SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10KSB
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 25, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-16196
HOST AMERICA CORPORATION
(Exact Name of Registrant as specified in its Charter)
COLORADO 06-1168423
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
TWO BROADWAY
HAMDEN, CONNECTICUT 06518
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (203) 248-4100
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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At September 15, 1999, 1,330,000 shares of Common Stock, $.001 par value,
were outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant on that date was approximately $3,065,678.
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Materials for 1999 Annual Meeting of Shareholders to be held on
November 23, 1999 are incorporated by reference into Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Page 1 of 46 pages Exhibits are indexed on page 26.
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PART I
Item 1. DESCRIPTION OF BUSINESS
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(a) GENERAL DEVELOPMENT OF BUSINESS. The Company is a regional
contract food service management company specializing in providing full
restaurant and employee dining, special event catering, vending and office
coffee service, home food replacement (fully cooked, home style meals,
typically made from scratch, suitable for take out) and management of
corporate dining rooms and cafeterias, in office complexes and
manufacturing plants. The diversity of services allows the Company's
clients to offer their employees full breakfast and lunch availability,
multi-level catering and a variety of complimentary food service options.
The Company currently has operations in Connecticut, New York, New Jersey,
Massachusetts, and Rhode Island and, in the near future, the Company
intends to expand to Florida and New Hampshire.
The Company estimates that the United States food service industry had
annual revenues in excess of approximately $100 billion in 1996 and of
that, $40 billion is concentrated in corporate services, the primary market
niche in which the Company competes. The balance of annualized revenues
are concentrated in the areas of hospital/health care, correctional
facilities, military facilities and transportation facilities.
Additionally, the home-meal replacement industry is a rapidly growing
industry with annual sales estimated to range from $80 billion to $150
billion. Industry contracting revenues have continued rising since 1996
and are expected to continue to rise in 1999. The four largest nationals
(Marriott, Aramark, CompassUSA, and Sodexho) produced double-digit revenue
gains of 15% adding more than 1,500 accounts in 1997.
Since its formation as a corporation in 1986, the Company has grown
from providing food service to colleges and preparatory schools in the New
England area of the United States to a regional, full-service, food service
provider to major corporations that have in total over 10,000 employees.
The Company maintains a number of large, multi-year contracts among its
thirty-one separate operations. Some of the larger contracts include
Pitney Bowes, Inc. of Stamford, Connecticut (currently 6 locations with
over 4,500 employees), Oxford Health Plans, Inc. of White Plains, New York
(currently 5 locations with over 4,000 employees), Ft. James Paper Co. of
Norwalk, Connecticut (with over 1,000 employees), and Stanley Works of New
Britain, Connecticut and East Greenwich, Rhode Island (with over 5,700
employees).
Currently, the Company's revenues are derived primarily from sales
related to the management of corporate restaurants and catering in single
tenant and multi-tenant office buildings. The balance of revenues are
derived from the maintenance of vending machines, office coffee service and
catering of special events at select facilities. The Company concentrates
on medium-size clients generating from $500,000 to $2 million per location
in annual food sales. Management believes that these middle market
facilities generally provide greater profit margins and need a variety of
food related services. The Company endeavors to be the exclusive food
provider at the facilities served thereby being able to control the quality
of service and product at each location.
The Company continues to implement its home meal replacement program
(the "HOMEfood MARKET"). This program provides employees at certain of its
facilities, the ability
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to purchase fully cooked home style meals for consumption at home without
further preparation or re-heating. The HOMEfood MARKET also offers evening
employees at certain of its locations such as Bloomingdales, the
opportunity to have a quality meal on premises in a cost-effective manner.
Management believes that this additional food service component was an
important factor in acquiring the contracts with Tyco Submarines, Casual
Corner, and The Hartford Courant.
The Company believes there are significant opportunities to expand its
business through the acquisition of companies in the contract food service
industry, particularly in the education and corporate dining markets. The
Company's Officers and Directors will be responsible for identifying,
pursuing and negotiating potential acquisition candidates and integrating
acquired operations. The Company believes it can integrate such companies
into the Company's management structure and diversified operations
successfully without a significant increase in general and administrative
expenses. In addition, future acquisitions are expected to enable the
Company to lower overhead costs through centralized geographical office
operations and to grow to a size so that it qualifies for bids on larger
volume quality accounts that require asset or purchase programs to meet the
higher standard. The Company is vigilantly pursuing leads for potential
acquisition. In anticipation of an acquisition, the Company is developing
a computerized system to streamline unit reports and accounting functions
with the hope of controlling overhead.
On July 21, 1998, the Company completed a public offering of 1,000,000
shares of its Common Stock and 1,000,000 Common Stock Purchase Warrants.
The Common Stock and Warrants are separately traded and are separately
transferrable. Each Warrant entitles the holder thereof to purchase at
$5.50, one share of Common Stock. The Warrants are exercisable until July
21, 2003. The Company received net proceeds from the sale of $3,782,917.
On April 30, 1999, the Company filed Articles of Merger with the State
of Colorado merging Host Delaware into Host Colorado and Host Delaware
ceased as of that date. The Company's Officers and Directors changed the
corporate domicile in order to reduce the amount of franchise tax payable
in the State of Delaware.
The Company's corporate offices are located at Two Broadway, Hamden,
Connecticut 06518. The Company's telephone number is (203) 248-4100.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. The Company's
activities are confined to the contract food service management, hence the
Company has no other industry segments other than as stated herein. See
Financial Statements for additional information concerning the Company's
business.
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(c) NARRATIVE DESCRIPTION OF BUSINESS.
GENERAL
The Company is a regional contract food service management company.
The majority of corporate revenues are from sales related to the management
of corporate cafeterias and restaurants, home meal replacement and catering
in single tenant and multi-tenant office buildings. The balance of
revenues are derived from the maintenance of vending machines and coffee
service at select facilities. The Company concentrates on small- to
medium-size clients generating from $500,000 to $2 million per location in
annual food sales. Management believes that these middle market facilities
generally provide greater profit margins and present the opportunity to
provide a variety of food related services. The Company endeavors to be
the exclusive food provider at each facility served, thereby being able to
control the quality of food and service at each location.
Various marketing and operating strategies are currently being used by
the Company to provide an umbrella of food services at each customer
facility ranging from basic corporate cafeteria dining, office coffee,
vending machines, special events catering and home meal replacement
programs. The Company believes this strategy has been an important factor
in the Company's growth and in attracting large, corporate clients with
multiple needs. Through its on-site account managers and employees, the
Company endeavors to provide high quality food and client satisfaction
while controlling labor costs and overhead.
The Company will attempt to increase its revenues through acquisition
of small- to medium-sized food service providers currently operating in
different geographical locations and dining markets not currently being
served by the Company. The Company believes the increase in revenues will
be coupled with an overall reduction in per unit food costs and general and
administrative expenses. The Company has not, as of the date of this
Report, entered into any agreements in this regard and no assurance can be
given that the Company will be successful in seeking suitable acquisitions.
The Company currently has operations in Connecticut, New York, New
Jersey, Massachusetts, and Rhode Island and, in the near future, intends to
expand to Florida and New Hampshire.
HISTORY
The Company was formed as a Delaware corporation on February 6, 1986
under the name University Dining Services, Inc. Its initial business was
providing food service to colleges and preparatory schools in the New
England area. After several years, the Company determined it was more
profitable to provide food to larger, more densely populated customer
bases. Accordingly, in 1992, it shifted its focus to becoming a full
service food management company specializing in employee dining in large
office complexes and providing special events catering. In 1997, a home
meal replacement program, the HOMEfood MARKET, was developed to meet the
demand from individuals for complete home meals, to enhance existing
corporate dining facilities and to increase revenues without significantly
increasing overhead costs at each location.
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In February 1988, the Company conducted an initial public offering and
sold 5,000,000 shares of its Common Stock to the general public. In
February 1998, the Company effected a 100 to 1 reverse split of its then
outstanding shares and to insure continuity of management, in March 1998,
issued 700,000 shares of Series A Preferred Shares to its Officers and
Directors. In addition, the Company entered into five (5) year employment
agreements with its founders and key employees, Geoffrey W. Ramsey and
David J. Murphy.
On July 21, 1998, the Company completed a public offering of 1,000,000
shares of its Common Stock and 1,000,000 Common Stock Purchase Warrants.
The Company received net proceeds from the sale of $3,782,917. The Company
is utilizing the proceeds of the offering for sales and marketing, product
development, acquisitions and working capital.
On April 30, 1999, the Company filed Articles of Merger with the State
of Colorado merging Host Delaware into Host Colorado and Host Delaware
ceased as of that date. The Company's Officers and Directors did this in
order to reduce the amount of franchise tax required in the State of
Delaware. This move will save the Company approximately $40,000 per year.
INDUSTRY OVERVIEW
In 1996, the United States food service industry had annual revenues
in excess of approximately $100 billion and $40 billion in the corporate
services and educational markets. The balance of annualized revenues are
concentrated in the areas of hospital/health care, correctional facilities,
military facilities and transportation facilities. Additionally, the home-
meal replacement industry is rapidly growing with annual sales estimated to
range from $80 billion to $150 billion. Industry contracting revenues have
continued rising since 1996 and are expected to continue to rise in 1999.
The four largest nationals (Marriott, Aramark, CompassUSA, and Sodexho)
produced double-digit revenue gains of 15% adding more than 1,500 accounts
in 1997.
The United States food service market is characterized by a large
concentration of corporate and industry populations in a multitude of
strategic geographical locations. The Company's primary geographical area
of operations is located in the Southern New England, New York and northern
New Jersey marketplace. This area is believed to have the largest
financial segment of the industry, with a high population density, numerous
corporate office parks, industrial facilities and concentration of mid-size
and large corporations.
BUSINESS STRATEGY
The Company has developed a program known as "Food Serve 2000," which
is a comprehensive plan of evaluating all existing food operations, in an
attempt to maximize customer satisfaction. Management, on a monthly basis,
studies the basic elements of its food service at each location, including
traffic flows, waiting times, food presentation, menu variety, nutritional
assessment, work preparation and labor qualifications. In addition, on-site
food managers maintain strict cost containment policies, nutritional
programs for better health, custom designed menus to meet regional and
ethnic tastes and facilities enhancement with state-of-the-art equipment.
Each
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facility is then reviewed by management and the client to select the best
possible combination of food and service.
In addition to the acquisition strategy described below, the Company
anticipates adding new sales representatives in Metro New York, New Jersey
and Pennsylvania to actively promote the Company's innovative marketing
program including the home-meal replacement program, the "HOMEfood MARKET."
The Company believes the HOMEfood MARKET gives it a strategic time
advantage over its national competitors who have not developed home-meal
programs tied to their client contracts. To increase the existing client
base, the Company is actively seeking customers in contiguous geographical
locations.
The Company continues to evaluate and improve its internal operational
procedures and develop new procedures for product presentation. Often
times this requires retaining existing personnel or acquiring specialized
equipment such as pizza ovens. The Company attempts to achieve a
continuing level of employee satisfaction with programs for training,
providing high wages and retirement benefits together with a seniority and
stable working conditions. The Company believes employee satisfaction will
result in improved and more consistent service for its clients.
OPERATIONS
The Company's primary emphasis has, and will be, on large corporate
accounts. These types of accounts present the opportunity to provide a
wide variety of food services in a single location to a select group
ranging from vending machines to cafeteria services to special event
catering. Typically, the Company is the exclusive provider of all
available food and beverages and is responsible for the hiring and training
of personnel at each location. On-site managers are selected for each
facility who then, in turn, work closely with the Company's management to
ensure continuing food quality and customer satisfaction.
Each new account is assigned to a member of management who develops a
comprehensive plan to meet that specific client's needs, which can include
the Company being able to provide customized food service for up to 3,000
employees for larger clients. As discussed herein, the HOMEfood MARKET was
developed in direct response to the need of certain clients to feed several
work shifts with different types of quality food at times of the day when
a normal cafeteria operation would not be available.
An operating strategy is then formulated after extensive interviews
and on-site visits. Various factors are considered to maximize the
Company's profits without sacrificing client satisfaction. Each strategy
includes a thorough review of labor and product costs, facility design,
menu design, training and recruiting, specialized needs and equipment
needs. Thereafter, the strategy is continually reviewed to monitor client
employee satisfaction, changing food requirements and quality of food and
service. Additional services are added as demand changes, including the
addition of vending machines, catering facilities and food selection upgrades.
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MARKETING
The Company selectively bids for privately owned facility contracts
and contracts awarded by governmental and quasi-governmental agencies.
Other potential food service contracts come to the Company's attention
through direct contact with a customer, by mail and telephone, from
conversations with suppliers, such as purveyors and vending machine
suppliers, and state listings. New clients require the Company to submit
a bid and make a proposal encompassing, among other things, a capital
investment and other financial terms. In certain cases, a private-facility
owner may choose to negotiate with the Company exclusively for a period of
time and during the bidding process, the Company expends a great deal of
time and effort preparing proposals and negotiating contracts.
To attract typical office buildings as clients, the Company is
constantly attempting to upgrade its food service and provide upscale,
quality foods. To the extent employees are able to satisfy their food
needs at the employer's location, the less time employees are away from
their office setting which results in an increase in corporate and
individual productivity. Further, if the Company can satisfy the employees
with diverse and high-quality food items, employers are often willing to
subsidize a portion of the costs.
The Company believes that food service contracting in its business
segments is far from saturated. The Company believes that it can compete
with even the largest of its competitors because it provides direct
personal contact with its clients two or three times a week, offers
flexible menus to meet customer's desires, and intensively trains its unit
managers.
HOMEfood MARKET
In February 1996, the Company introduced the HOMEfood MARKET program
as its version of home meal replacement for client employees and building
tenants working different shifts and as a convenience to employees on their
way home. Home meal replacement is broadly defined as a retail food
service that replaces home-style, cooked meals with those prepared out of
the home and which are made from scratch but have the convenience of fast
food. This type of food service ranges from parts of meals, like salads,
to complete meals such as a turkey dinner with gravy and side dishes.
