EXHIBIT 10.62
HOST AMERICA CORPORATION
SECURITIES PURCHASE AGREEMENT
June 23, 2004
TABLE OF CONTENTS
Page
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1. Agreement to Sell and Purchase. . . . . . . . . . . . . . . . . . .2
2. Fees and Warrant. . . . . . . . . . . . . . . . . . . . . . . . . .2
3. Closing, Delivery and Payment . . . . . . . . . . . . . . . . . . .3
3.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . .3
3.2 Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . .3
3.3 Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . .2
4. Representations and Warranties of the Company . . . . . . . . . . .3
4.1 Organization, Good Standing and Qualification . . . . . . . .3
4.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . .4
4.3 Capitalization; Voting Rights . . . . . . . . . . . . . . . .4
4.4 Authorization; Binding Obligations. . . . . . . . . . . . . .5
4.5 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . .6
4.6 Agreements; Action. . . . . . . . . . . . . . . . . . . . . .6
4.7 Obligations to Related Parties. . . . . . . . . . . . . . . .7
4.8 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.9 Title to Properties and Assets; Liens, Etc. . . . . . . . . .9
4.10 Intellectual Property . . . . . . . . . . . . . . . . . . . .9
4.11 Compliance with Other Instruments . . . . . . . . . . . . . 10
4.12 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 10
4.13 Tax Returns and Payments. . . . . . . . . . . . . . . . . . 10
4.14 Employees . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.15 Registration Rights and Voting Rights . . . . . . . . . . . 11
4.16 Compliance with Laws; Permits . . . . . . . . . . . . . . . 12
4.17 Environmental and Safety Laws . . . . . . . . . . . . . . . 12
4.18 Valid Offering. . . . . . . . . . . . . . . . . . . . . . . 12
4.19 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . 13
4.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.21 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . 13
4.22 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.23 No Integrated Offering. . . . . . . . . . . . . . . . . . . 13
4.24 Stop Transfer . . . . . . . . . . . . . . . . . . . . . . . 14
4.25 Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.26 Patriot Act . . . . . . . . . . . . . . . . . . . . . . . . 12
5. Representations and Warranties of the Purchaser . . . . . . . . . 14
5.1 No Shorting . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2 Requisite Power and Authority . . . . . . . . . . . . . . . 15
5.3 Investment Representations. . . . . . . . . . . . . . . . . 15
5.4 Purchaser Bears Economic Risk . . . . . . . . . . . . . . . 15
5.5 Acquisition for Own Account . . . . . . . . . . . . . . . . 15
5.6 Purchaser Can Protect Its Interest. . . . . . . . . . . . . 16
5.7 Accredited Investor . . . . . . . . . . . . . . . . . . . . 16
5.8 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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6. Covenants of the Company. . . . . . . . . . . . . . . . . . . . . 17
6.1 Stop-Orders . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 Market Regulations. . . . . . . . . . . . . . . . . . . . . 17
6.4 Reporting Requirements 17
6.5 Use of Funds. . . . . . . . . . . . . . . . . . . . . . . . 17
6.6 Access to Facilities. . . . . . . . . . . . . . . . . . . . 18
6.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.9 Intellectual Property . . . . . . . . . . . . . . . . . . . 20
6.10 Properties. . . . . . . . . . . . . . . . . . . . . . . . . 20
6.11 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 20
6.12 Required Approvals. . . . . . . . . . . . . . . . . . . . . 20
6.13 Reissuance of Securities. . . . . . . . . . . . . . . . . . 22
6.14 Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.15 Margin Stock. . . . . . . . . . . . . . . . . . . . . . . . 19
6.16 Restricted Cash Disclosure. . . . . . . . . . . . . . . . . 19
6.17 Financing Right of First Refusal. . . . . . . . . . . . . . 19
7. Covenants of the Purchaser. . . . . . . . . . . . . . . . . . . . 23
7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 24
7.2 Non-Public Information. . . . . . . . . . . . . . . . . . . 24
8. Covenants of the Company and Purchaser Regarding Indemnification. 24
8.1 Company Indemnification . . . . . . . . . . . . . . . . . . 24
8.2 Purchaser's Indemnification . . . . . . . . . . . . . . . . 24
9. Conversion of Convertible Notes . . . . . . . . . . . . . . . . . 24
9.1 Mechanics of Conversion . . . . . . . . . . . . . . . . . . 24
10. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . 26
10.1 Registration Rights Granted . . . . . . . . . . . . . . . . 26
10.2 Offering Restrictions . . . . . . . . . . . . . . . . . . . 26
11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 26
11.2 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.3 Successors. . . . . . . . . . . . . . . . . . . . . . . . . 27
11.4 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 27
11.5 Severability. . . . . . . . . . . . . . . . . . . . . . . . 27
11.6 Amendment and Waiver. . . . . . . . . . . . . . . . . . . . 27
11.7 Delays or Omissions . . . . . . . . . . . . . . . . . . . . 28
11.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.9 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . 29
11.10 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . 29
11.11 Facsimile Signatures; Counterparts. . . . . . . . . . . . . 29
11.12 Broker's Fees . . . . . . . . . . . . . . . . . . . . . . . 29
11.13 Construction. . . . . . . . . . . . . . . . . . . . . . . . 29
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LIST OF EXHIBITS
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Form of Term Note A. . . . . . . . . . . . . . . . . . . . . .Exhibit A-1
Form of Term Note B. . . . . . . . . . . . . . . . . . . . . .Exhibit A-2
Form of Warrant. . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Form of Opinion. . . . . . . . . . . . . . . . . . . . . . . . .Exhibit C
Form of Escrow Agreement . . . . . . . . . . . . . . . . . . . .Exhibit D
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of June 23, 2004, by and between Host America
Corporation, a Colorado corporation (the "Company"), and Laurus Master
Fund, Ltd., a Cayman Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Secured Convertible Term Note A in the aggregate principal amount of Four
Million Dollars ($4,000,000) (the "Term Note A"), which Term Note A is
convertible into shares of the Company's common stock, $0.01 par value
per share (the "Common Stock") at an initial fixed conversion price of
$5.03 per share of Common Stock (the "Term Note A Fixed Conversion
Price");
WHEREAS, the Company has authorized the sale to the Purchaser of a
Secured Convertible Term Note B in the aggregate principal amount of Four
Million Dollars ($4,000,000) (the "Term Note B"; the Term Note A and the
Term Note B are collectively referred to herein as the "Notes" and each,
a "Note"), which Term Note B is convertible into shares of the Company's
common stock, $0.01 par value per share (the "Common Stock") at an
initial fixed conversion price of $5.48 per share of Common Stock (the
"Term Note B Fixed Conversion Price"; the Term Note A Fixed Conversion
Price and the Term Note B Fixed Conversion Price are collectively
referred to herein as the "Fixed Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 450,000 shares of the Company's Common Stock (subject to
adjustment as set forth therein) in connection with Purchaser's purchase
of the Notes;
WHEREAS, Purchaser desires to purchase the Notes and the Warrant (as
defined in Section 2) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Notes and Warrant
to Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter
set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section
3), the Company agrees to sell to the Purchaser, and the Purchaser hereby
agrees to purchase from the Company, (x) a Term Note A in the aggregate
principal amount of $4,000,000 and (y) a Term Note B in an aggregate
principal amount of $4,000,000, in each case, convertible in accordance
with the terms thereof into shares of the Company's Common Stock in
accordance with the terms of the Notes and this Agreement. The Notes
purchased on the Closing Date shall be known as the "Offering." A form of
the Term Note A is annexed hereto as Exhibit A-1 and a form of the Term
Note B is annexed hereto as Exhibit A-2. Each Note will mature on the
Maturity Date (as defined in the respective Note). Collectively, the
Notes and Warrant and Common Stock issuable in payment of the Notes, upon
conversion of the Notes and upon exercise of the Warrant are referred to
as the "Securities."
2. FEES AND WARRANT. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a
Warrant to purchase up to 450,000 shares of Common
Stock in connection with the Offering (the "Warrant")
pursuant to Section 1 hereof. The Warrant must be
delivered on the Closing Date. A form of Warrant is
annexed hereto as Exhibit B. All the representations,
covenants, warranties, undertakings, and
indemnification, and other rights made or granted to
or for the benefit of the Purchaser by the Company
are hereby also made and granted in respect of the
Warrant and shares of the Company's Common Stock
issuable upon exercise of the Warrant (the "Warrant
Shares").
