8-K 1 ch8k11703.txt CREATIVE HOST SERVICES FORM 8-K JANUARY 17, 2003 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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): January 17, 2003 CREATIVE HOST SERVICES, INC. --------------------------------------------------- Exact Name of Registrant as Specified in Its Charter California -------------------------------------------- (State or Other Jurisdiction of Incorporation) 000-22845 33-0169494 ---------------------- ---------------------------------- (Commission File Number) (IRS Employer Identification Number) 16955 Via Del Campo, Suite 110, San Diego, CA 90049 --------------------------------------------- -------- (Address of Principal Executive Offices) Zip Code (858) 675-7711 --------------------------------------------------- (Registrant's Telephone Number, Including Area Code) N/A ---------------------------------------------------------- (Former Name or Former Address if Changed Since Last Report) Item 5. Other Events On January 17, 2003, (the "Closing Date") Creative Host Services, Inc. ("Creative Host" or the "Company") closed a senior secured financing (the "Financing") with ING Capital, LLC ("ING") pursuant to the terms of a Credit Agreement (the "Credit Agreement"), a copy of which is filed as an exhibit to this report. The Credit Agreement provides for a total financing commitment of $13,000,000 consisting of two separate facilities: a Term Loan Facility and an Expansion Facility. The Term Loan Facility provides for financing in an amount up to $7,400,000 to be used to refinance the Company's and its subsidiaries' existing debt, finance the purchase price of acquisitions consummated as of the Closing Date and lender-approved acquisitions after the Closing Date, to finance build- outs of the Company's concession locations ("Build-Out Capex") and pay fees and expenses associated with the Financing and the Closing Date acquisitions. The Term Loan Facility matures on the fifth anniversary of the Closing Date, with quarterly principal payments scheduled to commence on June 30, 2004 in amounts equal to percentages of the outstanding principal amount of the Term Loan Facility as scheduled in the Credit Agreement. The Expansion Facility, in an amount up to $5,600,000, may be used to finance the cash purchase price for approved acquisitions, to finance Build-Out Capex, to provide ongoing working capital needs of the Company and to provide a letter of credit sub-facility of $4,000,000. Availability under the Expansion Facility will be reduced by outstanding letters of credit. The Expansion Facility matures on the sixth anniversary of the Closing Date with certain amortization of principal payments required beginning the twenty first calendar quarter following the Closing Date. Outstanding loans under the Term Loan Facility will bear interest at a fixed per annum rate set forth in the Credit Agreement. Outstanding loans under the Expansion Facility will bear interest at the floating per annum rates of interest set forth in the Credit Agreement, and outstanding letters of credit under the Expansion Facility will accrue a letter of credit fee as set forth in the Credit Agreement. There is also an unused fee charged on the unused amount of the Expansion Facility and the Term Loan Facility as well as certain pre-payment and termination fees for termination or reduction of the Financing prior to the third anniversary of the Closing Date. There is also a requirement that the Company make certain principal prepayments of the Financing in amounts equal to certain percentages of the Company's annual excess cash flow and the principal repayment of the Financing upon the occurrence of certain other events, all as more particularly described in the Credit Agreement. The Facility is secured by perfected first security interests in, and first mortgages on, substantially all of the assets of the Company and its subsidiaries, existing and future. The Credit Agreement also contains affirmative, negative and financial covenants, as well as events of default, all as more particularly described in the Credit Agreement. -2- As additional compensation for the Financing, the Company issued to ING 452,050 Warrants to purchase 452,050 shares of its common stock, representing 4% of the fully diluted capital stock of the Company (excluding warrants and options with exercise prices exceeding $8.00 per share). The Warrants have a ten year life with an exercise price of $1.87 per share, which was equal to the closing price of the Company's Common Stock on the business day immediately prior to the Closing Date. Terms and conditions of the Warrants include, among others, shelf and piggyback registration rights, anti-dilution protection and "tag-along" rights. As a condition of the Financing, the Company was required to close an acquisition transaction concurrent with the Financing using proceeds from the Term Loan Facility to finance the purchase price for the acquisition. The Company used $1,075,542 of the Financing proceeds to acquire the assets and concession leases of three locations at the Sanford International Airport in Orlando Florida in satisfaction of that condition. The Company is expected to utilize the Term Loan Facility and Expansion Facility to finance additional acquisitions in the future. As part of the financing, the Company also retired substantially all of its existing debt (other than certain capital lease obligations), which included its bank note and line of credit. Transaction fees, commissions and related due diligence expenses were also paid from the Financing proceeds. Item 7. Financial Statements and Exhibits (c) Exhibits furnished in accordance with the provisions of Item 601 of Regulation S-K: Exhibit No. Description ---------- ----------- Exhibit 10.33 Credit Agreement Dated as of January 17, 2003 between Creative Host Services, Inc. and ING Capital LLC. 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. Dated: January 23, 2003 By /s/ Sayed Ali ----------------------------- Sayed Ali President -3-