Home-style meals also require some sort of further processing by the
customer, such as reheating or finishing, at home.
HOMEfood MARKET provides a convenient way to assemble fresh,
convenient meals at home which are fully prepared and ready to heat and
serve. The Company prepares part of the menu in its on-site kitchen while
a number of branded items are made off-site, like DeLuca Italian entrees,
then placed in microwavable containers that can be heated and served
quickly. The menu offers a variety of branded Italian entrees, whole
rotisserie chickens, chicken dinners, sandwich roll-ups, sandwiches and
salad entrees.
The Company believes that the availability of the HOMEfood MARKET was
instrumental in the Company obtaining its contract with Tyco Submarines,
Casual Corner, and The Hartford
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Courant. The HOMEfood MARKET provides the Company's clients daytime
employees the opportunity to have a pre-cooked meal for dinner and its late
shift employees with a complete meal.
The Company believes that variety and freshness are the primary
factors influencing customer satisfaction and frequency of visits.
Accordingly, the Company continually evaluates the HOMEfood MARKET menu,
including price, in an attempt to maximize the success of the program.
MAJOR CONTRACTS
The Company is a party to a number of large, multi-year contracts
among its' thirty-one (31) separate customers. Some of the larger
contracts include Pitney Bowes, Inc., of Stamford, Connecticut (currently
6 locations with over 4,500 employees), Oxford Health Plans, Inc., of White
Plains, New York (currently 5 locations with over 4,000 employees), Ft.
James Paper Co., of Norwalk, Connecticut (with over 1,000 employees) and
Stanley Works of New Britain, Connecticut and East Greenwich, Rhode Island
(with over 5,700 employees).
In 1995, the Company entered into a contract with the city of Hamden,
Connecticut to manage a banquet facility and club bar at the Laurel View
Country Club, a full service country club with golf course. Laurel View
provides an excellent location for large banquet service events such as
weddings, class reunions and other large events. Revenues from this
facility increase significantly in the summer months with weddings and
golfing events. The Company's original one-year contract was extended for
a three-year period commencing June 1996.
In April, 1999, the Company took over the client-operated cafeteria
for The Hartford Courant in Hartford, Connecticut. This contract gives the
Company a strong presence in the Hartford, Connecticut area and the
opportunity to explore additional business activities in Connecticut and
Massachusetts.
RECENT DEVELOPMENTS
After extensive negotiations with various clients whose business was
deemed to be non-profitable, and the addition of several new businesses,
the Company decided to discontinue its non-profitable operations. In
August, 1999, the Company ended its relationship with RivCan Associates of
Stanford, Connecticut and the Cummings Center in Beverly, Massachusetts.
The Company's attempted turnaround of this project was unsuccessful due to
unreliable estimates of customer population and the inability to
successfully renegotiate the existing lease on more favorable terms. These
two accounts contributed to a substantial portion of this year's net loss.
In September, 1999, the Company replaced Sodexho-Marriott as Stanley
Works' food service provider at three different locations (Stanley
Fastener, East Greenwich, Rhode Island, Stanley World Headquarters, New
Britain, Connecticut, Stanley Conference Center, New Britain, Connecticut).
Stanley Works is a manufacturer of tools and hardware. The Company will
provide full food dining services, catering services, and coffee snack cart
services. In addition the Company will provide office coffee services and
vending services. The Company is also designing a full
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service cafeteria in New Britain, Connecticut, which the Company will
ultimately operate for Stanley Works.
On August 20, 1999, the Company signed a contract with Crown Milford
LLC located in Milford, Connecticut. Crown Milford is the owner of three
multi-tenant buildings. Commencing in October 1999, the Company will
assume responsibility for the dining, catering, vending and office coffee
services for Crown Milford's tenants. The main tenant at one building is
Oxford Health, the main tenant in the second building is Bayer Corporation,
and the main tenant in the third building is Staples Office Products. The
Company will be replacing Sodexho-Marriott as Crown Milford's corporate
dining service management company.
Presently the Company has a Letter of Intent with Preotle, Lane &
Associates Ltd. which is located in Milford, Connecticut, and is the
landlord for several multi-tenant buildings. In the beginning of October
1999, the Company will assume responsibility for the dining, catering,
vending and office coffee services for Preotle, Lane & Associates' tenants.
The Company will be replacing Sodexho-Marriott as Preotle, Lane &
Associates' corporate dining service management company.
The Company also has a Letter of Intent from the Stolt Corporation and
anticipates signing a contract late in September, 1999. The Stolt
Corporation is located in Greenwich, Connecticut and is in the business of
shipping chemicals and liquids in tankers throughout the world. The
Company will be replacing Sodexho-Marriott as the Stolt Corporation's
corporate dining management company. The change in food service management
is expected to happen in early October of 1999.
The Company has a verbal agreement with M. Alfieri Co., Inc. which has
a multi-tenant building at 499 Thornall Street in Edison, New Jersey, that
the Company will operate a deli-convenience style store for the tenants of
this building. In addition, the Company will satellite prepared food from
an existing Company food service facility located at 379 Thornall Street in
Edison, New Jersey. The Company expects the opening to be some time in
November of 1999.
ACQUISITION STRATEGY
The Company believes there are significant opportunities to expand its
business through the acquisition of companies in the contract food service
industry, particularly in the education and corporate dining markets. The
Company's Officers and Directors will be responsible for identifying,
pursuing and negotiating potential acquisition candidates and integrating
acquired operations. The Company believes it can integrate such companies
into the Company's management structure and diversified operations
successfully without a significant increase in general and administrative
expenses. In addition, future acquisitions are expected to enable the
Company to lower overhead costs through centralized geographical office
operations and to grow to a size so that it qualifies for bids on larger
volume quality accounts that require asset or purchase programs to meet the
higher standard. There can be no assurance, however, that the Company's
acquisition strategy will be successful.
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COMPETITION
The Company encounters significant competition in each area of the
contract food service market in which it operates. Food service companies
compete for clients on the basis of quality and service standards, local
economic conditions, innovative approaches to food service facilities
design and maximization of sales and price (including the making of loans,
advances and investments in client facilities and equipment). Competition
may result in price reductions, decreased gross margins and loss of market
share. Certain of the Company's competitors compete with the Company on a
national basis and have greater financial and other resources than the
Company. In addition, existing or potential clients may elect to "self
operate" their food service, eliminating the opportunity for the Company to
compete for the account. There can be no assurance that the Company will
be able to compete successfully in the future or that competition will not
have a material adverse effect on the Company's business, financial
condition or results of operations.
GOVERNMENT REGULATION
The Company's business is subject to various governmental regulations
including environmental employment and safety regulations. In addition,
the Company is subject to state health department regulations with yearly
inspections. Food service operations at the various locations are subject
to various sanitation and safety standards and state and local licensing of
the sale of food products. Compliance with these various regulations are
not material; however, there can be no assurance that additional federal
and state legislation or changes in regulatory implementation will not
limit the activities of the Company in the future or increase the cost of
regulatory compliance.
In addition, the Company has a liquor license at its Laurel View
facility and, accordingly is subject to the liquor license requirements in
the state of Connecticut. Typically, liquor licenses must be renewed
annually and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the Company's
operations, including minimum age of patrons and employees, hours of
operation, advertising, wholesale purchasing, inventory control and
handling, and storage and dispensing of alcoholic beverages. The Company
has not encountered any material problems relating to its alcoholic
beverage license to date. The failure to retain the liquor license at
Laurel View could adversely affect the Company's business and ability to
obtain such a license elsewhere.
The Company is subject to "dram-shop" statute. This type of statute
generally provides to a person injured by an intoxicated person the right
to recover damages from an establishment which wrongfully served alcoholic
beverages to the intoxicated individual. The Company carries liquor
liability coverage as part of its existing comprehensive general liability
insurance which it believes is adequate. While the Company maintains such
insurance, there can be no assurance that such insurance will be adequate
to cover any potential liability or that such insurance will continue to be
available on commercially acceptable terms. See "RISK FACTORS - Government
Regulation."
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CERTAIN RISKS
RETENTION AND RENEWAL OF CUSTOMER CONTRACTS. The Company's success
will depend on its ability to retain and renew existing client contracts
and to obtain and successfully negotiate new client contracts. Certain of
the Company's corporate dining contracts representing approximately 42% of
the Company's annual sales are from two major customers. There can be no
assurance that the Company will be able to retain and renew existing client
contracts or obtain new contracts or that such contracts will be
profitable. The Company's failure to retain and renew existing contracts
or obtain new contracts could have a material adverse effect on the
Company's business, financial condition and results of operations.
INVESTMENT IN CLIENT CONTRACTS. Typically the Company is required to
invest a substantial amount of money in a client's facility for equipment
and initial start-up expenses. Historically, the Company has funded these
expenditures from cashflow and short-term borrowings. To the extent the
Company is unable to be reimbursed for a part of these costs or enter into
long-term contracts or is unable to retain existing clients, the Company
could experience short-term cashflow problems or be required to seek
additional outside financing, the availability of which there can be no
assurances.
DEPENDENCE ON BUILDING OWNERS TO RETAIN TENANTS. The Company's
customers consist primarily of tenants in large office complexes and
buildings in the Northeastern United States. Accordingly, the Company is
dependent, in a large part, on the building owners to attract and retain
quality tenants by offering competitive rental rates, favorable locations
and adequate maintenance services. To the extent these entities fail to
provide a favorable rental atmosphere and retain existing tenants, the
Company may lose customers, revenues, and potentially a food service
contract irrespective of the quality of its food service facility. If the
Company were to lose customers due to building vacancies, it could have an
adverse material effect on the Company's operations and financial condition.
FLUCTUATING FOOD PRICES AND SHORTAGES. The Company is subject to
fluctuating food prices and availability of certain food items which can,
and does, vary by location. Although the Company's contracts with its
clients allow for certain adjustments due to rising prices over a specified
period of time, often times the Company must take a reduced margin to
insure the availability of certain required food groups and avoid customer
dissatisfaction. Although most shortages last only a short period of time,
shortages in certain items may adversely affect the quality and variety of
food offered at a given location. The Company attempts to anticipate
shortages by centralized buying for its various locations by placing large
orders with reliable suppliers and following trends in product availability
and price.
COMPETITION IN TAKE-HOME PREPARED MEAL MARKET; DEPENDENCE ON CUSTOMERS
WITH DISPOSABLE INCOME. At certain of its locations, the Company offers
tenant employees the opportunity to purchase fully cooked homestyle meals
which can be served at home with little or no additional preparation. The
Company's fully prepared, take home meals compete with many other forms of
home replacement meals, including a variety of ethnic foods. The Company's
take home meals are generally purchased by upper middle class employees who
have the disposable income
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to purchase such meals. If a down turn in the economy were to occur, it is
likely that this source of revenues would be adversely affected.
DEPENDENCE ON KEY PERSONNEL. The Company's future success depends to
a significant extent on the efforts and abilities of its founders and
executive Officers, Geoffrey W. Ramsey and David J. Murphy. Although the
Company has five (5) year employment agreements with these two individuals,
the loss of the services of these individuals could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company believes that its future success also will depend
significantly upon its ability to attract, motivate and retain additional
highly skilled managerial personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful
in attracting, assimilating and retaining the personnel it requires to grow
and operate profitability. On July 21, 1998, the Company obtained a
$1,000,000 key man life insurance policy on each of these individuals, of
which the Company will be the beneficiary.
LABOR SHORTAGES. From time to time, the Company must hire and train
a number of qualified food service managers and temporary workers to
provide food service at a new corporate location or scheduled events at the
Laurel View Country Club and other locations. The Company may encounter
difficulty in hiring sufficient numbers of qualified individuals to staff
these events, which could have a material adverse effect on its business,
financial condition and results of operations. These shortages occur most
often during the summer months when a large number of events are planned at
the Laurel View Country Club.
COMPETITION. The Company encounters significant competition in each
area of the contract food service market in which it operates. Certain of
the Company's competitors compete with the Company on both a national and
local basis and have significantly greater financial and other resources
than the Company. Competition may result in price reductions, decreased
gross margins and loss of market share. In addition, existing or potential
clients may elect to "self operate" their food service, thereby eliminating
the opportunity for the Company to compete for the account. There can be
no assurance that the Company will be able to compete successfully in the
future or that competition will not have a material adverse effect on the
Company's business, financial condition or results of operations.
INFLATION RISK. Although most of the Company's contracts provide for
minimum annual price increases for products and services provided by the
Company, the Company could be adversely impacted during inflationary
periods if the rate of contractual increases are lower than the inflation
rate.
ACQUISITION RISKS. A component of the Company's strategy is to pursue
acquisitions of related businesses. There can be no assurance, however
that the Company will be able to identify, negotiate and consummate
acquisitions or that acquired businesses can be operated profitably or
integrated successfully into the Company's operations. In addition,
acquisitions by the Company are subject to various risks generally
associated with the acquisition of businesses, including the financial
impact of expenses associated with the integration of acquired businesses.
There can be no assurance that the Company's historic or future
acquisitions will not have an adverse impact on
-12-
<PAGE>
the Company's business, financial condition or results of operations. If
suitable opportunities arise, the Company anticipates that it would finance
future acquisitions through available cash, bank lines of credit or through
additional debt or equity financing. There can be no assurance that such
debt or equity financing would be available to the Company on acceptable
terms when, and if, suitable strategic opportunities arise. If the Company
were to consummate one or more significant acquisitions in which part or
all of the consideration consisted of equity, stockholders of the Company
could suffer a significant dilution of their interests in the Company. In
addition, many of the acquisitions the Company is likely to pursue, if
accounted for as a purchase, would result in substantial amortization
charges to the Company.
