UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
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Creative Host Services, Inc.
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(Exact name of registrant as specified in its charter)
California
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(State or other jurisdiction of incorporation)
O00-22845 33-1069494
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(Commission File Number) (IRS Employer Identification No.)
6335 Ferris Square, Suite G-H
San Diego, California 92126
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(Address of principal executive offices) (Zip Code)
(619) 587-7300
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Registrant's telephone number, including area code:
Not applicable
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(Former name, address and telephone number)
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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.
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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.
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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.
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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
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President
Date: October 22, 2000
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