(b) Subject to the terms of Section 2(d) below, the
Company shall pay to Laurus Capital Management, LLC,
the manager of the Purchaser, a closing payment in an
amount equal to three and one-half percent (3.50%) of
the aggregate principal amount of the Notes. The
foregoing fee is referred to herein as the "Closing
Payment."
(c) The Company shall reimburse the Purchaser for its
reasonable expenses (including documentation fees and
expenses) incurred in connection with the preparation
and negotiation of this Agreement and the Related
Agreements (as hereinafter defined), and expenses
incurred in connection with the Purchaser's due
diligence review of the Company and its Subsidiaries
(as defined in Section 6.8) and all related matters.
Amounts required to be paid under this Section 2(c)
will be paid on the Closing Date and shall be $42,500
(net of deposits previously paid by the Company) for
such expenses (including documentation fees and
expenses) referred to in this Section 2(c).
(d) The Closing Payment and the expenses referred to in
the preceding clause (c) (net of deposits previously
paid by the Company) shall be paid at closing out of
funds held pursuant to a Funds Escrow Agreement of
even date herewith among the Company, Purchaser, and
an Escrow Agent (the "Funds Escrow Agreement") and a
disbursement letter (the "Disbursement Letter").
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3. CLOSING, DELIVERY AND PAYMENT.
3.1 CLOSING. Subject to the terms and conditions herein, the
closing of the transactions contemplated hereby (the "Closing"), shall
take place on the date hereof, at such time or place as the Company and
Purchaser may mutually agree (such date is hereinafter referred to as the
"Closing Date").
3.2 DELIVERY. Pursuant to the Funds Escrow Agreement in the form
attached hereto as Exhibit D, at the Closing on the Closing Date, the
Company will deliver to the Purchaser, among other things, a Term Note A
in the form attached as Exhibit A-1 representing the aggregate principal
amount of $4,000,000, a Term Note B in the form attached as Exhibit A-2
representing the aggregate principal amount of $4,000,000 and a Warrant
in the form attached as Exhibit B in the Purchaser's name representing
450,000 Warrant Shares and the Purchaser will deliver to the Company,
among other things, the amounts set forth in the Disbursement Letter by
certified funds or wire transfer (it being understood that the entire
amount of the proceeds of the Term Note B shall be deposited in the
Restricted Account (as defined in the Restricted Account Agreement
referred to below)).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser as follows (which
representations and warranties are supplemented by the Company's filings
under the Securities Exchange Act of 1934 (collectively, the "Exchange
Act Filings"), copies of which have been provided to the Purchaser):
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the
Company and each of its Subsidiaries is a corporation, partnership or
limited liability company, as the case may be, duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each of the Company and each of its Subsidiaries has the
corporate power and authority to own and operate its properties and
assets, to execute and deliver (i) this Agreement, (ii) the Term Note A,
the Term Note B and the Warrant to be issued in connection with this
Agreement, (iii) the Master Security Agreement dated as of the date
hereof between the Company, certain Subsidiaries of the Company and the
Purchaser (as amended, modified or supplemented from time to time, the
"Master Security Agreement"), (iv) the Registration Rights Agreement
relating to the Securities dated as of the date hereof between the
Company and the Purchaser (the "Registration Rights Agreement"), (v) the
Subsidiary Guaranty dated as of the date hereof made by certain
Subsidiaries of the Company (as amended, modified or supplemented from
time to time, the "Subsidiary Guaranty"), (vi) the Stock Pledge Agreement
dated as of the date hereof among the Company, certain Subsidiaries of
the Company and the Purchaser (as amended, modified or supplemented from
time to time, the "Stock Pledge Agreement"), (vii) the Escrow Agreement
dated as of the date hereof among the Company, the Purchaser and the
escrow agent referred to therein, (viii) the Restricted Account Agreement
dated as of the date hereof among the Company, the Purchaser and North
Fork Bank (the "Restricted Account Agreement"), (ix) the Restricted
Account Side Letter related to the Restricted Account Agreement dated as
of the date hereof between the Company and the Purchaser (the "Restricted
Account Side Letter"), (x) [Add Three Party Agreement related to soft
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lockbox] and (xi) all other agreements related to this Agreement and the
Notes and referred to herein (the preceding clauses (ii) through (xi),
collectively, the "Related Agreements"), to issue and sell the Notes and
the shares of Common Stock issuable upon conversion of the Notes (the
"Note Shares"), to issue and sell the Warrant and the Warrant Shares, and
to carry out the provisions of this Agreement and the Related Agreements
and to carry on its business as presently conducted. Each of the Company
and each of its Subsidiaries is duly qualified and is authorized to do
business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in
which the nature of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so has not, or could not reasonably
be expected to have, individually or in the aggregate, a material adverse
effect on the business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the Company and it
Subsidiaries, taken individually and as a whole (a "Material Adverse
Effect").
4.2 SUBSIDIARIES. Each direct and indirect Subsidiary of the
Company, the direct owner of such Subsidiary and its percentage ownership
thereof, is set forth on Schedule 4.2. For the purpose of this
Agreement, a "Subsidiary" of any person or entity means (i) a corporation
or other entity whose shares of stock or other ownership interests having
ordinary voting power (other than stock or other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the directors of such corporation, or other persons
or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a
corporation or other entity in which such person or entity owns, directly
or indirectly, more than 50% of the equity interests at such time.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of
the date hereof consists of 82,000,000 shares, of
which 80,000,000 are shares of Common Stock, par
value $0.01 per share, of which are issued and
outstanding 4,117,461, and 2,000,000 are shares of
preferred stock, par value $0.01 per share of which
266,667 shares of preferred stock are issued and
outstanding. The authorized capital stock of each
Subsidiary of the Company is set forth on Schedule
4.3.
(b) Except as disclosed on Schedule 4.3, other than: (i)
the shares reserved for issuance under the Company's
stock option plans; (ii) shares which may be granted
pursuant to this Agreement and the Related
Agreements; and (iii) Disclosed Acquisition Common
Stock (as defined below) the shares of Common Stock
contemplated to be issued in connection with the
Disclosed Acquisitions (as defined below), so long as
(i) the fair market value of such shares of Common
Stock (on a fully diluted basis and determined in
good faith by the Board of Directors of the Company),
when issued, is no less than $4.00 and (ii) such
shares of Common Stock are restricted securities that
(A) are not subject to any registration rights and
(B) cannot be publicly traded other than by virtue of
the satisfaction of the requirements of Rule 144(k)
of the Exchange Act , there are no outstanding
options, warrants, rights (including conversion or
preemptive
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rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements
of any kind for the purchase or acquisition from the
Company of any of its securities. Except as disclosed
on SCHEDULE 4.3, neither the offer, issuance or sale
of any of the Notes or the Warrant, or the issuance
of any of the Note Shares or Warrant Shares, nor the
consummation of any transaction contemplated hereby
will result in a change in the price (other than as
traded under typical market conditions in the
Principal Market) or number of any securities of the
Company outstanding, under anti-dilution or other
similar provisions contained in or affecting any such
securities. For the purpose of this Agreement and
the Related Agreements, "Disclosed Acquisition Common
Stock" shall mean up to 2,467,700 shares of Common
Stock (subject to adjustment for any combination,
subdivision or similar event with respect to the
Common Stock) contemplated to be issued in connection
with the Disclosed Acquisitions (as defined below),
provided that such shares of Common Stock have the
following characteristics: (i) the fair market value
of such shares of Common Stock at the time of
issuance thereof (calculated on a fully diluted basis
and determined in good faith by the Board of
Directors of the Company) is no less than $4.00 per
share of Common Stock and (ii) such shares of Common
Stock are restricted securities that (A) are not
subject to any registration rights and (B) cannot be
publically traded other than by virtue of the
satisfaction of the requirements of Rule 144(k) of
the Exchange Act.
(c) All issued and outstanding shares of the Company's
Common Stock: (i) have been duly authorized and
validly issued and are fully paid and nonassessable;
and (ii) were issued in compliance with all
applicable state and federal laws concerning the
issuance of securities.
(d) The rights, preferences, privileges and restrictions
of the shares of the Common Stock are as stated in
the Company's Certificate of Incorporation (the
"Charter"). The Note Shares and Warrant Shares have
been duly and validly reserved for issuance. When
issued in compliance with the provisions of this
Agreement and the Company's Charter, the Securities
will be validly issued, fully paid and nonassessable,
and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject
to restrictions on transfer under state and/or
federal securities laws as set forth herein or as
otherwise required by such laws at the time a
transfer is proposed.
