HOST AMERICA CORP. TERM NOTE SECURITY AGREEMENT
|
To:
|
Shelter
Island Opportunity Fund, LLC
|
Date: December
19, 2006
To
Whom It May Concern:
1. To
secure the payment of all Obligations (as hereafter defined), Host America
Corp., a Colorado corporation (the “Company”) and ▇▇▇▇▇▇▇ Food Service, Inc.
(“▇▇▇▇▇▇▇”) (the Company and ▇▇▇▇▇▇▇ each being an “Assignor”) hereby assign and
grant to the Purchaser (as defined in the Securities Purchase Agreement), a
continuing security interest in all of the following property now owned or
at
any time hereafter acquired, or in which they now have or at any time in the
future may acquire any right, title or interest (the “Collateral”): (1) in the
case of the Company, its accounts receivable (“Company A/Rs”); and (2) in the
case of ▇▇▇▇▇▇▇, all cash, cash equivalents, accounts, accounts receivable,
deposit accounts, inventory, equipment, goods, documents, instruments
(including, without limitation, promissory notes), contract rights, general
intangibles (including, without limitation, payment intangibles and an absolute
right to license on terms no less favorable than those currently in effect
among
the Assignors), chattel paper, supporting obligations, investment property
(including, without limitation, all equity interests owned by any Assignor),
letter-of-credit rights, trademarks, trademark applications, tradestyles,
patents, patent applications, copyrights, copyright applications and other
intellectual property in which any Assignor now has or hereafter may acquire
any
right, title or interest, all proceeds and products thereof (including, without
limitation, proceeds of insurance) and all additions, accessions and
substitutions thereto or therefore which may be manufactured from and after
the
date hereof. In the event any Assignor wishes to finance the acquisition in
the
ordinary course of business of any hereafter acquired equipment and has obtained
a commitment from a financing source to finance such equipment from an unrelated
third party, each Purchaser agrees to release its security interest on such
hereafter acquired equipment so financed by such third party financing source.
Except as otherwise defined herein, all capitalized terms used herein shall
have
the meaning provided such terms in the Securities Purchase Agreement referred
to
below.
2. The
term “Obligations” as used herein shall mean and include all debts, liabilities
and obligations owing by each Assignor to the Purchaser arising under, out
of,
or in connection with: (i) that certain Securities Purchase Agreement dated
as of the date hereof by and between the Company and the Purchaser (the
“Securities Purchase Agreement”), (ii) that certain Stock Pledge Agreement
dated as of the date hereof by and between the Company and the Purchaser, and
(iii) the Related Agreements referred to in the Securities Purchase
Agreement, (the Securities Purchase Agreement and each Related Agreement, as
each may be amended, modified, restated or supplemented from time to time,
are
collectively referred to herein as the “Documents”), and in connection with any
documents, instruments or agreements relating to or executed in connection
with
the Documents or any documents, instruments or agreements referred to therein
or
otherwise, and in connection with any other indebtedness, obligations or
liabilities of any Assignor to the Purchaser, whether now existing or hereafter
arising, direct or indirect, liquidated or unliquidated, absolute or contingent,
due or not due and whether under, pursuant to or evidenced by a note, agreement,
guaranty, instrument or otherwise, in each case, irrespective of
1
the
genuineness, validity, regularity or enforceability of such Obligations, or
of
any instrument evidencing any of the Obligations or of any collateral therefor
or of the existence or extent of such collateral, and irrespective of the
allowability, allowance or disallowance of any or all of the Obligations in
any
case commenced by or against any Assignor under ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code,
including, without limitation, obligations or indebtedness of each Assignor
for
post-petition interest, fees, costs and charges that would have accrued or
been
added to the Obligations but for the commencement of such case.
