Contract
THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR
ANY STATE SECURITIES LAWS. THIS TERM NOTE MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS
TO THIS TERM NOTE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO HOST AMERICA CORP., THAT SUCH
REGISTRATION IS NOT REQUIRED.
SECURED
TERM NOTE
FOR
VALUE RECEIVED, HOST AMERICA CORP., a Colorado corporation (the “Borrower”),
hereby promises to pay to Shelter Island Opportunity Fund, LLC (the
“Holder”)
or its registered assigns or successors in interest, or order; the sum of one
million two hundred and forty thousand dollars ($1,240,000) (the “Principal
Amount”),
on December___, 2007 (the “Maturity
Date”),
if not paid sooner in accordance with the terms hereof.
Capitalized
terms used herein without definition shall have the meanings ascribed to such
terms in that certain Securities Purchase Agreement dated as of the date hereof
between the Borrower and the Holder (the “Purchase
Agreement”).
The
following terms shall apply to this Term Note:
ARTICLE I
REPAYMENT
1.1 Optional
Redemption of Principal Amount.
At any time after the date hereof, the Borrower will have the option of
prepaying the outstanding Principal Amount (“Optional
Redemption”),
in whole or in part, by paying to the Holder a sum of money equal to one hundred
percent (100%) of the portion of the Principal Amount to be redeemed, together
with accrued but unpaid interest thereon and any and all other sums due, accrued
or payable to the Holder arising under this Term Note, the Purchase Agreement
or
any Related Agreement (the “Redemption
Amount”)
on the Redemption Payment Date (as defined below). The Borrower shall deliver
to
the Holder a notice of redemption (the “Notice
of Redemption”)
specifying the date for such Optional Redemption (the “Redemption
Payment Date”),
which date shall be not less than ten (10) business days after the date of
the
Notice of Redemption (the “Redemption
Period”).
On the Redemption Payment Date, the Redemption Amount shall be paid in good
funds to the Holder. In the event the Borrower fails to pay the Redemption
Amount on the Redemption Payment Date as set forth here, then such Notice of
Redemption will be null and void.
1.2 Repayment
of Sale of Assets.
Upon any sale of substantially all of the assets of the Borrower or any of
its
subsidiaries, other than sales of inventory in the ordinary course of business,
the Borrower shall apply the net proceeds of any such sale to prepay all or
a
portion (as the case may be) of the outstanding Principal Amounts within ten
(10) business days of the receipt of such net proceeds.
1.3 Issuance
of Replacement Note.
Upon any partial prepayment of this Term Note, a replacement Note containing
the
same date and provisions of this Term Note shall, at the written
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request
of the Holder, be issued by the Borrower to the Holder for the outstanding
Principal Amount of this Term Note and accrued interest which shall not have
been paid. Subject to the provisions of Article II,
the Holder will pay no costs, fees or any other consideration to the Borrower
for the production and issuance of a replacement Note.
ARTICLE II
EVENTS
OF DEFAULT
Upon
the notice by the Holder to the Borrower of the occurrence and continuance
of an
Event of Default beyond any applicable grace period, the Holder may make all
sums of principal, interest and other fees then remaining unpaid and all other
amounts payable under this Term Note immediately due and payable. In the event
of such an acceleration, the amount due and owing to the Holder shall be 125%
of
the outstanding principal amount of this Term Note (plus accrued and unpaid
interest and fees, if any) (the “Default
Payment”).
The Default Payment shall be applied first to any fees due and payable to the
Holder pursuant to this Term Note, the Purchase Agreement or the Related
Agreements, then to accrued and unpaid interest due on the Note and then to
the
outstanding principal balance of this Term Note.
The
occurrence of any of the following events set forth in
Sections 1.1
through 1.1,
inclusive, is an “Event of Default”:
2.1 Breach
of Covenant.
The Borrower breaches any covenant or any other term or condition of this Term
Note or the Purchase Agreement in any material respect, or the Borrower or
any
of its Subsidiaries breaches any covenant or any other term or condition of
any
Related Agreement in any material respect and, in any such case, such breach,
if
subject to cure, continues for a period of twenty (20) days after the notice
by
the Holder to the Borrower of the occurrence thereof.
2.2 Breach
of Representations and Warranties.
Any representation or warranty made by the Borrower in this Term Note or the
Purchase Agreement, or by the Borrower or any of its Subsidiaries in any Related
Agreement, shall, in any such case, be false or misleading in any material
respect on the date that such representation or warranty was made or deemed
made, unless any Purchaser had actual knowledge of such prior to the execution
of the Documents.
2.3 Receiver
or Trustee.
The Borrower or any of its Subsidiaries shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or business; or such
a
receiver or trustee shall otherwise be appointed, and shall remain unvacated,
unbonded or unstayed for a period of forty-five days.
2.4 Judgments.
Except with respect to pending matters as disclosed by Borrower in its filings
with the United States Securities and Exchange Commission, any money judgment,
writ or similar final process shall be entered or filed against the Borrower
or
any of its Subsidiaries or any of their respective property or other assets
for
more than $100,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five days.