GOVERNMENT REGULATION. The Company's business is subject to various
governmental regulations incidental to its operations, such as
environmental, employment, and health and safety regulations. The Company
also holds a liquor license at one facility and is subject to the liquor
license requirements of the state of Connecticut, including its "dram-shop"
statute. "Dram-shop" statutes generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. While the
Company maintains insurance for such liability, there can be no assurance
that such insurance will be adequate to cover any potential liability or
that such insurance will continue to be available on commercially
acceptable terms. The loss of its liquor license could have a material
adverse effect on the Company's business, financial condition or results of
operations. There can be no assurance that additional federal or state
regulation would not limit the activities of the Company in the future or
significantly increase the cost of regulatory compliance.
EFFECTIVE CONTROL BY CURRENT OFFICERS AND DIRECTORS. The Company's
current Officers, Directors and family members beneficially own
approximately 66.6% of the voting Common Stock and voting Series A
Preferred Stock outstanding. The Company's Certificate of Incorporation
does not authorize cumulative voting in the election of directors and as a
result, the Company's Officers and Directors currently are, and in the
foreseeable future will continue to be, in a position to have a significant
impact on the outcome of substantially all matters on which shareholders
are entitled to vote, including the election of Directors.
NO DIVIDENDS. The Company has paid no cash dividends on its Common
Stock and has no present intention of paying cash dividends in the
foreseeable future. It is the present policy of the Board of Directors to
retain all earnings to provide for the growth of the Company. Payment of
cash dividends in the future will depend, among other things, upon the
Company's future earnings, requirements for capital improvements, the
operating and financial conditions of the Company and other factors deemed
relevant by the Board of Directors.
NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF PRICE OF SHARES OF
COMMON STOCK AND WARRANTS. The prices of securities of publicly traded
corporations tend to fluctuate widely. It can be expected, therefore,
that trading in the Company's Common Stock and Warrants may have wide
fluctuations in price. Prior to July 21, 1998, there was no public market
for the Company's Common Stock or Warrants and, despite the initial listing
of the Common Stock and Warrants on Nasdaq, there is no assurance that a
market will develop or be sustained. The lack of a current market for the
Common Stock and Warrants, fluctuations in trading interest and changes in
the Company's
-13-
<PAGE>
operating results, financial condition and prospects could have a
significant impact on the market prices for the Common Stock and the
Warrants.
NASDAQ MAINTENANCE REQUIREMENTS AND EFFECTS OF POSSIBLE DELISTING;
RISKS RELATED TO LOW-PRICED STOCKS. Although the Company's Common Stock
and Warrants are listed on the Nasdaq Small-Cap Market, the Company must
continue to meet certain maintenance requirements in order for such
securities to continue to be listed on Nasdaq. Nasdaq has implemented new
entry and maintenance requirements for companies traded on the Nasdaq
Small-Cap Market, including increased financial standards and requiring the
companies to have at least two independent directors and an audit
committee, a majority of which are independent directors. There can be no
assurance that the Company will continue to meet such new requirements. If
the Company's securities are delisted from Nasdaq, this could restrict
investors' interest in the Company's securities and could materially and
adversely affect any trading market and prices for such securities. In
addition, if the Company's securities are delisted from Nasdaq, and if the
Company's net tangible assets do not exceed $2 million, and if the Common
Stock is trading for less than $5.00 per share, then the Company's Common
Stock and Warrants would each be considered a "penny stock" under federal
securities law. Additional regulatory requirements apply to trading by
broker-dealers of penny stocks which could result in the loss of effective
trading markets, if any, for the Company's Common Stock and Warrants.
RISK OF LOW-PRICED STOCKS. If the Company's Securities were delisted
from Nasdaq, and no other exclusion from the definition of a "penny stock"
under applicable Securities and Exchange Commission regulations were
available, such Securities would be subject to the penny stock rules. A
"penny stock" is defined as a stock that has a price of $5.00 or less. The
rules relating to "penny stocks" impose additional sales practice
requirements on broker-dealers who sell such securities to persons other
than established customers and accredited investors (generally defined as
investors with net worth in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with a spouse). For example, the broker
dealer must deliver to its customer prior to effectuating any transaction,
a risk disclosure document which sets forth information as to the risks
associated with "penny stocks," information as to the salesperson,
information as to the bid and ask prices of the "penny stock," the
importance of the bid and ask prices to the purchaser, and investor's
rights and remedies if the investor believes he/she has been defrauded.
Also, the broker dealer must disclose to the purchaser its aggregate
commission received on the transaction, current quotations for the
securities and monthly statements which provide information as to market
and price information. In addition, for transactions covered by these
rules, the broker-dealer must make a special suitability determination for
the purchase and must have received the purchaser's written consent to the
transaction prior to sale. Consequently, delisting from Nasdaq, if it were
to occur, could affect the ability of broker-dealers to sell the Company's
Securities and the ability of purchasers in the Offering to sell their
Securities in the secondary market.
RESTRICTIONS ON EXERCISE OF WARRANTS; POSSIBLE REDEMPTION OF WARRANTS.
Investors owning Warrants may not be able to exercise the Warrants unless
at the time of exercise this Registration Statement is current, or a new
registration statement registering the Common Stock issuable upon exercise
of the Warrants is effective and such shares have been registered and/or
qualified or deemed to be exempt from registration and/or qualification
under the securities laws of the state of residence
-14-
<PAGE>
of the holder of the Warrants. The Company does not intend to advise
holders of the Warrants of their inability to exercise the Warrants other
than in response to a specific written inquiry to the Company. The value
of the Warrants may be greatly reduced if a current registration statement
covering the shares of Common Stock underlying the Warrants is not
effective or if such Common Stock is not registered or exempt from
registration in the states in which the holders of the Warrants reside.
The Warrants are subject to redemption by the Company on 30 days prior
written notice provided that the daily trading price for the shares is
above $10.00 for at least 30 consecutive trading days ending within ten
days prior to the date of the notice of redemption. If the Warrants are
redeemed, Warrantholders will lose their right to exercise the Warrants
except during such 30 day redemption period. Any redemption of the
Warrants during the one-year period commencing on July 21, 1998 shall
require the written consent of the Underwriter.
(i) PRINCIPAL PRODUCTS PRODUCED AND SERVICE RENDERED AND
PRINCIPAL MARKETS. The Company is a contract food management organization
which specializes in providing full service restaurant and employee dining,
special event catering, vending and office coffee service to business and
industry accounts located in the Northeast. The Company will seek to open
other geographical markets during the upcoming fiscal year.
(ii) STATUS OF NEW PRODUCTS OR INDUSTRY SEGMENTS. The Company
has not announced a new product or industry segment, which would require
the investment of a material amount of the Company's assets, or which
otherwise is material.
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS. The Company
as a service orientated entity is not dependant on the availability of raw
materials, however, the Company is dependant on the availability of
qualified, trained manpower.
(iv) PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS.
The Company does not own any patents, trademarks, licenses, franchises, or
concessions.
(v) SEASONAL NATURE OF BUSINESS. The Company's business is
somewhat seasonal in nature. Many of the Company's corporate customers are
slower in the summer months due to vacation schedules of their employees
and shift reductions. Special events catering tends to peak at various
times of the year depending on corporate meetings, holiday parties and the
frequency of weddings and special events. The Company adjusts its labor
staffing and inventories as necessary during these periods.
(vi) MAJOR CUSTOMERS. The following table sets forth information
concerning customers, or any group of customers under common control, or
customers which are affiliates of each other, to which sales were made by
the Company during the fiscal year ended June 25, 1999, in an amount which
equals 10% or more of the Company's revenue and the Company's relationship
to each:
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<PAGE>
RELATIONSHIP PERCENT
TO AMOUNT OF OF TOTAL
CUSTOMER COMPANY REVENUE REVENUE
-------- ------- ------- -------
Pitney Bowes, Inc. None $1,800,004 20.64%
Oxford Health Plans, Inc. None $1,849,204 21.21%
The Company believes that if it should lose any of its present major
customers, such loss would have a material adverse effect on the Company.
(vii) BACKLOG. Backlog is not relevant to an understanding of
the Company's business.
(viii) RENEGOTIATION OR TERMINATION OF GOVERNMENTAL CONTRACTS.
Except for liquor licenses discussed below, no portion of the Company's
business is subject to renegotiation of profits or termination of contracts
or subcontracts at the election of the Government.
(ix) COMPETITION. The Company encounters significant competition
in each area of the contract food service market in which it operates.
Certain of the Company's competitors compete with the Company on both a
national and local basis and have significantly greater financial and other
resources than the Company. Competition may result in price reductions,
decreased gross margins and loss of market share. In addition, existing or
potential clients may elect to "self operate" their food service, thereby
eliminating the opportunity for the Company to compete for the account.
There can be no assurance that the Company will be able to compete
successfully in the future or that competition will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
(x) RESEARCH AND DEVELOPMENT. The Company has not engaged and
does not currently engage in any research and development activities.
(xi) GOVERNMENT REGULATION. The Company's business is subject to
various governmental regulations incidental to its operations, such as
environmental, employment, and health and safety regulations. The Company
also holds a liquor license at one facility and is subject to the liquor
license requirements of the state of Connecticut, including its "dram-shop"
statute. "Dram-shop" statutes generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. While the
Company maintains insurance for such liability, there can be no assurance
that such insurance will be adequate to cover any potential liability or
that such insurance will continue to be available on commercially
acceptable terms. The loss of its liquor license could have a material
adverse effect on the Company's business, financial condition or results of
operations. There can be no assurance that additional federal or state
regulation would not limit the activities of the Company in the future or
significantly increase the cost of regulatory compliance.
(xii) EMPLOYEES. As of September 15, 1999, the Company has 205
full-time employees, including Geoffrey Ramsey, David Murphy and Anne
Ramsey, Officers and Directors
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<PAGE>
of the Company and 26 part-time employees employed for special occasions
and seasonal busy times. None of the Company's employees are represented
by a union. The Company employs district managers with strong sales and
administrative backgrounds. These managers are responsible for overseeing
the accounts in their region, as well as forecasting the budget for each
account and to assist each district manager as a food service director in
each cafeteria. The food service director is responsible for the day-to-day
activities of the account. In the smaller accounts, a chef/manager
will perform these duties. The supporting cast in each cafeteria may
include an executive chef, sous chef, grill cook, deli servers, cashiers,
dishwashers, catering personnel and general kitchen help.
The hiring philosophy for the Company is to employ managers, chefs and
cooks who have obtained experience from larger food service organizations,
graduates of a culinary school or graduates with a degree in Hotel and
Restaurant management. Other employees are hired locally and are trained
on-site by the Company's food service directors, chef/managers and/or
district mangers.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES. The Company has no operations in foreign countries and no
portion of its sales or revenues is derived from customers in foreign
countries.
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<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
- -----------------------------------
The Company leases its office facility under the terms of a month-to-
month lease agreement with a monthly payment of $2,875. The Company also
maintains food service facilities at a number of locations pursuant to its
contracts with the building owners. In addition, the Company also pays
monthly rental charges of $2,388 to the Town of Hamden for use of the
Laurel View Country Club food service and banquet facility.
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
The Company knows of no pending or threatened legal proceeding to
which it is or will be a party which, if successful, might result in a
material adverse change in the business, properties, or financial condition
of the Company or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
No matter was submitted to the vote of shareholders during the fourth
quarter of the Company's fiscal year except in April 1999, the Company's
shareholders approved a change of domicile from Delaware to Colorado. The
change in domicile was to save annual franchise fees payable in Delaware.
The Company anticipates holding its Annual Shareholders Meeting in November
1999.
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PART II
ITEM 5. MARKET PRICE AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND
- -----------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
- ---------------------------
(a) PRINCIPAL MARKET OR MARKETS. The Company's Common Stock and
Warrants are traded on the over-the-counter market and, commencing on July
21, 1998, have been listed on the National Association of Securities
Dealers, Inc., Automated Quotation System ("NASDAQ") under the symbols,
"CAFE" and "CAFEW". In addition, on July 21, 1998, the Company's
securities were listed on the Boston Stock Exchange under the symbols "HAC"
and "HACW." Prior to July 21, 1998 there was no trading market in the
Company's securities. The following table sets forth the range of closing
bid and ask prices of the Common Stock and Warrants as reported on NASDQ
since July 21, 1998 when a trading market developed for the Company's
securities.
COMMON STOCK
- ------------
CLOSING BID CLOSING ASK
1998 HIGH LOW HIGH LOW
- ---- ------------------ ------------------
JULY 23 (First Avail.)
THRU SEPT. 30 5.875 2 6.0625 2.25
OCT. 1 THRU DEC. 31 2.625 1.8125 2.6875 1.9375
1999
- ----
JAN. 4 THRU MAR. 31 2.75 1.25 3 1.3125
APR. 1 THUR MAR. 31 2 1.25 2.125 1.375
JULY 1 THRU SEPT. 20 2.75 1.875 2.8125 2
WARRANTS
- --------
CLOSING BID CLOSING ASK
1998 HIGH LOW HIGH LOW
- ---- ------------------ -------------------
JULY 23 (First Avail.)
THRU SEPT. 30 1.3125 .28125 1.46875 .40625
OCT. 1 THRU DEC. 31 .75 .28125 .8125 .3125
1999
- ----
JAN. 4 THRU MAR. 31 .625 .25 .9375 .28125
APR. 1 THRU JUNE 30 .50 .125 .625 .1875
JULY 1 THRU SEPT. 20 .5625 .25 .75 .34375
On September 15, 1999, the last reported sales price for the Company's
Common Stock and Warrants as reported on NASDQ was $2.375 and $0.3125,
respectively.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. The approximate
number of holders of record or the Company's common stock at September 14,
1999 was 161.
(c) DIVIDENDS. The Company has never paid cash dividends on its
Common Stock. The Board of Directors does not anticipate paying cash
dividends in the foreseeable future as it intends to retain future earnings
to finance the growth of the business. The Delaware General Corporation
Law provides that dividends may only be paid out of capital surplus or out
of earnings. There are no other limitations on the ability of the Company
to pay dividends to its shareholders. The payment of future cash dividends
will depend on such factors as earnings levels, anticipated capital
requirements, the operating and financial conditions of the Company and
other factors deemed relevant by the Board of Directors.
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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
The following review should be read in conjunction with the financial
statements and notes thereto.
FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE
When used in this Prospectus, the words "anticipate," "estimate,"
"expect," "project," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions including the Company failing to generate
projected revenues. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those anticipated, estimated or projected.
GENERAL
Host America is a regional contract food service management company
specializing in providing full restaurant and employee dining, special
event catering, vending and office coffee service, home food replacement
and management of corporate dining rooms and cafeterias for office
complexes and manufacturing plants. This diversity of its services allows
the Company's clients to offer their employees full breakfast and lunch
availability, multi-level catering and a variety of complimentary food
service options. The Company currently has operations in Connecticut, New
York, New Jersey, and Massachusetts and, in the near future, the Company
intends to expand to Florida and New Hampshire.
RECENT DEVELOPMENTS
In November 1998, the Company took charge of the food service
operation for Casual Corner Group Inc. with corporate headquarters in
Enfield, Connecticut. Casual Corner is a clothing retailer with outlets
throughout the United States. The Company has the exclusive right to
operate the dining, catering, and vending services for its corporate
headquarters and warehouse facility.
In November 1998, the Company took charge of the food service
operation for TYCO Submarine Systems Ltd. in Morristown, New Jersey. TYCO
Submarine lays fiber optic cable in the oceans around the world. This
facility of TYCO Submarine houses their operational logistics staff. The
Company has the exclusive right to operate the dining, catering, and
vending services for its corporate headquarters and warehouse facility.
In December 1998, the Company started operating a brand new corporate
dining operation for 440 Wheelers Farm Road, L.L.C., the owner of the
multi-tenant Merritt Crossing office complex in Milford, Connecticut. The
Company has the exclusive right to operate the dining, catering, and
vending services for its corporate headquarters and warehouse facility.
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<PAGE>
In January 1999, the Company opened the food service facility for TYCO
Submarine in Eatontown, New Jersey. TYCO Submarine lays fiber optic cable
in the oceans around the world. This facility of TYCO Submarine houses
their research and development staff. The Company has the exclusive right
to operate the dining, catering, and vending services for its corporate
headquarters and warehouse facility.
In March 1999, Pitney Bowes requested that the Company take over one
of their "self-operated cafeterias in Danbury, Connecticut.
In April 1999, the Company took over the client-operated cafeteria for
The Hartford Courant in Hartford, Connecticut after intense competition
from major competitors. This gives the Company a strong foothold in the
Hartford, Connecticut district which has a lot of potential business
available. It also provides the Company with a springboard into
Massachusetts.
RESULTS OF OPERATIONS - FOR THE YEAR ENDED JUNE 25, 1999 COMPARED TO THE
YEAR ENDED JUNE 28, 1998
Net revenues aggregated $8,720,278 for the year ended June 25, 1999,
representing an increase of $1,718,641 or 24% over the year ended June 28,
1998. Further, when the net revenues for the year ended June 25, 1999 are
compared with the amount of net revenues two years ago of $5,971,926 for
fiscal 1997 the increase is $2,748,352 or 46%. The Company has continued
an aggressive program of adding new facilities under its food management
programs as well as enhanced revenues at existing facilities. The Company
added eight new locations during fiscal 1999 which accounted for
approximately $1,500,000 of the overall increase. The remaining increase
of approximately $200,000 results from expansion of food and vending items
offered for sale as well as continued refining of the mix of products sold
to maximize sales per location.
Cost of sales increased $1,459,377 for the year ended June 25, 1999
when compared to the year ended June 28, 1998, representing an increase of
23% consistent with the percentage increase in net revenues.
Selling, general and administrative expenses decreased $2,497,858 or
59% in fiscal 1999 when compared to fiscal 1998. The significant decrease
in general and administrative expense is primarily due to a stock incentive
given to management and directors of $3,500,000 during the year ended June
28, 1998. The remaining increase relates to the hiring of additional
employees to support the growing operation.
RESULTS OF OPERATIONS - FOR THE YEAR ENDED JUNE 28, 1998 COMPARED TO THE
YEAR ENDED JUNE 29, 1997
Net revenues aggregated $7,001,637 for the year ended June 28, 1998,
representing an increase of $1,029,711 or 17.2% over the year ended June 29,
1997.
The Company has continued an aggressive program of adding new
facilities under its food management programs as well as enhanced revenues
at existing facilities. The Company added two
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<PAGE>
new locations during fiscal 1998 which accounted for approximately $310,000
of the overall increase. The remaining increase of approximately $720,000
results from expansion of food and canteen items offered for sale as well
as continued refining of the mix of products sold to maximize sales per
location.
Cost of sales increased $1,072,729 for the year ended June 28, 1998
when compared to the year ended June 29, 1997, representing an increase of
20.2%. Although the increase was trending similar to net revenues, the
increase in cost of sales was greater as a percentage than the increase in
net revenues reflecting the increased food costs associated with the higher
quality food and personnel at the company's new locations.
General and administrative expenses increased $3,651,980 or 660% in
fiscal 1998 when compared to fiscal 1997. The significant increase in
general and administrative expense is primarily due to a stock incentive
given to management and directors of $3,500,000 during the year ended June
28, 1998. The remaining increase relates to the hiring of additional
employees including a regional sales and operations manager to gain
additional market share and an additional administrative person to support
the growing operation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity as evidenced by its current ratio has
increased significantly. The current ratio at June 25, 1999 and June 28,
1998 was 5.61 and .904, respectively. The increase is due to the
significant amount of cash received from the public offering which was used
in part to pay current obligations.
Cash flows used in operating activities for the year ended June 25,
1999 amounted to $1,364,865 primarily resulting from the net loss and the
payment of liabilities which had accumulated prior to the public offering.
Cash used in investing activities totaled $243,842 and was primarily due to
property and equipment additions at the Company's eight new locations. Cash
flows from financing activities amounted to $4,149,693 primarily resulting
from the net proceeds received from the Company's public stock offering.
Cash flows from operating activities in fiscal 1998 amounted to
$380,571 primarily resulting from management of current assets and
liabilities. Investment in property and equipment (net of sales) in the
amount of $60,920 and net repayments of debt and payment of deferred
offering cost of $410,243 combined to result in an overall decrease of cash
for the period of $90,592.
SEASONABILITY
The Company's business is somewhat seasonal in nature. Many of the
Company's corporate customers are slower in the summer months due to
vacation schedules of their employees and shift reductions. Special events
catering tends to peak at various times of the year depending on corporate
meetings, holiday parties and the frequency of weddings and special events.
The Company adjusts its labor staffing and inventories as necessary during
these periods.
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<PAGE>
COMMITMENTS
The Company leases its office facility under the terms of a month-to-
month lease agreement with a monthly payment of $2,875. The Company also
maintains food service facilities at a number of locations pursuant to its
contracts with the building owners. In addition, the Company also pays
monthly rental charges of $2,388 to the Town of Hamden for use of the
Laurel View Country Club food service and banquet facility.
EQUIPMENT LEASE
The Company is also leasing various equipment under certain operating
leases which expire within one to two years. In certain cases, the cost of
leasing the equipment is billed to customers in connection with the
Company's cafeteria services. Rent expense for these operating leases for
equipment aggregated $19,264 and $27,026 for the years ended June 25, 1999
and June 28, 1998, respectively.
EMPLOYMENT CONTRACTS
On February 19, 1998, the Company entered into five-year employment
agreements with its Officers/Directors. Under the terms of the agreements,
the President and Vice President of the Company are to receive annual
salaries of $85,000 and $80,000, respectively, which may be increased by
the Company's Compensation Committee or the Board of Directors, but shall
not be decreased without the consent of the employee. Both individuals
receive an expense account, an automobile expense allowance, related
business expenses and all other benefits afforded other employees. The
Company also provides health, disability and insurance to each of these
individuals. On March 23, 1999 the Board of Directors approved an increase
in the annual salaries of the President and Vice President to $105,000 and
$100,000, respectively.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is a result of shortcomings in many electronic
data processing systems and other electronic equipment that may adversely
affect the Company's operations on or after January 1, 2000.
Management believes that the Company has completed the assessment,
remediation and validation/testing procedures required to address the Year
2000 issue. The Company has not yet obtained Year 2000 compliance
certifications from key organizations with which the Company does business,
but plans on completing this task in the near future.
Because of the unprecedented nature of the Year 2000 issue, its
effects and the success of related remediation efforts will not be fully
determinable until the year 2000 and thereafter. Management cannot assure
that the Company is or will be Year 2000 ready, that the Company's
remediation efforts will be successful in whole or in part, or that the
parties with whom the Company does business will be Year 2000 ready.
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<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
Information with respect to this item is contained in the financial
statements appearing on Item 14 of this Report. Such information is
incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
-24-
<PAGE>
PART III
The information required by Part III of Form 10KSB is incorporated
herein by reference to Registrant's definitive Proxy to be filed in
connection with the Annual Meeting of Shareholders to be held in November 1999.
-25-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) (1) The following Financial Statements are filed as part of this Report:
Page
----
Independent Auditors' Report. . . . . . . . . . . . . . . . . . .F-1
Balance Sheets, June 25, 1999 and June 28, 1998 . . . . . . . . .F-2
Statements of Operations, Years ended June 25, 1999 and
June 28, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . .F-3
Statements of Changes in Stockholders' Equity, Years ended
June 25, 1999 and June 28, 1998 . . . . . . . . . . . . . . . . .F-4
Statements of Cash Flows, Years ended June 25, 1999 and
June 28, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . .F-5
Notes to Financial Statements . . . . . . . . . . . . . . . . . .F-6
(a) (2) All schedules have been omitted because the required information
is inapplicable or is shown in the notes to the financial
statements.
(a) (3) Exhibits:
1.1 Form of Underwriting Agreement between the Company and Barron
Chase Securities, Inc.(1)
1.2 Form of Selected Dealers Agreement.(1)
1.3 Form of Underwriter's Warrant Agreement and Form of Warrant
Certificate.(1)
3.1 Certificate of Incorporation dated July 31, 1986 and Amendments
thereto.(1)
3.2 Bylaws.(1)
3.3 Form of Specimen Common Stock Certificate.(1)
3.4 Form of Specimen Warrant Certificate.(1)
4.0 Warrant Agreement between the Company and American Securities
Stock Transfer, Inc.(1)
-26-
<PAGE>
10.1 Agreement of Manual and Vending Food and Refreshment Service
between Oxford Health Plans and the Company dated December 28,
1993.(1)
10.2 Agreement for Cafeteria and Special Events Food and Vending
Services with Pitney Bowes, Inc. and the Company dated June 26,
1995.(1)
10.3 Agreement of Manual and Vending Food and Refreshment Service
with James River Paper Company, Inc. and the Company dated July
13, 1990.(1)
10.4 Agreement for Banquet Food and Beverage Services between the
Town of Hamden and the Company dated June 18, 1997.(1)
10.5 Employment Agreement between the Company and Geoffrey W. Ramsey.(1)
10.6 Employment Agreement between the Company and David J. Murphy.(1)
10.7 Form of Financial Advisory Agreement.(1)
10.8 Form of Merger and Acquisition Agreement.(1)
10.9 Agreement with Bloomingdales By Mail and the Company dated
January 1998.(1)
10.10 Agreement with New Leaf Cafe and the Company dated March 1998.(1)
10.11 Agreement with Tyco Submarine Systems Ltd. and the Company
dated March 24, 1998.(1)
10.12 Agreement with Tyco Submarine Systems Ltd. and the Company
dated May 1, 1998.(1)
10.13 Agreement between RivCan and the Company dated August 3, 1998.(2)
10.14 Adoption Agreement to the Host America Corporation Defined
Contribution And Trust Agreement Form 401(K) Plan.(3)
10.15 Agreement for Food Services with Casual Corner Group Inc. and
the Company dated October 30, 1998.(4)
10.16 Food Services Agreement with The Stanley Works and the Company
dated August 20, 1999.(4)
27.1 Financial Data Schedule.(4)
________________
-27-
<PAGE>
(1) The documents identified are incorporated by reference from the
Company's Registration Statement on Form SB-2 (No. 333-50673).
(2) The documents identified are incorporated by reference from the
Company's Form10KSB dated June 28, 1998.
(3) The documents identified are incorporated by reference from the
Company's January 4, 1999 Form S-8.
(4) Filed herewith.
(b) Reports on Form 8-K:
During the last quarter of the period covered by this report, the
Company did not file an 8-K.
-28-
<PAGE>
HOST AMERICA CORPORATION
FINANCIAL STATEMENTS
AS OF JUNE 25, 1999 AND JUNE 28, 1998
TOGETHER WITH
INDEPENDENT AUDITORS' REPORT
<PAGE>
HOST AMERICA CORPORATION
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT F1
FINANCIAL STATEMENTS
Balance Sheets F2
Statements of Operations F3
Statements of Changes in Stockholders' Equity F4
Statements of Cash Flows F5
Notes to Financial Statements F6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Host America Corporation
We have audited the accompanying balance sheets of Host America Corporation
(the Company) as of June 25, 1999 and June 28, 1998, and the related
statements of operations, changes in stockholders' equity, and cash flows
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Host America
Corporation as of June 25, 1999 and June 28, 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ DiSanto Bertoline & Company, P.C.