4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate, partnership
or limited liability company, as the case may be, action on the part of
the Company and each of its Subsidiaries (including the respective
officers and directors) necessary for the authorization of this Agreement
and the Related Agreements, the performance of all obligations of the
Company and its Subsidiaries hereunder and under the other Related
Agreements at the Closing and, the authorization, sale, issuance and
delivery of the Notes and Warrant has been taken or will be taken prior
to the Closing. This Agreement and the Related Agreements, when executed
and
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delivered and to the extent it is a party thereto, will be valid and
binding obligations of each of the Company and each of its Subsidiaries,
enforceable against each such person in accordance with their terms,
except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application affecting enforcement of creditors'
rights; and
(b) general principles of equity that restrict the
availability of equitable or legal remedies.
The sale of the Notes and the subsequent conversion of the Notes into
Note Shares are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied
with. The issuance of the Warrant and the subsequent exercise of the
Warrant for Warrant Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly
waived or complied with.
4.5 LIABILITIES. Neither the Company nor any of its Subsidiaries
has any contingent liabilities, except current liabilities incurred in
the ordinary course of business and liabilities disclosed in any Exchange
Act Filings.
4.6 AGREEMENTS; ACTION. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
(a) there are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders,
writs or decrees to which the Company or any of its
Subsidiaries is a party or by which it is bound which
may involve: (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess
of $50,000 (other than obligations of, or payments
to, the Company arising from purchase or sale
agreements entered into in the ordinary course of
business); or (ii) the transfer or license of any
patent, copyright, trade secret or other proprietary
right to or from the Company (other than licenses
arising from the purchase of "off the shelf" or other
standard products); or (iii) provisions restricting
the development, manufacture or distribution of the
Company's products or services; or (iv)
indemnification by the Company with respect to
infringements of proprietary rights.
(b) Since June 30, 2003, neither the Company nor any of
its Subsidiaries has: (i) declared or paid any
dividends, or authorized or made any distribution
upon or with respect to any class or series of its
capital stock; (ii) incurred any indebtedness for
money borrowed or any other liabilities (other than
ordinary course obligations) individually in excess
of $50,000 or, in the case of indebtedness and/or
liabilities individually less than $50,000, in excess
of $100,000 in the aggregate; (iii) made any loans or
advances to any person not in excess, individually or
in the aggregate, of $100,000, other than ordinary
course advances for travel expenses; or (iv) sold,
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exchanged or otherwise disposed of any of its assets
or rights, other than the sale of its inventory in
the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above,
all indebtedness, liabilities, agreements,
understandings, instruments, contracts and proposed
transactions involving the same person or entity
(including persons or entities the Company has reason
to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
4.7 OBLIGATIONS TO RELATED PARTIES. Except as set forth on Schedule
4.7, there are no obligations of the Company or any of its Subsidiaries
to officers, directors, stockholders or employees of the Company or any
of its Subsidiaries other than:
(a) for payment of salary for services rendered and for
bonus payments;
(b) reimbursement for reasonable expenses incurred on
behalf of the Company and its Subsidiaries;
(c) for other standard employee benefits made generally
available to all employees (including stock option
agreements outstanding under any stock option plan
approved by the Board of Directors of the Company);
and
(d) obligations listed in the Company's financial
statements or disclosed in any of its Exchange Act
Filings.
Except as described above or set forth on SCHEDULE 4.7, none of the
officers, directors or, to the best of the Company's knowledge, key
employees or stockholders of the Company or any members of their
immediate families, are indebted to the Company, individually or in the
aggregate, in excess of $50,000 or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated
or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive
investments in publicly traded companies (representing less than one
percent (1%) of such company) which may compete with the Company. Except
as described above, no officer, director or stockholder, or any member of
their immediate families, is, directly or indirectly, interested in any
material contract with the Company and no agreements, understandings or
proposed transactions are contemplated between the Company and any such
person. Except as set forth on SCHEDULE 4.7, the Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
4.8 CHANGES. Since June 30, 2003, except as set forth on Schedule
4.8 or as disclosed in any Exchange Act Filing , there has not been:
(a) any change in the business, assets, liabilities,
condition (financial or otherwise), properties,
operations or prospects of the Company or any of its
Subsidiaries, which individually or in the aggregate
has had, or could
7
reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key
employee or group of employees of the Company or any
of its Subsidiaries;
(c) any material change, except in the ordinary course of
business, in the contingent obligations of the
Company or any of its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or
otherwise;
(d) any damage, destruction or loss, whether or not
covered by insurance, has had, or could reasonably be
expected to have, individually or in the aggregate, a
Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries
of a valuable right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or
any of its Subsidiaries to any stockholder, employee,
officer or director of the Company or any of its
Subsidiaries, other than advances made in the
ordinary course of business;
(g) any material change in any compensation arrangement
or agreement with any employee, officer, director or
stockholder of the Company or any of its
Subsidiaries;
(h) any declaration or payment of any dividend or other
distribution of the assets of the Company or any of
its Subsidiaries;
(i) any labor organization activity related to the
Company or any of its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed
or guaranteed by the Company or any of its
Subsidiaries, except those for immaterial amounts and
for current liabilities incurred in the ordinary
course of business;
(k) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other
intangible assets owned by the Company or any of its
Subsidiaries;
(l) any change in any material agreement to which the
Company or any of its Subsidiaries is a party or by
which either the Company or any of its Subsidiaries
is bound which either individually or in the
aggregate has had, or could reasonably be expected to
have, individually or in the aggregate, a Material
Adverse Effect;
8
(m) any other event or condition of any character that,
either individually or in the aggregate, has had, or
could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any
of its Subsidiaries to do any of the acts described
in subsection (a) through (m) above.
4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. Except as set forth
on Schedule 4.9, each of the Company and each of its Subsidiaries has
good and marketable title to its properties and assets, and good title to
its leasehold estates, in each case subject to no mortgage, pledge, lien,
lease, encumbrance or charge, other than:
(a) those resulting from taxes which have not yet become
delinquent;
(b) minor liens and encumbrances which do not materially
detract from the value of the property subject
thereto or materially impair the operations of the
Company or any of its Subsidiaries; and
(c) those that have otherwise arisen in the ordinary
course of business.
All facilities, machinery, equipment, fixtures, vehicles and other
properties owned, leased or used by the Company and its Subsidiaries are
in such operating condition and repair as are usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the
Company and its Subsidiaries are in compliance with all terms of each
lease to which it is a party or is otherwise bound, except to the extent
that any such noncompliance has not had, or could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect.
4.10 INTELLECTUAL PROPERTY.
(a) Each of the Company and each of its Subsidiaries owns
or possesses sufficient legal rights to all patents,
trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other
proprietary rights and processes necessary for its
business as now conducted and to the Company's
knowledge, as presently proposed to be conducted (the
"Intellectual Property"), without any known
infringement of the rights of others. There are no
outstanding options, licenses or agreements of any
kind relating to the foregoing proprietary rights,
nor is the Company or any of its Subsidiaries bound
by or a party to any options, licenses or agreements
of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary
rights and processes of any other person or entity
other than such licenses or agreements arising from
the purchase of "off the shelf" or standard products.
(b) Neither the Company nor any of its Subsidiaries has
received any communications alleging that the Company
or any of its Subsidiaries has violated any of the
patents, trademarks, service marks, trade names,
9
copyrights or trade secrets or other proprietary
rights of any other person or entity, nor is the
Company or any of its Subsidiaries aware of any basis
therefor.
(c) The Company does not believe it is or will be
necessary to utilize any inventions, trade secrets or
proprietary information of any of its employees made
prior to their employment by the Company or any of
its Subsidiaries, except for inventions, trade
secrets or proprietary information that have been
rightfully assigned to the Company or any of its
Subsidiaries.
4.11 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company nor any
of its Subsidiaries is in violation or default of (x) any term of its
Charter or Bylaws, or (y) of any provision of any indebtedness, mortgage,
indenture, contract, agreement or instrument to which it is party or by
which it is bound or of any judgment, decree, order or writ, which
violation or default, in the case of this clause (y), has had, or could
reasonably be expected to have, either individually or in the aggregate,
a Material Adverse Effect. The execution, delivery and performance of
and compliance with this Agreement and the Related Agreements to which it
is a party, and the issuance and sale of the Notes by the Company and the
other Securities by the Company each pursuant hereto and thereto, will
not, with or without the passage of time or giving of notice, result in
any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or any of its Subsidiaries, except in
favor of Purchaser, or the suspension, revocation, impairment, forfeiture
or nonrenewal of any permit, license, authorization or approval
applicable to the Company, its business or operations or any of its
assets or properties.
