject to the fulfillment at or prior to the Closing Date of each of the following conditions: 8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. The representations and warranties of the Sellers contained in this Agreement shall have been true and correct to the best knowledge of the Sellers at and as of the date hereof, and they shall be true and correct to the best knowledge of the Sellers at and as of the Closing Date with the same force and effect as though made at and as of that time. The Sellers shall have performed and complied with all of their obligations required by this Agreement to be performed or complied with at or prior to the Closing Date. The Sellers shall have delivered to the Purchaser a certificate, dated as of the Closing Date and signed by the Sellers, certifying that such representations and warranties were true and correct to the best knowledge of the Sellers at and as of the date hereof, and are true and correct to the best knowledge of the Sellers at and as of the Closing Date with the same force and effect as though made at and as of that time, and that all such obligations have been thus performed and complied with. 8.2. RECEIPT OF NECESSARY CONSENTS. All necessary consents or approvals of third parties (other than the consent or approval of the Purchaser or its affiliates) to any of the transactions contemplated hereby, the absence of which would materially affect the Purchaser's rights hereunder (other than those consents identified on Schedule 3.1.2), shall have been obtained and shown by written evidence satisfactory to the Purchaser; provided, however, that the Sellers' failure to obtain any required consent because of a third-party's: (i) requirement of a fee, payment, charge or set-off of Five thousand dollars ($5,000.00) or more other than that which is expressly provided for under any agreement pursuant to which such consent is required; (ii) imposition of any charges or fees of Five thousand dollars ($5,000.00) or more, or any other unreasonable requirements upon the Sellers or the Companies, notwithstanding any provision of any agreement under which consent is required, as a condition of providing such consent, or (iii) refusal and/or failure to consent to the Transaction for any reason or matter which applies solely to the Purchaser shall not be deemed a breach or default of the Sellers' or the Companies' obligations hereunder and the Purchaser shall: (x) not be entitled to enforce any rights of specific performance against the Sellers with respect to such failure to obtain a third-party consent; and (y) be deemed to have waived the condition precedent to the Transaction with respect to any such required third-party consent. 8.3. NO ADVERSE LITIGATION. Except as set forth in Schedule 3.1.10, there shall not be pending or threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit or invalidate the sale of the Seller Equity to the Purchaser or any other transaction contemplated hereby, or which might affect the right of the Purchaser to own, operate in their entirety or control the Seller Equity and the property and assets of the Companies, and which, in the reasonable judgment of the Purchaser, makes it inadvisable to proceed with the transactions contemplated hereby. 8.4. DELIVERY OF DOCUMENTS. The items required to be delivered by the Sellers at Closing pursuant to Section 2.2 shall have been delivered to Purchaser's satisfaction. 8.5. NO ADVERSE CHANGE. There shall not have occurred and be continuing as of the Closing Date any material adverse change to the business or operations of the Companies (or any one of them) since the date of the most recent Financial Statement; provided, however, that none of the following events or circumstances shall be deemed to constitute a material adverse change for purposes of this Section 8.5: (a) the performance of any obligations of the Companies (or any one of them) or the Purchaser of their respective obligations under this Agreement; (b) any event or circumstance which arises solely as a result of the action or inaction of the Purchaser; or (c) any event or circumstance which arises as a consequence of the Schlotzsky's Franchise Agreement or the inability of the Sellers to obtain the Schlotzsky's Consent on or prior to the Closing Date. ARTICLE IX CONDITIONS TO OBLIGATIONS OF THE SELLERS The obligations of the Sellers to sell the Seller Equity shall be subject to the fulfillment at or prior to the Closing Date of each of the following conditions: 9.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. The representations and warranties of the Purchaser contained in this Agreement shall have been true and correct at and as of the date hereof, and they shall be true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time. The Purchaser shall have performed and complied with all of its obligations required by this Agreement to be performed or complied with at or prior to the Closing Date. The Purchaser shall have delivered to the Sellers a certificate, dated as of the Closing Date and signed by an executive officer of the Purchaser, certifying that such representations and warranties were true and correct at and as of the date hereof, and are true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time, and that all such obligations have been thus performed and complied with. 9.2. SECURITIES LAWS. The Purchaser shall have received all necessary permits and otherwise complied with any applicable federal and state securities laws applicable to the issuance of the Seller Shares in connection with the Transaction. The Purchaser shall have completed (or taken all necessary and reasonable action to complete) its obligations under Article XII hereof and to maintain the NASDAQ listing of the CHST Stock. 9.3. OPINIONS OF COUNSEL. The Purchaser shall have delivered to the Sellers opinions, dated the Closing Date and in form reasonably acceptable to the Sellers, from counsel for the Purchaser, as to the matters which have been agreed with counsel for the Sellers as of the date hereof. 9.4. DELIVERY OF DOCUMENTS. The items required to be delivered by the Purchaser at Closing pursuant to Section 2.2 shall have been delivered to Sellers satisfaction. 9.5. NO ADVERSE LITIGATION. Except as set forth in Schedule 4.4, there shall not be pending or threatened any action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit or invalidate the sale of the Seller Equity to the Purchaser, the issuance of the Seller Shares, or any other transaction contemplated hereby, or which might affect the right of the Sellers to own the Seller Shares, and which, in the reasonable judgment of the Sellers, makes it inadvisable to proceed with the transactions contemplated hereby. ARTICLE X CERTAIN ACTIONS AFTER THE CLOSING 10.1. EXECUTION OF FURTHER DOCUMENTS. From and after the Closing, upon the reasonable request of any party hereto, the Purchaser and/or the Sellers shall execute, acknowledge and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be required or reasonably necessary to convey and transfer to and vest in the Purchaser and protect its right, title and interest in all of the Seller Equity, and as may be required or otherwise appropriate to carry out the transactions contemplated by this Agreement. 10.2. EMPLOYMENT MATTERS. Except with respect to Coccoli and any other employee of any of the Companies who has entered into an employment agreement with the Purchaser prior to the Closing Date, the Purchaser shall have no obligation to cause the Companies to continue to employ any of the persons currently employed by the Companies or to continue, or institute any replacement or substitution for, any vacation, severance, incentive, bonus, profit sharing, pension or other employee benefit plan or program of the Companies. 10.3. RESPONSIBILITY FOR TAXES. 10.3.1. Each of GladCo and HLG Acquisition are corporations taxable pursuant to Subchapter S of the Code, and as such their respective status as an "S Corporation" will terminate immediately on the Closing Date by virtue of the consummation of the Transactions. From and after the Closing Date, GladCo and HLG Acquisition will each be a corporation taxable pursuant to Subchapter C of the Code. Consequently, for the 2000 tax year, the Sellers, Purchaser, GladCo and HLG Acquisition will elect, pursuant to Section 1362(e)(3) of the Internal Revenue Code, to have items assigned to the short taxable year under normal tax accounting rules. The Sellers agree to consent to such election and to provide GladCo and HLG Acquisition with a statement of the Sellers' consent to such action in the form attached hereto as Exhibit 10.3.1. Purchaser agrees to cause GladCo and HLG Acquisition to comply with the provisions of this Agreement necessary to effect for the Sellers the tax treatment elected by the Sellers. 10.3.2. The Federal, state and local taxes attributable to the operations of the Companies and ownership of the Seller Equity: (i) on and prior to the Closing Date shall be the responsibility of Sellers; and (ii) after the Closing Date shall be the responsibility of Purchaser. Sellers shall prepare all short year federal, state, local and foreign tax returns for the Companies required by law for the period beginning with the first day of the Companies' fiscal years in which the Closing occurs and ending with the Closing Date (collectively, the "SHORT-YEAR RETURNS"). Sellers shall be entitled to receive or claim all refunds, credits, deductions and allowances shown on said returns and any such refunds received by the Companies (or any one of them) or Purchaser shall be held in trust for Sellers and shall be promptly remitted to Sellers. Upon Purchaser's request, the Sellers hereby agree to provide to the Purchaser, after filing of such Short-Year Returns, copies of all Short-Year Returns filed on behalf of the Companies. ARTICLE XI INDEMNIFICATION 11.1. AGREEMENT TO INDEMNIFY. The parties hereto agree that they will indemnify and hold harmless the other parties hereto in respect of the aggregate of all Indemnifiable Damages (as herein defined) to the extent and as set forth below and subject to the limitations provided in this Article XI. As used herein, "INDEMNIFIABLE DAMAGES" means, without duplication, the aggregate of all expenses, losses, costs, deficiencies, liabilities, interest, penalties and damages (including related counsel and paralegal fees and expenses) incurred or suffered by an indemnified party hereunder. Any indemnity payable under this Article XI shall be net of: (i) any insurance proceeds received by the indemnified party on account of the matter giving rise to the indemnity; and (ii) any tax benefit enjoyed by the indemnified party to the extent such benefit is determinable using reasonable attribution methods. 11.2. AGREEMENT BY SELLER TO INDEMNIFY. Each of the Sellers agrees that he shall indemnify and hold the Purchaser harmless with respect to any Indemnifiable Damages incurred by the Purchaser to the extent that such Indemnifiable Damages result from: (a) any breach of a representation or warranty of such Seller in or pursuant to this Agreement, provided, however, that no such claim for indemnification as a result of matters specified in this clause (a) may be initiated by or on behalf of any party hereto after the date which is fifteen (15) months after the Closing Date; or (b) result from any breach of the covenants or agreements of such Seller under this Agreement. 11.2.1. Each of the representations and warranties made by each Seller in this Agreement or pursuant hereto are made as of the Closing Date by such Seller individually and only to the best of his knowledge. 11.2.2. The obligations of the Sellers, individually or as a group, pursuant to this Section 11.2 shall be subject to the following limitations: 11.2.2.1. The Sellers shall not have any obligation to indemnify the Purchaser from and against any Indemnifiable Damages pursuant to this Section 11.2: (i) until such time as the Purchaser has suffered Indemnifiable Damages by reason of all such claims in an aggregate amount in excess of One Hundred Thousand Dollars ($100,000.00) (after which point the Sellers will be obligated only to indemnify the Purchaser from and against further such Indemnifiable Damages); or (ii) which are incurred by Purchaser (or any of the Companies following Closing) as a consequence of any event or circumstance which arises (A) pursuant to or based upon the Schlotzsky's Franchise Agreement, or (B) due to the inability of the Sellers or the Companies (or any one of them) to obtain the Schlotzsky's Consent. 11.2.2.2. The Sellers' aggregate obligations under this Article XI shall be limited to an amount (the "SELLER INDEMNIFIABLE AMOUNT") not to exceed one hundred percent (100.0%) of: (i) the Purchase Price, plus (ii) any Adjustment Amount actually paid to the Sellers by the Purchaser, minus (iii) the amount of all Scheduled Debt. 11.2.2.3. The Purchaser shall not be entitled to recover Indemnifiable Damages from any individual Seller with respect to any claim for indemnification hereunder in excess of the amount of Indemnifiable Damages arising from such claim multiplied by such Seller's Participating Percentage. 11.3. AGREEMENT BY THE PURCHASER TO INDEMNIFY. 11.3.1 The Purchaser shall indemnify and hold harmless the Sellers in respect of all Indemnifiable Damages incurred or suffered by the Sellers to the extent that such Indemnifiable Damages result from: (a) any breach of a representation or warranty of the Purchaser contained in this Agreement, provided, however, that no claim for indemnification based upon matters specified in this clause (a) may be initiated by any party hereto after this date which is fifteen (15) months after the Closing Date; (b) any default in the performance of any of the covenants or agreements of Purchaser in this Agreement; or (c) any claim made against any Seller from and after the Closing Date under any Seller Security Documents or other agreement of guaranty or surety with respect to any obligations of the Companies reasonably disclosed by the Sellers pursuant to their respective representations and warranties hereunder. 11.3.2 The Purchaser shall assume the defense of any claim or action initiated against any Seller based upon the Sellers' consummation of the Transaction without having first obtained Schlotzsky's written consent to the Transaction to the extent necessary or required under the Schlotzsky's Franchise Agreement (hereinafter, such claim action is referred to as a "SCHLOTZSKY'S TRANSFER CLAIM"). The Purchaser shall not have any obligation to indemnify Gill, Klett or the Trust for any cost or expense which such Seller may incur for their respective individual legal counsel in connection any Schlotzsky's Transfer Claim, except as expressly provided in this Section 11.3.2. 11.4. NOTICE AND RESOLUTION OF CLAIM. An indemnified party hereunder shall promptly give written notice to the indemnifying party after obtaining knowledge of any claim against the indemnified party as to which recovery may be sought against the indemnifying party because of the indemnity set forth above specifying in reasonable detail the claim and the basis for indemnification. If such indemnity shall arise from the claim of a third party, the indemnified party shall permit the indemnifying party to assume the defense of any such claim or any litigation resulting from such claim. If the indemnifying party assumes the defense of such claim or litigation, the obligations of the indemnifying party hereunder shall include taking all steps necessary in the defense or settlement of such claim or litigation (including the retention of legal counsel) and holding the indemnified party harmless from and against any and all Indemnifiable Damages caused by or arising out of any settlement approved by the indemnifying party or any judgment in connection with such claim or litigation. The indemnifying party shall not, in the defense of such claim or litigation, consent to entry of any judgment (except with the written consent of the indemnified party), or enter into any settlement (except with the written consent of the indemnified party), which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the indemnified party a release from all liability in respect of such claim or litigation. 11.5. EXCLUSIVE REMEDIES. The Purchaser and the Sellers acknowledge and agree that following the closing, except as provided in Section 13.3 hereof (with respect to specific performance) or Section 12.7, the indemnification provisions of this Article XI shall be the sole and exclusive remedy of the Purchaser and the Sellers for any breach by the Sellers or the Purchaser of the representations and warranties in this Agreement and for any failure by the Sellers or the Purchaser to perform and comply with any covenants and agreements that, by their terms, were to have been performed or complied with by such party prior to the Closing. No breach of any representation, warranty, covenant or agreement contained herein shall give rise to any right on the part of any party hereto, after the consummation of the purchase and sale of the Seller Equity contemplated by this Agreement, to rescind this Agreement or any of the transactions contemplated hereby. Notwithstanding anything to the contrary contained in this Agreement, no party hereto shall have any liability under any provision of this Agreement for, and in no event shall any amount specified in Section 11.2.2.1 above be applied to, any consequential damages. ARTICLE XII SECURITIES LAW MATTERS The Purchaser and Sellers agree as follows with respect to the sale or other potential disposition of the Seller Shares by the Sellers after the Closing: 12.1. DISPOSITION OF SELLER SHARES. 12.1.1. The Sellers represent and warrant that the Seller Shares are being acquired and will be acquired for their own accounts and will not be sold or otherwise disposed of except pursuant to: (i) an exemption or exclusion from the registration requirements under the Securities Act, which does not require the filing by the Purchaser with the United States Securities and Exchange Commission (the "COMMISSION") of any registration statement, offering circular or other document, in which case the Sellers shall first supply to the Purchaser an opinion of counsel (which opinion and counsel shall be satisfactory to the Purchaser) that such exemption or exclusion is available; or (ii) a registration statement filed by the Purchaser with the Commission under the Securities Act. 12.1.2. The Trust hereby agrees that the Trust will not execute any sale transaction on or through a Listing Exchange with respect to the Seller Shares then held by the Trust which would be for an amount of Seller Shares which, when taken together with all sales of Seller Shares by the Trust within the preceding thirty (30) calendar days, would be in excess of ten percent (10.0%) of the total number of shares of Seller Shares delivered to all Sellers pursuant to this Agreement as set forth on Schedule 2.2.2(e) hereto. In the event that the Trust should breach its agreement pursuant to this Section 12.1.2, the Purchaser's obligations under Section 1.2.4(i) and (iii) with respect to the Seller Shares then held by the Trust shall immediately terminate. 12.1.3. Coccoli hereby agrees that Coccoli will not execute any sale transaction on or through a Listing Exchange with respect to the Seller Shares then held by Coccoli which would be for an amount of Seller Shares which, when taken together with all sales of Seller Shares by Coccoli within the preceding thirty (30) calendar days, would be in excess of ten percent (10.0%) of the total number of shares of Seller Shares delivered to all Sellers pursuant to this Agreement as set forth on Schedule 2.2.2(e) hereto. In the event that Coccoli should breach his agreement pursuant to this Section 12.1.3, the Purchaser's obligations under Sections 1.2.4 (ii) and (iii) with respect to the Seller Shares then held by Coccoli shall immediately terminate. 12.2. LEGEND. The certificates for the Seller Shares received shall bear the following legend: "The Shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of by the holder without an effective registration statement being filed under and pursuant to said Act or an opinion of counsel in form and substance satisfactory to the issuer that an exemption from registration is available. Creative Host Services, Inc., may, unless a registration statement covering such shares is in effect, place stop transfer orders with its transfer agents with respect to such certificates." 12.3. REGISTRATION RIGHTS FOR SELLER SHARES; FILING OF REGISTRATION STATEMENT. The Purchaser will utilize its reasonable best efforts to cause, within ninety (90) business days following the Closing Date, a registration statement to be filed under the Securities Act or an existing registration statement to be amended for the purpose of registering the Seller Shares for resale by a "Holder" thereof (the "PROPOSED REGISTRATION STATEMENT"). For the purposes of this Article XII, a person is deemed to be a "Holder" of Seller Shares whenever such person owns Seller Shares or has the right to acquire Seller Shares, whether or not such acquisition has actually been effected. The Purchaser will use its reasonable best efforts to have the Proposed Registration Statement become effective and cause the Seller Shares to be registered under the Securities Act, and registered, qualified or exempted under applicable state securities laws of the Commonwealth of Pennsylvania and the State of Ohio, as soon as is reasonably practicable. The Purchaser shall pay all expenses incurred in connection with the registration, qualification and/or exemption of the Seller Shares, including without limitation, any Commission and state securities law registration and filing fees, printing expenses, fees and disbursements of the Purchaser's counsel and accountants, transfer agents' and registrars' fees, fees and disbursements of experts used by the Purchaser in connection with such registration, qualification and/or exemption, and expenses incidental to any amendment or supplement to the Proposed Registration Statement or prospectuses contained therein. The Purchaser shall not, however, be liable for any sales, broker's or underwriting commissions upon sale by any Holder of any of the Seller Shares. 12.4. AMENDMENTS AND SUPPLEMENTS. The Purchaser shall prepare and promptly file with the Commission and promptly notify the Sellers of the filing of such amendments or supplements to the Proposed Registration Statement or prospectuses contained therein as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to the Seller Shares is required to be delivered under the Securities Act, any event shall have occurred as a result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Purchaser shall also advise the Sellers, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of the Proposed Registration Statement or the initiation or threatening of any proceeding for that purpose and promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. 12.5. FURNISHING OF DOCUMENTS. The Purchaser shall furnish to the Sellers such reasonable number of copies of the Proposed Registration Statement, such prospectuses as are contained in the Proposed Registration Statement and such other documents as the Sellers may reasonably request in order to facilitate the offering of the Seller Shares. 12.6. DURATION. Once the Proposed Registration Statement is declared effective by the Commission, the Purchaser shall use its reasonable best efforts to amend or supplement the Proposed Registration Statement or the prospectuses contained therein and to take such other action as is necessary to cause the Proposed Registration Statement to remain effective for a period of two years. Purchaser agrees that it shall use its reasonable best efforts to remain eligible to use Form S-3 under the Securities Act for a period of one year following the effective date of the Proposed Registration Statement. 12.7. INDEMNIFICATION. 12.7.1. The Purchaser will indemnify and hold harmless the Holders and each person, if any, who controls a Holder within the meaning of the Securities Act, from and against any and all losses, damages, liabilities, costs and expenses to which the Holders or any such controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in the Proposed Registration Statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Purchaser will not be liable in any such case to the extent that any such loss, claim, damage, liability, cost or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission of material fact which is made in conformity with information furnished by or on behalf of any Holder or such controlling person in writing specifically for use in the preparation of the Proposed Registration Statement, any prospectus contained therein or any amendment or supplement thereto. 12.7.2. Promptly after receipt by an indemnified party pursuant to the provisions of this Section 12.7 of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of this Section, promptly notify the indemnifying party of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have hereunder unless the indemnifying party has been materially prejudiced thereby nor will such failure to so notify the indemnifying party relieve it from any liability which it may have to any indemnified party otherwise than hereunder. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, if the defendants in any action include both the indemnified party and the indemnifying party and there is a conflict of interest which would prevent counsel for the indemnifying party from also representing the indemnified party, the indemnified party or parties shall have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. ARTICLE XIII MISCELLANEOUS 13.1. TRANSACTION EXPENSES. Each party shall bear its own expenses incurred in connection with the transactions contemplated hereby, except that the Companies shall bear the expenses of their counsel, Klett, Rooney, Lieber & Schorling, a Professional Corporation, incurred on behalf of the Companies in connection herewith. The Purchaser will indemnify and hold harmless the Sellers from the commission, fee or claim of any person or entity employed or retained or claiming to be employed or retained by the Purchaser to bring about, or to represent it in, the transactions contemplated hereby. Each Seller who retained or engaged a broker will indemnify and hold harmless the Purchaser and each other Seller from the commission, fee or claim of any person or entity employed or retained or claiming to be employed or retained by the Sellers to bring about, or to represent any of them in, the transactions contemplated hereby. 13.2. AMENDMENT AND MODIFICATION. The parties hereto may amend, modify and supplement this Agreement only by written instrument executed by each of the parties hereto. 13.3. SPECIFIC PERFORMANCE. The parties agree that irreparable damages would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, except to the extent that may be expressly provided otherwise herein. 13.4. TERMINATION. 13.4.1. Anything to the contrary herein notwithstanding, this Agreement may be terminated and the transactions contemplated hereby may be abandoned: (a) by the mutual written consent of all of the parties hereto at any time prior to the Closing Date; (b) by the Purchaser at any time prior to the Closing Date if there shall be, except as set forth in Schedule 3.1.10, a pending or threatened action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit or invalidate the sale of the Seller Equity to the Purchaser or any other transaction contemplated hereby, or which might affect the right of the Purchaser to own, operate in their entirety or control the Seller Equity and the properties and assets of the Company and which, in the judgment of the Purchaser, makes it inadvisable to proceed with the transactions contemplated by this Agreement; or (c) by any party in the event of the material breach by any other party of any provision of this Agreement, which breach is not remedied by the breaching party within thirty (30) days after receipt of written notice thereof from the terminating party. If this Agreement is terminated pursuant to clause (a) and (b) of this Section 13.4.1, no party shall have any liability for any costs, expenses, loss of anticipated profit or any further obligation for breach of warranty or otherwise to any other party to this Agreement. Any termination of this Agreement pursuant to clause (c) of this Section 13.4.1 shall be without prejudice to any other rights or remedies of the respective parties. 13.4.2. The risk of any loss to the properties or assets of the Companies and all liability with respect to injury and damage occurring in connection therewith shall be the sole responsibility of the Sellers until the completion of the Closing. If any material part of said properties shall be damaged by fire or other casualty prior to the completion of the Closing hereunder, the Sellers shall so notify the Purchaser and the Purchaser shall have the right and option: (a) to terminate this Agreement, without liability to any party hereto; or (b) to proceed with the Closing hereunder, in which event such casualty shall not constitute a breach by the Sellers of any representation, warranty or covenant in this Agreement, and the Purchaser shall be entitled to receive and retain the insurance proceeds arising from such casualty. 