Glastonbury, Connecticut
August 18, 1999
-F1-
<PAGE>
HOST AMERICA CORPORATION
BALANCE SHEETS
JUNE 25, 1999 AND JUNE 28, 1998
ASSETS
June 25, 1999 June 28, 1998
------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 2,590,515 $ 49,529
Accounts receivable, net of allowance
for doubtful accounts of $21,000 and
$8,300 at June 25, 1999, and
June 28, 1998, respectively 447,191 380,989
Inventory 221,704 173,807
Deferred offering costs - 486,029
Prepaid expenses and other 137,787 147,909
----------- -----------
Total current assets 3,397,197 1,238,263
PROPERTY AND EQUIPMENT, net 516,363 324,254
----------- -----------
$ 3,913,560 $ 1,562,517
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Demand note payable $ - $ 75,000
Current portion of long-term debt 126,601 123,661
Accounts payable 362,527 870,003
Accrued expenses 116,450 284,860
Due to officer/director - 17,041
----------- -----------
Total current liabilities 605,578 1,370,565
LONG-TERM DEBT, less current portion
included above 219,075 166,080
COMMITMENTS (Note 9) - -
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value,
20,000,000 shares authorized 700 700
Common stock, $.001 par value,
80,000,000 shares authorized 1,130 130
Additional paid-in capital 7,526,175 3,744,258
Deficit (4,439,098) (3,719,216)
----------- -----------
Total stockholders' equity 3,088,907 25,872
----------- -----------
$ 3,913,560 $ 1,562,517
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
-F2-
<PAGE>
HOST AMERICA CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 25, 1999 AND JUNE 28, 1998
For the years ended
----------------------------
June 25, 1999 June 28, 1998
------------- -------------
NET REVENUES $ 8,720,278 $ 7,001,637
COST OF GOODS SOLD 7,852,467 6,393,090
----------- -----------
Gross profit 867,811 608,547
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,707,489 4,205,347
----------- -----------
Loss from operations (839,678) (3,596,800)
OTHER INCOME (EXPENSE)
Other, net 148,385 14,913
Interest expense (28,589) (20,962)
----------- -----------
119,796 (6,049)
----------- -----------
Loss before provision for income taxes (719,882) (3,602,849)
PROVISION FOR INCOME TAXES - -
----------- -----------
Net loss $ (719,882) $(3,602,849)
=========== ===========
LOSS PER COMMON SHARE $ (0.69) $ (27.71)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,039,590 130,000
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
-F3-
<PAGE>
HOST AMERICA CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 25, 1999 AND JUNE 28, 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
-------------------- -------------------- Paid-in Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
-------- -------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
June 29, 1997 - $ - 13,000,000 $ 13,000 $ 232,088 $ (116,367) $ 128,721
-------- ------- ---------- --------- ----------- ----------- -----------
Issuance of
Preferred Stock 700,000 700 - - 3,499,300 - 3,500,000
Reverse stock
split - - (12,870,000) (12,870) 12,870 - -
Net loss - - - - - (3,602,849) (3,602,849)
-------- ------- ---------- --------- ----------- ----------- -----------
Balance,
June 28, 1998 700,000 700 130,000 130 3,744,258 (3,719,216) 25,872
Issuance of Common
Stock and Warrants
in connection with
public offering, net
of issuance costs
of $634,146 - - 1,000,000 1,000 3,718,917 - 3,782,917
Net loss - - - - - (719,882) (719,882)
-------- ------- ---------- --------- ----------- ----------- -----------
Balance,
June 25,1999 700,000 $ 700 1,130,000 $ 1,130 $ 7,526,175 $(4,439,098) $ 3,088,907
======== ======= ========== ========= =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
-F4-
<PAGE>
HOST AMERICA CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 25, 1999 AND JUNE 28, 1998
<TABLE>
<CAPTION>
For the years ended
---------------------------------
June 25, 1999 June 28, 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (719,882) $(3,602,849)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities
Depreciation and amortization 134,880 84,180
Gain on sale of property and equipment - 15,561
Compensation expense pursuant to
issuance of preferred stock - 3,500,000
Changes in operating assets and liabilities:
Decrease (increase) in prepaid
expenses and other 10,122 (44,827)
Increase in inventory (47,897) (48)
Increase in accounts receivable (66,202) (49,726)
(Decrease) increase in accrued expenses (168,410) 188,467
(Decrease) increase in accounts payable (507,476) 289,813
----------- -----------
Net cash (used in) provided by operating
activities (1,364,865) 380,571
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment - 15,561
Purchases of property and equipment (243,842) (76,481)
----------- -----------
Net cash used in investing activities (243,842) (60,920)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and
warrants, net 3,782,917 -
Decrease (increase) in deferred offering costs 486,029 (486,029)
Proceeds from demand note payable and
long-term debt 118,762 173,906
(Decrease) increase in due to officer/director (17,041) 6,400
Principal payments on long-term debt (220,974) (104,520)
----------- -----------
Net cash provided by (used in) financing
activities 4,149,693 (410,243)
----------- -----------
NET INCREASE (DECREASE) IN CASH 2,540,986 (90,592)
CASH AND CASH EQUIVALENTS, beginning of year 49,529 140,121
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 2,590,515 $ 49,529
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 28,589 $ 20,962
Income taxes - 1,774
Non cash investing and financing activities
Long-term debt incurred to acquire
property and equipment 83,147 128,942
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
-F5-
<PAGE>
HOST AMERICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 25, 1999 AND JUNE 28, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Host America Corporation (the Company) was incorporated in
Delaware on February 6, 1986 with the name University Dining
Services, Inc. On March 9, 1998, the Company filed a certificate
of amendment changing its name to Host America Corporation, and
during fiscal 1999 changed its state of incorporation from
Delaware to Colorado. The Company is a contract food management
organization which specializes in providing full service
restaurant and employee dining, special event catering, vending
and office coffee service to business and industry accounts
located in the Northeast. Approximately 92% of sales are
directly related to the management of corporate restaurants and
catering, with the remaining 8% of sales attributable to vending
operations.
FISCAL YEAR
The Company's fiscal year ends on the last Sunday in June.
Fiscal years in the two-year periods ended June 25, 1999 and June
28, 1998, each contain fifty-two weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS
For the purpose of the statement of cash flows, the Company
defines cash equivalents as highly liquid instruments with an
original maturity of three months or less. The Company had cash
equivalents totaling $2,281,000 and $-0- at June 25, 1999 and
June 28, 1998, respectively.
INVENTORY
Inventory consists primarily of food supplies and is stated at
the lower of cost or market, with cost determined on a first-in,
first-out basis.
-F6-
<PAGE>
HOST AMERICA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 25, 1999 AND JUNE 28, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
DEFERRED OFFERING COSTS
Deferred offering costs consist of specific incremental costs
incurred in connection with an offering of securities. These
costs were applied against the proceeds of the offering which was
completed in July, 1998 (SEE NOTE 7).
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Upon retirement or
disposition of depreciable properties, the cost and related
accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in the results of operations.
Depreciation and amortization are computed by applying the
straight-line method over the estimated useful lives of the
related assets, which range from three to ten years.
Maintenance, repairs and minor renewals are charged to operations
as incurred. Expenditures which substantially increase the
useful lives of the related assets are capitalized.
REVENUE RECOGNITION
The Company's revenue is recognized at the point of sale of food
and merchandise items and upon delivery of service for catering,
restaurant management and related services.
INCOME TAXES
The Company recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Deferred tax
liabilities and assets are determined based on the differences
between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
ADOPTION OF ACCOUNTING STANDARDS
EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 128, EARNINGS PER SHARE. SFAS No. 128
simplifies the standards for computing earnings per share (EPS)
and replaces the presentation of primary and fully-diluted EPS
with a presentation of basic and diluted EPS. Implementation of
SFAS No. 128 did not have any impact on the Company's calculation
of EPS.
Net loss per common share was computed based upon 1,039,590 and
130,000 weighted average shares outstanding during the years
ending June 25, 1999 and June 28, 1998, respectively. Dilutive
earnings per share was not presented as the potentially dilutive
convertible preferred stock and stock purchase options are anti-
dilutive.
-F7-
<PAGE>
HOST AMERICA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 25, 1999 AND JUNE 28, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which establishes a fair value based method of
accounting for an employee stock option or similar equity
instrument. SFAS No. 123 gives entities a choice of recognizing
related compensation expense by adopting the new fair value
method or to continue to measure compensation using the intrinsic
value approach under Accounting Principles Board (APB) Opinion
No. 25, the former standard. If the former standard for
measurement is elected, SFAS No. 123 requires supplemental
disclosure to present the effects of using the new measurement
criteria. The Company intends to continue using the measurement
prescribed by APB Opinion No. 25, and accordingly, this
pronouncement will not affect the Company's financial position or
results of operations.
SEGMENT INFORMATION
Statement of Financial Accounting Standards (SFAS) No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, was issued effective for fiscal years ending after
December 15, 1998. The Company's primary operating segments are
the management of corporate restaurants and catering and vending
operations. The vending operations do not meet the quantitative
thresholds of SFAS No. 131 and therefore, the Company has not
adopted the reporting requirements of this Statement.
NOTE 2 - FINANCIAL INSTRUMENTS
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable.
* Cash and cash equivalents - The Company places its cash and
temporary cash investments with high credit quality
institutions. At times, such investments may be in excess
of the FDIC insurance limit. The Company has cash balances
on deposit with banks at June 25, 1999 and June 28, 1998
that exceeded federal depository insurance limits by
$2,763,043 and $ -0-, respectively.
* Accounts receivable - The Company grants credit to its
customers, substantially all of whom are provided full
service restaurant and employee dining services. Four major
customers comprise 71% of accounts receivable as of June 25,
1999 and three major customers comprise 74% of accounts
receivable at June 28, 1998. Net revenues from individual
customers which exceeded ten percent of total net revenues
during the years ended June 25, 1999 and June 28, 1998
aggregated 42% (2 customers) and 55% (2 customers),
respectively. The Company reviews a customer's credit
history before extending credit and establishes an allowance
for doubtful accounts based upon factors surrounding the
credit risk of specific customers, historical trends, and
other information. Such losses have been within
management's expectations.
-F8-
<PAGE>
HOST AMERICA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 25, 1999 AND JUNE 28, 1998
NOTE 2 - FINANCIAL INSTRUMENTS (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of the fair
value of financial instruments for which the determination of
fair value is practicable. SFAS No. 107 defines the fair value
of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing
parties.
The carrying amount of the Company's financial instruments
approximates their fair value as outlined below:
* Cash and cash equivalents, accounts receivable, due to
officer/director, accounts payable and accrued expenses -
The carrying amounts approximate their fair value because of
the short maturity of those instruments.
* Demand note payable, long-term debt - The carrying amount
approximates fair value as the interest rates on the various
notes approximate the Company's estimated incremental
borrowing rate.
The Company's financial instruments are held for other than
trading purposes.
NOTE 3 - PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
June 25, June 28,
1999 1998
-------- --------
Equipment and fixtures $786,450 $502,909
Vehicles 200,924 158,878
Leasehold improvements 8,491 7,089
-------- --------
995,865 668,876
Less: accumulated depreciation
and amortization 479,502 344,622
-------- --------
$516,363 $324,254
======== ========
Depreciation and amortization expense for the years ended June 25,
1999 and June 28, 1998 totaled $134,880 and $84,180, respectively.
-F9-
<PAGE>
HOST AMERICA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 25, 1999 AND JUNE 28, 1998
NOTE 4 - DEMAND NOTE PAYABLE
On March 3, 1998, the Company obtained a six-month working
capital loan totaling $75,000. The loan agreement required the
Company to make monthly payments of interest only at 1 1/2% above
the highest Wall Street Journal Prime Lending Rate (10% at June
25, 1999). The loan was collateralized by substantially all of
the assets of the Company and had been personally guaranteed by
the officers.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following as of June 25, 1999 and
June 28, 1998:
1999 1998
-------- --------
Various equipment notes payable at
interest rates ranging from 10% to
10.25%, maturing through December,
2002. The notes are secured by
the related equipment. $123,134 $145,236
Note payable to bank at 8.25%
interest, payable in monthly
installments of principal and
interest totaling $2,680, final
payment due April, 2002 105,133 -
Various vehicle notes payable at
interest rates ranging from 8.75%
to 10.5%, maturing through January,
2003. The notes are secured by
the related vehicles. 68,660 63,933
Note payable to bank with monthly
principal payments of $1,250 plus
interest at 10%, maturing September
10, 2002. 48,749 63,750
Note payable to vendor at an
interest rate of 18 1/2%. - 16,822
-------- --------
345,676 289,741
Less: current portion 126,601 123,661
-------- --------
$219,075 $166,080
======== ========
Maturities of long-term debt for each of the fiscal years
succeeding June 25, 1999 are as follows:
2000 126,601
2001 97,986
2002 71,188
2003 41,831
2004 8,070
--------
$345,676
========
NOTE 6 - DUE TO OFFICER/DIRECTOR
Demand amounts due to officer/director accrued interest at the
rate of 9.95% per annum.
-F10-
<PAGE>
HOST AMERICA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 25, 1999 AND JUNE 28, 1998
NOTE 7 - STOCKHOLDERS' EQUITY
PUBLIC STOCK OFFERING
In July, 1998, the Company issued 1,000,000 common shares and
1,000,000 common stock warrants through a public offering,
resulting in net proceeds (after deducting issuance costs) of
$3,782,917.
STOCK OPTIONS
In August, 1997, the Company granted stock purchase options to
certain officers and directors of the Company extending the right
to purchase up to 12,000 shares of the Company's common stock at
an exercise price determined by the Company's Board of Directors
to be five dollars per share. The stock purchase options are
subject to certain adjustment provisions in the event of any
stock dividends, reverse splits and/or reclassifications of
common stock, and expire ten years from the date of the grant.
A summary of the status of the Company's stock options and
changes during the year is presented below:
June 25, 1999 June 28, 1998
-------------------- ------------------
Outstanding Price Outstanding Price
----------- ----- ----------- -----
Outstanding at
beginning of year 12,000 $5.00 - -
Granted - - 12,000 $5.00
Exercised - - - -
Canceled - - - -
------ ----- ------ -----
Outstanding at end of year 12,000 $5.00 12,000 $5.00
====== ===== ====== =====
The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. As discussed in Note 1, the Company applies APB
Opinion No. 25 in accounting for its stock option plans and,
accordingly, does not recognize compensation cost at the grant
date. If the Company had elected to recognize compensation cost
based on the fair value of the options granted at the grant date
as prescribed by SFAS No. 123, net income and earnings per common
share would have been adjusted to the pro forma amounts indicated
below:
June 25, June 28,
1999 1998
-------- ---------
Net loss - as reported $(719,882) $(3,602,849)
Net loss - pro forma (719,882) (3,634,169)
Loss per common share - as reported (.69) (27.71)
Loss per common share - pro forma (.69) (27.96)
The fair value of each option grant is estimated on the date of
grant with the following assumptions:
Expected dividend yield 0%
Expected volatility N/A
Risk-free interest rate 6.5%
Expected life of options 120 months
-F11-
<PAGE>
HOST AMERICA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 25, 1999 AND JUNE 28, 1998
NOTE 7 - STOCKHOLDERS' EQUITY (Continued)
REVERSE STOCK SPLIT
On February 14, 1998, the Board of Directors of the Company
authorized the reverse split of all issued and outstanding shares
of common stock so that each one hundred shares outstanding
converted to one share. Share amounts in the statements of
changes in stockholders' equity reflect the actual share amounts
outstanding for the periods presented. All references to the
number of common shares and per share amounts reflected elsewhere
in the accompanying financial statements and related footnotes
have been restated as appropriate to reflect the effect of the
split for all periods presented.