4.12 LITIGATION. Except as set forth on SCHEDULE 4.12 hereto, there
is no action, suit, proceeding or investigation pending or, to the
Company's knowledge, currently threatened against the Company or any
of its Subsidiaries that prevents the Company or any of its
Subsidiaries from entering into this Agreement or the other Related
Agreements, or from consummating the transactions contemplated
hereby or thereby, or which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company
or any of its Subsidiaries, nor is the Company aware that there is
any basis to assert any of the foregoing. Neither the Company nor
any of its Subsidiaries is a party or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its
Subsidiaries currently pending or which the Company or any of its
Subsidiaries intends to initiate.
4.13 TAX RETURNS AND PAYMENTS. Each of the Company and each of its
Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on
such returns, any assessments imposed, and all other taxes due and
payable by the Company or any of its Subsidiaries on or before the
Closing, have been paid or will be paid prior to the time they become
delinquent. Except as set forth on SCHEDULE 4.13, neither the Company
nor any of its Subsidiaries has been advised:
10
(a) that any of its returns, federal, state or other,
have been or are being audited as of the date hereof;
or
(b) of any deficiency in assessment or proposed judgment
to its federal, state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed
upon its properties or assets as of the date of this Agreement that is
not adequately provided for.
4.14 EMPLOYEES. Except as set forth on SCHEDULE 4.14, neither the
Company nor any of its Subsidiaries has any collective bargaining
agreements with any of its employees. The Company has not been notified
of any labor union organizing activity pending or threatened with respect
to the Company or any of its Subsidiaries. Except as disclosed in the
Exchange Act Filings or on SCHEDULE 4.14, neither the Company nor any of
its Subsidiaries is a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no
employee of the Company or any of its Subsidiaries, nor any consultant
with whom the Company or any of its Subsidiaries has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such
individual to be employed by, or to contract with, the Company or any of
its Subsidiaries because of the nature of the business to be conducted by
the Company or any of its Subsidiaries; and to the Company's knowledge
the continued employment by the Company or any of its Subsidiaries of its
present employees, and the performance of the Company's and its
Subsidiaries' contracts with its independent contractors, will not result
in any such violation. Neither the Company nor any of its Subsidiaries
is aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has received any notice alleging that any such violation has
occurred. Except for employees who have a current effective employment
agreement with the Company or any of its Subsidiaries, no employee of the
Company or any of its Subsidiaries has been granted the right to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of employment with the
Company or any of its Subsidiaries. Except as set forth on SCHEDULE
4.14, the Company has not been notified of any officer, key employee or
group of employees who intends to terminate his, her or their employment
with the Company or any of its Subsidiaries, nor does the Company or any
of its Subsidiaries have a present intention to terminate the employment
of any officer, key employee or group of employees.
4.15 REGISTRATION RIGHTS AND VOTING RIGHTS. Except as set forth on
SCHEDULE 4.15 and except as disclosed in Exchange Act Filings, neither
the Company nor any of its Subsidiaries is presently under any
obligation, and neither the Company nor any of its Subsidiaries has
granted any rights, to register any of the Company's or its Subsidiaries'
presently outstanding securities or any of its securities that may
hereafter be issued. Except as set forth on SCHEDULE 4.15 and except as
disclosed in Exchange Act Filings, to the Company's knowledge, no
stockholder of the
11
Company or any of its Subsidiaries has entered into any agreement with
respect to the voting of equity securities of the Company or any of its
Subsidiaries.
4.16 COMPLIANCE WITH LAWS; PERMITS. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or
any instrumentality or agency thereof in respect of the conduct of its
business or the ownership of its properties which has had, or could
reasonably be expected to have, either individually or in the aggregate,
a Material Adverse Effect. No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no
registrations or declarations are required to be filed in connection with
the execution and delivery of this Agreement or any other Related
Agreement and the issuance of any of the Securities, except such as has
been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner.
Each of the Company and its Subsidiaries has all material franchises,
permits, licenses and any similar authority necessary for the conduct of
its business as now being conducted by it, the lack of which could,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.17 ENVIRONMENTAL AND SAFETY LAWS. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety
that has had, or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect, and to its knowledge, no
expenditures are or will be required in order to comply with any such
existing statute, law or regulation, which expenditures could reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect. Except as set forth on SCHEDULE 4.17, no Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the
Company or any of its Subsidiaries or, to the Company's knowledge, by any
other person or entity on any property owned, leased or used by the
Company or any of its Subsidiaries, except to the extent that such use
storage or diposal has not had, or could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. For
the purposes of the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local,
state, federal and/or foreign laws and regulations
that govern the existence and/or remedy of
contamination on property, the protection of the
environment from contamination, the control of
hazardous wastes, or other activities involving
hazardous substances, including building materials;
or
(b) any petroleum products or nuclear materials.
4.18 VALID OFFERING. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the offer,
sale and issuance of the Notes and Warrant will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and will have been registered or qualified (or are
exempt from registration and qualification) under the registration,
permit or qualification requirements of all applicable state securities
laws.
12
4.19 FULL DISCLOSURE. Each of the Company and each of its
Subsidiaries has provided the Purchaser with all information requested by
the Purchaser in connection with its decision to purchase the Notes and
Warrant, including all information the Company and its Subsidiaries
believe is reasonably necessary to make such investment decision.
Neither this Agreement, the Related Agreements, the exhibits and
schedules hereto and thereto nor any other document delivered by the
Company or any of its Subsidiaries to Purchaser or its attorneys or
agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, contain any untrue statement of a
material fact nor omit to state a material fact necessary in order to
make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading. Any financial
projections and other estimates provided to the Purchaser by the Company
or any of its Subsidiaries were based on the Company's and its
Subsidiaries' experience in the industry and on assumptions of fact and
opinion as to future events which the Company or any of its Subsidiaries,
at the date of the issuance of such projections or estimates, believed to
be reasonable.
4.20 INSURANCE. Each of the Company and each of its Subsidiaries
has general commercial, product liability, fire and casualty insurance
policies with coverages which the Company believes are customary for
companies similarly situated to the Company and its Subsidiaries in the
same or similar business.
4.21 SEC REPORTS. Except as set forth on SCHEDULE 4.21, the Company
has filed all proxy statements, reports and other documents required to
be filed by it under the Securities Xxxxxxxx Xxx 0000, as amended (the
"Exchange Act"). The Company has furnished the Purchaser with copies of:
(i) its Annual Report on Form 10-KSB for its fiscal year ended June 30,
2003, (ii) its Quarterly Report on Form 10-QSB for its fiscal quarters
ended September 30, 2003, December 31, 2004 and March 31, 2004, and (iii)
the Form 8-K filings which it has made during its fiscal year ending June
30, 2004 (collectively, the "SEC Reports"). Except as set forth on
SCHEDULE 4.21, each SEC Report was, at the time of its filing, in
substantial compliance with the requirements of its respective form and
none of the SEC Reports, nor the financial statements (and the notes
thereto) included in the SEC Reports, as of their respective filing
dates, contained any untrue statement of a material fact or omitted 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.
4.22 LISTING. The Company's Common Stock is listed for trading on
the NASDAQ SmallCap Market ("NASDAQ SC") and satisfies all requirements
for the continuation of such listing. The Company has not received any
notice that its Common Stock will be delisted from NASDAQ SC or that its
Common Stock does not meet all requirements for listing.
4.23 NO INTEGRATED OFFERING. Neither the Company, nor any of its
Subsidiaries or affiliates, nor any person acting on its or their behalf,
has directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would
cause the offering of the Securities pursuant to this Agreement or any of
the Related Agreements to be integrated with prior offerings by the
Company for purposes of the Securities Act which would prevent the
Company from selling the Securities pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will
13
the Company or any of its affiliates or Subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated
with other offerings.
4.24 STOP TRANSFER. The Securities are restricted securities as of
the date of this Agreement. Neither the Company nor any of its
Subsidiaries will issue any stop transfer order or other order impeding
the sale and delivery of any of the Securities at such time as the
Securities are registered for public sale or an exemption from
registration is available, except as required by state and federal
securities laws.