13.4.3. This Agreement may be terminated by any party hereto upon written notice to all other parties hereto, without liability for any costs, expenses, loss of anticipated profit or any further obligation for breach of warranty or otherwise to any party to this Agreement, if the Closing does not occur on or prior to October 31, 2000. 13.5. ENTIRE AGREEMENT. This Agreement, including the exhibits and schedules, contains the entire agreement of the parties hereto with respect to the purchase of the Seller Equity and the other transactions contemplated hereby, and supersedes all prior understandings and agreements (oral or written) of the parties with respect to the subject matter hereof. The parties expressly represent and warrant that in entering into this Agreement they are not relying on any prior representations made by any other party concerning the terms, conditions or effects of this Agreement which terms, conditions or effects are not expressly set forth herein. Any reference herein to this Agreement shall be deemed to include the schedules and exhibits. 13.6 INTERPRETATION. When a reference is made in this Agreement (including the exhibits and schedules) to an article, section, paragraph, clause, schedule or exhibit, such reference shall be to an article, section, paragraph, clause, schedule or exhibit of this Agreement unless otherwise indicated. The headings contained herein and on the schedules and exhibits are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or the schedules and exhibits. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." For purposes of this Agreement, the terms "to the knowledge of the Sellers" or "to the best of the Sellers knowledge" or any statement of similar import shall mean, with respect to each Seller, the actual knowledge of an individual Seller without independent investigation or the requirement of such independent investigation by any of the Sellers. This Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise to the favor or prejudice of any party by virtue of authorship of any of the provisions of this Agreement. All capitalized terms used in any of the schedules or exhibits to this Agreement shall have the definition ascribed thereto under this Agreement, unless expressly defined otherwise in such schedule or exhibit. For convenience, a definitions table is attached hereto at Exhibit 13.6. 13.7 EXECUTION IN COUNTERPART. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 13.8 NOTICES. Any notice, consent, approval, request, acknowledgment, other communications or information to be given or made hereunder to any of the parties by any other party shall be in writing and (a) delivered personally, (b) sent by certified mail, postage prepaid, or (c) sent by facsimile as follows: IF TO THE SELLERS, ADDRESSED TO: WITH COPIES TO: F.X. Matt, Esq. Jay L. Panzarella, Esq. Doepken Keevican & Weiss, PC Klett Rooney Lieber & Schorling 58th Floor, USX Tower 40th Floor, One Oxford Centre 600 Grant Street Pittsburgh, PA 15219 Pittsburgh, PA 15219-2703 Phone : 412-392-2000 Phone: Facsimile: 412-392-2128 Facsimile: IF TO THE SELLERS, ADDRESSED TO: WITH COPIES TO: James F. White, Jr., Esq. Shumaker Loop & Kendrick, LLP 1000 Jackson Street Toledo, OH 43624 Phone: (419) 241-9000 Facsimile: (419) 241-6894 --------------------------- IF TO THE PURCHASER, ADDRESSED TO: WITH COPIES TO: Mr. Sayed Ali President and CEO Robert K. Peddycord, Esq. Creative Host Services, Inc. Knight & Peddycord 6335 Ferris Square 7675 Dagget Street Suite G Suite 150 San Diego, CA 92121 San Diego, CA 92111. Phone: Phone: Facsimile: Facsimile: Any party may change the address to which notices hereunder are to be sent to him or it by giving written notice of such change of address in the manner herein provided for giving notice. Any notice delivered personally shall be deemed to have been given on the date it is so delivered, any notice delivered by registered or certified mail shall be deemed to have been given on the date it is received, and any notice sent by facsimile shall be deemed to have been given on the date it was sent (so long as the sender receives confirmation of transmission and a hard copy of such notice is sent by U.S. mail). 13.9 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania applicable to contracts made and to be performed therein. Any claim or action brought under or based upon this Agreement or in connection with the Transaction shall be brought in the state or federal courts situated in Allegheny County, Pennsylvania, and the parties hereto consent to such venue and waive any defenses or any such claim or action based upon inconvenience. 13.10 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 so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. 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 the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the greatest extent possible. 13.11 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior consent of the other parties hereto. 13.12 BINDING EFFECT; NO THIRD PARTY BENEFICIARIES. This Agreement shall inure to the benefit of, be binding upon and be enforceable by and against the Sellers and the Purchaser and their respective successors and permitted assigns, and nothing herein expressed or implied shall be construed to give any other person or entity any legal or equitable rights hereunder. _______________________________________________ SIGNATURES APPEAR ON NEXT PAGE. IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the day and year first above written. WITNESS: LOUIS COCCOLI, JR. /s/ /s/ WITNESS: EDWIN L. KLETT /s/ /s/ WITNESS: HERBERT H. GILL /s/ /s/ WITNESS: VIRGIL A. GLADIEUX MARITAL TRUST /s/ /s/ ATTEST: CREATIVE HOST SERVICES, INC. /s/ /s/ Tasneem Vakharia, Secretary Sayed Ali, President EX-4.1 3 0003.txt SECURITIES PURCHASE AGREEMENT AGREEMENT, dated as of September 26, 2000, between Creative Host Services, Inc. (the "Company") a California corporation and GCA Strategic Investment Fund Limited ("Purchaser"), a Bermuda Corporation. R E C I T A L S: WHEREAS, the Company desires to sell and issue to Purchaser, and Purchaser desires to purchase from the Company, $2,500,000 aggregate principal amount of the Company's 7% Convertible Debentures due September 26, 2003 (the "Convertible Debentures"), with terms and conditions as set forth in the form of Convertible Debenture attached hereto as Exhibit A; WHEREAS, the Convertible Debentures will be convertible into shares of the Company's common stock, no par value per share (the "Common Stock"); WHEREAS, in order to induce the Purchaser to enter into the transactions described in this Agreement, the Company desires to issue to the Purchaser a warrant to purchase 125,000 shares of Common Stock upon the Closing (as defined herein) on the terms and conditions described in the form of the common stock purchase warrant attached hereto as Exhibit F (the "Warrants"); and WHEREAS, Purchaser will have certain registration rights with respect to such shares of Common Stock issuable as interest under, and upon conversion of, the Convertible Debentures (the "Debenture Shares") and upon exercise of the Warrants (the "Warrant Shares," the Debenture Shares and the Warrant Shares being collectively referred to herein as the "Conversion Shares") as set forth in the Registration Rights Agreement in the form attached hereto as Exhibit C; NOW, THEREFORE, in consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS 1.1. DEFINITIONS. The following terms, as used herein, have the following meanings: "Additional Shares of Common Stock" has the meaning set forth in Section 11.6. "Affiliate" means, with respect to any Person (the "Subject Person"), (i) any other Person (a "Controlling Person") that directly, or indirectly through one or more intermediaries, Controls the Subject Person or (ii) any other Person (other than the Subject Person or a Consolidated Subsidiary of the Subject Person) which is Controlled by or is under common Control with a Controlling Person. "Agreement" means this Securities Purchase Agreement, as amended, supplemented or otherwise modified from time to time in accordance with its terms. "Asset Sale" has the meaning set forth in Section 8.4. "Balance Sheet Date" has the meaning set forth in Section 4.7. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by the Company. "Benefit Plans" has the meaning set forth in Section 4.9(b). "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to close. "Capital Reorganization" has the meaning set forth in Section 11.5. "Change in Control" means (i) after the date of this Agreement, any person or group of persons (within the meaning of Sections 13 and 14 of the Exchange Act and the rules and regulations of the Commission relating to such sections) other than Purchaser shall have acquired beneficial ownership (within the meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the Exchange Act) of 50% or more of the outstanding shares of Common Stock of the Company; or (ii) individuals constituting the Board of Directors of the Company on the date hereof (together with any new Directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of at least 50.1% of the Directors still in office who are either Directors as of the date hereof or whose election or nomination for election was previously so approved), cease for any reason to constitute at least two-thirds of the Board of Directors of the Company then in office. "Closing Bid Price" shall mean for any security as of any date, the lowest closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal securities exchange or trading market where such security is listed or traded or, if the foregoing does not apply, the lowest closing bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no lowest trading price is reported for such security by Bloomberg, then the average of the bid prices of any market makers for such securities as reported in the "Pink Sheets" by the National Quotation Bureau, Inc. If the lowest closing bid price cannot be calculated for such security on such date on any of the foregoing bases, the lowest closing bid price of such security on such date shall be the fair market value as mutually determined by Purchaser and the Company for which the calculation of the closing bid price requires, and in the absence of such mutual determination, as determined by the Board of Directors of the Company in good faith. "Closing Date" means the date hereof. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission or any entity succeeding to all of its material functions. "Common Stock" means the common stock, no par value per share, of the Company. "Company" means Creative Host Services, Inc., a California corporation, and its successors. "Company Corporate Documents" means the certificate of incorporation and bylaws of the Company. "Consolidated Net Worth" means at any date the total shareholder's equity which would appear on a consolidated balance sheet of the Company prepared as of such date. "Consolidated Subsidiary" means at any date with respect to any Person or Subsidiary or other entity, the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "Control" (including, with correlative meanings, the terms "Controlling," "Controlled by" and under "common Control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise. "Conversion Date" shall mean the date of delivery (including delivery via telecopy) of a Notice of Conversion for all or a portion of a Convertible Debenture by the holder thereof to the Company as specified in each Convertible Debenture. "Conversion Price" has the meaning set forth in the Convertible Debentures. "Conversion Shares" has the meaning set forth in the Recitals. "Convertible Debentures" means the Company's 7% Convertible Debentures due September 26, 2003 substantially in the form set forth as Exhibit A hereto. "Deadline" has the meaning set forth in Section 10.1. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments issued by such Person, (iii) all obligations of such Person as lessee which (y) are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback transactions, (iv) all reimbursement obligations of such Person in respect of letters of credit or other similar instruments, (v) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person and (vi) all Debt of others Guaranteed by such Person. "Default" means any event or condition which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Derivative Securities" has the meaning set forth in Section 8.6. "Discounted Equity Offerings" has the meaning set forth in Section 8.6. "Directors" means the individuals then serving on the Board of Directors or similar such management council of the Company. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment, including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the cleanup or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Company and each Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any Subsidiary, are treated as a single employer under the Code. "Event of Default" has the meaning set forth in Article XII hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Expense Reimbursement Fee" has the meaning set forth in Section 13.4. "Financing" means a public or private financing consummated (meaning closing and funding) through the issuance of debt or equity securities (or securities convertible into or exchangeable for debt or equity securities) of the Company, other than Permitted Financings. "Fixed Price(s)" has the meaning set forth in Section 11.1. "GAAP" has the meaning set forth in Section 1.2. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing (whether by virtue of partnership arrangements, by agreement to keep well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain a minimum net worth, financial ratio or similar requirements, or otherwise) any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part); provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term Guarantee used as a verb has a corresponding meaning. "Hazardous Materials" means any hazardous materials, hazardous wastes, hazardous constituents, hazardous or toxic substances or petroleum products (including crude oil or any derivative or fraction thereof), defined or regulated as such in or under any Environmental Laws. "Intellectual Property" has the meaning set forth in Section 4.20. "Investment" means any investment in any Person, whether by means of share purchase, partnership interest, capital contribution, loan, time deposit or otherwise. "Lien" means any lien, mechanic's lien, materialmen's lien, lease, easement, charge, encumbrance, mortgage, conditional sale agreement, title retention agreement, agreement to sell or convey, option, claim, title imperfection, encroachment or other survey defect, pledge, restriction, security interest or other adverse claim, whether arising by contract or under law or otherwise (including, without limitation, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "Listing Applications" has the meaning set forth in Section 4.4. "Majority Holders" means (i) as of the Closing Date, Purchaser and (ii) at any time thereafter, the holders of more than 50% in aggregate principal amount of the 7% Convertible Debentures due September 26, 2003 outstanding at such time. "Market Price" shall mean the Closing Bid Price of the Common Stock preceding the date of determination. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $500,000. "Maturity Date" shall mean the date of maturity of the Convertible Debentures. "Maximum Number of Shares" shall mean that percentage that the Company may issue without shareholder approval under the applicable rules of the National Market or the applicable OTC Bulletin Board or equivalent entity, of the then issued and outstanding shares of Common Stock of the Company as of the applicable date of determination, or such greater number of shares as the stockholders of the Company may have previously approved. "NASD" has the meaning set forth in Section 7.10. "Nasdaq Market" means the Nasdaq Stock Market's National Market System. "National Market" means the Nasdaq Market, the Nasdaq Small Cap Market, the New York Stock Exchange, Inc. or the American Stock Exchange, Inc. "Net Cash Proceeds" means, with respect to any transaction, the total amount of cash proceeds received by the Company or any Subsidiary less (i) reasonable underwriters' fees, brokerage commissions, reasonable professional fees and other customary out-of-pocket expenses payable in connection with such transaction, and (ii) in the case of dispositions of assets, (A) actual transfer taxes (but not income taxes) payable with respect to such dispositions, and (B) the amount of Debt, if any, secured by a Lien on the asset or assets disposed of and required to be, and actually repaid by the Company or any Subsidiary in connection therewith, and any trade payables specifically relating to such asset or assets sold by the Company or any Subsidiary that are not assumed by the purchaser of such asset or assets. "Notice of Conversion" means the form to be delivered by a holder of a Convertible Debenture upon conversion of all or a portion thereof to the Company substantially in the form of Exhibit A to the form of Convertible Debenture. "Notice of Exercise" means the form to be delivered by a holder of a Warrant upon exercise of all or a portion thereof to the Company substantially in the form of Exhibit A to the Warrant. "Officer's Certificate" shall mean a certificate executed by the president, chief executive officer or chief financial officer of the Company in the form of Exhibit F Form of Officer's CertificateExhibit D attached hereto. "OTC Bulletin Board" means the over-the-counter bulletin board operated by the NASD. "Other Taxes" has the meaning set forth in Section 3.6(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permits" means all domestic and foreign licenses, franchises, grants, authorizations, permits, easements, variances, exemptions, consents, certificates, orders and approvals necessary to own, lease and operate the properties of, and to carry on the business of the Company and the Subsidiaries. "Permitted Financings" has the meaning set forth in Section 10.5. "Person" means an individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock Company, government (or any agency or political subdivision thereof) or other entity of any kind. "Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under the Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of the Person which was at such time a member of the ERISA Group. "Purchase Price" means the purchase price for the Securities set forth in Section 2.2 hereof. "Purchaser" means the entity listed on the signature page hereto and its successors and assigns, including holders from time to time of the Convertible Debentures. "Recourse Financing" means Debt of the Company or any Subsidiary which, by its terms, does not bar the lender thereof from action against the Company or any Subsidiary, as borrower or guarantor, if the security value of the project or asset pledged in respect thereof falls below the amount required to repay such Debt. "Redemption Event" has the meaning set forth in Section 3.4. "Registrable Securities" has the meaning set forth in Section 10.4(a). "Registration Default" has the meaning set forth in Section 10.4(e). "Registration Maintenance Period" has the meaning set forth in Section 10.4(e). "Registration Statement" has the meaning set forth in Section 10.4(b). "Registration Rights Agreement" means the agreement between the Company and Purchaser dated the date hereof substantially in the form set forth in Exhibit B attached hereto. "Required Effectiveness Date" has the meaning set forth in Section 10.4(b). "Reserved Amount" has the meaning set forth in Section 7.10(a). "Restricted Payment" means, with respect to any Person, (i) any dividend or other distribution on any shares of capital stock of such Person (except dividends payable solely in shares of capital stock of the same or junior class of such Person and dividends from a wholly-owned direct or indirect Subsidiary of the Company to its parent corporation), (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of such Person's capital stock or (b) any option, warrant or other right to acquire shares of such Person's capital stock or (iii) any loan, or advance or capital contribution to any Person (a "Stockholder") owning any capital stock of such Person other than relocation, travel or like advances to officers and employees in the ordinary course of business, and other than reasonable compensation as determined by the Board of Directors. "Rights Offering" has the meaning set forth in Section 11.3. "Sale Event" has the meaning set forth in Section 3.4. "SEC Reports" has the meaning set forth in Section 7.1(a). "Securities" means the Convertible Debentures, the Warrants and, as applicable, the Conversion Shares. "Securities Act" means the Securities Act of 1933, as amended. "Share Reorganization" has the meaning set forth in Section 11.2. "Solvency Certificate" shall mean a certificate executed by the treasurer of the Company as to the solvency of the Company, the adequacy of its capital and its ability to pay its debts, all after giving effect to the issuance and sale of the Convertible Debentures and the completion of the offering (including without limitation the payment of any fees or expenses in connection therewith), which such Solvency Certificate shall be in the form of Exhibit E attached hereto. "Special Distribution" has the meaning set forth in Section 11.4. "Subsidiary" means, with respect to any Person, any corporation or other entity of which (x) a majority of the capital stock or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions are at the time directly or indirectly owned by such Person or (y) the results of operations, the assets and the liabilities of which are consolidated with such Person under GAAP. "Subsidiary Corporate Documents" means the certificates of incorporation and bylaws of each Subsidiary. "Taxes" has the meaning set forth in Section 3.6. "Trading Day" shall mean any Business Day in which the OTC Bulletin Board, National Market or other automated quotation system or exchange on which the Common Stock is then traded is open for trading for at least four (4) hours. "Transaction Agreements" means this Agreement, the Convertible Debentures, the Warrant, the Registration Rights Agreement, the Security Agreement, and the other agreements contemplated by this Agreement. "Transfer" means any disposition of Securities that would constitute a sale thereof under the Securities Act. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefits under Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "Warrant" means the Common Stock Purchase Warrant substantially in the form set forth in Exhibit F hereto. 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles as in effect from time to time, applied on a consistent basis with the Company's prior practice (except for changes concurred in by the Company's independent public accountants) ("GAAP"). All references to "dollars," "Dollars" or "$" are to United States dollars unless otherwise indicated. 2. PURCHASE AND SALE OF SECURITIES 2.1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES. 2.1.1. Subject to the terms and conditions set forth herein, the Company agrees to issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, Convertible Debentures in the aggregate principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00). 2.1.2. In connection with the Purchaser's agreement to purchase the Convertible Debentures specified in this Article II, the Company shall issue and deliver to the Purchaser on the Closing Date a Warrant to purchase an aggregate of 125,000 shares of Common Stock. 2.2. PURCHASE PRICE. The purchase price for the Convertible Debentures shall be 95% of the principal amount thereof. No part of the purchase price of the Convertible Debentures shall be allocated to the Warrant. Therefore, the aggregate consideration payable by Purchaser to the Company for the Convertible Debentures and Warrants shall be Two Million Three Hundred Seventy Five Thousand Dollars ($2,375,000.00) (the "Purchase Price"). 2.3. CLOSING AND MECHANICS OF PAYMENT. 2.3.1. The Purchase Price shall be paid as follows: (i) $1,900,000.00 of the Purchase Price shall be paid on the Closing Date by wire transfer of immediately available funds; and (ii) $ 475,000.00 of the Purchase Price shall be paid on the Filing Date (as defined in Section 10.4 of this Agreement) by wire transfer of immediately available funds. 2.3.2. The Convertible Debentures and Warrants shall be issued as follows: (i) The Company will issue Convertible Debentures in the Principal Amount of $2,000,000.00 and the Warrants on the Closing Date; and (ii) On the Filing Date, the Company will issue Convertible Debentures in the Principal Amount of $500,000.00. The Convertible Debentures will be dated as of the Closing Date and interest shall begin to accrue on the Convertible Debentures as of the Closing Date. 3. PAYMENT TERMS OF CONVERTIBLE DEBENTURES 3.1. PAYMENT OF PRINCIPAL AND INTEREST; PAYMENT MECHANICS. The Company will pay all amounts due on each Convertible Debenture by the method and at the address specified for such purpose by Purchaser in writing, without the presentation or surrender of any Convertible Debenture or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of this Convertible Debenture, the holder shall surrender the Convertible Debenture for cancellation, reasonably promptly after any such request, to the Company at its principal executive office. Prior to any sale or other disposition of any Convertible Debenture, the holder thereof will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender the Convertible Debenture to the Company in exchange for a new Convertible Debenture or Convertible Debentures. The Company will afford the benefits of this Section 3.1 to any direct or indirect transferee of the Convertible Debenture purchased under this Agreement and that has made the same agreement relating to this Convertible Debenture as Purchaser has in this Section 3.1; provided that such transferee is an "accredited investor" under Rule 501 of the Securities Act. 3.2. PAYMENT OF INTEREST. Interest shall accrue on the outstanding principal amount of each Convertible Debenture and shall be payable as specified therein. 3.3. VOLUNTARY PREPAYMENT. For so long as no Event of Default shall have occurred and is continuing, the Company may, at its option, repay, in whole or in part, the Convertible Debentures, in accordance with Sections 3 and 5.1 of Exhibit A hereto, following at least five (5) Business Days prior written notice to Purchaser (the expiration of such five (5) Business Day period being referred to as the "prepayment date"); provided, however, that if such date is not a Business Day, the prepayment date shall be the next Business Day thereafter. 3.4. MANDATORY PREPAYMENTS. 3.4.1. Upon (i) the occurrence of a Change in Control of the Company, (ii) a transfer of all or substantially all of the assets of the Company to any Person in a single transaction or series of related transactions, (iii) a consolidation, merger or amalgamation of the Company with or into another Person in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale Event"), or (iv) the occurrence of a Registration Default which continues uncured for a period of twenty (20) days, then, in each case, the Company shall, upon request of the Majority Holders, redeem the Convertible Debentures and Warrants, subject to the provisions of Section 5 of the Convertible Debentures and Section 13 of the Warrants, respectively. The redemption price payable upon any such redemption shall be the Redemption Price in Section 5 of the Convertible Debentures and Section 13 of the Warrants, respectively (referred to herein as the "Formula Price"). 3.4.2. At the option of Purchaser, upon the consummation of one or more Financings, the Company shall use 25% of the Net Cash Proceeds therefrom (unless such Net Cash Proceeds from each such Financing is less than $250,000) to redeem the Convertible Debentures. 3.4.3. Upon the issuance of the Maximum Number of Shares and the failure within 40 days of such issuance to obtain shareholder approval to issue additional shares of Common Stock (the "Redemption Event"), the Company shall redeem the outstanding balance of each Convertible Debenture and Warrant for the Formula Price. 3.4.4. In the event that there is an insufficient number of authorized, issuable, unlegended and freely tradeable shares of Common Stock registered under the Registration Statement filed by the Company to fully convert the Convertible Debentures and exercise all Warrants held by Purchaser and sell such shares issued thereon, then the Company shall immediately file an amendment to the then current registration statement to register a sufficient number of such shares to convert said Convertible Debentures and Warrants. Upon the failure within twenty (20) Trading Days to register a sufficient number of such shares, the Company shall redeem the outstanding balance of each Convertible Debenture and Warrant for the Formula Price. In addition, failure of the Company to register a sufficient number of such shares to fully convert said Convertible Debentures and exercise such Warrants shall be a Registration Default under Section 10.4(e) from the date of the Notice of Conversion to the date of the earlier of (i) the redemption of the outstanding balance of the Convertible Debentures and exercise of all such Warrants or (ii) full conversion of the Convertible Debentures and exercise of all such Warrants. 3.5. PREPAYMENT PROCEDURES. 