PREFERRED STOCK
On March 1, 1998, the Company issued 700,000 shares of Preferred
Stock to certain officers and directors of the Company. Each
share of Preferred Stock is convertible into one share of Common
Stock at a conversion value of $5.00 per share. The conversion
price can potentially decrease should the Company meet certain
revenue and pre-tax earnings incentives over the next three years
and in the event the Company does not attain any of the
incentives, each share of Series A Preferred Stock then
outstanding shall automatically convert, at no additional cost to
the holder into one (1) share of common stock at the end of five
(5) years. The Preferred Shares have been valued by the Board of
Directors at $5.00 per share based on the stock's conversion
value. The Preferred Shares are entitled to vote on all matters
that the Common Stock is entitled to vote on the basis of one
vote per share. Compensation expense of $3,500,000 has been
recognized in selling, general and administrative expenses in the
accompanying statements of operations as a result of this
transaction.
NOTE 8 - INCOME TAXES
The provision for income taxes consists of the following for the
years ending June 25, 1999 and June 28, 1998:
1999 1998
------- -------
Current
Federal $ - $ -
State - -
Deferred - -
------- -------
$ - $ -
======= =======
The Company has federal net operating loss carryforwards of
approximately $987,387 expiring in fiscal 2014.
-F12-
<PAGE>
HOST AMERICA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 25, 1999 AND JUNE 28, 1998
NOTE 8 - INCOME TAXES (Continued)
Expected tax expense based on the federal statutory rate is
reconciled with the actual expense for the years ended June 25,
1999 and June 28, 1998 as follows:
1999 1998
------- -------
Statutory federal income tax 34% 34%
State taxes, net of federal
income tax benefit - -
Other 1 1
Utilization of net operating loss
carryforwards - -
Change in valuation allowance (35) (35)
---- ----
- -%
==== ====
The significant components of the deferred tax provision are as
follows:
1999 1998
-------- --------
Net operating loss - federal $246,000 $3,000
Net operating loss - state 89,000 (1,000)
Allowance for doubtful accounts 4,000 800
Issuance of preferred stock - (980,000)
Valuation allowance (339,000) 977,200
-------- --------
$ - $ -
======== ========
The components of the deferred tax asset account as of June 25,
1999 and June 28, 1998 are as follows:
1999 1998
-------- --------
Deferred tax assets:
Issuance of preferred stock $980,000 $980,000
Net operating loss - federal 276,000 30,000
Net operating loss - state 90,000 1,000
Allowance for doubtful accounts 6,000 2,000
Valuation allowance (1,322,000) (983,000)
---------- ----------
Total deferred tax asset $ 30,000 $ 30,000
========== ==========
The Company establishes a valuation allowances in accordance with
the provisions of SFAS No. 109, ACCOUNTING FOR INCOME TAXES.
The Company continually reviews the adequacy of the valuation
allowance and recognizes a benefit from income taxes only when
reassessment indicates that it is more likely than not that the
benefits will be realized. In fiscal 1999, the Company increased
the valuation allowance by approximately $339,000 based upon
reasonable and prudent tax planning strategies.
-F13-
<PAGE>
HOST AMERICA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 25, 1999 AND JUNE 28, 1998
NOTE 9 - COMMITMENTS
OPERATING LEASES
The Company leases its office facility under a verbal agreement
with a monthly payment of $2,875. The verbal agreement is an
extension of a three year lease agreement which expired in
October, 1997 and required a monthly payment of $1,575. Rent
expense charged to operations under this and preceding leases
aggregated $32,750 and $22,300 for the years ended June 25, 1999
and June 28, 1998, respectively.
The Company is also leasing various equipment under certain other
operating leases which expire within one to two years. In
certain cases, the cost of leasing the equipment is billed to
customers in connection with the Company's cafeteria services.
Rent expense for these operating leases for equipment aggregated
$19,264 and $27,026 for the years ended June 25, 1999 and June
28, 1998, respectively.
Lastly, the Company leases a food service and banquet facility
from the Town of Hamden, Connecticut under the terms of a three-
year lease agreement expiring in December, 1999. Rent expense
charged to operations under this lease agreement aggregated
$28,650 and $25,200 for the years ended June 25, 1999 and June
28, 1998, respectively.
Future minimum lease payments on all operating leases for each of
the fiscal years succeeding June 25, 1999 are as follows:
2000 $ 85,667
2001 78,006
2002 96,248
2003 97,212
2004 97,212
---------
$ 454,345
=========
EMPLOYMENT CONTRACTS
On February 19, 1998, the Company entered into five-year
employment agreements with its officers/directors. Under the
terms of the agreements, the President and Vice President of the
Company are to receive annual salaries of $85,000 and $80,000,
respectively, which may be increased by the Company's
Compensation Committee or the Board of Directors, but shall not
be decreased without the consent of the employee. Both
individuals receive an expense account, an automobile expense
allowance, related business expenses and all other benefits
afforded other employees. The Company also provides health,
disability and insurance to each of these individuals. On March
23, 1999, the Board of Directors approved an increase in the
annual salaries of the President and Vice President to $105,000
and $100,000, respectively.
-F14-
<PAGE>
HOST AMERICA CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 25, 1999 AND JUNE 28, 1998
NOTE 10 - ADVERTISING
The Company expenses the production costs of advertising the
first time the advertising takes place. Advertising expense was
$23,073 and $12,553 for the years ended June 25, 1999 and June
28, 1998, respectively.
NOTE 11 - 401K PLAN
On January 4, 1999, the Company registered 30,000 shares of .001
par value common stock which may be issued in connection with the
Company's 401(k) Plan (the Plan). The Plan covers all
participating employees who have a minimum of one year of
service. The Company matches employee contributions at a rate of
twenty-five percent up to a maximum of three percent of the
participating employees' gross earnings. Employees become fully
vested in the Company's contribution after six years of service.
The Company's contributions for the years ended June 25, 1999 and
June 28, 1998 totaled $3,048 and $-0-, respectively.
NOTE 12 - YEAR 2000 ISSUE
The Year 2000 issue is a result of shortcomings in many
electronic data processing systems and other electronic equipment
that may adversely affect the Company's operations on or after
January 1, 2000.
Management believes that the Company has completed the
assessment, remediation and validation/testing procedures
required to address the Year 2000 issue. The Company has not yet
obtained Year 2000 compliance certifications from key
organizations with which the Company does business, but plans on
completing this task in the near future.
Because of the unprecedented nature of the Year 2000 issue, its
effects and the success of related remediation efforts will not
be fully determinable until the year 2000 and thereafter.
Management cannot assure that the Company is or will be Year 2000
ready, that the Company's remediation efforts will be successful
in whole or in part, or that the parties with whom the Company
does business will be Year 2000 ready.
-F15-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HOST AMERICA CORPORATION
By: /s/ GEOFFREY W. RAMSEY
---------------------------------
Geoffrey W. Ramsey
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ GEOFFREY W. RAMSEY President, Director, Chief September 21, 1999
- -------------------------- Executive Officer and ------------------
Geoffrey W. Ramsey Principal Financial and
Accounting Officer
/s/ DAVID J. MURPHY Vice President and Director September 21, 1999
- -------------------------- ------------------
David J. Murphy
/s/ ANNE L. RAMSEY Secretary and Director September 21, 1999
- -------------------------- ------------------
Anne L. Ramsey
/s/ THOMAS P. EAGAN, JR. Director September 21, 1999
- -------------------------- ------------------
Thomas P. Eagan, Jr.
/s/ PATRICK J. HEALY Director September 21, 1999
- -------------------------- ------------------
Patrick J. Healy
/s/ JOHN D'ANTONA Director September 21, 1999
- -------------------------- ------------------
John D'Antona
EXHIBIT 10.15
AGREEMENT FOR FOOD SERVICES
This Agreement, made this 30th day of October, 1998, by and between
CASUAL CORNER GROUP INC. located at 100 and 107 Phoenix Avenue, Enfield,
CT 06082 (hereinafter referred to as CASUAL CORNER) and HOST AMERICA
CORPORATION, located at Two Broadway, Hamden, CT 06518-2697 (hereinafter
referred to as HOST) for the provision of the dining and vending services.
WITNESSETH
In consideration of the covenants herein and intending to be legally
bound hereby, the parties mutually agree as follows:
CASUAL CORNER hereby grants to HOST, the exclusive right to operate the
normal and reoccurring dining and vending services at or upon CASUAL
CORNER premises, located at 100 and 107 Phoenix Avenue, Enfield, CT 06082
and a non-exclusive right to provide dining services for special events
that will occur from time to time. CASUAL CORNER and/or employees may
use the cafeteria area for special events. HOST will install vending
machines as shall be mutually agreed upon, and will keep such equipment
adequately serviced and supplied with appropriate merchandise of good quality.
Hours of Operation:
Building 100 Building 107
Breakfast 7:00 AM - 8:30 AM
AM Break 10:00 AM - 10:45 AM 9:30 AM - 10:30 AM
Lunch 11:45 AM - 2:00 PM 11:30 AM - 1:00 PM
* Hours may be adjusted by mutual consent between HOST and CASUAL
CORNER.
<PAGE>
LOCATION OF EQUIPMENT: The location of all manual and vending equipment
to be supplied by HOST shall be mutually agreed upon. Any moves of
vending machines or other equipment necessitated by growth or building
rearrangement by CASUAL CORNER will be accomplished by HOST under
conditions to be mutually agreed upon as the occasion arises. HOST shall
make no alterations in the premises unless authorized by CASUAL CORNER in
writing.
OWNERSHIP OF EQUIPMENT: CASUAL CORNER will furnish to HOST, without
charge, food preparation and kitchen areas, and adequate sanitary toilet
facilities, including dining room furniture and food storage areas, owned
by CASUAL CORNER and to be used in connection with the food service. All
equipment furnished by CASUAL CORNER shall at all times remain the
property of CASUAL CORNER. Any miscellaneous food service equipment and
any other equipment supplemental to the services that have been supplied
by HOST, identified as such, shall remain HOST property at all times.
Vending machines are owned by HOST AMERICA. CASUAL CORNER will take
reasonable precautions to protect said machines and equipment from damage
and will permit HOST to remove them upon termination of this Agreement or
upon termination of any renewal thereof.
MAINTENANCE AND EQUIPMENT: The division of responsibility between CASUAL
CORNER and HOST is hereafter provided.
CASUAL CORNER will be responsible for:
a) removal of all trash and garbage
b) furnishing exterminator services, semiannual cleaning of hoods,
ducts and filters
c) furnishing maintenance services if and when required for the proper
maintenance and repairs of said premises, fixtures, furniture and
equipment and replacing equipment as is mutually agreed to be
necessary, except in those cases where the necessity for replacement
is caused through the negligence of HOST employees
2
<PAGE>
d) purchasing of smallwares, such as: pots, pans, catering equipment,
service equipment and coffee equipment.
e) cleaning of dining, kitchen and service area floors daily
As a cost of operation, HOST will be responsible for:
a) design (not physical layout) and manage a complete cafeteria food
program served manually from the cafeteria serving lines
b) provide all products, labor, and supervision necessary for the
efficient operation of the dining and vending services
c) keeping said premises, furniture, fixtures, and manual food service
equipment and vending machines in a clean and sanitary condition in
accordance with recognized standards for such equipment and in
accordance with all laws, ordinances, regulations and rules of
federal, state and local authorities
d) routine cleaning of the kitchen, cold storage areas and counter
areas
e) laundry service for kitchen linens (uniforms, kitchen cleaning
cloths, etc.) and
f) purchasing of all food and supplies at normal wholesale or trade
prices
g) repairing the vending machines
h) replacing the vending equipment as required, including microwave
ovens, and dollar bill changers
i) see items listed in addendum
MENUS: HOST will post menus, complete with prices, and all menus will be
nutritionally acceptable, wholesome and non-deleterious. HOST will cater
special functions for CASUAL CORNER as requested, at prices mutually
agreed upon and upon at least 72 hours advance notice.
LICENSES AND PERMITS: HOST shall obtain, as a cost of operation prior to
commencing operations at CASUAL CORNER premises, all necessary permits,
licenses and other approvals required by law for its operation hereunder.
HOST expects to begin operation on or about Saturday, October 31, 1998.
CASUAL CORNER agrees to
3
<PAGE>
cooperate with HOST and to execute such documents as shall be reasonably
necessary or appropriate to obtain said permits, licenses and approvals.
UTILITIES: CASUAL CORNER shall, at its expense, provide HOST with
necessary and sufficient refrigeration, freezer space, heat, light, water
and electricity for the operations of the dining food service. It's
agreed that at the inception of this agreement facilities are adequate.
RECORDS: HOST will at all times maintain an accurate record of all
merchandise inventories and sales in connection with the operation of the
dining and vending service. HOST shall keep all such records on file for
a period of three years, and HOST shall give CASUAL CORNER and its agents
the privilege, at any reasonable time, of auditing its records. All
sales, for the purpose of this Agreement, are defined as cash collections
less applicable federal, state and local taxes for such HOST has the sole
responsibility to collect, report and pay to the taxing authorities.