4.25 DILUTION. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the
Notes and exercise of the Warrant is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
4.26 PATRIOT ACT. The Company certifies that, to the best of
Company's knowledge, neither the Company nor any of its Subsidiaries has
been designated, and is not owned or controlled, by a "suspected
terrorist" as defined in Executive Order 13224. The Company hereby
acknowledges that the Purchaser seeks to comply with all applicable laws
concerning money laundering and related activities. In furtherance of
those efforts, the Company hereby represents, warrants and agrees that:
(i) none of the cash or property that the Company or any of its
Subsidiaries will pay or will contribute to the Purchaser has been or
shall be derived from, or related to, any activity that is deemed
criminal under United States law; and (ii) no contribution or payment by
the Company or any of its Subsidiaries to the Purchaser, to the extent
that they are within the Company's and/or its Subsidiaries' control shall
cause the Purchaser to be in violation of the United States Bank Secrecy
Act, the United States International Money Laundering Control Act of 1986
or the United States International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001. The Company shall promptly notify
the Purchaser if any of these representations ceases to be true and
accurate regarding the Company or any of its Subsidiaries. The Company
agrees to provide the Purchaser any additional information regarding the
Company or any of its Subsidiaries that the Purchaser deems necessary or
convenient to ensure compliance with all applicable laws concerning money
laundering and similar activities. The Company understands and agrees
that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law
or regulation related to money laundering similar activities, the
Purchaser may undertake appropriate actions to ensure compliance with
applicable law or regulation, including but not limited to segregation
and/or redemption of the Purchaser's investment in the Company. The
Company further understands that the Purchaser may release confidential
information about the Company and its Subsidiaries and, if applicable,
any underlying beneficial owners, to proper authorities if the Purchaser,
in its sole discretion, determines that it is in the best interests of
the Purchaser in light of relevant rules and regulations under the laws
set forth in subsection (ii) above.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Company as follows (such representations
and warranties do not lessen or obviate the representations and
warranties of the Company set forth in this Agreement):
14
5.1 NO SHORTING. The Purchaser or any of its affiliates and
investment partners has not, will not and will not cause any person or
entity, directly or indirectly, to engage in "short sales" of the
Company's Common Stock as long as the Notes shall be outstanding.
5.2 REQUISITE POWER AND AUTHORITY. The Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on Purchaser's part required for the
lawful execution and delivery of this Agreement and the Related
Agreements have been or will be effectively taken prior to the Closing.
Upon their execution and delivery, this Agreement and the Related
Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application affecting enforcement of creditors'
rights; and
(b) as limited by general principles of equity that
restrict the availability of equitable and legal
remedies.
5.3 INVESTMENT REPRESENTATIONS. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon
Purchaser's representations contained in the Agreement, including,
without limitation, that the Purchaser is an "accredited investor" within
the meaning of Regulation D under the Securities Act of 1933, as amended
(the "Securities Act"). The Purchaser confirms that it has received or
has had full access to all the information it considers necessary or
appropriate to make an informed investment decision with respect to the
Notes and the Warrant to be purchased by it under this Agreement and the
Note Shares and the Warrant Shares acquired by it upon the conversion of
the Notes and the exercise of the Warrant, respectively. The Purchaser
further confirms that it has had an opportunity to ask questions and
receive answers from the Company regarding the Company's and its
Subsidiaries' business, management and financial affairs and the terms
and conditions of the Offering, the Notes, the Warrant and the Securities
and to obtain additional information (to the extent the Company possessed
such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to the Purchaser
or to which the Purchaser had access.
5.4 PURCHASER BEARS ECONOMIC RISK. The Purchaser has substantial
experience in evaluating and investing in private placement transactions
of securities in companies similar to the Company so that it is capable
of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. The Purchaser must bear
the economic risk of this investment until the Securities are sold
pursuant to: (i) an effective registration statement under the Securities
Act; or (ii) an exemption from registration is available with respect to
such sale.
5.5 ACQUISITION FOR OWN ACCOUNT. The Purchaser is acquiring the
Notes and Warrant and the Note Shares and the Warrant Shares for the
Purchaser's own account for investment only, and not as a nominee or
agent and not with a view towards or for resale in connection with their
distribution.
15
5.6 PURCHASER CAN PROTECT ITS INTEREST. The Purchaser represents
that by reason of its, or of its management's, business and financial
experience, the Purchaser has the capacity to evaluate the merits and
risks of its investment in the Notes, the Warrant and the Securities and
to protect its own interests in connection with the transactions
contemplated in this Agreement and the Related Agreements. Further,
Purchaser is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement or the Related
Agreements.
5.7 ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the
Securities Act.
5.8 LEGENDS.
(a) Each Note shall bear substantially the following
legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES
LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO HOST AMERICA CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued
by DWAC system (as hereinafter defined), shall bear a
legend which shall be in substantially the following
form until such shares are covered by an effective
registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO HOST AMERICA CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following
legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY
16
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON
SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO HOST AMERICA CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED."
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser as follows:
6.1 STOP-ORDERS. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange
Commission (the "SEC"), any state securities commission or any other
regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the
suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding
for any such purpose.
6.2 LISTING. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon conversion of the Notes and upon the
exercise of the Warrant on the NASDAQ Small Cap Market (the "Principal
Market") upon which shares of Common Stock are listed (subject to
official notice of issuance) and shall maintain such listing so long as
any other shares of Common Stock shall be so listed. The Company will
maintain the listing of its Common Stock on the Principal Market (which
shall include the NASD OTC Bulletin Board, NASDAQ Small Cap Market,
NASDAQ National Market System, American Stock Exchange or New York Stock
Exchange), and will comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and/or such
exchanges, as applicable.
6.3 MARKET REGULATIONS. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of
the transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of
the Securities to the Purchaser and promptly provide copies thereof to
the Purchaser.
6.4 REPORTING REQUIREMENTS. The Company will timely file with the
SEC all reports required to be filed pursuant to the Exchange Act and
refrain from terminating its status as an issuer required by the Exchange
Act to file reports thereunder even if the Exchange Act or the rules or
regulations thereunder would permit such termination.
6.5 USE OF FUNDS. The Company agrees that it will use (i) up to
$1,250,000 of the proceeds of the sale of the Term A Note to consummate
the Company's contemplated acquisitions of Food Brokers, Inc., KWM
Electronics Corporation, RS Services and Energy NSync substantially on
the terms set forth on Schedule 6.5 (collectively, the "Disclosed
17
Acquisitions"), and to pay transaction costs incurred in connection with
such Disclosed Acquisitions, (ii) up to $500,000 of the proceeds of the
sale of the Term Note A to refinancing existing indebtedness of the
Company and its Subsidiaries, (iii) up to $1,100,000 of the proceeds of
the sale of the Term Note A to pay legal, due diligence and transaction
fees incurred in connection with the transactions contemplated hereby,
(iv) up to $575,000 of the proceeds of the sale of the Term Note A in
connection with the research and development of the Company's and its
Subsidiaries' residential and commercial applications, (v) the remainder
of the proceeds of the sale of the Term Note A for general working
capital purposes, (vi) the proceeds of the sale of the Term Note B (x)
for the acquisitions of assets approved by the Purchaser, (y) to purchase
inventory in connection with certain customer contracts entered into by
the Company and/or any of its Subsidiaries, to the extent that such
purchase orders are reasonably satisfactory to the Purchaser and (z) for
general working capital purposes (it being understood that the entire
amount of the proceeds of the Term Note B will be deposited in the
Restricted Account on the Closing Date and shall be subject to the terms
and conditions of the Restricted Account Agreement and the Restricted
Account Side Letter) and (vii) the proceeds of the sale of the Warrant
shall be used for general working capital purposes.
6.6 ACCESS TO FACILITIES. Each of the Company and each of its
Subsidiaries will permit any representatives designated by the Purchaser
(or any successor of the Purchaser), upon reasonable notice and during
normal business hours, at such person's expense and accompanied by a
representative of the Company, to:
(a) visit and inspect any of the properties of the
Company or any of its Subsidiaries;
(b) examine (but not more often than once per fiscal
quarter of the Company unless an Event of Default has
occurred and is continuing) the corporate and
financial records of the Company or any of its
Subsidiaries (unless such examination is not
permitted by federal, state or local law or by
contract) and make copies thereof or extracts
therefrom; and
(c) discuss the affairs, finances and accounts of the
Company or any of its Subsidiaries with the
directors, officers and independent accountants of
the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its
Subsidiaries will provide any material, non-public information to the
Purchaser unless the Purchaser signs a confidentiality agreement and
otherwise complies with Regulation FD, under the federal securities laws.