3.5.1. Any permitted prepayment or redemption of the Convertible Debentures and Warrants, as applicable pursuant to Sections 3.3 or 3.4 above shall be deemed to be effective and consummated (for purposes of determining the Formula Price and the time at which Purchaser shall thereafter not be entitled to deliver a Notice of Conversion for the Convertible Debentures) as follows: 3.5.1.1. A prepayment pursuant to Section 3.3, the "prepayment date" specified therein; 3.5.1.2. A redemption pursuant to Section 3.4(a), the date of consummation of the applicable Sale Event or the Registration Default; 3.5.1.3. A redemption pursuant to Section 3.4(b), three (3) Business Days following the date of consummation of the applicable Financing (meaning closing and funding); and 3.5.1.4. A redemption pursuant to Section 3.4(c), the date specified in each Convertible Debenture. 3.5.2. On the Maturity Date and on the effective date of a prepayment or redemption of the Convertible Debentures and Warrants as specified in Section 3.5(a) above, the Company shall deliver by wire transfer of funds the prepayment/redemption price to Purchaser of the Convertible Debentures and Warrants subject to prepayment or redemption. Should Purchaser not receive payment of any amounts due on prepayment or redemption of its Convertible Debentures and Warrants by reason of the Company's failure to make payment at the times prescribed above for any reason, the Company shall pay to the applicable holder on demand (x) interest on the sums not paid when due at an annual rate equal to the greater of (I) the maximum lawful rate and (II) 18% per annum, compounded at the end of each thirty (30) days, until the applicable holder is paid in full and (y) all costs of collection, including, but not limited to, reasonable attorneys' fees and costs, whether or not suit or other formal proceedings are instituted. 3.5.3. The Company shall select the Convertible Debentures and Warrants to be redeemed in any redemption in which not all of the Convertible Debentures and Warrants are to be redeemed so that the ratio of the Convertible Debentures and Warrants of each holder selected for redemption to the total Convertible Debentures and Warrants owned by that holder shall be the same as the ratio of all such Convertible Debentures and Warrants selected for redemption bears to the total of all then outstanding Convertible Debentures and Warrants. Should any Convertible Debentures and Warrants required to be redeemed under the terms hereof not be redeemed solely by reason of limitations imposed by law, the applicable Convertible Debentures and Warrants shall be redeemed on the earliest possible dates thereafter to the maximum extent permitted by law. 3.5.4. Any Notice of Conversion delivered by Purchaser (including delivery via telecopy) to the Company prior to the (x) Maturity Date or (y) effective date of a voluntary prepayment pursuant to Section 3.3 or a mandatory prepayment pursuant to Section 3.4 as specified in Section 3.5(a) above), shall be honored by the Company and the conversion of the Convertible Debentures shall be deemed effected on the Conversion Date. In addition, between the effective date of a voluntary prepayment pursuant to Section 3.3 or a mandatory prepayment pursuant to Section 3.4 as specified in Section 3.5(a) above and the date the Company is required to deliver the redemption proceeds in full to Purchaser, Purchaser may deliver a Notice of Conversion to the Company. Such notice will be (x) of no force or effect if the Company timely pays the prepayment or redemption proceeds to Purchaser when due or (y) honored on or as of the date of the Notice of Conversion if the Company fails to timely pay the prepayment or redemption proceeds to Purchaser when due. 3.6. PAYMENT OF ADDITIONAL AMOUNTS. 3.6.1. Any and all payments by the Company hereunder or under the Convertible Debentures to Purchaser and each "qualified assignee" thereof shall be made free and clear of and without deduction or withholding for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto (all such taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes") unless such Taxes are required by law or the administration thereof to be deducted or withheld. If the Company shall be required by law or the administration thereof to deduct or withhold any Taxes from or in respect of any sum payable under the Convertible Debentures (i) the holders of the Convertible Debentures subject to such Taxes shall have the right, but not the obligation, for a period of thirty (30) days commencing upon the day it shall have received written notice from the Company that it is required to withhold Taxes to transfer all or any portion of the Convertible Debentures to a qualified assignee to the extent such transfer can be effected in accordance with the other provisions of this Agreement and applicable law; (ii) the Company shall make such deductions or withholdings; (iii) the sum payable shall be increased as may be necessary so that after making all required deductions or withholdings (including deductions or withholdings applicable to additional amounts paid under this Section 3.6) Purchaser receives an amount equal to the sum it would have received if no such deduction or withholding had been made; and (iv) the Company shall forthwith pay the full amount deducted or withheld to the relevant taxation or other authority in accordance with applicable. A "qualified assignee" of a Purchaser is a Person that is organized under the laws of (i) the United States or (II) any jurisdiction other than the United States or any political subdivision thereof and that (y) represents and warrants to the Company that payments of the Company to such assignee under the laws in existence on the date of this Agreement would not be subject to any Taxes and (z) from time to time, as and when requested by the Company, executes and delivers to the Company and the Internal Revenue Service forms, and provides the Company with any information necessary to establish such assignee's continued exemption from Taxes under applicable law. 3.6.2. The Company shall forthwith pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies (all such taxes, charges and levies hereinafter referred to as "Other Taxes") which arise from any payment made under any of the Transaction Agreements or from the execution, delivery or registration of, or otherwise with respect to, this Agreement other than Taxes payable solely as a result of the transfer from Purchaser to a Person of any Security. 3.6.3. The Company shall indemnify Purchaser, or qualified assignee, for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.6) paid by Purchaser, or qualified assignee, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days from the date Purchaser or assignee makes written demand therefor. A certificate as to the amount of such Taxes or Other Taxes submitted to the Company by Purchaser or qualified assignee shall be conclusive evidence of the amount due from the Company to such party. 3.6.4. Within 30 days after the date of any payment of Taxes, the Company will furnish to Purchaser the original or a certified copy of a receipt evidencing payment thereof. 3.6.5. Purchaser shall provide to the Company a form W-8, stating that it is a non-U.S. person, together with any additional tax forms which may be required under the Code, as amended after the date hereof, to allow interest payments to be made to it without deduction. 4. REPRESENTATIONS AND WARRANTIES The Company represents and warrants to Purchaser as of the Closing Date the following: 4.1. ORGANIZATION AND QUALIFICATION. The Company and each Subsidiary is a corporation (or other legal entity) duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, with full power and authority to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. The Company is qualified to conduct business as a foreign corporation and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except where such failure would not have a Material Adverse Effect. A "Material Adverse Effect" means any material adverse effect on the operations, results of operations, properties, assets or condition (financial or otherwise) of the Company or the Company and its Subsidiaries, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. 4.2. AUTHORIZATION AND EXECUTION. 4.2.1. The Company has all requisite corporate power and authority to enter into and perform each Transaction Agreement and to consummate the transactions contemplated hereby and thereby and to issue the Securities in accordance with the terms hereof and thereof. 4.2.2. The execution, delivery and performance by the Company of each Transaction Agreement and the issuance by the Company of the Securities have been duly and validly authorized by the Board of Director of the Company and no further consent or authorization of the Company, its Board of Directors or its shareholders is required. 4.2.3. This Agreement has been duly executed and delivered by the Company. 4.2.4. This Agreement constitutes, and upon execution and delivery thereof by the Company, each of the Transaction Agreements will constitute, a valid and binding agreement of the Company, in each case enforceable against the Company in accordance with its respective terms. 4.3. CAPITALIZATION . As of the date hereof, the authorized, issued and outstanding capital stock of the Company is as set forth on Schedule 4.3 Capitalization Schedule 4.3 hereto and except as set forth on Schedule 4.3 no other shares of capital stock of the Company will be outstanding as of the Closing Date. All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and nonassessable. No shares of capital stock of the Company are subject to preemptive rights or similar rights of the stockholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Other than as set forth on Schedule 4.3 hereto, as of the date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, and (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries are obligated to register the sale of any of its or their securities under the Securities Act (except pursuant to the Registration Rights Agreement) and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Convertible Debentures or Conversion Shares. The Company has furnished to Purchaser true and correct copies of the Company's Corporate Documents, and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. 4.4. GOVERNMENTAL AUTHORIZATION. The execution and delivery by the Company of the Transaction Agreements does not and will not, the issuance and sale by the Company of the Securities does not and will not, and the consummation of the transactions contemplated hereby and by the other Transaction Agreements will not, require any action by or in respect of, or filing with, any governmental body, agency or governmental official except (a) such actions or filings that have been undertaken or made prior to the date hereof and that will be in full force and effect (or as to which all applicable waiting periods have expired) on and as of the date hereof or which are not required to be filed on or prior to the Closing Date, (b) such actions or filings that, if not obtained, would not result in a Material Adverse Effect, (c) listing applications ("Listing Applications") to be filed with the OTC Bulletin Board or the National Market relating to the Conversion Shares issuable upon conversion of the Convertible Debentures, if applicable, and (d) the filing of a "Form D" as described in Section 7.13 below. 4.5. ISSUANCE OF SHARES. Upon conversion in accordance with the terms of the Convertible Debentures and exercise of the Warrants, the Conversion Shares shall be duly and validly issued and outstanding, fully paid and nonassessable, free and clear of any Taxes, Liens and charges issuance and shall not be subject to preemptive rights or similar rights of any other stockholders of the Company. Assuming the representations and warranties of Purchaser herein are true and correct in all material respects, each of the Securities will have been issued in material compliance with all applicable U.S. federal and state securities laws. The Company understands and acknowledges that, in certain circumstances, the issuance of Conversion Shares could dilute the ownership interests of other stockholders of the Company. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Convertible Debentures and exercise of the Warrants is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. 4.6. NO CONFLICTS. The execution and delivery by the Company of the Transaction Agreements to which it is a party did not and will not, the issuance and sale by the Company of the Securities did not and will not and the consummation of the transactions contemplated hereby and by the other Transaction Agreements will not, contravene or constitute a default under or violation of (i) any provision of applicable law or regulation known by the Company to be applicable to it, (ii) the Company Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or any Subsidiary or any of their respective assets, or result in the creation or imposition of any Lien on any asset of the Company or any Subsidiary. The Company and each Subsidiary is in compliance with and conforms to all statutes, laws, ordinances, rules, regulations, orders, restrictions and all other legal requirements of any domestic or foreign government or any instrumentality thereof having jurisdiction over the conduct of its businesses or the ownership of its properties, except where such failure would not have a Material Adverse Effect. 4.7. FINANCIAL INFORMATION. Since June 30, 2000 (the "Balance Sheet Date"), except as disclosed in Schedule 4.7, there has been (x) no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects, of the Company and its Subsidiaries, whether as a result of any legislative or regulatory change, revocation of any license or rights to do business, fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God, public force or otherwise and (y) no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects, of the Company and its subsidiaries except in the ordinary course of business; and to the knowledge of the Company no fact or condition exists or is contemplated or threatened which might cause such a change in the future. The audited and unaudited consolidated balance sheets of the Company and its Subsidiaries for the periods ending December 31, 1999, and June 30, 2000, respectively, and the related consolidated statements of income, changes in stockholders' equity and changes in cash flows for the periods then ended, including the footnotes thereto, except as indicated therein, (i) complied in all material respects with applicable accounting requirements and (ii) have been prepared in accordance with GAAP consistently applied throughout the periods indicated, except that the unaudited financial statements do not contain notes and may be subject to normal audit adjustments and normal annual adjustments. Such financial statements fairly present the financial condition of the Company and its Subsidiaries at the dates indicated and the consolidated results of their operations and cash flows for the periods then ended and, except as indicated therein, reflect all claims against and all Debts and liabilities of the Company and its Subsidiaries, fixed or continency required to be reflected therein. 4.8. LITIGATION. Except as set forth on Schedule 4.8, there is no action, suit or proceeding pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary, before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could be reasonably expected to have a Material Adverse Effect or which challenges the validity of any Transaction Agreements. 4.9. COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS. 4.9.1. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (ii) failed to make any required contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which as resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. 4.9.2. The benefit plans not covered under clause (a) above (including profit sharing, deferred compensation, stock option, employee stock purchase, bonus, retirement, health or insurance plans, collectively the "Benefit Plans") relating to the employees of the Company are duly registered where required by, and are in good standing in all material respects under, all applicable laws. All required employer and employee contributions and premiums under the Benefit Plans to the date hereof have been made, the respective fund or funds established under the Benefit Plans are funded in accordance with applicable laws, and no past service funding liabilities exist thereunder. 4.9.3. No Benefit Plans have any unfunded liabilities, either on a "going concern" or "winding up" basis and determined in accordance with all applicable laws and actuarial practices and using actuarial assumptions and methods that are reasonable in the circumstances. No event has occurred and no condition exists with respect to any Benefit Plans that has resulted or could reasonably be expected to result in any pension plan having its registration revoked or wound up (in whole or in part) or refused for the purposes of any applicable laws or being placed under the administration of any relevant pension benefits regulatory authority or being required to pay any taxes or penalties (in any material amounts) under any applicable laws. 4.10. ENVIRONMENTAL MATTERS. The costs and liabilities associated with Environmental Laws (including the cost of compliance therewith) are unlikely to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or any Subsidiary. Each of the Company and the Subsidiaries conducts its businesses in compliance in all material respects with all applicable Environmental Laws. 4.11. TAXES. All United States federal, state, county, municipality, local or foreign income tax returns and all other material tax returns (including foreign tax returns) which are required to be filed by or on behalf of the Company and each Subsidiary have been filed and all material taxes due pursuant to such returns or pursuant to any assessment received by the Company and each Subsidiary have been paid except those being disputed in good faith and for which adequate reserves have been established. The charges, accruals and reserves on the books of the Company and each Subsidiary in respect of taxes and other governmental charges have been established in accordance with GAAP. 4.12. INVESTMENTS, JOINT VENTURES. Other than as set forth in Schedule 4.12, the Company has no Subsidiaries or other direct or indirect Investment in any Person, and the Company is not a party to any partnership, management, shareholders' or joint venture or similar agreement. 4.13. NOT AN INVESTMENT COMPANY. Neither the Company nor any Subsidiary is an "Investment Company" within the meaning of Investment Company Act of 1940, as amended. 4.14. FULL DISCLOSURE. The information heretofore furnished by the Company to Purchaser for purposes of or in connection with this Agreement or any transaction contemplated hereby does not, and all such information hereafter furnished by the Company or any Subsidiary to Purchaser will not (in each case taken together and on the date as of which such information is furnished), contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they are made, not misleading. 4.15. NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS. No form of general solicitation or general advertising was used by the Company or, to the best of its actual knowledge, any other Person acting on behalf of the Company, in connection with the offer and sale of the Securities. The Company represents that neither itself nor any Person authorized to act on its behalf (except that the Company makes no representation as to Purchaser and their Affiliates) will sell or offer for sale any such security to, or solicit any offers to buy any such security from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to cause the issuance or sale of any of the Securities to be in violation of any of the provisions of Section 5 of the Securities Act. The issuance of the Securities to Purchaser will not be integrated with any other issuance of the Company's securities (past, current or future) which requires stockholder approval under the rules of any National Market. 4.16. PERMITS. (a) Each of the Company and its Subsidiaries has all material Permits; (b) all such Permits are in full force and effect, and each of the Company and its Subsidiaries has fulfilled and performed all material obligations with respect to such Permits; (c) no event has occurred which allows, or after notice of lapse of time would allow, revocation or termination by the issuer thereof or which results in any other material impairment of the rights of the holder of any such Permit; and (d) the Company has no reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such Permit, except in each case or in the aggregate that could not be reasonably expected to have a Material Adverse Effect. 4.17. LEASES. Neither the Company nor any Subsidiary is a party to any capital lease obligation with a value greater than $250,000 or to any operating lease with an aggregate annual rental greater than $250,000 during the life of such lease. 4.18. ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS. There are no liabilities of the Company or any Subsidiary of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances which would reasonably be expected to result in such a liability, other than (i) those liabilities provided for in the financial statements delivered pursuant to Section 4.7 and (ii) other undisclosed liabilities which, individually or in the aggregate, would not have a Material Adverse Effect. 4.19. PUBLIC UTILITY HOLDING COMPANY. Neither the Company nor any Subsidiary is, or will be upon issuance and sale of the Securities and the use of the proceeds described herein, subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act or to any federal or state statute or regulation limiting its ability to issue and perform its obligations under any Transaction Agreement. 4.20. INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its Subsidiaries owns, or is licensed under, and has the rights to use, all material to the knowledge of the Company, patents, trademarks, trade names, copyrights, technology, know-how and processes (collectively, "Intellectual Property") used in, or necessary for the conduct of its business; no claims have been asserted by any Person to the use of any such Intellectual Property or challenging or questioning the validity or effectiveness of any license or agreement related thereto. To the best of Company's and its Subsidiaries' knowledge, there is no valid basis for any such claim and the use of such Intellectual Property by the Company and its Subsidiaries will not infringe upon the rights of any Person. 4.21. INSURANCE. The Company and its Subsidiaries maintain, with financially sound and reputable insurance companies, insurance in at least such amounts and against such risks such that any uninsured loss would not have a Material Adverse Effect. All insurance coverages of the Company and its Subsidiaries are in full force and effect and there are no past due premiums in respect of any such insurance. 4.22. TITLE TO PROPERTIES. The Company and its Subsidiaries have good and marketable title to all their respective properties reflected on the financial statements referred to in Section 4.7, free and clear of all Liens other than the Permitted Liens. 4.23. INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company's Board of Directors, to provide reasonable assurance that (i) transactions are executed in accordance with managements' general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 4.24. YEAR 2000 COMPLIANCE. 4.24.1. COMPUTER AND OTHER SYSTEMS. (i) All software programs and computer hardware that are owned, leased or licensed by the Company and each Subsidiary, or used by third parties on behalf of the Company and each Subsidiary ("Computer Systems"), are designated to be used prior to, during and after the calendar year 2000 A.D., including leap years; (ii) all other operational systems that use software or equipment that are owned, leased, or licensed by the Company and each Subsidiary, or used by third parties on behalf of the Company and each Subsidiary ("Other Systems"), are designated to be used prior to, during or after the calendar year 2000 A.D., including leap years; (iii) the Computer systems and Other Systems will properly operate during each such period without error or degradation of performance caused by a lack of Year 2000 Capabilities; and (iv) the Computer Systems and Other Systems will properly operate during each such period without requiring intervention or modification to Date Data. 4.24.2. CAPABILITIES OF SUPPLIERS, VENDORS AND LANDLORDS. To the best of the Company's knowledge after specific inquiry of all of its material suppliers, vendors and landlords, the Company and each Subsidiary will not suffer a loss from interruption or cessation of business operations, in whole or in part, as a result of such suppliers, vendors or landlords failing to provide materials, labor, supplies or access to leased space for the operation of the Company and each Subsidiary as a result of such suppliers or vendors not having Year 2000 Capabilities. 4.24.3. CAPABILITIES. For purposes of this Agreement, (x) "Year 2000 Capabilities" means the ability to: (i) manage and manipulate data involving dates, including single century formulas and multi-century formulas, in a manner that will not cause an abnormally ending scenario or generate incorrect values or invalid results involving such dates; (ii) include the indication of proper century dates in all date-related user interface functions and date fields; and (iii) operate with proper century dates in date-related software or hardware interface functions; and (y) "Date Data" means any existing data or input of date which includes an indication of or reference to date. 4.25. FOREIGN PRACTICES. Neither the Company nor any of its Subsidiaries nor, to the Company's knowledge, any employee or agent of the Company or any Subsidiary has made any payments of funds of the Company or Subsidiary, or received or retained any funds, in each case in violation of any law, rule or regulation. 4.26. TITLE TO CERTAIN ASSETS. The Company owns the assets designated as collateral and described on Exhibit A to that certain Security Agreement between the Company and Purchaser of even date herewith in substantially the form of Exhibit G hereto (the "Security Agreement"), free and clear of any lien, except Permitted Liens. 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER 5.1. PURCHASER. Purchaser hereby represents and warrants to the Company that: 5.1.1. Purchaser is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act and the Securities to be acquired by it pursuant to this Agreement are being acquired for its own account and, as of the date hereof, not with a view toward, or for sale in connection with, any distribution thereof except in compliance with applicable United States federal and state securities law; provided that the disposition of Purchaser's property shall at all times be and remain within its control; 5.1.2. the execution, delivery and performance of this Agreement and the purchase of the Securities pursuant thereto are within Purchaser's corporate or partnership powers, as applicable, and have been duly and validly authorized by all requisite corporate or partnership action; 5.1.3. this Agreement has been duly executed and delivered by Purchaser; 5.1.4. the execution and delivery by Purchaser of the Transaction Agreements to which it is a party does not, and the consummation of the transactions contemplated hereby and thereby will not, contravene or constitute a default under or violation of (i) any provision of applicable law or regulation, or (ii) any agreement, judgment, injunction, order, decree or other instrument binding upon Purchaser; 5.1.5. Purchaser understands that the Securities have not been registered under the Securities Act and may not be transferred or sold except as specified in this Agreement or the remaining Transaction Agreements; 5.1.6. this Agreement constitutes a valid and binding agreement of Purchaser enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency or similar laws affecting the enforceability of creditors rights generally and (ii) equitable principles of general applicability; 5.1.7. Purchaser has such knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Securities and Purchaser is capable of bearing the economic risks of such investment; 5.1.8. Purchaser is knowledgeable, sophisticated and experienced in business and financial matters; Purchaser has previously invested in securities similar to the Securities and fully understands the limitations on transfer described herein; Purchaser has been afforded access to information about the Company and the financial condition, results of operations, property, management and prospects of the Company sufficient to enable it to evaluate its investment in the Securities; Purchaser has been afforded the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and the risks of investing in the Securities; and Purchaser has been afforded the opportunity to obtain such additional information which the Company possesses or can acquire that is necessary to verify the accuracy and completeness of the information given to Purchaser concerning the Company. The foregoing does not in any way relieve the Company of its representations and other undertakings hereunder, and shall not limit Purchaser's ability to rely thereon; 5.1.9. no part of the source of funds used by Purchaser to acquire the Securities constitutes assets allocated to any separate account maintained by Purchaser in which any employee benefit plan (or its related trust) has any interest; and 5.1.10. Purchaser is a corporation organized under the laws of Bermuda. 6. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES 6.1. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS TO PURCHASE. The obligation of Purchaser hereunder to purchase the Convertible Debentures at the Closing is subject to the satisfaction, on or before the Closing Date, of each of the following conditions, provided that these conditions are for Purchaser's sole benefit and may be waived by Purchaser at any time in its sole discretion: 6.1.1. The Company shall have duly executed this Agreement, the Warrant, the Registration Rights Agreement, and the Security Agreement and all other appropriate financing statements, and delivered the same to Purchaser; 6.1.2. The Company shall have delivered to Purchaser a duly executed certificate representing the Convertible Debenture in accordance with Section 2.3 hereof; 6.1.3. The Company shall have delivered the Solvency Certificate; 6.1.4. The representations and warranties of the Company contained in each Transaction Agreement shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specified date) and the Company shall have performed, satisfied and complied with all covenants, agreements and conditions required by such Transaction Agreements to be performed, satisfied or complied with by it at or prior to the Closing Date. Purchaser shall have received an Officer's Certificate executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by Purchaser, including but not limited to certificates with respect to the Company Corporate Documents, resolutions relating to the transactions contemplated hereby and the incumbencies of certain officers and Directors of the Company. The form of such certificate is attached hereto as Exhibit D; 6.1.5. The Company shall have received all governmental, Board of Directors, shareholders and third party consents and approvals necessary or desirable in connection with the issuance and sale of the Securities and the consummation of the transactions contemplated by the Transaction Agreements; 6.1.6. All applicable waiting periods in respect to the issuance and sale of the Securities shall have expired without any action having been taken by any competent authority that could restrain, prevent or impose any materially adverse conditions thereon or that could seek or threaten any of the foregoing; 6.1.7. No law or regulation shall have been imposed or enacted that, in the judgment of Purchaser, could adversely affect the transactions set forth herein or in the other Transaction Agreements, and no law or regulation shall have been proposed that in the reasonable judgment of Purchaser could reasonably have any such effect; 6.1.8. Purchaser shall have received an opinion, dated the Closing Date, of counsel to the Company, in form and substance satisfactory to Purchaser; 6.1.9. All fees and expenses due and payable by the Company on or prior to the Closing Date shall have been paid; 6.1.10. The Company Corporate Documents and the Subsidiary Corporate Documents, if any, shall be in full force and effect and no term or condition thereof shall have been amended, waived or otherwise modified without the prior written consent of Purchaser; 6.1.11. There shall have occurred no material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or any Subsidiary since June 30, 2000; 6.1.12. There shall exist no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that challenges the validity of or purports to affect this Agreement or any other Transaction Agreement, or other transaction contemplated hereby or thereby or that could reasonably be expected to have a Material Adverse Effect, or any material adverse effect on the enforceability of the Transaction Agreements or the Securities or the rights of the holders of the Securities or Purchaser hereunder; 6.1.13. Purchaser shall have confirmed the receipt of the Convertible Debentures and the Warrants to be issued, duly executed by the Company in the denominations and registered in the name of Purchaser; 6.1.14. There shall not have occurred any disruption or adverse change in the financial or capital markets generally, or in the market for the Common Stock (including but not limited to any suspension or delisting), which Purchaser reasonably deems material in connection with the purchase of the Securities; 6.1.15. Immediately before and as of the Closing Date, no Default or Event of Default shall have occurred and be continuing; 6.1.16. An Escrow Agreement, substantially in the form of Exhibit E, by and between the Company and Purchaser, and accepted by the Law Offices of Kim T. Stephens as escrow agent (the "Escrow Agent"), shall have been duly executed by the said parties. 6.1.17. Company shall have delivered to Purchaser the Use of Proceeds Schedule 7.8. 6.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of the Company to issue and sell the Securities to Purchaser pursuant to this Agreement are subject to the satisfaction, at or prior to any Closing Date, of the following conditions: 6.2.1. The representations and warranties of Purchaser contained in each Transaction Agreement shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specified date) and Purchaser shall have performed, satisfied and complied with in all material respects with all covenants, agreements, and conditions required by such Transaction Agreements to be performed, satisfied or complied with by Purchaser at or prior to the Closing Date; 6.2.2. The issue and sale of the Securities by the Company shall not be prohibited by any applicable law, court order or governmental regulation; 6.2.3. Receipt by the Company of duly executed counterparts of this Agreement, the Security Agreement and the Registration Rights Agreement signed by Purchaser; 6.2.4. The Company shall have received payment of the portion of the Purchase Price set forth in Section 2.3(a) hereto, less the Expense Reimbursement Fee. (e) All applicable waiting periods in respect to the issuance and sale of the Securities shall have expired without any action having been taken by any competent authority that could restrain, prevent or impose any materially adverse conditions thereon or that could seek or threaten any of the foregoing; (f) No law or regulation shall have been imposed or enacted that, in the judgment of Company, could adversely affect the transactions set forth herein or in the other Transaction Agreements, and no law or regulation shall have been proposed that in the reasonable judgment of Company could reasonably have any such effect; (g) There shall not have occurred any disruption or adverse change in the financial or capital markets generally, or in the market for the Common Stock (including but not limited to any suspension or delisting), which Company reasonably deems material in connection with the purchase of the Securities; (h) An Escrow Agreement, substantially in the form of Exhibit E, by and between the Company and Purchaser, and accepted by the Law Offices of Kim T. Stephens as escrow agent (the "Escrow Agent"), shall have been duly executed by the said parties. 7. AFFIRMATIVE COVENANTS The Company hereby agrees that, from and after the date hereof for so long as any Convertible Debentures remain outstanding and for the benefit of Purchaser: 7.1. INFORMATION. The Company will deliver to each holder of the Convertible Debentures: 7.1.1. Reserved 7.1.2. Reserved 7.1.3. within five (5) days after any officer of the Company obtains knowledge of a Default or Event of Default, or that any Person has given any notice or taken any action with respect to a claimed Default hereunder, a certificate of the chief financial officer of the Company setting forth the details thereof and the action which the Company is taking or proposed to take with respect thereto; 7.1.4. promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed and any other document generally distributed to shareholders; 7.1.5. at least two (2) Business Days prior to the consummation of any Financing or other event requiring a repayment of the Convertible Debentures under Section 3.4, notice thereof together with a summary of all material terms thereof and copies of all documents and instruments associated therewith; 7.1.6. notice promptly upon the occurrence of any event by which the Reserved Amount becomes less than the sum of (i) 1.5 times the maximum number of Conversion Shares issuable pursuant to the Transaction Agreements; and 7.1.7. promptly following the commencement thereof, notice and a description in reasonable detail of any litigation or proceeding to which the Company or any Subsidiary is a party in which the amount involved is $250,000 or more and not covered by insurance or in which injunctive or similar relief is sought. 7.2. PAYMENT OF OBLIGATIONS. The Company will, and will cause each Subsidiary to, pay and discharge, at or before maturity, all their respective material obligations, including, without limitation, tax liabilities, except where the same may be contested in good faith and will maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same. 7.3. MAINTENANCE OF PROPERTY; INSURANCE. The Company will, and will cause each Subsidiary to, keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. In addition, the Company and each Subsidiary will maintain insurance in at least such amounts and against such risks as it has insured against as of the Closing Date. 7.4. MAINTENANCE OF EXISTENCE. The Company will, and will cause each Subsidiary to, continue to engage in business of the same general type as now conducted by the Company and such Subsidiaries, and will preserve, renew and keep in full force and effect its respective corporate existence and their respective material rights, privileges and franchises necessary or desirable in the normal conduct of business. 7.5. COMPLIANCE WITH LAWS. The Company will, and will cause each Subsidiary to, comply, in all material respects, with all federal, state, municipal, local or foreign applicable laws, ordinances, rules, regulations, municipal by-laws, codes and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except (i) where compliance therewith is contested in good faith by appropriate proceedings or (ii) where non-compliance therewith could not reasonably be expected, in the aggregate, to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Company or such Subsidiary. 7.6. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company will, and will cause each Subsidiary to, keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to their respective businesses and activities; and will permit, during normal business hours, Purchaser's Representative or an affiliate thereof, as representatives of Purchaser, to visit and inspect any of their respective properties, upon reasonable prior notice, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective executive officers and independent public accountants (and by this provision the Company authorizes its independent public accountants to disclose and discuss with Purchaser the affairs, finances and accounts of the Company and its Subsidiaries in the presence of a representative of the Company; provided, however, that such discussions will not result in any unreasonable expense to the Company, without Company consent), all at such reasonable times. 7.7. INVESTMENT COMPANY ACT. The Company will not be or become an open-end investment trust, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act of 1940, as amended. 7.8. USE OF PROCEEDS. The proceeds from the issuance and sale of the Convertible Debentures by the Company shall be used in accordance with Schedule 7.8 attached hereto. None of the proceeds from the issuance and sale of the Convertible Debentures by the Company pursuant to this Agreement will be used directly or indirectly for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" within the meaning of Regulation G of the Board of Governors of the Federal Reserve System. 7.9. COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS. The Company will, and will cause each Subsidiary to, comply, in all material respects, with all terms and conditions of all material contracts to which it is subject. 7.10. RESERVED SHARES AND LISTINGS. 7.10.1. The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion of the outstanding Convertible Debentures and exercise of the Warrants and issuance of the Conversion Shares (based on the conversion price of the Convertible Debentures in effect from time to time and the exercise price of the Warrants, respectively) (the "Reserved Amount"). The Company shall not reduce the Reserved Amount without the prior written consent of Purchaser. With respect to all Securities which contain an indeterminate number of shares of Common Stock issuable in connection therewith (such as the Convertible Debentures), the Company shall include in the Reserve Amount, no less than two (2) times the number of shares that is then actually issuable upon conversion or exercise of such Securities. If at any time the number of shares of Common Stock authorized and reserved for issuance is below the number of Conversion Shares issued or issuable upon conversion of the Convertible Debentures and exercise of the Warrants, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, either (x) calling a special meeting of shareholders to authorize additional shares, in the case of an insufficient number of authorized shares or (y) in lieu thereof, consummating the immediate repurchase of the Convertible Debentures and the Warrants contemplated in Sections 3.4(c) and 10.3 hereof, respectively. 7.10.2. The Company shall promptly file the Listing Applications and secure the listing of the Conversion Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion or exercise of the Convertible Debentures and Warrants, respectively. The Company will maintain the listing and trading of its Common Stock on the Nasdaq Small Cap Market. The Company will use its commercially reasonable best efforts to obtain as soon as practicable and maintain the listing and trading of its Common Stock on a National Market. The Company will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers, Inc. (the "NASD") and such exchanges, as applicable. The Company shall promptly provide to Purchaser copies of any notices it receives regarding the continued eligibility of the Common Stock for listing on the Nasdaq Small Cap Market or any National Market. 7.11. TRANSFER AGENT INSTRUCTIONS. Upon receipt of a Notice of Conversion or Notice of Exercise, as applicable, the Company shall immediately direct the Company's transfer agent to issue certificates, registered in the name of Purchaser or its nominee, for the Conversion Shares, in such amounts as specified from time to time by Purchaser to the Company upon proper conversion of the Convertible Debentures or exercise of the Warrants. Upon conversion of any Convertible Debentures in accordance with their terms and/or exercise of any Warrants in accordance with their terms, the Company will, and will use its best lawful efforts to cause its transfer agent to, issue one or more certificates representing shares of Common Stock in such name or names and in such denominations specified by a Purchaser in a Notice of Conversion or Notice of Exercise, as the case may be. As long as the Registration Statement contemplated by the Registration Rights Agreement shall remain effective, the shares of Common Stock issuable upon conversion of any Convertible Debentures or exercise of the Warrants shall be issued to any transferee of such shares from Purchaser without any restrictive legend upon appropriate evidence of transfer in compliance with the Securities Act and the rules and regulations of the Commission; provided that for so long as the Registration Statement is effective, no opinion of counsel will be required to effect any such transfer. The Company further warrants and agrees that no instructions other than these instructions have been or will be given to its transfer agent. Nothing in this Section 7.11 shall affect in any way a Purchaser's obligation to comply with all securities laws applicable to Purchaser upon resale of such shares of Common Stock, including any prospectus delivery requirements. 7.12. MAINTENANCE OF REPORTING STATUS; SUPPLEMENTAL INFORMATION. So long as any of the Securities are outstanding, the Company shall timely file all reports required to be filed with the Commission pursuant to the Exchange Act. The Company shall not terminate its status as an issuer required to file reports under the Exchange Act, even if the Exchange Act or the rules and regulations thereunder would permit such termination. If at anytime the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish at its expense, upon request, for the benefit of the holders from time to time of Securities, and prospective purchasers of Securities, information satisfying the information requirements of Rule 144 under the Securities Act. 7.13. FORM D; BLUE SKY LAWS. The Company agrees to file a "Form D" with respect to the Securities as required under Regulation D of the Securities Act and to provide a copy thereof to Purchaser promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to Purchaser at the Closing pursuant to this Agreement under applicable securities or "blue sky" laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to Purchaser on or prior to the Closing Date. 8. NEGATIVE COVENANTS The Company hereby agrees that after the date hereof for so long as any Convertible Debentures remain outstanding and for the benefit of Purchaser: 8.1. LIMITATIONS ON DEBT OR OTHER LIABILITIES. Neither the Company nor any Subsidiary will create, incur, assume or suffer to exist (at any time after the Closing Date, after giving effect to the application of the proceeds of the issuance of the Securities) (i) any Debt except (x) Debt incurred in a Permitted Financing, (y) Debt incurred in connection with equipment leases to which the Company or its Subsidiaries are a party incurred in the ordinary course of business; and (z) Debt incurred in connection with trade accounts payable, imbalances and refunds arising in the ordinary course of business and (ii) any equity securities (including Derivative Securities) (other than those securities that are issuable (x) under or pursuant to stock option plans, warrants or other rights programs that exist as of the date hereof, (z) in connection with the acquisition (including by merger) of a business or of assets otherwise permitted under this Agreement), unless the Company complies with the mandatory prepayment terms of Section 3.4(b) hereof. 8.2. TRANSACTIONS WITH AFFILIATES. The Company and each Subsidiary will not, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition or stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, and Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant to those agreements specifically identified on Schedule 8.2 attached hereto (with a copy of such agreements annexed to such Schedule 8.2) and (2) on terms to the Company or such Subsidiary no less favorable than terms that could be obtained by the Company or such Subsidiary from a Person that is not an Affiliate of the Company upon negotiation at arms' length, as determined in good faith by the Board of Directors of the Company; provided that no determination of the Board of Directors shall be required with respect to any such transactions entered into in the ordinary course of business. 8.3. MERGER OR CONSOLIDATION. The Company will not, in a single transaction or a series of related transactions (i) consolidate with or merge with or into any other Person, or (ii) permit any other Person to consolidate with or merge into it, unless the Company shall be the survivor of such merger or consolidation and (x) immediately before and immediately after given effect to such transaction (including any indebtedness incurred or anticipated to be incurred in connection with the transaction), no Default or Event of Default shall have occurred and be continuing; and (y) the Company has delivered to Purchaser an Officer's Certificate stating that such consolidation, merger or transfer complies with this Agreement, and that all conditions precedent in this Agreement relating to such transaction have been satisfied. 8.4. LIMITATION ON ASSET SALES. Neither the Company nor any Subsidiary will consummate an Asset Sale of material assets of the Company or any Subsidiary without the prior written consent of Purchaser, which consent shall not be unreasonably withheld. As used herein, "Asset Sale" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) or sales of capital stock of a Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purpose of this definition as a "disposition"), including any disposition by means of a merger, consolidation or similar transaction other than a disposition of property or assets at fair market value in the ordinary course of business. 8.5. RESTRICTIONS ON CERTAIN AMENDMENTS. Neither the Company nor any Subsidiary will waive any provision of, amend, or suffer to be amended, any provision of such entity's existing Debt, any material contract or agreement previously or hereafter filed by the Company with the Commission as part of its SEC Reports, any Company Corporate Document or Subsidiary Corporate Document if such amendment, in the Company's reasonable judgment, would materially adversely affect Purchaser or the holders of the Securities without the prior written consent of Purchaser. 8.6. PROHIBITION ON DISCOUNTED EQUITY OFFERINGS; REGISTRATION RIGHTS. 8.6.1. In addition to and not in lieu of the covenant specified in Section 8.1 above, beginning on the Closing Date and continuing until 180 days following the date on which the Registration Statement is declared effective by the Commission (the "Effective Date") or until such time as all of the Convertible Debentures have been either redeemed or converted into Conversion Shares in full, whichever is later to occur, the Company agrees that it will not issue any of its equity securities (or securities convertible into or exchangeable or exercisable for equity securities (the "Derivative Securities")) on terms that allow a holder thereof to acquire such equity securities (or Derivative Securities) at a discount to the Market Price of the Common Stock at the time of issuance or, in the case of Derivative Securities at a conversion price based on any formula (other than standard anti-dilution provisions) based on the Market Price on a date later than the date of issuance so long as such conversion is not below the Market Price on the date of issuance (each such event, a "Discounted Equity Offering"). As used herein, "discount" shall include, but not be limited to, (i) any warrant, right or other security granted or offered in connection with such issuance which, on the applicable date of grant, is offered with an exercise or conversion price, as the case may be, at less than the then current Market Price of the Common Stock or, if such security has an exercise or conversion price based on any formula (other than standard anti-dilution provisions) based on the Market Price on a date later than the date of issuance, then at a price below the Market Price on such date of exercise or conversion, as the case may be, or (ii) any commissions, fees or other allowances paid in connection with such issuances (other than customary underwriter or placement agent commissions, fees or allowances). For the purposes of determining the Market Price at which Common Stock is acquired under this Section, normal underwriting commissions and placement fees (including underwriters' warrants) shall be excluded. 8.6.2. Beginning on the Closing Date and continuing until 180 days following the Effective Date or until such time as all of the Convertible Debentures have been either redeemed or converted into Conversion Shares in full, whichever is later to occur, the Company agrees it will not issue any of its equity securities (or Derivative Securities), unless any shares of Common Stock issued or issuable in connection therewith are "restricted securities." As used herein "restricted securities" shall mean securities which may not be sold by virtue of contractual restrictions imposed by the Company or otherwise, in each case prior to twelve (12) months following the date of issuance of such securities. 8.6.3. The restrictions contained in this Section 8.6 shall not apply to the issuance by the Company of (or the agreement to issue) Common Stock or Derivative Securities in connection with (i) the acquisition (including by merger) of a business or of assets otherwise permitted under this Agreement, or (ii) stock option or other compensatory plans. 8.7. LIMITATION ON STOCK REPURCHASES. Except as otherwise set forth in the Convertible Debentures and the Warrants, the Company shall not, without the written consent of the Majority Holders, redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) any shares of capital stock of the Company or any warrants, rights or options to purchase or acquire any such shares. 8.8. LIMITATION ON SALES BY OFFICERS AND DIRECTORS. The executive officers and employee directors of the Company will not sell or otherwise dispose of (other than by reason of death or disability) to any other Person shares of Common Stock unless such disposition is made in accordance with the provisions of Rule 144 of the Securities Act regardless of whether Rule 144 would apply to such disposition. 9. RESTRICTIVE LEGENDS 9.1. RESTRICTIONS ON TRANSFER. From and after their respective dates of issuance, none of the Securities shall be transferable except upon the conditions specified in this Article IX, which conditions are intended to ensure compliance with the provisions of the Securities Act in respect of the Transfer of any of such Securities or any interest therein. Each Purchaser will use its best efforts to cause any proposed transferee of any Securities held by it to agree to take and hold such Securities subject to the provisions and upon the conditions specified in this Article IX. 9.2. NOTICE OF PROPOSED TRANSFERS. Prior to any proposed Transfer of the Securities (other than a Transfer (i) registered or exempt from registration under the Securities Act, (ii) to an affiliate of a Purchaser which is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act, provided that any such transferee shall agree to be bound by the terms of this Agreement and the Registration Rights Agreement, or (iii) to be made in reliance on Rule 144 under the Securities Act), the holder thereof shall give written notice to the Company of such holder's intention to effect such Transfer, setting forth the manner and circumstances of the proposed Transfer, which shall be accompanied by (A) an opinion of counsel reasonably acceptable to the Company, confirming that such transfer does not give rise to a violation of the Securities Act, (B) representation letters in form and substance reasonably satisfactory to the Company to ensure compliance with the provisions of the Securities Act and (C) letters in form and substance reasonably satisfactory to the Company from each such transferee stating such transferee's agreement to be bound by the terms of this Agreement and the Registration Rights Agreement. Such proposed Transfer may be effected only if the Company shall have received such notice of transfer, opinion of counsel, representation letters and other letters referred to in the immediately preceding sentence, whereupon the holder of such Securities shall be entitled to Transfer such Securities in accordance with the terms of the notice delivered by the holder to the Company. 10. ADDITIONAL AGREEMENTS AMONG THE PARTIES 10.1. LIQUIDATED DAMAGES. 10.1.1. The Company shall cause its transfer agent to, issue and deliver shares of Common Stock consistent with Section 7.11 hereof within three (3) New York Stock Exchange Trading Days of delivery of a Notice of Conversion or Notice of Exercise, as applicable (the "Deadline") to Purchaser (or any party receiving Securities by transfer from Purchaser) at the address of Purchaser set forth in the Notice of Conversion or Notice of Exercise, as the case may be. The Company understands that a delay in the issuance of such certificates after the Deadline could result in economic loss to Purchaser. 10.1.2. Without in any way limiting Purchaser's right to pursue other remedies, including actual damages and/or equitable relief, the Company agrees that if delivery of the Conversion Shares is more than one (1) Business Day after the Deadline (other than a failure due to the circumstances described in Section 4.3 of the Convertible Debentures, which failure shall be governed by such Section) the Company shall pay to Purchaser, as liquidated damages and not as a penalty, $500 for each $100,000 principal amount of Convertible Debentures then outstanding per day in cash, for each of the first ten days following the Deadline that the Company fails to deliver such Common Stock, and $1,000 for each $100,000 principal amount of Convertible Debentures then outstanding per day in cash, for each day thereafter the Company fails to deliver such Common Stock. Such cash amount shall be paid to Purchaser upon demand, or if no demand is made, by the last day of the calendar week following the week in which it has accrued or, at the option of Purchaser (by written notice to the Company by the first day of the week following the week in which it has accrued), shall be added to the principal amount of the Convertible Debenture (if then outstanding) payable to Purchaser, in which event interest shall accrue thereon in accordance with the terms of the Convertible Debentures and such additional principal amount shall be convertible into Common Stock in accordance with the terms of the Convertible Debentures. 