3. Except
as otherwise described in the SEC Filings or as set forth in the Schedules
to
the Securities Purchase Agreement each Assignor hereby jointly and severally
represents, warrants and covenants to the Purchaser that:
(a) it
is a corporation, partnership or limited liability company, as the case may
be,
validly existing, in good standing and organized under the respective laws
of
its jurisdiction of organization set forth on Schedule A, and each Assignor
will
provide the Purchaser thirty (30) days’ prior written notice of any change in
its jurisdiction of organization;
(b) its
legal name is as set forth in its respective Certificate of Incorporation or
other organizational document (as applicable) as amended through the date hereof
and as set forth on Schedule A, and it will provide the Purchaser thirty (30)
days’ prior written notice of any change in its legal name;
(c) its
organizational identification number (if applicable) is as set forth on Schedule
A hereto, and it will provide the Purchaser thirty (30) days’ prior written
notice of any change in its organizational identification number;
(d) it
is the lawful owner of the respective Collateral and it has the sole right
to
grant a security interest therein and will defend the Collateral against all
claims and demands of all persons and entities;
(e) it
will keep its respective Collateral free and clear of all attachments, levies,
taxes, liens, security interests and encumbrances of every kind and nature
(“Encumbrances”), except (i) Encumbrances securing the Obligations,
(ii) (a) Encumbrances of carriers, warehousemen, artisans, bailees,
mechanics and materialmen incurred in the ordinary course of business securing
sums not overdue; (b) Encumbrances incurred in the ordinary course of
business in connection with worker’s compensation, unemployment insurance or
other forms of governmental insurance or benefits, relating to employees,
securing sums (i) not overdue or (ii) being diligently contested in good faith
provided that adequate reserves with respect thereto are maintained on the
books
of the Company or any Subsidiary thereof, in conformity with GAAP; (c)
Encumbrances in favor of the Purchaser; (d) Encumbrances for taxes (i) not
yet
due or (ii) being diligently contested in good faith by appropriate proceedings,
provided that adequate reserves with respect thereto are maintained on the
books
of the Company or any Subsidiary thereof in conformity with GAAP provided,
that,
the Encumbrance shall have no effect on the priority of Encumbrances in favor
of
any Purchaser or the value of the assets in which any Purchaser has an
Encumbrance;
2
(e) Purchase
Money Liens (as defined below) securing Purchase Money Indebtedness (as defined
below) to the extent permitted in this Agreement in the case of the Company
A/Rs, the first priority Encumbrance in favor of those certain persons named
in
the Blockage Agreement dated the date hereof and (iii) to the extent said
Encumbrance does not secure indebtedness in excess of $50,000 and
such Encumbrance is removed or otherwise released within ten (10) days of the
creation thereof; and (g) the encumbrances shown of each Assignor’s UCC
search provided the Purchaser and liens on motor vehicles;
(f) it
will, at its and the other Assignors’ joint and several cost and expense, keep
the Collateral in a good state of repair (ordinary wear and tear excepted)
and
will not waste or destroy the same or any part thereof other than ordinary
course discarding of items no longer used or useful in its or such other
Assignors’ business;
(g) it
will not without each Purchaser’s prior written consent, sell, exchange, lease
or otherwise dispose of the Collateral, whether by sale, lease or otherwise,
except for the sale of inventory in the ordinary course of business and for
the
disposition or transfer in the ordinary course of business during any fiscal
year of obsolete and worn-out equipment or equipment no longer necessary for
its
ongoing needs, having an aggregate fair market value of not more than
$25,000 and
only to the extent that:
(i) the
proceeds of any such disposition are used to acquire replacement Collateral
which is subject to each the Purchaser’ priority perfected security interest, or
are used to repay Obligations or to pay general corporate expenses;
and
(ii) following
the occurrence of an Event of Default which continues to exist the proceeds
of
which are remitted to each of the Purchaser to be held as cash collateral for
the Obligations;
(h) it
will insure or cause the Collateral to be insured in each Purchaser’s name
against loss or damage by fire, theft, burglary, pilferage, loss in transit
and
such other hazards as the Purchaser shall specify in amounts and under policies
by insurers acceptable to the Purchaser and all premiums thereon shall be paid
by such Assignor and the policies delivered to the Purchaser. If any such
Assignor fails to do so, the Purchaser may procure such insurance and the cost
thereof shall be promptly reimbursed by the Assignors, jointly and severally,
and shall constitute Obligations;
(i) it
will at all reasonable times allow any of the Purchaser or the Purchaser’
representatives free access to and the right of inspection of the Collateral;
and
(j) such
Assignor (jointly and severally with each other Assignor) hereby indemnifies
and
saves each Purchaser harmless from all loss, costs, damage, liability and/or
expense, including reasonable attorneys’ fees, that any such Purchaser may
sustain or incur to enforce payment, performance or fulfillment of any of the
Obligations and/or in the enforcement of this Term Note Security Agreement
or in
the prosecution or defense of any action or proceeding either against such
Purchaser or any Assignor
3
concerning
any matter growing out of or in connection with this Term Note Security
Agreement, and/or any of the Obligations and/or any of the Collateral except
to
the extent caused by such Purchaser’s own gross negligence or willful misconduct
(as determined by a court of competent jurisdiction in a final
decision).
“Purchase
Money Indebtedness” means (a) any indebtedness incurred for the payment of all
or any part of the purchase price of any fixed asset, including indebtedness
under capitalized leases, (b) any indebtedness incurred for the sole purpose
of
financing or refinancing all or any part of the purchase price of any fixed
asset, and (c) any renewals, extensions or refinancings thereof (but not any
increases in the principal amounts thereof outstanding at that time); “Purchase
Money Lien” means any Encumbrance upon any fixed assets that secures the
Purchase Money Indebtedness related thereto but only if such Encumbrance shall
at all times be confined solely to the asset the purchase price of which was
financed or refinanced through the incurrence of the Purchase Money Indebtedness
secured by such Encumbrance and only if such Encumbrance secures only such
Purchase Money Indebtedness.