6.7 TAXES. Each of the Company and each of its Subsidiaries will
promptly pay and discharge, or cause to be paid and discharged, before
delinquency, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the
Company and its Subsidiaries; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate
proceedings and if the Company and/or such Subsidiary shall have set
aside on its books adequate reserves with respect thereto, and provided,
further, that the Company and its Subsidiaries will either pay or bond
all such taxes, assessments, charges or levies forthwith upon
18
the commencement of proceedings to foreclose any lien which may have
attached as security therefor.
6.8 INSURANCE. Each of the Company and its Subsidiaries will keep
its assets which are of an insurable character insured by financially
sound and reputable insurers against loss or damage by fire, explosion
and other risks customarily insured against by companies in similar
business similarly situated as the Company and its Subsidiaries; and the
Company and its Subsidiaries will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and
liability to persons and property to the extent and in the manner which
the Company reasonably believes is customary for companies in similar
business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, and
each of its Subsidiaries will jointly and severally bear the full risk of
loss from any loss of any nature whatsoever with respect to the assets
pledged to the Purchaser as security for its obligations hereunder and
under the Related Agreements. At the Company's and each of its
Subsidiaries' joint and several cost and expense in amounts and with
carriers reasonably acceptable to Purchaser, the Company and each of its
Subsidiaries shall (i) keep all its insurable properties and properties
in which it has an interest insured against the hazards of fire, flood,
sprinkler leakage, those hazards covered by extended coverage insurance
and such other hazards, and for such amounts, as is customary in the case
of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii)
maintain employee practice liability insurance in such amounts as is
customary in the case of companies engaged in businesses similar to the
Company's or the respective Subsidiary's insuring against larceny,
embezzlement or other criminal misappropriation of insured's officers and
employees who may either singly or jointly with others at any time have
access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds
or to direct generally the disposition of such assets; (iii) maintain
public and product liability insurance against claims for personal
injury, death or property damage suffered by others; (iv) maintain all
such worker's compensation or similar insurance as may be required under
the laws of any state or jurisdiction in which the Company or the
respective Subsidiary is engaged in business; and (v) on the Closing Date
and upon the request of Purchaser (which request shall not be made more
than once per fiscal quarter of the Company unless an Event of Default
has occurred and is continuing, furnish Purchaser with (x) copies of all
policies and evidence of the maintenance of such policies at least thirty
(30) days before any expiration date, (y) excepting the Company's
workers' compensation policy, endorsements to such policies naming
Purchaser as "co-insured" or "additional insured" and appropriate loss
payable endorsements in form and substance satisfactory to Purchaser,
naming Purchaser as loss payee, and (z) evidence that as to Purchaser the
insurance coverage shall not be impaired or invalidated by any act or
neglect of the Company or any Subsidiary and the insurer will provide
Purchaser with at least thirty (30) days notice prior to cancellation.
The Company and each Subsidiary shall instruct the insurance carriers
that in the event of any loss thereunder, the carriers shall make payment
for such loss to the Company and/or the Subsidiary and Purchaser jointly.
In the event that as of the date of receipt of each loss recovery upon
any such insurance, the Purchaser has not declared an Event of Default
(as defined in the Note or any other event of default with respect to
this Agreement or any of the Related Agreements (and, in either case,
such Event of Default or event of default, as the case may be, in
continuing), then the Company and/or such Subsidiary shall be permitted
to direct the application of such loss recovery proceeds toward
investment in property, plant and equipment that would comprise
19
"Collateral" secured by Purchaser's security interest pursuant to its
security agreements, with any surplus funds to (i) with respect to the
first $50,000 of such surplus funds received by the Company or any of its
Subsidiaries in connection with each such loss recovery, be paid to the
Company and (ii) with respect to all other surplus funds received by the
Company or any of its Subsidiaries in connection with each such loss
recovery, applied toward payment of the obligations of the Company to
Purchaser. In the event that Purchaser has properly declared an Event of
Default (as defined in the Note) or any other event of default with
respect to this Agreement or any of the Related Agreements (and, in
either case, such Event of Default or event of default, as the case may
be, in continuing), then all loss recoveries received by Purchaser upon
any such insurance thereafter may be applied to the obligations of the
Company hereunder and under the Related Agreements, in such order as the
Purchaser may determine. Any surplus (following satisfaction of all
Company obligations to Purchaser) shall be paid by Purchaser to the
Company or applied as may be otherwise required by law. Any deficiency
thereon shall be paid by the Company or the Subsidiary, as applicable, to
Purchaser, on demand.
6.9 INTELLECTUAL PROPERTY. Each of the Company and each of its
Subsidiaries shall maintain in full force and effect its existence,
rights and franchises and all licenses and other rights to use
Intellectual Property owned or possessed by it and reasonably deemed to
be necessary to the conduct of its business.
6.10 PROPERTIES. Each of the Company and each of its Subsidiaries
will keep its properties in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all needful
and proper repairs, renewals, replacements, additions and improvements
thereto; and each of the Company and each of its Subsidiaries will at all
times comply with each provision of all leases to which it is a party or
under which it occupies property if the breach of such provision could,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
6.11 CONFIDENTIALITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the
Purchaser, unless expressly agreed to by the Purchaser or unless and
until such disclosure is required by law or applicable regulation, and
then only to the extent of such requirement. Notwithstanding the
foregoing, the Company may disclose Purchaser's identity and the terms of
this Agreement to its current and prospective debt and equity financing
sources.
6.12 REQUIRED APPROVALS. For so long as twenty-five percent (25%)
of the aggregate principal amount of the Notes is outstanding, the
Company, without the prior written consent of the Purchaser, shall not,
and shall not permit any of its Subsidiaries to:
(a) (i) directly or indirectly declare or pay any
dividends, other than dividends paid to the Company
or any of its wholly-owned Subsidiaries, (ii) issue
any preferred stock that is manditorily redeemable by
the holder thereof prior to the one year anniversary
of the Maturity Date or (iii) redeem any of its
preferred stock or other equity interests;
(b) liquidate, dissolve or effect a material
reorganization (it being understood that in no event
shall the Company dissolve, liquidate or merge with
any
20
other person or entity (unless the Company is the
surviving entity) except that Subsidiaries of the
Company may be merged into one another or into the
Company so long as (i) in connection with any such
merger involving the Company, the Company is the
surviving entity, (ii) in connection with any such
merger involving one Subsidiary of the Company
merging into another Subsidiary of the Company, the
surviving Subsidiary enters into, or remains a party
to, the Subsidiary Guaranty and (iii) in connection
with any such merger, the Purchaser's security
interest with respect to the assets involved in any
such merger remains unaffected in all material
respects;
(c) become subject to (including, without limitation, by
way of amendment to or modification of) any agreement
or instrument which by its terms would (under any
circumstances) restrict the Company's or any of its
Subsidiaries right to perform the provisions of this
Agreement, any Related Agreement or any of the
agreements contemplated hereby or thereby;
(d) subject to Section 6.12(g), materially alter or
change the scope of the business of the Company and
its Subsidiaries taken as a whole;
(e) (i) create, incur, assume or suffer to exist any
indebtedness (exclusive of trade debt and debt
incurred to finance the purchase of equipment (not in
excess of five percent (5%) per annum of the fair
market value of the Company's assets) whether secured
or unsecured other than (x) the Company's
indebtedness to the Purchaser, (y) indebtedness set
forth on SCHEDULE 6.12(e) attached hereto and made a
part hereof and any refinancings or replacements
thereof on terms (taken as a whole) no less favorable
to the Company (as reasonably determined by the
Purchaser) than the indebtedness being refinanced or
replaced, and (z) any debt incurred in connection
with the purchase of assets in the ordinary course of
business, or any refinancings or replacements thereof
on terms (taken as a whole) no less favorable to the
Company (as reasonably determined by the Purchaser)
than the indebtedness being refinanced or replaced;
(ii) cancel any debt owing to it in excess of $50,000
in the aggregate during any 12 month period (provided
that the Company and its Subsidiaries may cancel debt
that is determined to be uncollectable by the
auditors of the Company and its Subsidiaries to the
extent that such auditors require such cancellation);
(iii) assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with
any obligations of any other Person, except (A) as
set forth in clause (iii) of the proviso to Section
6.12(d) and (B) the endorsement of negotiable
instruments by the Company for deposit or collection
or similar transactions in the ordinary course of
business or guarantees of indebtedness otherwise
permitted to be outstanding pursuant to this clause
(e); and
(f) create or acquire any Subsidiary after the date
hereof unless (i) such Subsidiary is a wholly-owned
Subsidiary of the Company and (ii) such
21
Subsidiary becomes party to the Master Security
Agreement, the Stock Pledge Agreement and the
Subsidiary Guaranty (either by executing a
counterpart thereof or an assumption or joinder
agreement in respect thereof) and, to the extent
required by the Purchaser, satisfies each condition
of this Agreement and the Related Agreements as if
such Subsidiary were a Subsidiary on the Closing
Date;
(g) consummate the Disclosed Acquisitions; provided that
the Disclosed Acquisitions may be consummated so long
as (i) the assets acquired in connection with such
Disclosed Acquisitions are acquired free and clear of
all encumbrances (unless such encumbrances are
satisfactory to the Purchaser) and are subject to the
terms of the Master Security Agreement, (ii) in the
event that equity interests of any person or entity
are acquired in connection with any such Disclosed
Acquisition, the Company and/or the relevant
Subsidiary thereof has complied with Section 6.12(f),
(iii) the aggregate principal amount of all
indebtedness assumed in connection with the Disclosed
Acquisitions (taken as a whole) does not exceed
$600,000 and (iv) prior to any such consummation of a
Disclosed Acquisition, the initial Registration
Statement referred to in the Registration Rights
Agreement has been declared effective by the SEC; and
(h) make any principal repayment in respect of either of
(x) the Company's 12.0% Unsecured Notes due January
31, 2008 in an aggregate principal amount of
$1,500,000 or (y) the Company's 7.5% Unsecured Notes
due January 31, 2009 in an aggregate principal amount
of $2,000,000.