10.2. CONVERSION NOTICE. The Company agrees that, in addition to any other remedies which may be available to Purchaser, including, but not limited to, the remedies available under Section 10.1, in the event the Company fails for any reason (other than as a result of actions taken by a Purchaser in breach of this Agreement) to effect delivery to a Purchaser of certificates with or without restrictive legends as contemplated by Article IX representing the shares of Common Stock on or prior to the Deadline after conversion of any Convertible Debentures or exercise of the Warrants, Purchaser will be entitled, if prior to the delivery of such certificates, to revoke the Notice of Conversion or Notice of Exercise, as applicable, by delivering a notice to such effect to the Company whereupon the Company and Purchaser shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion or Notice of Exercise, as the case may be. 10.3. CONVERSION LIMIT. Notwithstanding the conversion rights under the Convertible Debentures, unless Purchaser delivers a waiver which will be effective on the 61st day after it is given by Purchaser in accordance with the immediately following sentence, in no event shall Purchaser be entitled to convert any portion of the Convertible Debentures, in excess of that portion of the Convertible Debentures, as applicable, of which the sum of (i) the number of shares of Common Stock beneficially owned by Purchaser and its Affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Convertible Debenture or other Derivative Securities convertible into or exchangeable for shares of Common Stock which contain a limitation similar to that set forth in this Section 10.3), and (ii) the number of shares of Common Stock issuable upon the conversion of the portion of the Convertible Debenture with respect to which this determination is being made, would result in beneficial ownership by Purchaser and its Affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of Section 10.3(i) beneficial ownership shall be determined in accordance with Rule 13d-3 of the Exchange Act and Regulations 13 D-G thereunder, except as otherwise provided in this Section 10.3. The foregoing limitation shall not apply and shall be of no further force or effect (i) immediately preceding and upon the occurrence of any voluntary or mandatory redemption or repayment transaction described herein or in the Convertible Debentures, (ii) immediately preceding and upon any Sale Event, (iii) on the Maturity Date or (iv) following the occurrence of any Event of Default which is not cured for a period of ten (10) calendar days. 10.4. REGISTRATION RIGHTS. 10.4.1. The Company shall grant Purchaser registration rights covering the Conversion Shares (the "Registrable Securities") on the terms set forth in the Registration Rights Agreement and herein. 10.4.2. The Company shall prepare and file on or before the 60th day following the Closing Date (the "Filing Date"), a registration statement (the "Registration Statement") covering the resale of the Registrable Securities. In the event the Company fails to file the Registration statement by the Filing Date, the Company shall pay Purchaser as liquidated damages, and not as a penalty, an amount of cash equal to one percent of the aggregate principal amount of Convertible Debentures then outstanding per day until the Registration Statement is filed with the Commission. The Company shall use its best efforts to cause the Registration Statement to be declared effective by the Commission or the earlier of (i) 45 days following the Filing Date, (ii) ten days following the receipt of a "No Review" Letter from the Commission or (iii) the first day following the day the Commission determines the Registration Statement eligible to be declared effective (the "Required Effectiveness Date"). The Company shall pay all expenses of registration (other than underwriting fees and discounts, if any, in respect of Registrable Securities offered and sold under the registration statement by Purchaser). 10.4.3. If the Registration Statement is not declared effective by the Commission by the Required Effectiveness Date, the Company shall pay to Purchaser, as liquidated damages and not as a penalty, an amount equal to 2% of the outstanding principal amount of the Convertible Debentures, prorated, for each 30 day period the Registration Statement is not declared effective by the Commission, which amount will be increased to 3% of the outstanding principal amount of the Convertible Debentures in the event that the Registration Statement is not declared effective by the Commission within 75 days of the Filing Date. In the event the Company fails to obtain an effective registration statement by the 135th day following the Filing Date, the Company will redeem the Convertible Debentures and the Warrants as set forth in Section 5 of the Convertible Debentures and Section 13 of the Warrants, respectively. Additionally, the Company will grant to Purchaser certain piggyback registration rights in the event the Company proposes to effect a registered offering of Common Stock or warrants or both prior to the filing of the Registration Statement referenced above. 10.4.4. Any such liquidated damages shall be paid in cash by the Company to Purchaser by wire transfer in immediately available funds on the last day of each calendar week following the event requiring its payment. 10.4.5. If, following the declaration of effectiveness of the Registration Statement, such registration statement (or any prospectus or supplemental prospectus contained therein) shall cease to be effective for any reason (including but not limited to the occurrence of any event that results in any prospectus or supplemental prospectus containing an untrue statement of a material fact or omitting 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) for the period required in the Registration Rights Agreement (the "Registration Maintenance Period"), the Company fails to file required amendments to the Registration Statement in order to allow the Purchaser to exercise its rights to receive unrestricted, unlegended, freely tradeable shares of Common Stock, or if for any reason there are insufficient shares of such shares of Common Stock registered under the then current Registration Statement to effect full conversion of the Convertible Debentures or exercise of the Warrants (a "Registration Default"), the Company shall immediately take all necessary steps to cause the Registration Statement to be amended or supplemented so as to cure such Registration Default. Failure to cure a Registration Default within ten (10) business days shall result in the Company paying to Purchaser liquidated damages at the rate of $1,000 per day from the date of such Registration Default until the Registration Default is cured. 10.5. RESTRICTION ON ISSUANCE OF SECURITIES. Beginning on the Closing Date and continuing for a period of 180 days following the Effective Date or until the Convertible Debentures have been fully converted into shares of Common Stock, whichever is later to occur, the Company will not sell, or offer to sell, any securities (including credit facilities which are convertible into securities which may be issued at a discount to the then current Market Price) other than borrowings under conventional credit facilities existing as of the date hereof, stock issued or credit facilities to be established in connection with acquisitions, employee and director stock options of the Company, existing rights and warrants of the Company and securities issued under the Convertible Debentures or Warrants. In addition, the Company shall not issue any securities in connection with a strategic alliance entered into by the Company unless such securities are the subject of a one year statutory or contractual hold period or, if not subject to such a hold period, unless the Purchaser has fully converted all outstanding Convertible Debentures and exercised all Warrants. Notwithstanding the foregoing, the Company may enter into the following types of transactions (collectively referred to as "Permitted Financings"): (1) "permanent financing" transactions, which would include any form of debt or equity financing (other than an underwritten offering), which is followed by a reduction of the said financing commitment to zero and payment of all related fees and expenses; (2) "project financing" which provide for the issuance of recourse debt instruments in connection with the operation of the Company's business as presently conducted or as proposed to be conducted; (3) an underwritten offering of Common Stock, provided that such offering provides for the registration of the Common Stock to be received by Purchaser as a result of the conversion of the Convertible Debentures and the exercise of the Warrants held by the Purchaser to the extent there is not an effective Registration Statement for the sale of the Conversion Shares in place at the time of such offering; and (4) other financing transactions specifically consented to in writing by the Purchaser. 11. ADJUSTMENT OF FIXED PRICE 11.1. REORGANIZATION. The Conversion Price and the exercise price of the Warrants (collectively, the "Fixed Prices") shall be adjusted, as applicable, as hereafter provided. 11.2. SHARE REORGANIZATION. If and whenever the Company shall: 11.2.0.1. subdivide the outstanding shares of Common Stock into a greater number of shares; 11.2.0.2. consolidate the outstanding shares of Common Stock into a smaller number of shares; 11.2.0.3. issue Common Stock or securities convertible into or exchangeable for shares of Common Stock as a stock dividend to all or substantially all the holders of Common Stock; or 11.2.0.4. make a distribution on the outstanding Common Stock to all or substantially all the holders of Common Stock payable in Common Stock or securities convertible into or exchangeable for Common Stock; any of such events being herein called a "Share Reorganization," then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which the holders of Common Stock are determined for the purposes of the Share Reorganization or, if no record date is fixed, the effective date of the Share Reorganization, by multiplying the applicable Fixed Price in effect on such record or effective date, as the case may be, by a fraction of which: (i) the numerator shall be the number of shares of Common Stock outstanding on such record or effective date (without giving effect to the transaction); and (II) the denominator shall be the number of shares of Common Stock outstanding after giving effect to such Share Reorganization, including, in the case of a distribution of securities convertible into or exchangeable for shares of Common Stock, the number of shares of Common Stock that would have been outstanding if such securities had been converted into or exchanged for Common Stock on such record or effective date. 11.3. RIGHTS OFFERING. If and whenever the Company shall issue to all or substantially all the holders of Common Stock, rights, options or warrants under which such holders are entitled, during a period expiring not more than 45 days after the record date of such issue, to subscribe for or purchase Common Stock (or Derivative Securities), at a price per share (or, in the case of securities convertible into or exchangeable for Common Stock, at an exchange or conversion price per share at the date of issue of such securities) of less than 95% of the Market Price of the Common Stock on such record date (any such event being herein called a "Rights Offering"), then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which holders of Common Stock are determined for the purposes of the Rights Offering, by multiplying the applicable Fixed Price in effect on such record date by a fraction of which: 11.3.0.1. the numerator shall be the sum of: (i) the number of shares of Common Stock outstanding on such record date; and (II) a number obtained by dividing: 11.3.0.1.0.1. either, (x) the product of the total number of shares of Common Stock so offered for subscription or purchase and the price at which such shares are so offered, or (y) the product of the maximum number of shares of Common Stock into or for which the convertible or exchangeable securities so offered for subscription or purchase may be converted or exchanged and the conversion or exchange price of such securities, or, as the case may be, by 11.3.0.1.0.2. the Market Price of the Common Stock on such record date; and 11.3.0.2. the denominator shall be the sum of: 11.3.0.2.0.0.1.(i) the number of shares of Common Stock outstanding on such record date; and (II) the number of shares of Common Stock so offered for subscription or purchase (or, in the case of Derivative Securities, the maximum number of shares of Common Stock for or into which the securities so offered for subscription or purchase may be converted or exchanged). To the extent that such rights, options or warrants are not exercised prior to the expiry time thereof, the applicable Fixed Price shall be readjusted effective immediately after such expiry time to the applicable Fixed Price which would then have been in effect upon the number of shares of Common Stock (or Derivative Securities) actually delivered upon the exercise of such rights, options or warrants. 11.4. SPECIAL DISTRIBUTION. If and whenever the Company shall issue or distribute to all or substantially all the holders of Common Stock: 11.4.0.1. shares of the Company of any class, other than Common Stock; 11.4.0.2. rights, options or warrants; or 11.4.0.3. any other assets (excluding cash dividends and equivalent dividends in shares paid in lieu of cash dividends in the ordinary course); and if such issuance or distribution does not constitute a Share Reorganization or a Rights Offering (any such event being herein called a "Special Distribution"), then in each such case the applicable Fixed Price shall be adjusted, effective immediately after the record date at which the holders of Common Stock are determined for purposes of the Special Distribution, by multiplying the applicable Fixed Price in effect on such record date by a fraction of which: 11.4.0.4. the numerator shall be the difference between: 11.4.0.4.0.1. the product of the number of shares of Common Stock outstanding on such record date and the Market Price of the Common Stock on such date; and 11.4.0.4.0.2. the fair market value, as determined by the Directors (whose determination shall be conclusive), to the holders of Common Stock of the shares, rights, options, warrants, evidences of indebtedness or other assets issued or distributed in the Special Distribution (net of any consideration paid therefor by the holders of Common Stock), and 11.4.0.5. the denominator shall be the product of the number of shares of Common Stock outstanding on such record date and the Market Price of the Common Stock on such date. 11.5. CAPITAL REORGANIZATION. If and whenever there shall occur: 11.5.0.1. a reclassification or redesignation of the shares of Common Stock or any change of the shares of Common Stock into other shares, other than in a Share Reorganization; 11.5.0.2. a consolidation, merger or amalgamation of the Company with, or into another body corporate; or 11.5.0.3. the transfer of all or substantially all of the assets of the Company to another body corporate; (any such event being herein called a "Capital Reorganization"), then in each such case the holder who exercises the right to convert Convertible Debentures after the effective date of such Capital Reorganization shall be entitled to receive and shall accept, upon the exercise of such right, in lieu of the number of shares of Common Stock to which such holder was theretofore entitled upon the exercise of the conversion privilege, the aggregate number of shares or other securities or property of the Company or of the body corporate resulting from such Capital Reorganization that such holder would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, such holders had been the holder of the number of shares of Common Stock to which such holder was theretofore entitled upon conversion; provided, however, that no such Capital Reorganization shall be consummated in effect unless all necessary steps shall have been taken so that such holders shall thereafter be entitled to receive such number of shares or other securities of the Company or of the body corporate resulting from such Capital Reorganization, subject to adjustment thereafter in accordance with provisions the same, as nearly as may be possible, as those contained above. 11.6. PURCHASE PRICE ADJUSTMENTS. In case at any time and from time to time the Company shall issue any shares of Common Stock or Derivative Securities convertible or exercisable for shares of Common Stock (the number of shares so issued, or issuable upon conversion or exercise of such Derivative Securities, as applicable, being referred to as "Additional Shares of Common Stock") for consideration less than the then Market Price at the date of issuance of such shares of Common Stock or such Derivative Securities, in each such case the Conversion Price shall, concurrently with such issuance, be adjusted by multiplying the Conversion Price immediately prior to such event by a fraction: (i) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus the number of shares of Common Stock that the aggregate consideration received by the Company for the total number of such Additional Shares of Common Stock so issued would purchase at the Market Price and (ii) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of Additional Shares of Common Stock plus the number of such Additional Shares of Common Stock so issued or sold. 11.7. ADJUSTMENT RULES. The following rules and procedures shall be applicable to adjustments made in this Article XI: 11.7.1. no adjustment in the applicable Fixed Price shall be required unless such adjustment would result in a change of at least 1% in the applicable Fixed Price then in effect, provided, however, that any adjustments which, but for the provisions of this clause would otherwise have been required to be made, shall be carried forward and taken into account in any subsequent adjustment; 11.7.2. if any event occurs of the type contemplated by the adjustment provisions of this Article XI but not expressly provided for by such provisions, the Company will give notice of such event as provided herein, and the Company's board of directors will make an appropriate adjustment in the Fixed Price so that the rights of the holders of the applicable Security shall not be diminished by such event; and 11.7.3. if a dispute shall at any time arise with respect to any adjustment of the applicable Fixed Price, such dispute shall be conclusively determined by the auditors of the Company or, if they are unable or unwilling to act, by a firm of independent chartered accountants selected by the Directors and any such determination shall be binding upon the Company and Purchaser. 11.8. CERTIFICATE AS TO ADJUSTMENT. The Company shall from time to time promptly after the occurrence of any event which requires an adjustment in the applicable Fixed Price deliver to Purchaser a certificate specifying the nature of the event requiring the adjustment, the amount of the adjustment necessitated thereby, the applicable Fixed Price after giving effect to such adjustment and setting forth, in reasonable detail, the method of calculation and the facts upon which such calculation is based. 11.9. NOTICE TO HOLDERS. If the Company shall fix a record date for: 11.9.1. any Share Reorganization (other than the subdivision of outstanding Common Stock into a greater number of shares or the consolidation of outstanding Common Stock into a smaller number of shares), 11.9.2. any Rights Offering, 11.9.3. any Special Distribution, 11.9.4. any Capital Reorganization (other than a reclassification or redesignation of the Common Stock into other shares), 11.9.5. Sale Event; or 11.9.6. any cash dividend, the Company shall, not less than 10 days prior to such record date or, if no record date is fixed, prior to the effective date of such event, give to Purchaser notice of the particulars of the proposed event or the extent that such particulars have been determined at the time of giving the notice. 12. EVENTS OF DEFAULT 12.1. EVENTS OF DEFAULT. If one or more of the following events (each an "Event of Default") shall have occurred and be continuing: 12.1.1. failure by the Company to pay or repay when due, all or any part of the principal on any of the Convertible Debentures (whether by virtue of the agreements specified in this Agreement or the Convertible Debentures); 12.1.2. failure by the Company to pay (i) within five (5) Business Days of the due date thereof any interest on any Convertible Debentures or (ii) within five (5) Business Days following the delivery of notice to the Company of any fees or any other amount payable (not otherwise referred to in (a) above or this clause (b)) by the Company under this Agreement or any other Transaction Agreement; 12.1.3. failure by the Company to timely comply with the requirements of Section 7.11 or 10.1 hereof, which failure is not cured within five (5) Business Days of such failure; 12.1.4. failure on the part of the Company to observe or perform any covenant contained in Section 7.10 or Article VIII of this Agreement; 12.1.5. failure on the part of the Company to observe or perform any covenant or agreement contained in any Transaction Agreement (other than those covered by clauses (a), (b), (c) or (d) above) for 30 days from the date of such occurrence; 12.1.6. the trading in the Common Stock shall have been suspended by the Commission or any National Market (except for any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company and except if, at the time there is any suspension on any National Market, the Common Stock is then listed and approved for trading on another National Market within ten (10) Trading Days thereof); 12.1.7. failure of the Company to file the Listing Applications when the Company is eligible within twenty (20) Business Days of the Closing Date, as applicable, which failure is not cured within five (5) Business Days of such failure; 12.1.8. the Company shall have its Common Stock delisted from a National Market for at least ten (10) consecutive Trading Days and is unable to obtain a listing on a National Market within such ten (10) Trading Days; 12.1.9. the Registration Statement shall not have been declared effective by the Commission by the Required Effectiveness Date, or such effectiveness shall not be maintained for the Registration Maintenance Period, in each case which results in the Company incurring the registration for a period in excess of 10 days; 12.1.10. the Company or any Subsidiary has commenced a voluntary case or other proceeding seeking liquidation, winding-up, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency, moratorium or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or has consented to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or has made a general assignment for the benefit of creditors, or has failed generally to pay its debts as they become due, or has taken any corporate action to authorize any of the foregoing; 12.1.11. an involuntary case or other proceeding has been commenced against the Company or any Subsidiary seeking liquidation, winding-up, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency, moratorium or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days, or an order for relief has been entered against the Company or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; 12.1.12. default in any provision (including payment) or any agreement governing the terms of any Debt of the Company or any Subsidiary in excess of $500,000, which has not been cured within any applicable period of grace associated therewith; 12.1.13. judgments or orders for the payment of money which in the aggregate at any one time exceed $1,000,000 and are not covered by insurance have been rendered against the Company or any Subsidiary by a court of competent jurisdiction and such judgments or orders shall continue unsatisfied and unstayed for a period of 60 days; or 12.1.14. any representation, warranty, certification or statement made by the Company in any Transaction Agreement or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with any Transaction Agreement shall prove to have been untrue in any material respect when made. then, and in every such occurrence, Purchaser may, with respect to an Event of Default specified in paragraphs (a) or (b), and the Majority Holders may, with respect to any other Event of Default, by notice to the Company, declare the Convertible Debentures to be, and the Convertible Debentures shall thereon become immediately due and payable; provided that in the case of any of the Events of Default specified in paragraph (j) or (k) above with respect to the Company or any Subsidiary, then, without any notice to the Company or any other act by Purchaser, the entire amount of the Convertible Debentures shall become immediately due and payable, provided, further, if any Event of Default has occurred and is continuing, and irrespective of whether any Convertible Debenture has been declared immediately due and payable hereunder, any Purchaser of Convertible Debentures may proceed to protect and enforce the rights of Purchaser by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Convertible Debenture, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise, and provided further, in the case of any Event of Default, the amount declared due and payable on the Convertible Debentures shall be the Formula Price thereof. 12.2. POWERS AND REMEDIES CUMULATIVE. No right or remedy herein conferred upon or reserved to Purchaser is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Every power and remedy given by the Convertible Debentures or by law may be exercised from time to time, and as often as shall be deemed expedient, by Purchaser. 13. MISCELLANEOUS 13.1. NOTICES. All notices, demands and other communications to any party hereunder shall be in writing (including telecopier or similar writing) and shall be given to such party at its address set forth on the signature pages hereof, or such other address as such party may hereafter specify for the purpose to the other parties. Each such notice, demand or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified on the signature page hereof, (ii) if given by mail, four days after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in or pursuant to this Section. 13.2. NO WAIVERS; AMENDMENTS. 13.2.1. No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. 13.2.2. Any provision of this Agreement may be amended, supplemented or waived if, but only if, such amendment, supplement or waiver is in writing and is signed by the Company and the Majority Holders; provided, that without the consent of each holder of any Convertible Debenture affected thereby, an amendment or waiver may not (a) reduce the aggregate principal amount of Convertible Debentures whose holders must consent to an amendment or waiver, (b) reduce the rate or extend the time for payment of interest on any Convertible Debenture, (c) reduce the principal amount of or extend the stated maturity of any Convertible Debenture or (d) make any Convertible Debenture payable in money or property other than as stated in such Convertible Debenture. In determining whether the holders of the requisite principal amount of Convertible Debentures have concurred in any direction, consent, or waiver as provided in any Transaction Agreement, Convertible Debentures which are owned by the Company or any other obligor on or guarantor of the convertible Debentures, or by any Person Controlling, Controlled by, or under common Control with any of the foregoing, shall be disregarded and deemed not to be outstanding for the purpose of any such determination; and provided further that no such amendment, supplement or waiver which affects the rights of Purchaser and their affiliates otherwise than solely in their capacities as holders of Convertible Debentures shall be effective with respect to them without their prior written consent. 13.3. INDEMNIFICATION. 13.3.1. The Company agrees to indemnify and hold harmless Purchaser, its Affiliates, and each Person, if any, who controls Purchaser, or any of its Affiliates, within the meaning of the Securities Act or the Exchange Act (each, a "Controlling Person"), and the respective partners, agents, employees, officers and Directors of Purchaser, their Affiliates and any such Controlling Person (each an "Indemnified Party") and collectively, the "Indemnified Parties"), from and against any and all losses, claims, damages, liabilities and expenses (including, without limitation and as incurred, reasonable costs of investigating, preparing or defending any such claim or action, whether or not such Indemnified Party is a party thereto, provided that the Company shall not be obligated to advance such costs to any Indemnified Party other than Purchaser unless it has received from such Indemnified Party an undertaking to repay to the Company the costs so advanced if it should be determined by final judgment of a court of competent jurisdiction that such Indemnified Party was not entitled to indemnification hereunder with respect to such costs) which may be incurred by such Indemnified Party in connection with any investigative, administrative or judicial proceeding brought or threatened that relates to or arises out of, or is in connection with any activities contemplated by any Transaction Agreement or any other services rendered in connection herewith; provided that the Company will not be responsible for any claims, liabilities, losses, damages or expenses that are determined by final judgment of a court of competent jurisdiction to result from such Indemnified Party's gross negligence, willful misconduct or bad faith. 