December 31 1999 1998 ------------ ----------- ASSETS CURRENT ASSETS Cash . . . . . . . . . . . . . . . . . . . . . . . $ 193,652 $ 359,341 Accounts receivable. . . . . . . . . . . . . . . . 81,209 72,247 Inventories. . . . . . . . . . . . . . . . . . . . 161,444 166,320 Other current assets . . . . . . . . . . . . . . . 32,427 123,879 ------------ ----------- Total Current Assets . . . . . . . . . . . . . 468,732 721,787 PROPERTY AND EQUIPMENT - AT COST Leasehold improvements . . . . . . . . . . . . . . 4,379,062 4,013,453 Furniture, fixtures and equipment. . . . . . . . . 3,193,860 3,157,866 ------------ ----------- 7,572,922 7,171,319 Less - Accumulated depreciation. . . . . . . . . (4,147,304) (3,273,133) ------------ ----------- 3,425,618 3,898,186 OTHER ASSETS . . . . . . . . . . . . . . . . . . . . 96,877 162,001 ------------ ----------- $ 3,991,227 $ 4,781,974 ============ =========== LIABILITIES CURRENT LIABILITIES Current portion of long-term debt. . . . . . . . . $ 802,006 $ 868,148 Accounts payable . . . . . . . . . . . . . . . . . 206,962 259,417 Accrued liabilities. . . . . . . . . . . . . . . . 368,882 357,849 ------------ ----------- Total Current Liabilities. . . . . . . . . . . . 1.377,850 1,485,414 LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . 2,089,572 2,526,263 SHAREHOLDERS'EQUITY COMMON STOCK Par value $1 per share - authorized, 1,000 shares, issued and outstanding, 1,000 shares . . . . . . . 1,000 1.000 ADDITIONAL PAID-IN CAPITAL . . . . . . . . . . . . . 706,034 706,034 ACCUMULATED (DEFICIT) RETAINED EARNINGS. . . . . . . (183,229) 63,263 ------------ ----------- 523,805 770,297 ------------ ----------- $ 3,991,227 $ 4,781,974 ============ ===========

1999 1998 ------------ ----------- SALES . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,512,661 $ 9,775,924 COST OF SALES . . . . . . . . . . . . . . . . . . . . . (2,311,313) (2,330,592) ------------ ----------- Gross Profit. . . . . . . . . . . . . . . . . . . . 7,201,348 7,445,332 EXPENSES General, administrative and operating . . . . . . . . 6,897,133 6,869,809 Interest, net . . . . . . . . . . . . . . . . . . . . 268,382 314,197 Write-off of leasehold improvements . . . . . . . . . - 81,733 Loss on abandonment of mall restaurant (See Note 10.) 282,325 - ------------ ----------- 7,447,840 7,265,739 ------------ ----------- Net (Loss) Income . . . . . . . . . . . . . . . . . $ (246,492) $ 179,593 ============ ===========