6.13 REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of such
Securities pursuant to Rule 144(k) under the
Securities Act; or
(b) upon resale subject to an effective registration
statement after such Securities are registered under
the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal
opinions necessary to allow such resales provided the Company and its
counsel receive reasonably requested representations from the selling
Purchaser and broker, if any.
6.14 OPINION. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's
external legal counsel. The Company will provide, at the Company's
expense, such other legal opinions in the future as are deemed reasonably
necessary by the Purchaser (and acceptable to the Purchaser) in
connection with the conversion of the Notes and exercise of the Warrant.
22
6.15 MARGIN STOCK. The Company will not permit any of the proceeds
of the Notes or the Warrant to be used directly or indirectly to
"purchase" or "carry" "margin stock" or to repay indebtedness incurred to
"purchase" or "carry" "margin stock" within the respective meanings of
each of the quoted terms under Regulation U of the Board of Governors of
the Federal Reserve System as now and from time to time hereafter in
effect.
6.16 RESTRICTED CASH DISCLOSURE. The Company agrees that, in
connection with its filing of its 8-K Report with the SEC concerning the
transactions contemplated by this Agreement and the Related Agreements
(such report, the "Laurus Transaction 8-K") in a timely manner after the
date hereof, it will disclose in such Laurus Transaction 8-K the amount
of the proceeds of the Term Note B issued to the Purchaser that has been
placed in a restricted cash account and is subject to the terms and
conditions of this Agreement and the Related Agreements. Furthermore,
the Company agrees to disclose in all public filings required by the
Commission (where appropriate) following the filing of the Laurus
Transaction 8-K, the existence of the restricted cash referred to in the
immediately preceding sentence, together with the amount thereof.
6.17 FINANCING RIGHT OF FIRST REFUSAL. (a) For so long as
twenty-five (25%) percent of the aggregate principal amount of the Notes
is outstanding, the Company hereby grants to the Purchaser a right of
first refusal to provide any Additional Financing (as defined below) to
be issued by the Company and/or any of its Subsidiaries, subject to the
following terms and conditions. Prior to the incurrence of additional
indebtedness (other than trade indebtedness, purchase money indebtedness
and capitalized lease obligations) or the issuance of any additional
equity interests (an "Additional Financing"), in each case, after the
date hereof, the Company and/or any Subsidiary of the Company, as the
case may be, shall notify the Purchaser of its intention to enter into
such Additional Financing, together with the terms that such proposed
Additional Financing will be subject to. In connection therewith, the
Company and/or the applicable Subsidiary thereof shall submit a fully
executed term sheet (a "Proposed Term Sheet") to the Purchaser setting
forth the terms, conditions and pricing of any such Additional Financing
(such financing to be negotiated on "arm's length" terms and the terms
thereof to be negotiated in good faith) proposed to be entered into by
the Company and/or such Subsidiary. The Purchaser shall have the right,
but not the obligation, to agree to provide such Additional Financing to
the Company and/or such Subsidiary on terms no less favorable than those
outlined in Proposed Term Sheet within ten business days of receipt of
any such Proposed Term Sheet. If the provisions of the Purchaser's term
sheet are at least as favorable to the Company or such Subsidiary, as the
case may be, as the provisions of the Proposed Term Sheet, the Company
and/or such Subsidiary shall enter into the Additional Financing outlined
in the Purchaser's term sheet.
(b) For so long as twenty-five (25%) percent of the
aggregate principal amount of the Notes is outstanding, the Company will
not, and will not permit its Subsidiaries to, agree, directly or
indirectly, to any restriction with any person or entity which limits the
ability of the Purchaser to consummate an Additional Financing with the
Company or any of its Subsidiaries.
7. COVENANTS OF THE PURCHASER. The Purchaser covenants and agrees with
the Company as follows:
7.1 CONFIDENTIALITY. The Purchaser agrees that it will not
disclose, and will not include in any public announcement, the name of
the Company, unless expressly agreed to by the Company or unless and
until such disclosure is required by law or applicable regulation, and
then only to the extent of such requirement.
7.2 NON-PUBLIC INFORMATION. The Purchaser agrees not to effect any
sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales
would violate applicable securities law.
8. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
8.1 COMPANY INDEMNIFICATION. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's
officers, directors, agents, affiliates, control persons, and principal
shareholders, against any claim, cost, expense, liability, obligation,
loss or damage (including reasonable legal fees) of any nature, incurred
by or imposed upon the Purchaser which results, arises out of or is based
upon: (i) any misrepresentation by the Company or any of its Subsidiaries
or breach of any warranty by the Company or any of its Subsidiaries in
this Agreement, any other Related Agreement or in any exhibits or
schedules attached hereto or thereto; or (ii) any breach or default in
performance by Company or any of its Subsidiaries of any covenant or
undertaking to be performed by Company or any of its Subsidiaries
hereunder, under any other Related Agreement or any other agreement
entered into by the Company and/or any of its Subsidiaries and Purchaser
relating hereto or thereto.
8.2 PURCHASER'S INDEMNIFICATION. Purchaser agrees to indemnify,
hold harmless, reimburse and defend the Company and each of the Company's
officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Company which results, arises out
of or is based upon: (i) any misrepresentation by Purchaser or breach of
any warranty by Purchaser in this Agreement or in any exhibits or
schedules attached hereto or any Related Agreement; or (ii) any breach or
default in performance by Purchaser of any covenant or undertaking to be
performed by Purchaser hereunder, or any other agreement entered into by
the Company and Purchaser relating hereto.
9. CONVERSION OF CONVERTIBLE NOTES.
9.1 MECHANICS OF CONVERSION.
(a) Provided the Purchaser has notified the Company of
the Purchaser's intention to sell the Note Shares and
the Note Shares are included in an effective
registration statement or are otherwise exempt from
registration when sold: (i) upon the conversion of
the Notes or part thereof, the Company shall, at its
own cost and expense, take all necessary action
(including the issuance of an opinion of counsel
reasonably acceptable to the Purchaser following a
request by the Purchaser) to assure that the
Company's transfer agent shall issue shares of the
Company's Common Stock in the name of the Purchaser
(or its nominee) or such other persons as designated
by the Purchaser in accordance with Section 9.1(b)
hereof
24
and in such denominations to be specified
representing the number of Note Shares issuable upon
such conversion; and (ii) the Company warrants that
no instructions other than these instructions have
been or will be given to the transfer agent of the
Company's Common Stock and that after the
Effectiveness Date (as defined in the Registration
Rights Agreement) the Note Shares issued will be
freely transferable subject to the prospectus
delivery requirements of the Securities Act and the
provisions of this Agreement, and will not contain a
legend restricting the resale or transferability of
the Note Shares.