13.3.2. If any action shall be brought against an Indemnified Party with respect to which indemnity may be sought against the Company under this Agreement, such Indemnified Party shall promptly notify the Company in writing and the Company, at its option, may, assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party and payment of all reasonable fees and expenses. The failure to so notify the Company shall not affect any obligations the Company may have to such Indemnified Party under this Agreement or otherwise unless the Company is materially adversely affected by such failure. Such Indemnified Party shall have the right to employ separate counsel in such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party, unless (i) the Company has failed to assume the defense and employ counsel or (ii) the named parties to any such action (including any impleaded parties) include such Indemnified Party and the Company, and such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company, in which case, if such Indemnified Party notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, the Company shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Party, provided, however, that the Company shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be responsible hereunder for the reasonable fees and expenses of more than one such firm of separate counsel, in addition to any local counsel, which counsel shall be designated by Purchaser. The Company shall not be liable for any settlement of any such action effected without the written consent of the Company (which shall not be unreasonably withheld) and the Company agrees to indemnify and hold harmless each Indemnified Party from and against any loss or liability by reason of settlement of any action effected with the consent of the Company. In addition, the Company will not, without the prior written consent of Purchaser, settle or compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action, claim, suit or proceeding in respect to which indemnification or contribution may be sought hereunder (whether or not any Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination includes an express unconditional release of Purchaser and the other Indemnified Parties, satisfactory in form and substance to Purchaser, from all liability arising out of such action, claim, suit or proceeding. 13.3.3. If for any reason the foregoing indemnity is unavailable (otherwise than pursuant to the express terms of such indemnity) to an Indemnified Party or insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying such Indemnified Party, the Company shall contribute to the amount paid or payable by such Indemnified Party as a result of such claims, liabilities, losses, damages, or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by Purchaser on the other from the transactions contemplated by this Agreement or (ii) if the allocation provided by clause (i) is not permitted under applicable law, in such proportion as is appropriate to reflect not only the relative benefits received by the Company on the one hand and Purchaser on the other, but also the relative fault of the Company and Purchaser as well as any other relevant equitable considerations. Notwithstanding the provisions of this Section 13.3, the aggregate contribution of all Indemnified Parties shall not exceed the amount of interest and fees actually received by Purchaser pursuant to this Agreement. It is hereby further agreed that the relative benefits to the Company on the one hand and Purchaser on the other with respect to the transactions contemplated hereby shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of material fact or the omission or alleged omission to state a material fact related to information supplied by the Company or by Purchaser and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 13.3.4. The indemnification, contribution and expense reimbursement obligations set forth in this Section 13.3 (i) shall be in addition to any liability the Company may have to any Indemnified Party at common law or otherwise; (ii) shall survive the termination of this Agreement and the other Transaction Agreements and the payment in full of the Convertible Debentures and (iii) shall remain operative and in full force and effect regardless of any investigation made by or on behalf of Purchaser or any other Indemnified Party. 13.4. EXPENSES: DOCUMENTARY TAXES. The Company agrees to pay to Purchaser a fee of $25,000.00 (the "Expense Reimbursement Fee") in full satisfaction of all obligations of the Company to Purchaser and its agents in connection with the negotiation and preparation of the Transaction Agreements, relevant due diligence, and fees and disbursements of legal counsel. In addition, the Company agrees to pay any and all stamp, transfer and other similar taxes, assessments or charges payable in connection with the execution and delivery of any Transaction Agreement or the issuance of the Securities to Purchaser, excluding their assigns. 13.5. PAYMENT. The Company agrees that, so long as Purchaser shall own any Convertible Debentures purchased by it from the Company hereunder, the Company will make payments to Purchaser of all amounts due thereon by wire transfer by 4:00 P.M. (E.S.T.). 13.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and upon Purchaser and its respective successors and assigns; provided that the Company shall not assign or otherwise transfer its rights or obligations under this Agreement to any other Person without the prior written consent of the Majority Holders. All provisions hereunder purporting to give rights to Purchaser and its affiliates or to holders of Securities are for the express benefit of such Persons and their successors and assigns. 13.7. BROKERS. Except for a cash fee payable to DP Securities, Inc. in the form of 3% of the principal amount of the Convertible Debentures purchased on the Closing Date by Purchaser, the Company represents and warrants that it has not employed any broker, finder, financial advisor or investment banker who would be entitled to any brokerage, finder's or other fee or commission payable by the Company or Purchaser in connection with the sale of the Securities. 13.8. CALIFORNIA LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; APPOINTMENT OF AGENT. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA. EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA AND OF ANY FEDERAL DISTRICT COURT SITTING IN CALIFORNIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH HEREIN. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY. 13.9. ENTIRE AGREEMENT. This Agreement, the Exhibits or Schedules hereto, which include, but are not limited to the Convertible Debenture, the Warrant, the Registration Rights Agreement and the Security Agreement, set forth the entire agreement and understanding of the parties relating to the subject matter hereof and supercedes all prior and contemporaneous agreements, negotiations and understandings between the parties, both oral and written relating to the subject matter hereof. The terms and conditions of all Exhibits and Schedules to this Agreement are incorporated herein by this reference and shall constitute part of this Agreement as is fully set forth herein. 13.10. SURVIVAL; SEVERABILITY. The representations, warranties, covenants and agreements of the parties hereto shall survive the Closing hereunder. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party. 13.11. TITLE AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 13.12. REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement and all Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of the Purchaser and the Company shall be required to employ any other reporting entity. 13.13. PUBLICITY. The Company and the Purchaser shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other parties with prior notice of such public statement. Notwithstanding the foregoing, the Company shall not publicly disclose the name of Purchaser without the prior written consent of Purchaser, except to the extent required by law, in which case the Company shall provide Purchaser with prior written notice of such public disclosure. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers, as of the date first above written. CREATIVE HOST SERVICES, INC. By: /s/ Name: _______________________________ Title: _______________________________ Address: Creative Host Services, Inc. 6335 Ferris Square Suite G San Diego, CA 92126 Fax: Tel.: GCA STRATEGIC INVESTMENT FUND LIMITED By: /s/ Name: Lewis N. Lester Title: Director Address: c/o Prime Management Limited Mechanics Building 12 Church Street Hamilton HM II, Bermuda Fax: 441-295-3926 Tel.: 441-295-0329 EX-4.2 4 0004.txt FORM OF CONVERTIBLE DEBENTURE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED. No. 1 $2,000,000 7% CONVERTIBLE DEBENTURE of Creative Host Services, Inc., a California corporation (together with its successors, the "Company"), for value received hereby promises to pay to: GCA STRATEGIC INVESTMENT FUND LIMITED (The "Holder") and registered assigns, the principal sum of Two Million ($2,000,000) or, if less, the principal amount of this Debenture then outstanding, on the Maturity Date by wire transfer of immediately available funds to the Holder in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest which shall accrue beginning the date hereof, quarterly in arrears, on (i) the last day of March, June, September and December of each year until the Maturity Date, commencing December 31, 2000 (unless such day is not a Business Day, in which event on the next succeeding Business Day) (each an "Interest Payment Date"), (ii) the Maturity Date, (iii) each Conversion Date, as hereafter defined, and (iv) the date the principal amount of the Convertible Debentures shall be declared to be or shall automatically become due and payable, on the principal sum hereof outstanding in like coin or currency, at the rates per annum set forth below, from the most recent Interest Payment Date to which interest has been paid on this Convertible Debenture, or if no interest has been paid on this Convertible Debenture, from the date of this Convertible Debenture until payment in full of the principal sum hereof has been made. The Maturity Date is September 26, 2003. The interest rate shall be seven percent (7%) per annum (the "Interest Rate") or, if less, the maximum rate permitted by applicable law. Past due amounts (including interest, to the extent permitted by law) will also accrue interest at the Interest Rate plus 2% per annum or, if less, the maximum rate permitted by applicable law, and will be payable on demand ("Default Interest"). Interest on this Convertible Debenture will be calculated on the basis of a 360-day year of twelve 30 day months. All payments of principal and interest hereunder shall be made for the benefit of the Holder pursuant to the terms of the Agreement (hereafter defined). At the option of the Company, interest may be paid in cash or in shares of Common Stock. If the Company determines to pay interest in shares of Common Stock, it shall be required to notify the Holder of such election on the Closing Date. On each Conversion Date, interest shall be paid in shares of Common Stock on the portion of the principal balance of the Convertible Debenture then being converted. The number of shares of Common Stock issued as interest shall be determined by dividing the dollar amount of interest due on the applicable Interest Payment Date by the Conversion Price then in effect. This Convertible Debenture (this "Convertible Debenture") is a duly authorized issuance of Convertible Debentures of the Company referred to in that certain Securities Purchase Agreement dated as of the date hereof between the Company and the Purchaser named therein (the "Agreement"). The Agreement contains certain additional agreements among the parties with respect to the terms of this Convertible Debenture, including, without limitation, provisions which (A) limit the conversion rights of the Holder, (B) specify voluntary and mandatory repayment, prepayment and redemption rights and obligations and (C) specify Events of Default following which the remaining balance due and owing hereunder may be accelerated. All such provisions are an integral part of this Convertible Debenture and are incorporated herein by reference. This Convertible Debenture is transferable and assignable to one or more Persons, in accordance with the limitations set forth in the Agreement. Effective as of October 26, 2000 this Convertible Debenture shall be secured by a Security Agreement (the "Security Agreement") of even date herewith made by the Company and Holder creating a security interest in favor of the Holder in certain of the Company's assets described in the Security Agreement. The Company shall keep a register (the "Register") in which shall be entered the names and addresses of the registered holder of this Convertible Debenture and particulars of this Convertible Debenture held by such holder and of all transfers of this Convertible Debenture. References to the Holder or "Holders" shall mean the Person listed in the Register as registered holder of such Convertible Debentures. The ownership of this Convertible Debenture shall be proven by the Register. 1. CERTAIN TERMS DEFINED. All terms defined in the Agreement and not otherwise defined herein shall have for purposes hereof the meanings provided for in the Agreement. 2. COVENANTS. The Company covenants and agrees to observe and perform each of its covenants, obligations and undertakings contained in the Agreement, which obligations and undertakings are expressly assumed herein by the Company and made for the benefit of the holder hereof. 3. PAYMENT OF PRINCIPAL; PREPAYMENT. The Company shall repay the remaining unpaid balance of this Convertible Debenture on the Maturity Date. For so long as no Event of Default or Default has occurred, the Company may prepay all of the outstanding principal amount and accrued interest of this Convertible Debenture on or before the thirtieth day following the date of this Convertible Debenture for a prepayment price equal to the original outstanding principal amount of this Convertible Debenture plus all accrued interest thereon (the "Prepayment Price"). In addition to the foregoing, the Company may or shall be obligated to under certain circumstances, redeem all or a portion of this Convertible Debenture on the terms specified in the Agreement in accordance with Section 5 of this Convertible Debenture. 4. CONVERSION. 4.1 CONVERSION OF CONVERTIBLE DEBENTURE. Subject to Section 5 hereof, the Holder shall have the right, at its option, at any time from and after the thirtieth day following the date of issuance of this Convertible Debenture, convert the principal amount of this Convertible Debenture, or any portion of such principal amount, into that number of fully paid and nonassessable shares of Common Stock (as such shares shall then be constituted) determined pursuant to this Section 4.1. The number of shares of Common Stock to be issued upon each conversion of this Convertible Debenture shall be determined by dividing the Conversion Amount (as defined below) by the Conversion Price in effect on the date (the "Conversion Date") a Notice of Conversion is delivered to the Company, as applicable, by the Holder by facsimile or other reasonable means of communication dispatched prior to 5:00 p.m., E.S.T. The term "Conversion Amount" means, with respect to any conversion of this Convertible Debenture, the sum of (1) the principal amount of this Convertible Debenture to be converted in such conversion plus (2) accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Convertible Debenture to the Conversion Date plus (3) Default Interest, if any, on the interest referred to in the immediately preceding clause (2) plus (4) at the Holder's option, any amounts owed to the Holder pursuant to Section 4.3 hereof, Section 10.1 of the Agreement or Section 10.4 of the Agreement. 4.2 CONVERSION PRICE. At the option of the Holder, any portion or all of the outstanding principal amount of this Convertible Debenture shall be converted into a number of shares of Common Stock at the conversion price (the "Conversion Price") equal to the lesser of (i) 110% of the volume weighted average sales price of the Common Stock, as reported by Bloomberg L.P. on the day immediately preceding the Closing Date (the "Fixed Conversion Price") and (ii) 85% of the average of the five (5) lowest volume weighted average sales prices of the Common Stock as reported by Bloomberg L.P. during the twenty-five (25) Trading Days immediately preceding but not including the date of the related Notice of Conversion (the "Formula Conversion Price"). 4.3 AUTHORIZED SHARES. (a) Consistent with Section 7.11 of the Agreement, the Company (i) shall promptly irrevocably instruct the Company's transfer agent to issue certificates for the Common Stock issuable upon conversion of this Convertible Debenture and (ii) agrees that its issuance of this Convertible Debenture shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Convertible Debenture. (b) If at any time a Holder of this Convertible Debenture submits a Notice of Conversion (x) the Company does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in full in accordance with the provisions of this Article 4 or (y) the Company is prohibited by the applicable rules of the OTC Bulletin Board or the National Market on which the Common Shares are listed and traded at that time to effect such conversion in full as provided in subsection (d) below, without stockholder approval (each, a "Conversion Default"), the Company shall issue to the Holder all of the shares of Common Stock which are then available to effect such conversion. The portion of this Convertible Debenture which the Holder included in its Conversion Notice and which exceeds the amount which is then convertible into available shares of Common Stock (the "Excess Amount") shall, notwithstanding anything to the contrary contained herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the Holder's option at any time after) the date additional shares of Common Stock are authorized by the Company, or its stockholders, as applicable, at which time the Conversion Price in respect thereof shall be the lower of (i) the Conversion Price on the Conversion Default Date (as defined below) and (ii) the Conversion Price on the Conversion Date thereafter elected by the Holder in respect thereof. The Company shall pay to the Holder payments ("Conversion Default Payments") for a Conversion Default in the amount of (N/365) x .24 x the Excess Amount on the Conversion Date in respect of the Conversion Default (the "Conversion Default Date"), where N = the number of days from the Conversion Default Date to the date (the "Authorization Date") that the Company, or its stockholders, as applicable, authorizes a sufficient number of shares of Common Stock to effect conversion of the full outstanding principal balance of this Convertible Debenture. The Company shall use its best efforts to authorize, or cause its stockholders to authorize within 40 days of the occurrence of a Conversion Default, as applicable, a sufficient number of shares of Common Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the Company or that the Company otherwise becomes aware that there are or likely will be insufficient shares to allow full conversion thereof and (ii) a Conversion Default. The Company shall send notice to the Holder of the authorization of additional shares of Common Stock, the Authorization Date and the amount of Holder's accrued Conversion Default Payments. The accrued Conversion Default Payments for each calendar month shall be paid in cash or shall be convertible into Common Stock (at such time as there are sufficient authorized shares of Common Stock) at the Market Price, at the Holder's option, as follows: (1) In the event the Holder elects to take such payment in cash, cash payment shall be made to Holder by the fifth Business Day of the month following the month in which it has accrued; and (2) In the event the Holder elects to take such payment in Common Stock, the Holder may convert such payment amount into Common Stock at the Conversion Price (as in effect at the time of conversion) at any time after the fifth Business Day of the month following the month in which it has accrued (at such time as there are sufficient authorized shares of Common Stock) in accordance with the terms of this Article 4. (c) The Holder's election pursuant to this Section 4.3 shall be made in writing to the Company at any time prior to 5:00 p.m., E.S.T., on the third Business Day of the month following the month in which Conversion Default payments have accrued. If no election is made, the Holder shall be deemed to have elected to receive cash. Nothing herein shall limit the Holders right to pursue actual damages (to the extent in excess of the Conversion Default Payments) due to the Company's failure to maintain a sufficient number of authorized shares of Common Stock. (d) In no event shall the Company issue more than the Maximum Number of Shares upon conversion of this Convertible Debenture, unless the Company shall have obtained approval by the stockholders of the Company ("Stockholder Approval") or a waiver of such requirement by the OTC Bulletin Board or the National Market on which the Common Shares are listed and traded at that time. Once the Maximum Number of Shares has been issued (the date of which is hereinafter referred to as the "Maximum Conversion Date"), unless the Company shall have obtained Stockholder Approval or a waiver of such requirement by the OTC Bulletin Board or the National Market on which the Common Shares are listed and traded at that time within 40 days of the Maximum Conversion Date, the Company shall pay to the Holder within five (5) Business Days of the Maximum Conversion Date (or, if the Company is, in good faith, using its best efforts to obtain Stockholder Approval, then the earlier of (x) 40 days following the Maximum Conversion Date, and (y) such date that it becomes reasonably apparent that Stockholder Approval will not be obtained within such 40 days period), the Formula Price plus accrued and unpaid Default Interest, if any. The Maximum Number of Shares shall be subject to adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof as contemplated by Article XI of the Agreement. With respect to each Holder of Convertible Debentures, the Maximum Number of Shares shall refer to such Holder's pro rata share thereof based upon the aggregate principal balance of the Convertible Debentures then outstanding. In the event that the Company obtains Stockholder Approval, approval of the OTC Bulletin Board or the National Market on which the Common Shares are listed and traded at that time, or otherwise is able to increase the number of shares to be issued above the Maximum Number of Shares (such increased number being the "New Maximum Number of Shares"), the references to Maximum Number of Shares above shall be deemed to be, instead, references to the New Maximum Number of Shares. 4.4 METHOD OF CONVERSION. (a) Notwithstanding anything to the contrary set forth herein, upon conversion of this Convertible Debenture in accordance with the terms hereof, the Holder shall not be required to physically surrender this Convertible Debenture to the Company unless the entire unpaid principal amount of this Convertible Debenture is so converted. Rather, records showing the principal amount converted (or otherwise repaid) and the date of such conversion or repayment shall be maintained on a ledger substantially in the form of Annex A attached hereto (a copy of which shall be delivered to the Company or transfer agent with each Notice of Conversion). It is specifically contemplated that the Holder hereof shall act as the calculation agent for conversions and repayments. In the event of any dispute or discrepancies, such records maintained by the Holder shall be controlling and determinative in the absence of manifest error or failure of Holder to record the principal amount converted (or otherwise repaid) from time to time, in which events the record of the Company shall be controlling and determinative. The Holder and any assignee, by acceptance of this Convertible Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following a conversion of a portion of this Convertible Debenture, the principal amount represented by this Convertible Debenture will be the amount indicated on Annex A attached hereto (which may be less than the amount stated on the face hereof). (b) The Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock or other securities or property on conversion of this Convertible Debenture in a name other than that of the Holder (or in street name), and the Company shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder's account) requesting the issuance thereof shall have paid to the Company the amount of any such tax or shall have established to the satisfaction of the Company that such tax has been paid. (c) Subject to Section 5 hereof, upon receipt by the Company of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Convertible Debenture shall be deemed reduced to reflect such conversion, and, unless the Company defaults on its obligations under this Article 4, all rights with respect to the portion of this Convertible Debenture being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. Subject to Section 5 hereof, if the Holder shall have given a Notice of Conversion as provided herein, the Company's obligation to issue and deliver the certificates for shares of Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provisions thereof, the recovery of any judgment against any person or any action by the Holder to enforce the same, any failure or delay in the enforcement of any other obligation of the Company to the Holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Company, and subject to Section 4.4(a) irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with such conversion. The date of receipt (including receipt via telecopy) of such Notice of Conversion shall be the Conversion Date so long as it is received before 5:00 p.m., E.S.T., on such date. (d) Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the expiration of the Deadline with respect to a conversion of any portion of this Convertible Debenture for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Company), the Holder shall regain the rights of a Holder of this Convertible Debenture with respect to such unconverted portions of this Convertible Debenture and the Company shall, as soon as practicable, return such unconverted Convertible Debenture to the holder or, if the Convertible Debenture has not been surrendered, adjust its records to reflect that such portion of this Convertible Debenture not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 4.3 for the Company's failure to convert this Convertible Debenture. (e) In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of the Holder and its compliance with the provisions contained in Section 4.1 and in this Section 4.4, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission System. 5. REDEMPTION BY COMPANY. 5.1 COMPANY'S RIGHT TO REDEEM. In accordance with the provisions of the Purchase Agreement, the Company may elect at any time following the thirtieth day following the date of issuance of this Convertible Debenture, or be required, upon receipt of a Notice of Conversion, to redeem in whole or in part, the remaining unpaid principal amount of this Convertible Debenture, for cash at a redemption price (the "Redemption Price") equal to (x) the number of shares of Common Stock into which this Convertible Debenture is then convertible, times (y) the average Closing Bid Price of Common Stock for the five (5) trading days as reported by Bloomberg L.P. immediately prior to the date that this Convertible Debenture is called for redemption, plus accrued and unpaid interest. 5.2 MECHANICS OF REDEMPTION. The Company shall effect each such redemption within three business days of giving notice of its election to redeem by facsimile with a copy by either overnight or 2-day courier to the Holder of this Convertible Debenture to be redeemed at the address and facsimile number of such Holder appearing in the Company's register for the Convertible Debentures. Such redemption notice shall indicate whether the Company will redeem all or part of such portion of the Convertible Debenture to be redeemed and the applicable Redemption Price. The Company shall not be entitled to send any notice of redemption and begin the redemption procedure unless it has (i) the full amount of the Redemption Price, in cash, available in a demand or other immediately available account in a bank or similar financial institution or (ii) immediately available credit facilities, in the full amount of the Redemption Price, with a bank or similar financial institution on the date the redemption notice is sent to the Holders of this Convertible Debenture. Provided, however, the Company will process any Notice of Conversion received prior to the issuance of a notice of redemption; and further provided that, after a notice of redemption has been issued, the Holder may issue a Notice of Conversion which will not be honored unless the Company fails to make the redemption payment when due. In the event of such failure, the Notice of Conversion will be honored as of the date of the Notice of Conversion. Additionally, if the Company fails to make full payments of the Redemption Price of this Convertible Debenture being redeemed by the third business day following the notice or redemption, then the Company waives its right to redeem any of the remaining then outstanding Debentures, unless approved by the Holder. 