4. The
occurrence of any of the following events or conditions shall constitute an
“Event of Default” under this Term Note Security Agreement:
(a) any
covenant, warranty, representation or statement made or furnished to the
Purchaser by any Assignor or on any Assignor’s behalf was breached in any
material respect or false in any material respect when made or furnished, except
to the extent the the Purchaser had actual prior knowledge of such breach,
as
the case may be, and, in the case of a covenant, if subject to cure, shall
not
be cured for a period of forty-five (45) days after notice by Purchaser to
Assignee;
(b) the
loss, theft, substantial damage, destruction, sale or encumbrance to or of
any
of the Collateral or the making of any levy, seizure or attachment thereof
or
thereon except to the extent:
(i) such
loss is covered by insurance proceeds which are used to replace the item or
repay the Purchaser; or
(ii) said
levy, seizure or attachment does not secure indebtedness in excess of
$100,000 and
such levy, seizure or attachment has been removed or otherwise released within
forty-five (45) days of the creation or the assertion thereof;
(c) any
Assignor shall cease operations, dissolve, terminate its business existence,
make an assignment for the benefit of creditors, or suffer the appointment
of a
receiver, trustee, liquidator or custodian of all or any part of Assignors’
property, to the extent such is not cured within forty-five (45)
days;
(d) any
proceedings under any bankruptcy or insolvency law shall be commenced by or
against any Assignor and not dismissed within forty-five (45) days;
(e) the
Company shall repudiate, purport to revoke or fail to perform any or all of
its
obligations under any Note (after passage of applicable cure periods, if any);
or
4
(f) an
Event of Default shall have occurred under and as defined in any Document,
subject to the applicable cure periods.
5. Upon
the occurrence of any Event of Default and at any time thereafter, each
Purchaser may declare all Obligations immediately due and payable and each
Purchaser shall have the remedies of a secured party provided in the Uniform
Commercial Code as in effect in the State of New York, this Agreement and other
applicable law. Upon the occurrence of any Event of Default and at any time
thereafter, each Purchaser will have the right to take possession of the
Collateral and to maintain such possession on any Assignor’s premises or to
remove the Collateral or any part thereof to such other premises as such
Purchaser may desire. Upon the Purchaser’ request, each of the Assignors shall
assemble or cause the Collateral to be assembled and make it available to the
Purchaser at a place designated by the Purchaser. If any notification of
intended disposition of any Collateral is required by law, such notification,
if
mailed, shall be deemed properly and reasonably given if mailed at least ten
(10) days before such disposition, postage prepaid, addressed to any Assignor
at
such Assignor’s address shown on Schedule B hereto. Any proceeds of any
disposition of any of the Collateral shall be applied by the Purchaser to the
payment of all expenses in connection with the sale of the Collateral, including
reasonable attorneys’ fees and other legal expenses and disbursements and the
reasonable expense of retaking, holding, preparing for sale, selling, and the
like, and any balance of such proceeds may be applied by the Purchaser toward
the payment of the Obligations in such order of application as the Purchaser
may
elect, and each Assignor shall be liable for any deficiency. For the avoidance
of doubt, following the occurrence and during the continuance of an Event of
Default, the Purchaser shall have the immediate right to withdraw any and all
monies contained in any deposit accounts in the name of the Assignor and
controlled by the Purchaser and apply the same to the repayment of the
Obligations (in such order of application as the Purchaser may
elect).
6. If
any Assignor defaults in the performance or fulfillment of any of the material
terms, conditions, promises, covenants, provisions or warranties on such
Assignor’s part to be performed or fulfilled under or pursuant to this Term Note
Security Agreement, each Purchaser may, at its option without waiving its right
to enforce this Term Note Security Agreement according to its terms, immediately
or at any time thereafter and with notice to the Assignors, perform or fulfill
the same or cause the performance or fulfillment of the same for each Assignor’s
joint and several account and at each Assignor’s joint and several cost and
expense, and the cost and expense thereof (including reasonable attorneys’ fees)
shall be added to the Obligations and shall be payable on demand with interest
thereon at the then interest rate on the Term Notes (as defined in the
Securities Purchase Agreement) plus 18% per
annum, or, at such Purchaser’s option, debited by such Purchaser from any
deposit accounts in the name of the Assignor and controlled by such
Purchaser.