(b) Purchaser will give notice of its decision to
exercise its right to convert the Notes or part
thereof by telecopying or otherwise delivering an
executed and completed notice of the number of shares
to be converted to the Company (the "Notice of
Conversion"). The Purchaser will not be required to
surrender the Notes until the Purchaser receives a
credit to the account of the Purchaser's prime broker
through the DWAC system (as defined below),
representing the Note Shares or until the Notes have
been fully satisfied. Each date on which a Notice of
Conversion is telecopied or delivered to the Company
in accordance with the provisions hereof shall be
deemed a "Conversion Date." Pursuant to the terms of
the Notice of Conversion, the Company will issue
instructions to the transfer agent accompanied by an
opinion of counsel within one (1) business day of the
date of the delivery to the Company of the Notice of
Conversion and shall cause the transfer agent to
transmit the certificates representing the Conversion
Shares to the Holder by crediting the account of the
Purchaser's prime broker with the Depository Trust
Company ("DTC") through its Deposit Withdrawal Agent
Commission ("DWAC") system within three (3) business
days after receipt by the Company of the Notice of
Conversion (the "Delivery Date").
(c) The Company understands that a delay in the delivery
of the Note Shares in the form required pursuant to
Section 9 hereof beyond the Delivery Date could
result in economic loss to the Purchaser. In the
event that the Company fails to direct its transfer
agent to deliver the Note Shares to the Purchaser via
the DWAC system within the time frame set forth in
Section 9.1(b) above and the Note Shares are not
delivered to the Purchaser by the Delivery Date, as
compensation to the Purchaser for such loss, the
Company agrees to pay late payments to the Purchaser
for late issuance of the Note Shares in the form
required pursuant to Section 9 hereof upon conversion
of the Notes in the amount equal to the greater of:
(i) $500 per business day after the Delivery Date; or
(ii) the Purchaser's actual damages from such delayed
delivery. Notwithstanding the foregoing, the Company
will not owe the Purchaser any late payments if the
delay in the delivery of the Note Shares beyond the
Delivery Date is solely out of the control of the
Company and the Company is actively trying to cure
the cause of the delay. The Company shall pay any
payments incurred under this Section in immediately
available funds upon demand and, in the case of
actual
25
damages, accompanied by reasonable documentation of
the amount of such damages. Such documentation shall
show the number of shares of Common Stock the
Purchaser is forced to purchase (in an open market
transaction) which the Purchaser anticipated
receiving upon such conversion, and shall be
calculated as the amount by which (A) the Purchaser's
total purchase price (including customary brokerage
commissions, if any) for the shares of Common Stock
so purchased exceeds (B) the aggregate principal
and/or interest amount of the Notes, for which such
Conversion Notice was not timely honored.
Nothing contained herein or in any document referred to herein or
delivered in connection herewith 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 or dividends required to be paid or other charges hereunder
exceed the maximum amount permitted by such law, any payments in excess
of such maximum shall be credited against amounts owed by the Company to
a Purchaser and thus refunded to the Company. Furthermore, nothing
contained in this Section 9 shall limit in any respect the terms of any
of the Related Agreements.
10. REGISTRATION RIGHTS.
10.1 REGISTRATION RIGHTS GRANTED. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights
Agreement dated as of even date herewith between the Company and the
Purchaser.
10.2 OFFERING RESTRICTIONS. Except as previously disclosed in the
SEC Reports or in the Exchange Act Filings, or stock or stock options
granted to employees or directors of the Company (these exceptions
hereinafter referred to as the "Excepted Issuances"), neither the Company
nor any of its Subsidiaries will issue any securities with a continuously
variable/floating conversion feature which are or could be (by conversion
or registration) free-trading securities (i.e. common stock subject to a
registration statement) prior to the full repayment or conversion of the
Notes (together with all accrued and unpaid interest and fees related
thereto) (the "Exclusion Period").
11. MISCELLANEOUS.
11.1 GOVERNING LAW. THIS AGREEMENT AND EACH RELATED AGREEMENT 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 THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE
BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS
LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES AND THE INDIVIDUALS
EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF THE
COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE
TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR
26
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.
11.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the
Purchaser and the closing of the transactions contemplated hereby to the
extent provided therein. All statements as to factual matters contained
in any certificate or other instrument delivered by or on behalf of the
Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or
instrument.
11.3 SUCCESSORS. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and
shall inure to the benefit of and be enforceable by each person who shall
be a holder of the Securities from time to time, other than the holders
of Common Stock which has been sold by the Purchaser pursuant to Rule 144
or an effective registration statement. Purchaser may not assign its
rights hereunder to a competitor of the Company. Furthermore, so long
as no Event of Default has occurred and is continuing, the Purchaser will
not assign any of its rights hereunder to any person or entity other than
to an affiliate of the Purchaser without the consent of the Company
(which consent shall not be unreasonably withheld).
11.4 ENTIRE AGREEMENT. This Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto and the other documents
delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
11.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
11.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon
the written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only
with the written consent of the Purchaser.
(c) The obligations of the Purchaser and the rights of
the Company under this Agreement may be waived only
with the written consent of the Company.
27
11.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by another party under this Agreement or
the Related Agreements, shall impair any such right, power or remedy, nor
shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar
breach, default or noncompliance thereafter occurring. All remedies,
either under this Agreement or the Related Agreements, by law or
otherwise afforded to any party, shall be cumulative and not alternative.
11.8 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;
(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.
All communications shall be sent as follows:
IF TO THE COMPANY, TO: Host America Corporation
0 Xxxxxxxx
Xxxxxx, XX 00000
Attention: Xxxx Xxxxxx
Facsimile: 000-000-0000
WITH A COPY TO:
Xxxxxx and Sable LLC
Xxx Xxxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Facsimile: 000-000-0000
IF TO THE PURCHASER, TO: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services ltd.
X.X. Xxx 0000 G.T.
Xxxxxxxxxx Xxxxx, Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx
Facsimile: 000-000-0000
28
WITH A COPY TO:
Xxxx X. Xxxxxx, Esq.
000 Xxxxx Xxxxxx 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: 000-000-0000
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing
party in such dispute shall be entitled to recover from the losing party
all fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement, including, without
limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
11.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
11.11 FACSIMILE SIGNATURES; COUNTERPARTS. 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.
11.12 BROKER'S FEES. Except as set forth on SCHEDULE 11.12 hereof,
each party hereto represents and warrants that no agent, broker,
investment banker, person or firm acting on behalf of or under the
authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Each party hereto further
agrees to indemnify each other party for any claims, losses or expenses
incurred by such other party as a result of the representation in this
Section 11.12 being untrue.
11.13 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related
Agreements 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 Agreement to favor any party
against the other.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
29
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph
hereof.
COMPANY: PURCHASER:
HOST AMERICA CORPORATION LAURUS MASTER FUND, LTD.
By: /s/ Xxxxx Xxxxxx By: /s/ Xxxxx Grin
------------------------ -------------------------
Name: Xxxxx Xxxxxx Name: Xxxxx Grin
------------------------ -------------------------
Title: CFO Title: Managing Partner
------------------------ -------------------------
30
LIST OF SCHEDULES
-----------------
Schedule Subject
-------- -------
4.2 Each direct and indirect Subsidiary of the Company, the
direct owner of such Subsidiary and its percentage
ownership thereof.
4.3 The authorized capital stock of the Company and each
Subsidiary of the Company.
4.6 List of agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs
or decrees to which the Company or any of its Subsidiaries
is a party.
4.7 Obligations to Related Parties.
4.8 Changes
4.9 Company's and each Subsidiaries' Title to Properties and
Assets; Liens; Etc.
4.12 Litigation involving Company and each Subsidiary
4.13 Tax Returns and Payments of Company and each Subsidiary
4.14 Employees
4.15 Registration Rights and Voting Rights
4.17 Disclosure of Hazardous Materials
4.21 SEC Reports
6.12(e) Indebtedness
11.12 Broker's Fees
31
EXHIBIT A-1
FORM OF TERM NOTE A
A-1
EXHIBIT A-2
FORM OF TERM NOTE B
2
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPINION
C-1
EXHIBIT D
FORM OF ESCROW AGREEMENT
D-2