Retained Total Common Stock Paid-In Earnings Shareholders' Shares Par Value Capital (Deficit) Equity ------ --------- -------- --------- --------- BALANCE, December 31, 1997 1,000 $1,000 $706,034 $(10,692) $696,342 Distributions to shareholders (105,698) (105,698) Net income. . . . . . . . . - - - 179,653 179,653 ------ --------- -------- --------- --------- BALANCE, December 31, 1998. . 1,000 1,000 706,034 63,263 770,297 Net income. . . . . . . . . - - - (246,492) (246,492) ------ --------- -------- --------- --------- BALANCE, December 31, 1999. . 1,000 $1,000 $706,034 $(183,229) $523,805 ====== ========= ======== ========= =========

1999 1998 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income . . . . . . . . . . . . . . . . . . . . . . $ (246,492) $ 179,653 Adjustments to reconcile net (loss) income to net cash flows provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . 967,192 951,548 Write-off of leasehold improvements . . . . . . . . . . . . - 81,733 Loss on abandonment of mall restaurant, net of cash payments. . . . . . . . . . . . . . . . . . . 189,673 - Changes in assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . (8,962) 5,935 Inventories . . . . . . . . . . . . . . . . . . . . . . . . 4,876 (10,352) Other current assets. . . . . . . . . . . . . . . . . . . . 91,452 178,161 Accounts payable. . . . . . . . . . . . . . . . . . . . . . (52,455) (126,688) Accrued liabilities . . . . . . . . . . . . . . . . . . . . 11,033 (83,547) ----------- ------------ Net Cash Flows Provided by Operating Activities . . . . . 956,317 1,176,443 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment, net. . . . . . . . . . . (644,270) (1,378,713) Proceeds from sale of property and equipment. . . . . . . . . - 55,615 Other assets. . . . . . . . . . . . . . . . . . . . . . . . . 25,097 (57,054) ----------- ------------ Net Cash Flows Used In Investing Activities . . . . . . . (619,173) (1,380,152) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings on long-term debt. . . . . . . . . . . . . . . . . 419,000 1,102,071 Payments on long-term debt. . . . . . . . . . . . . . . . . . (921,833) (746,981) Distributions to shareholders . . . . . . . . . . . . . . . . - (105,698) ----------- ------------ Net Cash Flows (Used In) Provided By Financing Activities _(502,833) 249,392 ----------- ------------ Net (Decrease) Increase In Cash . . . . . . . . . . . . . (165,689) 45,683 CASH, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . 359,341 313,658 CASH, END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . $ 193,652 $ 359,341 =========== ============ SUPPLEMENTAL DATA Cash payments for interest. . . . . . . . . . . . . . . . . . $ 278,000 $ 317,000 =========== ============

December 31 1999 1998 ---------- ---------- Term loan, payable in monthly installments of $54,100 plus interest at prime (8.50% at December 31, 1999) plus .50% through January 2003 (monthly principal payments increase in subsequent years); collateralized by substantially all of the Company's assets and guaranteed by the shareholders of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,414,344 $3,059,657 Term loan, payable in monthly installments of $6,660 plus interest at prime (8.50% at December 31, 1999) plus .50% through February 2004 (monthly principal payments increase in subsequent years); collateralized by substantially all of the Company's assets and guaranteed by the shareholders of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,560 Equipment note, interest at 7%, due in monthly installments of $1,742, including interest through April 2001, with the remaining outstanding balance due in May 2001, secured by the assets purchased under this note . . . . . . . . . . . . . . . . . . . . 106,674 119,610 Subordinated note payable to shareholder, interest at prime, due in monthly installments of $18,400, including interest. Note paid in full during 1999. . . . . . . . . . . . . . . . . . . . . . . . . - 215,144 ---------- ---------- 2,891,578 3,394,411 Less - Current portion. . . . . . . . . . . . . . . . . . . . . 802,006 868,148 ---------- ---------- $2,089,572 $2,526,263 ========== ==========