7. Each
Assignor appoints each Purchaser, any of such Purchaser’s officers, may
designate as its attorney, such appointment to be effective only upon the
occurrence and during the continuance of an Event of Default hereunder, with
power to execute such documents in each of its behalf and to supply any omitted
information and correct patent errors in any documents executed by any Assignor
or on any Assignor’s behalf; to file financing statements against each Assignor
covering the Collateral (and, in connection with the filing of any such
financing statements, describe the Collateral as “all assets and all personal
property, whether now owned and/or hereafter acquired” (or any substantially
similar variation thereof)); to sign its name on
5
public
records; and to do all other things such Purchaser deems necessary to carry
out
this Term Note Security Agreement. Each Assignor hereby ratifies and approves
all acts of the attorney performed in accordance with the terms hereof and
neither such Purchaser nor the attorney will be liable for any acts of
commission or omission, nor for any error of judgment or mistake of fact or
law
other than gross negligence or willful misconduct (as determined by a court
of
competent jurisdiction in a final decision). This power being coupled with
an
interest, is irrevocable so long as any Obligations remain unpaid. In extension
of the foregoing Assignors, Purchaser and People’s Bank have entered into a
Deposit Account Control Agreement whereby Purchaser perfects the security
interest granted by Assignor in their deposit accounts. the Purchaser agree
that
they will only exercise their rights under such Control Agreement after the
occurrence and during the continuation of an Event of Default
hereunder.
8. No
delay or failure on each Purchaser’s part in exercising any right, privilege,
remedy or option hereunder shall operate as a waiver of such or of any other
right, privilege, remedy or option, and no waiver whatever shall be valid unless
in writing, signed by each Purchaser and then only to the extent therein set
forth, and no waiver by any Purchaser of any default shall operate as a waiver
of any other default or of the same default on a future occasion. the Purchaser’
books and records containing entries with respect to the Obligations shall
be
admissible in evidence in any action or proceeding, except for manifest error,
shall be binding upon each Assignor for the purpose of establishing the items
therein set forth and except for manifest error, shall constitute prima facie
proof thereof. Each Purchaser shall have the right to enforce any one or more
of
the remedies available to such Purchaser, successively, alternately or
concurrently. Each Assignor agrees to join with each Purchaser in executing
financing statements or other instruments to the extent required by the New
York
Uniform Commercial Code in form satisfactory to such Purchaser and in executing
such other documents or instruments as may be required or deemed necessary
by
such Purchaser for purposes of effecting or continuing such Purchaser’s security
interest in the Collateral.
9. This
Term Note Security Agreement shall be governed by and construed in accordance
with the laws of the State of New York and cannot be terminated orally. All
of
the rights, remedies, options, privileges and elections given to each Purchaser
hereunder shall inure to the benefit of each Purchaser’s successors and assigns.
All of the terms, conditions, promises, covenants, provisions and warranties
of
this Agreement shall inure to the benefit of each of the the Purchaser, and
shall bind the representatives, successors and assigns of each Assignor. the
Purchaser and each Assignor hereby (a) waive any and all right to trial by
jury
in litigation relating to this Agreement and the transactions contemplated
hereby, (b) submit to the nonexclusive jurisdiction of any New York State court
sitting in the borough of Manhattan, the city of New York and (c) waive any
objection the Purchaser or any Assignor may have as to the bringing or
maintaining of such action with any such court.
10. It
is understood and agreed that any person or entity that desires to become an
Assignor hereunder, or is required to execute a counterpart of this Term Note
Security Agreement after the date hereof pursuant to the requirements of any
Document, shall become an Assignor hereunder by (a) executing a joinder
agreement in form and substance satisfactory to the Purchaser, (b) delivering
supplements to such exhibits and annexes to such Documents as the Purchaser
shall reasonably request and (c) taking all actions as specified in this
Agreement as would have been taken by such Assignor had it been an original
party to this Agreement, in each
6
case
with all documents required above to be delivered to the Purchaser and with
all
documents and actions required above to be taken to the reasonable satisfaction
of the Purchaser.
11. All
notices from the Purchaser to any Assignor shall be sufficiently given if mailed
or delivered to such Assignor’s address set forth below.
12. In
the event of a conflict or inconsistency between any provision hereof and any
provision of the Securities Purchase Agreement, the provision of the Securities
Purchase Agreement shall govern to the extent of any such conflict or
inconsistency.
13. This
Agreement may be executed by facsimile signatures and in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[SIGNATURE
PAGE FOLLOWS]
7
Very
truly yours,
|
By:
|
▇▇▇▇▇ ▇▇▇▇▇▇ |
▇▇▇▇▇▇▇
FOOD SERVICE, INC.
|
By:
|
▇▇▇▇▇ ▇▇▇▇▇▇ |
8
SCHEDULE
A
|
Entity
|
Jurisdiction
of
Organization
|
|
Colorado
|
|
|
▇▇▇▇▇▇▇
Food Service, Inc.
|
Connecticut
|
9