5.3 PAYMENT OF REDEMPTION PRICE. The Redemption Price shall be paid to the Holder of this Convertible Debenture within three business days of the delivery of the notice of such redemption to such Holder. 6. HOLDER'S RIGHT TO ADVANCE NOTICE OF ELECTION REDEEM. 6.1 HOLDER'S RIGHT TO ELECT TO RECEIVE NOTICE OF CASH REDEMPTION BY COMPANY. The Holder of this Convertible Debenture shall have the right to require Company to provide advance notice stating whether the Company will elect to redeem all or part of the redeemable portion in cash, pursuant to the Company's redemption rights discussed in Section 5.1 above. 6.2 MECHANICS OF HOLDER'S ELECTION NOTICE. Holder shall give notice to the Company by facsimile (the "Election Notice"), requiring that the Company disclose whether the Company would elect to redeem the redeemable portion of this Convertible Debenture (in whole or in part) if the Holder were to provide a Notice of Conversion and sought to convert the Convertible Debenture in such principal amount as is specified in the Notice of Election. 6.3 COMPANY'S RESPONSE. Company must respond, disclosing its election, within two (2) business days of receipt of Holder's Election Notice via facsimile. If Company does not respond to Holder within two (2) business days (by 12:00 noon, if required above) via facsimile, Company shall be deemed to have forfeited its right to exercise redemption pursuant to Section 5(a) upon its receipt of (but only with respect to) that Notice of Conversion. 7. MISCELLANEOUS. This Convertible Debenture shall be deemed to be a contract made under the laws of the State of California, and for all purposes shall be governed by and construed in accordance with the laws of said State. The parties hereto, including all guarantors or endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Convertible Debenture, except as specifically provided herein, and asset to extensions of the time of payment, or forbearance or other indulgence without notice. The Company hereby submits to the exclusive jurisdiction of the United States District Court for the Central District of California and of any California state court sitting in San Diego, California for purposes of all legal proceedings arising out of or relating to this Convertible Debenture. The Company irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The Company hereby irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or relating to this Convertible Debenture. The Holder of this Convertible Debenture by acceptance of this Convertible Debenture agrees to be bound by the provisions of this Convertible Debenture which are expressly binding on such Holder. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: September ___, 2000 CREATIVE HOST SERVICES, INC. By: /s/ Name:_______________________________ Title:________________________________ ANNEX A CONVERSION AND REPAYMENT LEDGER DATE PRINCIPAL BALANCE INTEREST CONVERTED OR PAID PRINCIPAL CONVERTED OR PAID NEW PRINCIPAL BALANCE ISSUER INITIALS HOLDER INITIALS FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES: NAME: ADDRESS: TEL NO: FAX NO: CONTACT NAME: DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME): NAME: ADDRESS: TEL NO: FAX NO: CONTACT NAME: SPECIAL INSTRUCTIONS: NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Convertible Debenture) The undersigned hereby irrevocably elects to convert $________ of the principal balance of the Convertible Debenture into shares of Common Stock, no par value per share (the "Common Stock"), of Creative Host Services, Inc. (the "Company") according to the conditions hereof, as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. The undersigned, as contemplated by Section 5.1 of the Securities Purchase Agreement pursuant to which the Convertible Debenture was issued, hereby states that the representations and warranties of the undersigned set forth therein are true and correct in all material respects as of the date hereof (provided, the undersigned makes no representations concerning its investment intent with respect to the Common Stock received upon this conversion). Conversion calculations: Date of Conversion Applicable Conversion Price Number of Shares Name/Signature Address: EX-4.3 5 0005.txt FORM OF COMMON STOCK PURCHASE WARRANT THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT ("PURCHASE AGREEMENT"), DATED THE DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE HOLDER AND SPECIFY MANDATORY REDEMPTION OBLIGATIONS OF THE COMPANY. CREATIVE HOST SERVICES, INC. COMMON STOCK PURCHASE WARRANT No. 1 Number of shares: 125,000 Holder: GCA Strategic Investment Fund Limited Expiration Date: September___, 2005 c/o Prime Management LTD Mechanics Building Purchase Price Per Share: $6.86 12 Church Street Hamilton, Bermuda HM-11 For identification only. The governing terms of this Warrant are set forth below. Creative Host Services, Inc., a California corporation (the "Company"), hereby certifies that, for value received, GCA Strategic Investment Fund Limited or assigns ("Holder"), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time after the date hereof and prior to the fifth anniversary hereof (the "Exercise Period"), at the Purchase Price hereinafter set forth, One Hundred Twenty Five Thousand (125,000) shares of the fully paid and nonassessable shares of common stock of the Company, no par value per share (the "Common Stock"). The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. The purchase price per share of Common Stock issuable upon exercise of this Warrant (the "Purchase Price") shall initially be equal to 102% of the average closing bid price as published by Bloomberg, L.P. of the Common Stock on the OTC Bulletin Board (the "OTC") on the Trading Day immediately preceding the date hereof; provided, however, that the Purchase Price shall be adjusted from time to time as provided herein. Capitalized terms used herein not otherwise defined shall have the meanings ascribed thereto in the Purchase Agreement. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Creative Host Services, Inc. and any corporation that shall succeed or assume the obligations of such corporation hereunder. (b) The term "Common Stock" includes (a) the Company's common stock, no par value per share, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the Holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the Holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency) and (c) any other securities into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) that the Holder of this Warrant at any time shall be entitled to receive, or shall have received, on the exercise of this Warrant, in lieu of or in addition to Common Stock, or that at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. 1. Exercise of Warrant. 1.1 Method of Exercise. (a) This warrant may be exercised in whole or in part (but not as to a fractional share of Common Stock), at any time and from time to time during the Exercise Period by the Holder hereof by delivery of a notice of exercise (a "Notice of Exercise") substantially in the form attached hereto as Exhibit A via facsimile to the Company. Promptly thereafter the Holder shall surrender this Warrant to the Company at its principal office, accompanied by payment of the Purchase Price multiplied by the number of shares of Common Stock for which this Warrant is being exercised (the "Exercise Price"). Payment of the Exercise Price shall be made, at the option of the Holder, (i) by check or bank draft payable to the order of the Company, or (ii) by wire transfer to the account of the Company. Upon exercise, the Holder shall be entitled to receive, promptly refund the excess to the Holder. Upon exercise, the Holder shall be entitled to receive, promptly after payment in full, one or more certificates, issued in the Holder's name or in such name or names as the Holder may direct, subject to the limitations on transfer contained herein, for the number of shares of Common Stock so purchased. The shares of Common Stock so purchased shall be deemed to be issued as of the close of business on the date on which the Company shall have received from the Holder payment in full of the Exercise Price (the "Exercise Date"). (b) Notwithstanding anything to the contrary set forth herein, upon exercise of all or a portion of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company. Rather, records showing the amount so exercised and the date of exercise shall be maintained on a ledger substantially in the form of Annex B attached hereto (a copy of which shall be delivered to the Company or transfer agent with each Notice of Exercise). It is specifically contemplated that the Holder hereof shall act as the calculation agent for all exercises of this Warrant. In the event of any dispute or discrepancies, such records maintained by the Holders shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following an exercise of a portion of this Warrant, the number of shares of Common Stock represented by this Warrant will be the amount indicated on Annex B attached hereto (which may be less than the amount stated on the face hereof). 1.2 Regulation D Restrictions. The Holder hereof represents and warrants to the Company that it has acquired this Warrant and anticipates acquiring the shares of Common Stock issuable upon exercise of the Warrant solely for its own account for investment purposes and not with a view to or for resale of such securities unless such resale has been registered with the Commission or an applicable exemption is available therefore. At the time this Warrant is exercised, the Company may require the Holder to state in the Notice of Exercise such representations concerning the Holder as are necessary or appropriate to assure compliance by the Holder with the Securities Act. 1.3 Company Acknowledgment. The Company will, at the time of the exercise of this Warrant, upon request of the Holder hereof, acknowledge in writing its continuing obligation to afford to such Holder the registration rights to which such Holder shall continue to be entitled after such exercise in accordance with the provisions of a Registration Rights Agreement dated the date hereof (the "Registration Rights Agreement"). If the Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford such Holder any such rights. 1.4 Limitation on Exercise. Notwithstanding the rights of the Holder to exercise all or a portion of this Warrant as described herein, such exercise rights shall be limited, solely to the extent set forth in the Purchase Agreement as if such provisions were specifically set forth herein. In addition, the number of shares of Common Stock issuable upon exercise of this Warrant is subject to reduction as specified in Section 10.3 of the Purchase Agreement. 2. Delivery of Stock Certificates, etc., on Exercise. As soon as practicable after the exercise of this Warrant, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue, stamp or transfer taxes) will cause to be issued in the name of and delivered to the Holder thereof, or, to the extent permissible hereunder, to such other person as such Holder may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash equal to such fraction multiplied by the then applicable Purchase Price, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. 3. Adjustment for Extraordinary Events. The Purchase Price to be paid by the Holder upon exercise of this Warrant, and the consideration to be received upon exercise of this Warrant, shall be adjusted in case at any time or from time to time pursuant to Article XI of the Purchase Agreement as if such provisions were specifically set forth herein. 4. No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this warrant against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Warrant above the amount payable therefore on such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and unassessable shares of stock on the exercise of this Warrant, and (c) will not transfer all or substantially all of its properties and assets to any other person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person shall expressly assume in writing and will be bound by all the terms of this Warrant. 5. Accountant's Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of this Warrant, the Company at its expense will promptly cause independent certified public accountants of national standing selected by the Company to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder of this Warrant, and will, on the written request at any time of the Holder of this Warrant, furnish to such Holder a like certificate setting forth the Purchase Price at the time in effect and showing how it was calculated. 6. Notices of Record Date, etc. In the event of (a) any taking by the Company of a record of the Holders of any class or securities for the purpose of determining the Holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the Holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount of character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any, as of which the Holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be mailed at least 20 days prior to the date specified in such notice on which any action is to be taken. 7. Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of this Warrant, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of this Warrant. 8. Exchange of Warrant. (a) On surrender for exchange of this Warrant, properly endorsed and in compliance with the restrictions on transfer set forth in the legend on the face of this Warrant, to the Company, the Company at its expense will issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder or as such Holder (on payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face of the Warrant so surrendered. (b) Upon written notice from the Purchasers that the Purchasers have elected to transfer amongst each other a portion of this Warrant, and on surrender for amendment and restatement of this Warrant, the Company at its expense will issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder as the Purchasers (on payment by such Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock as set forth in such notice reflecting such transfer. 9. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 10. Remedies. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 11. Negotiability, etc.. This Warrant is issued upon the following terms, to all of which each Holder or owner hereof by the taking hereof consents and agrees: (a) title to this Warrant may be transferred by endorsement and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery. (b) any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; (c) until this Warrant is transferred on the books of the Company, the Company may treat the registered Holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary; and (d) notwithstanding the foregoing, this Warrant may be sold, transferred or assigned except pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption therefrom. 12. Registration Rights. The Company is obligated to register the shares of Common Stock issuable upon exercise of this Warrant in accordance with the terms of the Registration Rights Agreement. 13. Warrant Redemption. Upon occurrence of the events described in Sections 3.4 and 10.4(c) of the Purchase Agreement, the Company, at the request of Holder, shall redeem all outstanding Warrants that remain unexercised at a redemption price equal to the greater of (x) an appraised value of the Warrants, as determined by Black Sholes, on the date they are called for redemption and (y) the number of Warrants being redeemed multiplied by the excess of (A) the average closing bid price of the Common Stock for the five Trading Days immediately prior to the date that the Warrants are called for redemption over (B) the exercise price of the Warrants. 14. Notices, etc.. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company any address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company. 15. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the internal laws of the State of California. The headings in this Warrant are for the purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. [Signature Page Follows] DATED as of September ___, 2000. CREATIVE HOST SERVICES, INC. By: /s/ Name: Title: [Corporate Seal] Attest: By: /s/ Secretary EXHIBIT A FORM OF NOTICE EXERCISE - WARRANT (To be executed only upon exercise of the Warrant in whole or in part) To ____________________________________________ The undersigned registered Holder of the accompanying Warrant, hereby exercises such Warrant or portion thereof for, and purchases thereunder, __________ shares of Common Stock (as defined in such Warrant) and herewith makes payment therefore in the amount and manner set forth below, as of the date written below. The undersigned requests that the certificates for such shares of Common Stock be issued in the name of, and delivered to,__________________whose address is . The Exercise Price is paid as follows: Bank draft payable to the Company in the amount of $_____________. Wire transfer to the account of the Company in the amount of $___________. Upon exercise pursuant to this Notice of Exercise, the Holder will be in compliance with the Limitation on Exercise (as defined in the Securities Purchase Agreement pursuant to which this Warrant was issued). Date: (Name must conform to name of Holder as specified on the face of the Warrant) By: Name: Title: Address of Holder: Date of exercise: EX-4.4 6 0006.txt REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of September 26, 2000, between Creative Host Services, Inc., a California corporation (the "Company"), and GCA Strategic Investment Fund Limited (the "Fund"). 1. INTRODUCTION. 1.1 SECURITIES PURCHASE AGREEMENT. The Company and the Fund has today executed that certain Securities Purchase Agreement (the "Securities Purchase Agreement"), pursuant to which the Company has agreed, among other things, to issue up to an aggregate of Two Million Five Hundred Thousand Dollars ($2,500,000.00) (U.S.) principal amount of 7% Convertible Debentures of the Company (the "Debentures") to the Fund or its successors, assigns or transferees (collectively, the "Holders"). The Debentures are convertible into an indeterminable number of shares (the "Debenture Conversion Shares") of the Company's common stock, no par value per share (the "Common Stock") pursuant to the terms of the Debentures. In addition, pursuant to the terms of the Securities Purchase Agreement and the transactions contemplated thereby, the Company has agreed to issue to the Fund Common Stock Purchase Warrants exercisable for up to an aggregate of 125,000 shares of the Company's Common Stock (the "Warrant Shares"). The number of Debenture Conversion Shares and Warrant Shares is subject to adjustment upon the occurrence of stock splits, recapitalizations and similar events occurring after the date hereof. 1.2 DEFINITION OF SECURITIES. The Debenture Conversion Shares and the Warrant Shares are herein referred to as the "Securities". 1.3 NATIONAL MARKET REPRESENTATION. The Company represents and warrants that the Company's Common Stock is currently eligible for trading on Nasdaq Small Cap Market under the symbol "CHST." Certain capitalized terms used in this Agreement are defined in Section 3 hereof; references to sections shall be to sections of this Agreement. 2. REGISTRATION UNDER SECURITIES ACT, ETC. 2.1 MANDATORY REGISTRATION. (A) REGISTRATION OF REGISTRABLE SECURITIES. The Company shall prepare and file on or before sixty (60) days following the date hereof (the "Filing Date"), a registration statement (the "Registration Statement") covering the resale of the Registrable Securities. The Company shall use its best efforts to cause the Registration Statement to be declared effective by the Commission on the earlier of (i) 45 days following the Filing Date, (ii) ten (10) days following the receipt of a "No Review" or similar letter from the Commission or (iii) the first day following the day the Commission determines the Registration Statement eligible to be declared effective (the "Required Effectiveness Date"). Nothing contained herein shall be deemed to limit the number of Registrable Securities to be registered by the Company hereunder. As a result, should the Registration Statement not relate to the maximum number of Registrable Securities acquired by (or potentially acquirable by) the holders thereof upon conversion of the Debentures, or exercise of the Common Stock Purchase Warrants described in Section 1 above, the Company shall be required to promptly file a separate registration statement (utilizing Rule 462 promulgated under the Exchange Act, where applicable) relating to such Registrable Securities which then remain unregistered. The provisions of this Agreement shall relate to any such Registration Statement and any such separate registration statement as if it were an amendment to the Registration Statement. (B) REGISTRATION STATEMENT FORM. Registrations under this Section 2.1 shall be on Form S-3 or such other appropriate registration form of the Commission as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified by the Fund; provided, however, such intended method of disposition shall not include an underwritten offering of the Registrable Securities. (C) EXPENSES. The Company will pay all Registration Expenses in connection with any registration required by this Section 2.1. (D) EFFECTIVE REGISTRATION STATEMENT. A registration requested pursuant to this Section 2.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective within the time period specified herein, provided that a registration which does not become effective after the Company filed a registration statement with respect thereto solely by reason of the refusal to proceed of any holder of Registrable Securities (other than a refusal to proceed based upon the advice of counsel in the form of a letter signed by such counsel and provided to the Company relating to a disclosure matter unrelated to such holder) shall be deemed to have been effected by the Company unless the holders of the Registrable Securities shall have elected to pay all Registration Expenses in connection with such registration, (ii) if, after it has become effective, such registration becomes subject to any stop order, injunction or other order or extraordinary requirement of the Commission or other governmental agency or court for any reason or (iii) if, after it has become effective, such registration ceases to be effective for more than an aggregate of twenty (20) days. (E) PLAN OF DISTRIBUTION. The Company hereby agrees that the Registration Statement shall include a plan of distribution section reasonably acceptable to the Fund and substantially in the form annexed hereto; provided, however, such plan of distribution section shall be modified by the Company so as to not provide for the disposition of the Registrable Securities on the basis of an underwritten offering. 2.2 INCIDENTAL REGISTRATION. (A) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If at any time after the date hereof but before the third anniversary of the date hereof, the Company proposes to register any of its securities under the Securities Act (other than by a registration in connection with an acquisition in a manner which would not permit registration of Registrable Securities for sale to the public, on Form S-8, or any successor form thereto, on Form S-4, or any successor form thereto and other than pursuant to Section 2.1), on an underwritten basis (either best-efforts or firm-commitment), then, the Company will each such time give prompt written notice to all Holders of its intention to do so and of such Holders rights under this Section 2.2. Upon the written request of any such Holder made within twenty (20) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Holder an and the intended method of disposition thereof), the Company will, subject to the terms of this Agreement, use its commercially reasonable best efforts to effect the registration under the Securities Act of the Registrable Securities, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of such Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement which covers the securities which the Company proposes to register, provided that if, at any time after written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of this obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of any holder or holders of Registrable Securities entitled to do so to request that such registration be effected as a registration under Section 2.1, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. No registration effected under this Section 2.2 shall relieve the Company of its obligation to effect any registration upon request under Section 2.1, nor shall any such registration hereunder be deemed to have been effected pursuant to Section 2.1. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.2. The right provided the Holders of the Registrable Securities pursuant to this Section shall be exercisable at their sole discretion and will in no way limit any of the Company's obligations to pay the Securities according to their terms. (B) PRIORITY IN INCIDENTAL REGISTRATIONS. If the managing underwriter of the underwritten offering contemplated by this Section 2.2 shall inform the Company and holders of the Registrable Securities requesting such registration by letter of its belief that the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, then the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (i) first securities proposed by the Company to be sold for its own account, and (iii) second Registrable Securities and securities of other selling security holders requested to be included in such registration pro rata on the basis of the number of shares of such securities so proposed to be sold and so requested to be included; provided, however, the holders of Registrable Securities shall have priority to all shares sought to be included by officers and directors of the Company as well as holders of ten percent (10%) or more of the Company's Common Stock. 2.3 REGISTRATION PROCEDURES. If and whenever the Company is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2.1 and, as applicable, 2.2, the Company shall, as expeditiously as possible: (i) prepare and file with the Commission the Registration Statement or amendments thereto, to effect such registration (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated thereunder) and thereafter use its commercially reasonable best efforts to cause such registration statement to be declared effective by the Commission, as soon as practicable, but in any event no later than the Required Effectiveness Date (with respect to a registration pursuant to Section 2.1); provided, however, that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by the holders of Registrable Securities which are to be included in such registration, copies of all such documents proposed to be filed; (ii) with respect to any registration statement pursuant to Section 2.1, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement until the earlier to occur of five (5) years after the date of this Agreement(subject to the right of the Company to suspend the effectiveness thereof for not more than 10 consecutive days or an aggregate of 30 days in such five (5) years period) or such time as all of the securities which are the subject of such registration statement cease to be Registrable Securities (such period, in each case, the "Registration Maintenance Period"); (iii) furnish to each seller of Registrable Securities covered by such registration statement such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller and underwriter, if any, may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such seller; (iv) use its commercially reasonable best efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities laws or blue sky laws as any seller thereof shall reasonably request, to keep such registrations or qualifications in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (iv) be obligated to be so qualified or to consent to general service of process in any such jurisdiction; (v) use its commercially reasonable best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (vi) furnish to each seller of Registrable Securities a signed counterpart, addressed to such seller, and the underwriters, if any, of: (A) an opinion of counsel for the Company required by the Commission, dated the effective date of such registration statement (or, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (B) a "comfort" letter (or, in the case of any Person which does not satisfy the conditions for receipt of a "comfort" letter specified in Statement on Auditing Standards No. 72, an "agreed upon procedures" letter), dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter of like kind dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statement included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten public offerings of securities (with, in the case of an "agreed upon procedures" letter, such modifications or deletions as may be required under Statement on Auditing Standards No. 35) and, in the case of the accountants' letter, such other financial matters, and, in the case of the legal opinion, such other legal matters, as such seller (or the underwriters, if any) may reasonably request; (vii) notify the Sellers' Representative and its counsel promptly and confirm such advice in writing promptly after the Company has knowledge thereof: (A) when the Registration Statement, the prospectus or any prospectus supplement related thereto or post-effective amendment to the Registration Statement has been filed, and, with respect to the Registration Statement or any post-effective amendment thereto, when the same has become effective; (B) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus or for additional information; (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings by any Person for that purpose; and (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation or threat of any proceeding for such purpose; (viii) notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material facts required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such seller promptly prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (ix) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment; (x) otherwise use its commercially reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and (xi) use its commercially reasonable best efforts to list all Registrable Securities covered by such registration statement on any securities exchange on which any of the Registrable Securities are then listed. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing. The Company will not file any registration statement pursuant to Section 2.1, or amendment thereto or any prospectus or any supplement thereto (including such documents incorporated by reference and proposed to be filed after the initial filing of the Registration Statement to which the Sellers' Representative shall reasonably object, provided that the Company may file such documents in a form required by law or upon the advice of its counsel. The Company represents and warrants to each holder of Registrable Securities that it has obtained all necessary waivers, consents and authorizations necessary to execute this Agreement and consummate the transactions contemplated hereby other than such waivers, consents and/or authorizations specifically contemplated by the Securities Purchase Agreement. The Fund agrees that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in subdivision (viii) of this Section 2.3, the Fund will forthwith discontinue the Fund's disposition of Registrable Securities pursuant to the Registration Statement relating to such Registrable Securities until the Fund's receipt of the copies of the supplemented or amended prospectus contemplated by subdivision (viii) of this Section 2.3 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in the Fund's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. 2.4 UNDERWRITTEN OFFERINGS. (A) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by Section 2.2 and such securities are to be distributed by or through one or more underwriters, the Company will, if requested by any holder of Registrable Securities as provided in Section 2.2 and subject to the provisions of Section 2.2(a), use its commercially reasonable best efforts to arrange for such underwriters to include all the Registrable Securities to be offered and sold by such holder among the securities to be distributed by such underwriters. (B) HOLDBACK AGREEMENTS. Subject to such other reasonable requirements as may be imposed by the underwriter as a condition of inclusion of the Fund's Registrable Securities in the registration statement, the Fund agrees by acquisition of Registrable Securities, if so required by the managing underwriter, not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of, except as part of such underwritten registration, any equity securities of the Company, during such reasonable period of time requested by the underwriter; provided however, such period shall not exceed the 120 day period commencing 30 days prior to the commencement of such underwritten offering and ending 90 days following the completion of such underwritten offering. (C) PARTICIPATION IN UNDERWRITTEN OFFERINGS. No holder of Registrable Securities may participate in any underwritten offering under Section 2.2 unless such holder of Registrable Securities (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved, subject to the terms and conditions hereof, by the holders of a majority of Registrable Securities to be included in such underwritten offering and (ii) completes and executes all questionnaires, indemnities, underwriting agreements and other documents (other than powers of attorney) required under the terms of such underwriting arrangements. Notwithstanding the foregoing, no underwriting agreement (or other agreement in connection with such offering) shall require any holder of Registrable Securities to make an representations or warranties to or agreements with the Company or the underwriters other than representations and warranties contained in a writing furnished by such holder expressly for use in the related registration statement or representations, warranties or agreements regarding such holder, such holder's Registrable Securities and such holder's intended method of distribution and any other representation required by law. 2.5 PREPARATION; REASONABLE INVESTIGATION. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the holders of Registrable Securities registered under such registration statement, and their respective counsel and accountants, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the reasonable opinion of such holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 2.6 REGISTRATION DEFAULT FEE. If the Registration Statement contemplated in Section 2.1 is (x) not declared effective by the Required Effectiveness Date or (y) such effectiveness is not maintained for the Registration Maintenance Period, then the Company shall pay to the Fund the Default Fee specified in Section 10.4 of the Securities Purchase Agreement. 2.7 INDEMNIFICATION. (A) INDEMNIFICATION BY THE COMPANY. In the event of any registration of any securities of the Company under the Securities Act, the Company will, and hereby does agree to indemnify and hold harmless the holder of any Registrable Securities covered by such registration statement, its directors and officers, each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such holder or any such underwriter within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which such holder or any such director or officer or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such holder and each such director, officer, underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding, provided that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability, (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such holder or underwriter stating that it is for use in the preparation thereof and, provided further that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Securities or to any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, within the time required by the Securities Act to the Person asserting the existence of an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such final prospectus or an amendment or supplement thereto. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or any such director, officer, underwriter or controlling person and shall survive the transfer of such securities by such holder. (B) INDEMNIFICATION BY THE SELLERS. The Company may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to this Agreement, that the Company shall have received an undertaking satisfactory to it from the prospective seller of such Registrable Securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in subdivision (a) of this Section 2.7) the Company, each director of the Company, each officer of the Company and each other Person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Any such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by such seller. (C) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 2.7, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 2.7, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that the indemnifying party may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement of any such action which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability, or a covenant not to sue, in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action the defense of which has been assumed by an indemnifying party without the consent of such indemnifying party. (D) OTHER INDEMNIFICATION. Indemnification similar to that specified in the preceding subdivisions of this Section 2.7 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities (but only if and to the extent required pursuant to the terms of Section 2.7(b)) with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority, other than the Securities Act. (E) INDEMNIFICATION PAYMENTS. The indemnification required by this Section 2.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (F) CONTRIBUTION. If the indemnification provided for in the preceding subdivision of this Section 2.7 is unavailable to an indemnified party in respect of any expense, loss, claim, damage or liability referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such expense, loss, claim, damage or liability (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the holder or underwriter, as the case may be, on the other from the distribution of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the holder or underwriter, as the case may be, on the other in connection with the statements or omissions which resulted in such expense, loss, damage or liability, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the holder or underwriter, as the case may be, on the other in connection with the distribution of the Registrable Securities shall be deemed to be in the same proportion as the total net proceeds received by the Company from the initial sale of the Registrable Securities by the Company to the purchasers bear to the gain, if any, realized by all selling holders participating in such offering or the underwriting discounts and commissions received by the underwriter, as the case may be. The relative fault of the Company on the one hand and of the holder or underwriter, as the case may be, on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission to state a material fact relates to information supplied by the Company, by the holder or by the underwriter and the parties' relative intent, knowledge, access to information supplied by the Company, by the holder or by the underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, provided that the foregoing contribution agreement shall not inure to the benefit of any indemnified party if indemnification would be unavailable to such indemnified party by reason of the provisions contained in the first sentence of subdivision (a) of this Section 2.7, and in no event shall the obligation of any indemnifying party to contribute under this subdivision (f) exceed the amount that such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under subdivisions (b) of this Section 2.7 had been available under the circumstances. The Company and the holders of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this subdivision (f) were determined by pro rata allocation (even if the holders and any underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth in the preceding sentence and subdivision (c) of this Section 2.7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subdivision (f), no holder of Registrable Securities or underwriter shall be required to contribute any amount in excess of the amount by which (i) in the case of any such holder, the net proceeds received by such holder from the sale of Registrable Securities or (ii) in the case of an underwriter, the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public exceeds, in any such case, the amount of any damages that such holder or underwriter has otherwise been required to pay by reason of such untrue or allege untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 3. DEFINITIONS. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: "Agreement": As defined in Section 1. "Commission": The Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. "Common Stock": As defined in Section 1. "Company": As defined in the introductory paragraph of this Agreement. "Conversion Shares": As defined in Section 1. "Debentures": As defined in Section 1, such term to include any securities issued in substitution of or in addition to such Debentures. "Exchange Act": The Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. "Person": A corporation, association, partnership, organization, business, individual, governmental or political subdivision thereof or a governmental agency. "Registrable Securities": The Securities and any securities issued or issuable with respect to such Securities by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. Once issued such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (c) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, (d) they shall have ceased to be outstanding, (e) on the expiration of the applicable Registration Maintenance Period or (f) any and all legends restricting transfer thereof have been removed in accordance with the provisions of Rule 144(k) (or any successor provision) under the Securities Act. "Registration Expenses": All expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all registration, filing and NASD fees, all stock exchange and OTC Bulletin Board or other NASD or stock exchange listing fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, the reasonable fees and disbursements of not more than one law firm (not to exceed $20,000) retained by the holder or holders of more than 50% of the Registrable Securities, premiums and other costs of policies of insurance of the Company against liabilities arising out of the public offering of the Registrable Securities being registered and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any, provided that, in any case where Registration Expenses are not to be borne by the Company, such expenses shall not include salaries of Company personnel or general overhead expenses of the Company, auditing fees, premiums or other expenses relating to liability insurance required by underwriters of the Company or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event. "Registration Maintenance Period": As defined in Section 2.3. "Required Effectiveness Date": As defined in Section 2.1. "Securities Act": The Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder. "Securities Purchase Agreement": As defined in Section 1. "Sellers Representative": Global Capital Advisors Ltd. or such Person designated by Global Capital Advisors Ltd. as of the time of disposition of the last of the Debentures held by the Fund (or subsequent Sellers Representative). "Warrant Shares": As defined in Section 1. 4. RULE 144. The Company shall timely file the reports required to be filed by it under the Securities Act and the Exchange Act (including but not limited to the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder (or, if the Company is not required to file such reports, will, upon the request of any holder of Registrable Securities, make publicly available other information) and will take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with the requirements of this Section 4. 5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the holder or holders of the sum of the 51% or more of the shares of (i) Registrable Securities issued at such time, plus (ii) Registrable Securities issuable upon exercise or conversion of the Securities then constituting derivative securities (if such Securities were not fully exchanged or converted in full as of the date such consent if sought). Each holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any consent authorized by this Section 5, whether or not such Registrable Securities shall have been marked to indicate such consent. 6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election, be treated as the holder of such Registrable Securities for purposes of any request or other action by any holder or holders of Registrable Securities pursuant to this Agreement or any determination of any number of percentage of shares of Registrable Securities held by an holder or holders of Registrable Securities contemplated by this Agreement. If the beneficial owner of any Registrable Securities so elects, the Company may require assurances reasonably satisfactory to it of such owner's beneficial ownership or such Registrable Securities. 7. NOTICES. Except as otherwise provided in this Agreement, all notices, requests and other communications to any Person provided for hereunder shall be in writing and shall be given to such Person (a) in the case of a party hereto other than the Company, addressed to such party in the manner set forth in the Securities Purchase Agreement or at such other address as such party shall have furnished to the Company in writing, or (b) in the case of any other holder of Registrable Securities, at the address that such holder shall have furnished to the Company in writing, or, until any such other holder so furnishes to the Company an address, then to and at the address of the last holder of such Registrable Securities who has furnished an address to the Company, or (c) in the case of the Company, at the address set forth on the signature page hereto, to the attention of its President, or at such other address, or to the attention of such other officer, as the Company shall have furnished to each holder of Registrable Securities at the time outstanding. Each such notice, request or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means (including, without limitation, by fax or air courier), when delivered at the address specified above, provided that any such notice, request or communication shall not be effective until received. 8. ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the parties hereto other than the Company shall also be for the benefit of and enforceable by any subsequent holder of any Registrable Securities. Each of the Holders of the Registrable Securities agrees, by accepting any portion of the Registrable Securities after the date hereof, to the provisions of this Agreement including, without limitation, appointment of the Sellers Representative to act on behalf of such Holder pursuant to the terms hereof which such actions shall be made in the good faith discretion of the Sellers Representative and be binding on all persons for all purposes. 9. DESCRIPTIVE HEADINGS. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. 10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS. 11. COUNTERPARTS. This Agreement may be executed by facsimile and may be signed simultaneously in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 12. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the Company and each other party hereto relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 13. SEVERABILITY. If any provision of this Agreement, or the application of such provisions to any Person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. CREATIVE HOST SERVICES, INC. By: /s/ Name: ___________________________ Title: ___________________________ Address: ________________________________ Fax: Tel.: GCA STRATEGIC INVESTMENT FUND LIMITED By: /s/ Name: Lewis N. Lester Title: Director Address: c/o Prime Management Limited Mechanics Building 12 Church Street Hamilton HM II, Bermuda Fax: 441-295-3926 Tel.: 441-295-0329 EX-4.5 7 0007.txt ESCROW AGREEMENT THIS AGREEMENT is made as of September 26, 2000 by and among Creative Host Services, Inc., with its principal office at 6335 Ferris Square, Suite G, San Diego, CA 92126 (hereinafter the "Company"), GCA Strategic Investment Fund Limited, with its principal office at Mechanics Building, 12 Church St., Hamilton, Bermuda (hereinafter the "Purchaser"), and The Law Offices of Kim T. Stephens, 220 College Ave., Suite 319, Athens , Georgia (hereinafter the "Escrow Agent"). W I T N E S S E T H: WHEREAS, the Purchaser will be purchasing Warrants and Convertible Debentures (the "Securities") from the Company at a purchase price ("Purchase Price") as set forth in the Securities Purchase Agreement (the "Securities Purchase Agreement") signed by the Company and the Purchaser; and WHEREAS, it is intended that the purchase of Securities be consummated in accordance with the requirements set forth by Regulation D, promulgated under the Securities Act of 1933, as amended; WHEREAS, the Company has requested that the Escrow Agent hold the funds of the Purchaser representing the Purchase Price in escrow until the Escrow Agent has received the Securities or had the opportunity to speak with the Company to confirm their issuance. The Escrow Agent will then immediately wire transfer or otherwise deliver at the Company's direction immediately available funds to the Company or the Company's account and arrange for delivery of the Securities to the Purchaser per the Purchaser's written instructions; and WHEREAS, the Company has requested the Escrow Agent to hold in escrow the Security Agreement (as defined in the Securities Purchase Agreement) for a period of 30 days following the Closing Date and release the Security Agreement to Purchaser following such thirty-day period. NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows: ARTICLE1. --------- TERMS OF THE ESCROW ------------------- 1.1. The parties hereby agree to establish an escrow account with the Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase of the Securities. 1.2. Upon the Escrow Agent's receipt of funds into his attorney trustee account, he shall notify the Company, or the Company's designated attorney or agent, of the amount of funds he has received into his account. 1.3. The Company, upon receipt of said notice and acceptance of the Purchaser's Securities Purchase Agreement, as evidenced by the Company's execution thereof, shall deliver to the Escrow Agent the Securities being purchased and the Transaction Agreements, including the Security Agreement. 1.4. Once the Escrow Agent confirms the validity of the issuance of the Securities, he shall immediately wire to the Company that amount of funds necessary to purchase the Securities, per the written instructions of the Company. Contemporaneously therewith, the Escrow Agent shall arrange to have the Securities delivered as per instructions from the Purchaser. 1.5. If, for any reason, these transactions contemplated by the Securities Purchase Agreement are not consummated within five (5) days of the date hereof, the Escrow Agent will promptly return any funds received by it from the Purchaser to the Purchaser, without any further instructions from either the Company or Purchaser. 1.6. This Agreement may be altered or amended only with the consent of all of the parties hereto. Should the Company attempt to change this Agreement in a manner which, in the Escrow Agent's discretion, shall be undesirable, the Escrow Agent may resign as Escrow Agent by notifying the Company and the Purchasers in writing. In the case of the Escrow Agent's resignation or removal pursuant to the foregoing, his only duty, until receipt of notice from the Company and the Purchasers or their agents that a successor escrow agent shall have been appointed, shall be to hold and preserve the Securities and/or funds. Upon receipt by the Escrow Agent of said notice from the Company and the Purchasers of the appointment of a successor escrow agent, the name of a successor escrow account and a direction to transfer the Securities and/or funds, the Escrow Agent shall promptly thereafter transfer all of the Securities and/or funds held in escrow to said successor escrow agent. Immediately after said transfer of Securities, the Escrow Agent shall furnish the Company and the Purchasers with proof of such transfer. The Escrow Agent is authorized to disregard any notices, request, instructions or demands received by it from the Company or the Purchasers after notice of resignation or removal shall have been given, unless the same shall be the aforementioned notice from the Company and the Purchasers to transfer the Securities and funds to a successor escrow agent or to return same to the respective parties. 1.7. The Company shall pay the Escrow Agent a fee of $1,500.00 and shall reimburse the Escrow Agent for any reasonable expenses incurred in connection with his performance hereunder, including in the event there is a conflict between the parties and the Escrow Agent shall deem it necessary to retain counsel. 1.8. The Company shall deliver to the Escrow Agent the Security Agreement which shall become effective 30 days following the Closing Date and Escrow Agent shall deliver the Security Agreement to Purchaser upon the expiration of such 30-day period without further instruction by the Company. The Company warrants to and agrees with the Escrow Agent that: (I) except the security interest evidenced by the Security Agreement of even date herewith between Purchaser and the Company, there is no security interest in the Securities or any part thereof; (II) except for the financing statement to be filed pursuant to the Security Agreement referenced in Section 1.8(i) above, no financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest or in describing (whether specifically or generally) the Securities or any part thereof; and (III) the Escrow Agent shall have no responsibility at any time to ascertain whether or not any security interest exists in the Securities or any part thereof or to file any financing statement under the Uniform Commercial Code with respect to the Securities or any part thereof. 1.9. The Escrow Agent has no liability hereunder to either party other than to hold the Securities, the Transaction Agreements and the funds, and to deliver them in accordance with the terms hereof. The Escrow Agent shall not be liable for any action taken or omitted by him in good faith; and in no event shall the Escrow Agent be liable or responsible except for the Escrow Agent's own gross negligence or willful misconduct. 1.10. Each party hereto agrees to indemnify and hold harmless the Escrow Agent from and with respect to any and all suits, claims, damages, demands, actions, liabilities or losses arising in any way out of this transaction including the obligation to defend any legal action brought which in any way arises out of or is related to this Agreement. 1.11. Escrow Agent shall not be responsible for: (i) the sufficiency or correctness as to the form, execution or the validity of this Agreement; or (ii) the identity, authority or right of any person executing any notice or document given to Escrow Agent. ARTICLE2. --------- MISCELLANEOUS ------------- 2.1. No waiver or any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed any extension of the time for performance of any other obligation or act. 2.2. The Securities shall be delivered to the Purchaser at the address set forth below. All notices or other communications required or permitted hereunder shall be in writing, and shall be sent by fax, overnight courier, registered or certified mail, postage prepaid, return receipt requested, and shall be deemed received upon receipt thereof, as follows: (I) To the Company: Creative Host Services, Inc. 6335 Ferris Square Suite G San Diego, CA 92126 Attn: Sayed Ali Telephone: Facsimile: (II) To the Purchaser: GCA Strategic Investment Fund Limited c/o Prime Management Limited Mechanics Building 12 Church Street Hamilton, Bermuda, HM11 Attn: Joe Kelly Telephone: (441) 295-0329 Facsimile : (441) 295-3296 (III) To the Escrow Agent: The Law Offices of Kim T. Stephens 220 College Ave., Suite 319 Athens, Georgia 30601 Attention: Kim T. Stephens, Esq. Telephone: (706) 548-3933 Facsimile: (706) 548-6229 2.3. This Agreement shall be binding upon and shall inure to the benefit of the permitted successors and assigns of the parties hereto. 2.4. This Agreement is the final expression of, and contains the entire Agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. This Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the parties to be charged or by its agent duly authorized in writing or as otherwise expressly permitted herein. 2.5. Whenever required by the context of this Agreement, the singular shall include the plural and masculine shall include the feminine. This Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. Unless otherwise indicated, all references to Articles are to this Agreement. 2.6. The parties hereto expressly agree that this Agreement shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State of Georgia. Any action to enforce, existing out of, or relating in any way to, any provisions of this Agreement shall be brought through the American Arbitration Association at the designated locale of Atlanta, Georgia. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of September___, 2000. CREATIVE HOST SERVICES, INC. By: /s/ Name: Title: GCA STRATEGIC INVESTMENT FUND LIMITED. By: /s/ Name: Lewis N. Lester, Director THE LAW OFFICES OF KIM T. STEPHENS By: /s/ Name: Kim T. Stephens, Esq. -----END PRIVACY-ENHANCED MESSAGE-----