INSURANCE PROVISIONS: HOST AMERICA shall procure and maintain in full
force and effect at its own expense, during the term of the AGREEMENT, at
a minimum, the following types and amounts of insurance covering its
operations in the State in which the work is to be performed.
1. Workers' Compensation Insurance with Statutory Limits, including
Employer's Liability Insurance with a limit of not less than Five
Hundred Thousand Dollars ($500,000.00).
2. Commercial General Liability Insurance, including coverage for
contractual liability (including in its coverage HOST's indemnity
obligations under this Agreement), public liability, property
damage, products-completed operations, personal injury, and
advertising injury and fire legal liability insurance, which will
cover HOST's legal liability arising out of the work performed by
HOST, and by
4
<PAGE>
any one directly or indirectly employed by HOST for claims for
damages or personal damages, which may arise from operations under
this Agreement.
The limits on such policy or combined primary and umbrella excess
liability policies shall be at least Two Million Dollars
($2,000,000) per occurrence and Two Million Dollars ($2,000,000)
annual aggregate.
3. Commercial Auto Liability Insurance covering all owned, non-owned
and/or hired motor vehicles to be used by HOST in connection with
the work to be performed under this Agreement with a combined single
limit of not less than One Million Dollars ($1,000,000) per
occurrence.
All policies of insurance required of HOST herein shall be issued by
insurance companies with general policy holder's rating of not less than
A and a financial rating of not less than Class X as rated in the most
current available "Best's Key Rating Guide" and which are qualified to do
business in the State having jurisdiction over HOST's performance
pursuant to this Agreement. All such policies, except for Worker's
Compensation coverage, shall name CASUAL CORNER GROUP, INC. its parent
Companies and Subsidiaries and such other parties as CASUAL CORNER
directs as Additional Insured.
HOST's insurance policies shall provide for waiver of subrogation rights
against CASUAL CORNER, its directors, officers, employees, stockholders,
subsidiaries, and affiliates.
Executed copies of the policies of insurance or certificates thereof
shall be delivered to CASUAL CORNER prior to HOST, its agents or
employees performing any work or services under this Agreement.
Thereafter, executed copies of renewal policies or certificates thereof
shall be delivered to CASUAL CORNER within thirty (30) days prior to the
expiration of the term of each policy. All policies of insurance
delivered to CASUAL CORNER must contain an endorsement requiring that the
company writing the policy will give to CASUAL CORNER thirty (30) days
prior written notice of any
5
<PAGE>
cancellation or lapse or the effective date of any reduction in the
amounts of insurance. All policies required of HOST herein shall be
endorsed to read that such policies are primary policies and any
insurance carried by CASUAL CORNER shall be noncontributing with such
policies. No policy required to be maintained by HOST shall have a
deductible greater than Five Thousand Dollars ($5,000) unless approved in
writing by CASUAL CORNER.
Article VII Indemnification:
1. HOST assumes full and complete responsibility for any and all risk
in connection with the food service and products furnished pursuant
to this agreement.
2. HOST agrees to indemnify and hold harmless CASUAL CORNER, its
directors, officers, employees, stockholders, agents and their
affiliates, subsidiaries, and partners and each of them, from and
with respect to any claims, demands, suits, liabilities, losses and
expenses including reasonable attorneys' fees and disbursements,
arising out of or in connection with the work, services and/or food
provided under this Agreement because of bodily injuries including
death, at any time resulting therefrom, and loss of or damage to
property including consequential damages, whether such injuries to
persons or property are claimed to be due to negligence of HOST or
CASUAL CORNER (and any prohibition against or limiting such
indemnification shall not void this Agreement but shall be applied
only to the minimum extent required by law.)
PERSONNEL POLICIES: All food service employees will be HOST employees.
All persons employed by HOST at CASUAL CORNER premises shall be in
uniform at all times. HOST employees shall comply with the rules and
regulation at any time promulgated by CASUAL CORNER for the safe, orderly
and efficient conduct of all activities being carried out while on CASUAL
CORNER premises.
6
<PAGE>
HOST shall not retain at the premises any employee not acceptable to
CASUAL CORNER for any reason. CASUAL CORNER will allow employees and
agents of HOST access to service areas and equipment at all reasonable
times. HOST, in performing work by this Agreement, shall not
discriminate against any employee or applicant for employment because of
race, color, creed, national origin, age, sex or disability. HOST
employment policies meet the requirements of the Fair Labor Standards Act
and all other regulations required by the United States Department of
Labor. HOST is an equal opportunity employer.
ACCOUNTING: HOST keeps records by accounting periods with each month
ending on the last Friday of the month. Any statement rendered is due
and payable within 30 days after receipt. Accounts, which are more than
45 days in arrears, are subject to late charges. Interest will be added
at the rate of 1.5% per month on past due accounts.
FINANCIAL CONSIDERATION: HOST AMERICA agrees to operate facilities
located at 100 and 107 Phoenix Avenue on a profit or loss concept with no
direct financial aid from CASUAL CORNER. HOST will provide monthly
profit and loss reporting for both the dining and vending operations. It
is agreed that CASUAL CORNER and HOST shall periodically review the
financial performance of the dining service and vending program.
Following the review, should it be necessary for HOST to have financial
assistance, CASUAL CORNER shall be open to negotiations.
ADJUSTMENT OF FINANCIAL ARRANGEMENT: In the event of material cost
changes (whether taxes, labor, merchandise or equipment), it is
understood that, upon mutual consent, commensurate adjustments in selling
prices or other financial arrangements between HOST and CASUAL CORNER
shall be agreed upon and effected by appropriate officials of the
parties. All obligations hereunder are subject to federal, state and
local regulations. In the event the building or said premises, or any of
them in which HOST equipment and machines are located, are partially or
completely damaged by fire, the elements, the public enemy, or any other
casualty, of if HOST is prevented
7
<PAGE>
from operating hereunder because of such damage or because of riots,
labor troubles or disturbances, the same shall not be considered as a
default under the provisions of this Agreement.
COMMENCEMENT AND TERMINATION: This Agreement shall become effective on or
about October 31, 1998 and shall remain in force for five years unless
terminated as herein provided. It shall thereafter renew itself
automatically for one-year periods until notice of termination is given,
in writing by either party, by registered mail, for a 60-day notice at
any time. Any notice to be given hereunder shall, if to HOST, be sent to
Geoffrey Ramsey, President, Host America Corporation, Two Broadway,
Hamden, CT 06518-2697, by registered mail; and, if to CASUAL CORNER, be
sent to Director of Associate Relations and Safety, Casual Corner Group,
Inc., 100 Phoenix Avenue Enfield, CT 06082 by registered mail.
STATE LAW DEFINITION: The provisions of this Agreement shall be construed
under the laws of the State of Connecticut.
In witness whereof, the parties have executed this Agreement as of the
date first above written.
Casual Corner Group, Inc.
By: /s/ LUCIANO SANTEL
----------------------------
Luciano Santel
Chief Operating Officer, duly authorized
Host America Corporation
By: /s/ GEOFFREY RAMSEY
----------------------------
Geoffrey Ramsey
President, duly authorized
8
EXHIBIT 10.16
FOOD SERVICES AGREEMENT
This FOOD SERVICES AGREEMENT is made as of the 20th day of August,
1999, by and between THE STANLEY WORKS, a Connecticut corporation having
its principal place of business at 1000 Stanley Drive, New Britain,
Connecticut (hereinafter referred to as "Stanley") and HOST AMERICA
CORPORATION, a Delaware corporation having its principal place of business
at Two Broadway, Hamden, Connecticut (hereinafter referred to as "Host").
W I T N E S S E T H:
WHEREAS, on or about April 14, 1999, Stanley issued a Request for
Proposal (the "RFP") seeking competitive proposals for the management and
provision of certain food service and food vending operations at certain of
Stanley's office and manufacturing facilities located in New Britain and
Farmington, Connecticut and in East Greenwich, Rhode Island;
WHEREAS, Host is engaged in the food services management and provision
business and, on May 14, 1999, responded to the RFP (the "Host Proposal");
and
WHEREAS, in reliance upon the representations made in the Host
Proposal, Stanley desires to engage Host to manage and provide various food
services and food vending operations at certain of Stanley's facilities in
accordance with the terms and provisions hereof.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto hereby agree as follows:
1
<PAGE>
SECTION 1. CAFETERIA SERVICES.
---------- -------------------
1.1 GENERAL.
-------
During the term hereof and for the purposes provided herein, Host
shall manage and operate (at its sole cost and expense) each of Stanley's
full-service employee cafeterias designated as "Cafeteria Services
Locations" in EXHIBIT A attached hereto and made a part hereof. In
connection therewith, Host shall provide all food (to be prepared fresh
daily), beverages, personnel, and supplies necessary to prepare and serve
a variety of hot and cold food and beverages for retail sale to Stanley
employees, and Host shall maintain the cleanliness of each such Cafeteria
Services Location (including washing on a regular basis all silverware,
dishes, and food handling and cooking equipment), as more specifically set
forth in this Section 1, and Section 8, 9 and 10 of this Agreement (the
"Cafeteria Services"). All locations identified in EXHIBIT A including,
without limitation, the Cafeteria Services Locations, are subject to change
or termination, in Stanley's sole discretion. Stanley shall endeavor to
give Host prompt notice of any such change or termination, but any such
change or termination shall not affect the payment terms hereof.
1.2 HOURS OF OPERATION.
------------------
Host shall operate each Cafeteria Services Location in a professional
and first-class manner so as to provide food and beverages for retail sale,
on a cash or authorized charge basis, to Stanley employees, guests, and
invitees for the meals and during the hours and on the days set forth in
EXHIBIT B attached hereto and made a part hereof. With respect to
authorized charges, Stanley shall provide Host with a list containing the
names of those individuals who are authorized, with respect to each
Cafeteria Services Location, to purchase items by means of a charge.
Stanley shall thereafter reimburse Host, on a monthly basis, for all such
charges by authorized persons. In no event
2
<PAGE>
however, shall Stanley be required to reimburse Host for any charges made
by any person not so authorized. Host shall take any and all steps
necessary to ensure that there is a sufficient quantity and variety of food
and beverages, which shall be freshly prepared by Host on a daily basis at
the Cafeteria Services Locations, available to adequately service the needs
of the population designated for each Cafeteria Services Location described
in EXHIBIT B.
1.3 MENUS.
-----
Host shall be responsible for continuously developing menus for the
Cafeteria Services Locations that provide a variety of high quality and
nutritious hot and cold foods and beverages that are acceptable to Stanley.
Such menus should, at a minimum, (i) be innovative, emphasizing variety,
nutrition, and quality; (ii) meet the needs of a broad cross-section of
Stanley employees; (iii) be responsive to changing meal trends and portion
preferences; and (iv) be developed bearing anticipated staffing levels and
existing food preparation equipment in mind, unless Host plans to supply
such additional equipment as may be necessary. Host shall initially
establish a two week menu cycle and shall thereafter change that cycle on
a regular basis with such frequency as Stanley shall request. Prior to
implementing any new menu, Host shall submit such menu to Stanley for
Stanley's approval. Host shall provide daily as standard menu items in the
Cafeteria Services Locations the following standard food choices: deli
sandwiches, soups, fresh fruit, a variety of salads, and grill items such
as hamburgers, hot dogs, and grilled cheese. Host shall post all menus in
a conspicuous location at each Cafeteria Services Location and at any and
all other locations as Stanley may designate from time to time at least one
(1) week prior to the effective date of any menu.
3
<PAGE>
Subject to Stanley's prior written approval, Host shall be responsible
for establishing, reviewing, and controlling the pricing and portion sizes
of all food, beverage, and snack items available at the Cafeteria Services
Locations. Such pricing and portions shall be designated to provide
maximum value to the customers of the Cafeteria Services Locations. All
such prices shall be exclusive of any and all sales, use, value-added or
similar taxes. Any and all such taxes, however, shall be collected by Host
at the time of sale. During the first year of this Agreement, the prices
and portion sizes of food, beverages, and snack items shall be those set
forth in EXHIBIT C attached hereto and made a part hereof. Host must
submit any request for a price increase, along with written documentation
containing a market-driven justification for such request, to Stanley for
Stanley's written approval at least two (2) months prior to implementing
any such price increase. Stanley agrees that such approval shall not be
unreasonably withheld. In no event, however, shall Host be entitled to any
price increase during the first year of this Agreement. If, at any time,
a menu shall contain an item not currently shown in EXHIBIT C, Host shall
provide Stanley with a pricing and portion guide in connection with such
item, and Stanley shall give its prior written approval of such item, along
with its pricing and portion, before such item is included in a menu.
1.4 INVENTORIES AND SUPPLIES.
------------------------
Host shall purchase for its own account all food, beverages, cooking
supplies, condiments, cleaning supplies, paper supplies, disposable ware,
and all other materials necessary to provide the Cafeteria Services in the
Cafeteria Services Locations. In no event shall Stanley be responsible for
the procurement or for the cost of any such items. For all such purchases,
in order to provide Cafeteria Services at the lowest possible costs, Host
shall engage in competitive specification purchasing. However, Host may
procure food or supplies from a facility operated by Host or an
4
<PAGE>
affiliate of Host, provided that such food or supplies are acceptable to
Stanley with respect to competitive price and quality specifications. All
inventories of food and supplies purchased by Host shall remain the sole
and exclusive property of Host.
Host shall comply in all respects with those minimum specifications
concerning food quality as are set forth in EXHIBIT D attached hereto and
made a part hereof.