2.5 Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law for the relief of
debtors shall
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be
instituted by or against the Borrower or any of its Subsidiaries and not stayed
within forty-five days.
2.6 Stop
Trade.
A Securities Exchange Commission (the “SEC”)
stop trade order or Principal Market trading suspension of the Common Stock
shall be in effect for ten consecutive days or ten days during a period of
fifteen consecutive days, excluding in all cases a suspension of all trading
on
a Principal Market, provided that the Borrower shall not have been able to
cure
such trading suspension within thirty (30) days of the notice thereof or list
the Common Stock on another Principal Market within sixty (60) days of such
notice. The “Principal Market” for the Common Stock shall include the Pink
Sheets, the OTC Bulletin Board, NASDAQ Capital Market, NASDAQ National Market
System, American Stock Exchange, or New York Stock Exchange (whichever of the
foregoing is at the time the principal trading exchange or market for the Common
Stock).
2.7 Default
Under Related Agreements or Other Agreements.
The occurrence and continuance of any Event of Default (as defined in the
Purchase Agreement or any Related Agreement) or any event of default (or similar
term) under any other indebtedness in an amount greater than
$100,000.
DEFAULT
RELATED PROVISIONS
2.8 Default
Interest Rate.
Following the occurrence and during the continuance of an Event of Default
or if
payment in full is not made on or before the Maturity Date, the Borrower shall
pay additional
interest on this Term Note in an amount equal to one and a half percent (1.5%)
per month (eighteen percent (18%) per annum), and all outstanding obligations
under this Term Note, including unpaid interest, shall continue to accrue such
additional interest from the date of such Event of Default until the date such
Event of Default is cured or waived.
2.9 Cumulative
Remedies.
The remedies under this Term Note shall be cumulative.
ARTICLE III
MISCELLANEOUS
3.1 Failure
or Indulgence Not Waiver.
No failure or delay on the part of the Holder hereof in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor
shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege.
All
rights and remedies existing hereunder are cumulative to, and not exclusive
of,
any rights or remedies otherwise available.
3.2 Notices.
All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given:
(a) upon
personal delivery to the party to be notified;
(b) when
sent by confirmed facsimile if sent during normal business hours of the
recipient, if not, then on the next business day;
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(c) three
(3) business days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or
(d) one
(1) day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt.
3.3 Amendment
Provision.
The term “Term Note” and all reference thereto, as used throughout this
instrument, shall mean this instrument as originally executed, or if later
amended or supplemented, then as so amended or supplemented, and any successor
instrument issued pursuant to Section 1.1
hereof, as it may be amended or supplemented.
3.4 Assignability.
This Term Note shall be binding upon the Borrower and its successors and
assigns, and shall inure to the benefit of the Holder and its successors and
assigns, and may be assigned by the Holder in accordance with the requirements
of the Purchase Agreement. This Term Note shall not be assigned by the Borrower
without the consent of the Holder.
3.5 Governing
Law.
THIS TERM NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF
THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY
ACTION BROUGHT BY EITHER PARTY AGAINST THE OTHER CONCERNING THIS TERM NOTE
SHALL
BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED
IN THE STATE OF NEW YORK. THE
PREVAILING PARTY SHALL BE ENTITLED TO RECOVER FROM THE NON-PREVAILING PARTY
ITS
REASONABLE ATTORNEY’S FEES AND COSTS.
XXXXXXXX AND HOLDER EACH AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS
AND
WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS TERM NOTE OR ANY
RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE
UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.
3.6 Maximum
Payments.
Nothing contained herein shall be deemed to establish or require the payment
of
a rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest required to be paid
or
other charges hereunder exceed the maximum permitted by such law, any payments
in excess of such maximum shall be credited against amounts owed by the Borrower
to the Holder and thus refunded to the Borrower.
3.7 Security
Interest and Guarantee.
The Holder has been granted a security interest in certain assets of the
Borrower and its Subsidiaries as more fully described in the Term Note Security
Agreement dated as of the date hereof. The obligations of the Borrower under
this Term Note are guaranteed by certain Subsidiaries of the Borrower pursuant
to the Subsidiary Guaranty dated as of the date hereof.
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3.8 Construction.
Each party acknowledges that its legal counsel participated in the preparation
of this Term Note and, therefore, stipulates that the rule of construction
that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Term Note to favor any party against the
other.
3.9 Cost
of Collection.
If default is made in the payment of this Term Note, the Borrower shall pay
to
the Holder reasonable costs of collection, including reasonable attorney’s
fees.
3.10 Facsimile
Signatures; Counterparts.
This Term Note may be executed by facsimile signatures.
[REMAINDER
OF XXXX LEFT INTENTIONALLY BLANK]
IN
WITNESS WHEREOF,
the Borrower has caused this Term Note to be signed in its name effective as
of
this 19th day of December, 2006.
| Xxxxx Xxxxxx | ||
|
Name:
Xxxxx Xxxxxx
|
||
|
Title:
Chief Financial Officer
|
WITNESS:
_______________________________