ASSETS CURRENT ASSETS: Cash. . . . . . . . . . . . . . . . . . . . . . . . . $ 313,701 Receivables . . . . . . . . . . . . . . . . . . . . . 67,009 Inventory . . . . . . . . . . . . . . . . . . . . . . 142,767 Prepaid expenses and other current assets . . . . . . 28,288 ---------- Total current assets. . . . . . . . . . . . . $ 551,766 PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization . . . . . . . . . . . . 2,902,139 Other assets. . . . . . . . . . . . . . . . . . . . . . 87,657 ---------- $3,541,562 ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses . . . . . . . . $ 801,654 Current maturities of notes payable . . . . . . . . . 935,278 ---------- Total current liabilities . . . . . . . . . . $1,736,933 NOTES PAYABLE, less current maturities. . . . . . . . . 1,356,708 SHAREHOLDERS' EQUITY: Common stock; no par value, 20,000,000 shares authorized, 7,504,815 shares issued and outstanding 1,000 Additional paid-in capital. . . . . . . . . . . . . . 270,747 Retained Earnings . . . . . . . . . . . . . . . . . . 176,174 ---------- Total shareholders' equity. . . . . . . . . . 447,921 ---------- $3,541,562 ==========

Nine Months ended September 30, 2000 ------------------- REVENUES: Concessions. . . . . . . . . . . . . . . . $ 7,293,349 COST OF GOODS SOLD . . . . . . . . . . . . . 1,718,875 ------------------- GROSS PROFIT . . . . . . . . . . . . . . . . 5,574,474 ------------------- OPERATING COSTS AND EXPENSES: Payroll and other employee benefits. . . . 1,915,979 Occupancy. . . . . . . . . . . . . . . . . 1,154,963 Selling expenses . . . . . . . . . . . . . 708,962 Depreciation and amortization. . . . . . . 586,071 General and administrative expenses. . . . 653,373 ------------------- Total operating costs and expenses 5,019,348 ------------------- INCOME FROM OPERATIONS . . . . . . . . . . . 555,126 INTEREST EXPENSE, net. . . . . . . . . . . . 195,723 ------------------- NET INCOME BEFORE INCOME TAXES . . . . . . . 359,403 INCOME TAXES . . . . . . . . . . . . . . . . - ------------------- NET INCOME . . . . . . . . . . . . . . . . . $ 359,403 ===================

Nine Months ended September 30, 2000 -------------------- CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net income. . . . . . . . . . . . . . . . . . . . . . $ 359,403 -------------------- ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization . . . . . . . . . . 586,022 CHANGES IN ASSETS AND LIABILITIES: (INCREASE) DECREASE IN ASSETS: Inventory . . . . . . . . . . . . . . . . . . . . . . . 18,678 Prepaid expenses and other current assets . . . . 18,338 INCREASE (DECREASE) IN LIABILITIES - Accounts payable and accrued expenses . . . . . . (10,903) Accrued and other liabilities . . . . . . . . . . 236,713 -------------------- Total adjustments . . . . . . . . . . . . . . 848,848 -------------------- Net cash provided by operating activities . . 1,208,251 -------------------- CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES: Property and equipment. . . . . . . . . . . . . . . . (53,323) -------------------- Net cash used for investing activities. . . . (53,323) -------------------- CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES: Repayment on notes payable. . . . . . . . . . . . . . (599,592) Dividends paid. . . . . . . . . . . . . . . . . . . . (435,287) -------------------- Net cash used by financing activities . . . . (1,034,879) -------------------- NET INCREASE IN CASH. . . . . . . . . . . . . . . . . . 120,049 CASH, beginning of period . . . . . . . . . . . . . . . 193,652 -------------------- CASH, end of period . . . . . . . . . . . . . . . . . . $ 313,701 ====================

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