1.5 STAFFING AND ON-SITE MANAGEMENT.
-------------------------------
Host shall, at all times, provide adequate levels of qualified
personnel necessary to manage and operate each Cafeteria Services Location
so as to provide in a clean, desirable, efficient, prompt and courteous
manner the Cafeteria Services on such days at such times and to such
population as are set forth on EXHIBIT B for each Cafeteria Services
Location. Staffing levels shall, at all times, be maintained at a level
satisfactory to Stanley. At a minimum, such staffing levels shall be
maintained in conformity with those set forth in EXHIBIT E attached hereto
and made a part hereof unless Stanley shall have given its prior written
approval to deviate from any such level. Host shall employ at least one
full time on-site unit manager for each Cafeteria Services Location, who
shall have a minimum of two (2) years of consecutive employment in
operations with Host and one (1) year of comparable supervisory or
management responsibility. Each such manager shall have sufficient
education and/or experience in food service, with emphasis on food
production and merchandising techniques to enable Host to provide the
Cafeteria Services in a manner acceptable to Stanley. Stanley shall have
the right (but not the obligation) to interview and approve any and all
such management personnel whom Host intends to employ at Cafeteria Services
Locations prior to their assignment to such Cafeteria Services Locations.
(Host acknowledges and agrees, however, that any such Stanley approval
shall not constitute an endorsement of such personnel as to suitability for
5
<PAGE>
employment, competence, qualifications, etc. all of which shall be the sole
obligation of Host to determine.) Host shall communicate to Stanley all
changes of management employees before such changes are made.
1.6 MYRTLE STREET.
-------------
In connection with the design, development and construction of a
cafeteria for Stanley's facility at 480 Myrtle Street, Host shall provide
the following assistance and services, at no additional cost to Stanley:
* prepare and present to Stanley a conceptual drawing of the food
servery, including counter layout, equipment layout and equipment
identification list;
* provide value engineering assistance to the architect and food
service engineer;
* recommend equipment suppliers and assist in evaluating equipment
bids, cut sheets and specification;
* work with the architect and food service engineer to reduce the
construction and fit-up budget for the cafeteria.
Stanley shall have no obligation to follow any advice or recommendations of
Host made pursuant to any of the above.
SECTION 2. CATERING SERVICES.
---------- ------------------
2.1 GENERAL.
--------
During the term hereof, Host shall provide (at its sole cost and
expense) all food, beverages, dishes, glasses, tableware, personnel and
supplies necessary to provide, from time to time, at the request of
Stanley, Catering Services (as hereinafter defined). "Catering Services"
shall include, at each of the Stanley facilities designated as "Catering
Services Locations" in EXHIBIT A, the full-
6
<PAGE>
service on-site preparation, delivery, presentation, serving and clean-up
on freshly prepared hot and cold food and beverages and maintenance of the
cleanliness of the facility, as more specifically set forth in this Section
2 and Sections 8, 9 and 10 of this Agreement. Catering Services shall also
include the delivery and serving of food and beverages prepared at the
Catering Services Locations to such other of Stanley's facilities as
Stanley shall request from time to time.
2.2 MENUS.
------
Host shall be responsible for designing and regularly updating menus
for Catering Services that provide a variety of high quality and nutritious
hot and cold foods and beverages ranging from coffee breaks to formal
receptions and that shall be at all times acceptable to Stanley. At a
minimum, Host shall design a range of menus that (i) are innovative,
emphasizing variety, nutrition and quality; (ii) are responsive to changing
meal trends and portion preferences; and (iii) are developed bearing the
anticipated staffing levels and existing equipment in mind, unless Host
plans to supply such additional equipment as may be necessary.
2.3 CATERING ORDERS.
---------------
Host shall prepare and serve such catering orders from time to time as
Stanley shall place through authorized personnel. Stanley shall provide
Host from time to time with the names of all persons who are authorized to
place such catering orders. Stanley shall endeavor to place catering
orders at least forty-eight (48) hours prior to the time such orders are to
be ready to serve, but in no event shall Stanley be required to give such
notice.
2.4 INVENTORIES AND SUPPLIES.
------------------------
Host shall purchase for its own account all food, beverages, cooking
supplies, condiments, cleaning supplies, paper supplies, disposable ware,
and all other materials necessary to provide the
7
<PAGE>
Catering Services in the Catering Services Locations. In no event shall
Stanley be responsible for the procurement or for the cost of any such
items. For all such purchases, in order to provide Catering Services at
the lowest possible costs, Host shall engage in competitive specification
purchasing. However, Host may procure food or supplies from a facility
operated by Host or an affiliate of Host, provided that such food or
supplies are acceptable to Stanley with respect to competitive price and
quality specifications. All inventories of food and supplies purchased by
Host shall remain the sole and exclusive property of Host.
Host shall comply in all respects with those minimum specifications
concerning food quality as are set forth in EXHIBIT D.
2.5 STAFFING AND ON-SITE MANAGEMENT.
-------------------------------
Host shall, at all times, provide adequate levels of qualified
personnel necessary to manage and operate each Catering Services Location
so as to provide in a clean, desirable, efficient, prompt and courteous
manner the Catering Services. Host shall employ at lease one full time
on-site chef/unit manager and one assistant for each Catering Services
Location, which chef/manager shall have a minimum of two (2) years of
consecutive employment in operations with Host and one (1) year of
comparable supervisory or management responsibility. Each such
chef/manager shall have sufficient education and/or experience in food
service, with emphasis on food production, merchandising techniques, and
catering to enable Host to provide the Catering Services in a manner
acceptable to Stanley. Stanley shall have the right (but not the
obligation) to interview and approve any and all such management personnel
whom Host intends to employ at Catering Services Locations prior to their
assignment to such Catering Services Locations. (Host acknowledges and
agrees, however, that any such Stanley approval shall not constitute an
endorsement of such
8
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personnel as to suitability for employment, competence, qualifications,
etc. all of which shall be the sole obligation of Host to determine.) Host
shall communicate to Stanley all changes of management employees before
such changes are made.
2.6 NON-EXCLUSIVE RIGHT.
--------------------
Host acknowledges that, although Stanley will provide Host with the
opportunity to submit a proposal to provide Catering Services for all
Stanley special functions, Stanley reserves the right to request
competitive proposals from and, in the sole and absolute discretion of
Stanley, to utilize the services of third parties for special functions.
SECTION 3. COFFEE SNACK CART SERVICES.
---------- ---------------------------
3.1 GENERAL.
--------
With respect to the Stanley facility designated as the "Coffee Snack
Cart Services Location" in EXHIBIT A, and to such other locations as
Stanley and Host shall mutually agree, Host shall during the term hereof
provide those products and services as are more specifically set forth
below (the "Coffee Snack Cart Services"). (Cafeteria Services, Catering
Services, and Coffee Snack Cart Services are hereinafter collectively
referred to as "Dining Services.")
3.2 Host agrees to provide a fully equipped and stocked coffee and
snack cart to the Coffee Snack Cart Services Location two times a day for
the retail sale of beverages and food items to Stanley employees, guests,
and invitees. The beverages and food items shall be selected by Host,
subject to Stanley's approval, from those set forth in EXHIBIT C. The
prices and portions of such items shall, during the first year of this
Agreement, be consistent with those set forth on EXHIBIT C. Host shall
submit any request for a price increase, along with written documentation
containing a market-driven justification for such request, to Stanley for
Stanley's written approval at least two
9
<PAGE>
(2) months prior to implementing any such price increase. Stanley agrees
that such approval shall not be unreasonably withheld. In no event,
however, shall Host be entitled to any price increase during the first year
of this Agreement.
Host shall deliver the stocked cart to such location(s) at the Coffee
Snack Cart Services Location and at such times and on such days as Stanley,
in its sole discretion, shall designate from time to time.
SECTION 4. OFFICE COFFEE SERVICES.
---------- -----------------------
4.1 GENERAL.
--------
With respect to each of Stanley's facilities designated as "Office
Coffee Services Locations" in EXHIBIT A, Host shall, during the term
hereof, install, service, and maintain equipment to prepare coffee, tea,
and cocoa and shall provide, on a continuous basis upon the written request
of Stanley, those supplies incident to the preparation and consumption of
such beverages that are set forth in EXHIBIT F attached hereto and made a
part hereof (the "Office Coffee Services"). For each Office Coffee Services
Location, such equipment, which will be owned by Host, will be installed at
and supplies shall be provided to and maintained in appropriate quantities
at all times at each and every station identified in EXHIBIT A, Section B.
Stanley reserves the right to increase or decrease the number of stations
or to change the locations of such stations during the term of this Agreement.
4.2 PLACEMENT OF ORDERS; PAYMENT.
----------------------------
Stanley shall, from time to time, place written orders with Host for
the purchase of all the supplies incident to the Office Coffee Services.
Stanley shall supply Host from time to time with a list of all persons who
shall be authorized to place such orders. Host shall, on the business day
following the receipt of any such order, deliver such order to the station
at the Office Coffee
10
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Services Location designated on such order. Host shall invoice Stanley on
a monthly basis at the prices shown on EXHIBIT F for all supplies
delivered. Stanley shall pay invoiced amounts within 45 days of receipt of
invoice. If Stanley pays within 20 days of receipt of invoice, Stanley
shall be entitled to deduct 2% from the amount of the payment. There shall
be no penalty for late payments.
Host may increase prices on any Office Coffee Services item only with
Stanley's prior written approval. Any request for a price increase must be
accompanied by written documentation containing a market-driven
justification for such a request. Stanley agrees that approval of such a
request shall not be unreasonably withheld. In no event, however, shall
Host be entitled to any price increase during the first year of this
Agreement.
SECTION 5. COMPENSATION FOR DINING SERVICES.
---------- --------------------------------
5.1 CALCULATION OF FEE.
-------------------
As compensation for its provision of Dining Services hereunder, Host
shall be entitled to retain all receipts from sales associated with its
provision of Dining Services hereunder. (In connection therewith, Host
shall remit to the applicable taxing authority all sales, use, value-added,
and similar taxes due with respect to such sales.) In addition, under
certain circumstances as described below, Stanley shall compensate Host for
the provision of Dining Services on a fee basis. Stanley shall pay Host a
fee each month equal to three and one half percent (3.5%) of Net Sales
(which term shall be defined as the gross sales associated with Dining
Services less the associated sales, use, or similar tax) (the "Management
Fee"). In addition, in the event that monthly Authorized Operating
Expenses (as such term is detailed in EXHIBIT G attached hereto and made a
part hereof, which term shall include the Management Fee, and shall also
include General and Administrative Expenses which shall be fixed at 2.5% of
Net Sales) exceed Net Sales, Stanley shall
11
<PAGE>
pay to Host an amount equal to the negative difference between Authorized
Operating Expenses and Net Sales (the "Shortfall Payment").
Notwithstanding the foregoing, however, in no event shall the General and
Administrative Expenses plus the Management Fee exceed $62,007.00 for the
first year of this Agreement (the "Fee Cap"). Host and Stanley shall in
good faith enter into discussions each year during the term of this
Agreement in an effort to determine a mutually satisfactory Fee Cap that
shall be applicable to the following year. If the parties cannot agree in
good faith, the Fee Cap from the previous year shall apply. Stanley shall
pay appropriately documented invoiced amounts within 45 days of receipt of
invoice. There shall be no penalty for late payments. Stanley shall have
the right, at its sole option, to deduct the amount of the Stanley Vending
Payments (as defined in Section 6.7 below) from the Shortfall Payment and
to make a single, net payment to a Host. Furthermore, in the event that
the amount of the Shortfall Payment exceeds the Stanley Vending Payments in
any month, the Shortfall Payment shall be reduced by one-half of such
excess, provided, however, that such reductions shall not exceed $24,842.70
in the aggregate in the first year of the term hereof. Such amounts shall
be reconciled and the reductions applied on a quarterly basis.
Host agrees that if, in any year of operation during the term of this
Agreement, Host generates an Operating Profit (which term shall be defined
as the positive difference between Net Sales for Dining Services and
Authorized Operating Expenses) on Dining Services, Host shall remit to
Stanley a sum equal to one half (1/2) of such Operating Profit. Host shall
remit such payment within twenty (20) calendar days following the twelfth
(12th) month of such period or fifteen (15) business days following the
twelfth (12th) month of such period, whichever is earlier.
In addition to the foregoing, Stanley agrees to reimburse Host for
pre-opening expenses incurred by Host in connection with the preparation by
Host for the provision of food services
12
<PAGE>
hereunder, as identified in EXHIBIT K attached hereto and made a part
hereof, from the date of this Agreement until Host commences providing
services hereunder. Host shall submit invoices for such pre-opening
expenses to Stanley, as well as such other supporting documentation as
Stanley shall request. Notwithstanding the foregoing, however, Stanley
shall not be required to reimburse Host for pre-opening expenses in an
aggregate amount in excess of $10,000.00.
Prior to the commencement of each operating year, Host shall prepare
and submit to Stanley a pro forma for each location at which services are
being rendered hereunder, together with a "combined operating pro forma" in
substantially the same format as those prepared in connection with the Host
Proposal (the "Pro Formas"). Upon Stanley's review and approval of such
Pro Formas, such Pro Formas shall constitute the approved operating budget
for the applicable year, subject to the terms and conditions hereof. The
parties acknowledge and agree that the Pro Formas attached hereto as
EXHIBIT L shall constitute the approved operating budget for the operating
year commencing as of the date hereof. Immediately following the close of
each operating quarter, Host shall prepare and submit to Stanley a
statement of actual operating expenses, profit and losses, together with an
updated forecast for the remainder of the operating year. In the event
that any such forecast shows operating expenses exceeding those shown in
the applicable Pro Forma by $50,000.00 or more, such increase must be
authorized by Stanley in advance of such expenses being incurred or Stanley
shall not be responsible to pay for such additional operating expenses.
SECTION 6. VENDING SERVICES.
---------- -----------------
6.1 GENERAL.
--------
With respect to each of Stanley's facilities designated as "Vending
Services Locations" in EXHIBIT A attached hereto and made a part hereof,
and such other locations in Stanley's facilities as
13
<PAGE>
Stanley and Host may mutually agree, Host shall provide (at its sole cost
and expense) during the term hereof Vending Services, which shall include
the installation, stocking and restocking, servicing, and maintenance of
cash vending machines dispensing certain cold food and hot and cold
beverages, and the installation, servicing and maintenance of microwave
ovens. The number and type of vending machines and the number of microwave
ovens that Host shall install and maintain at each Vending Services
Location is set forth in EXHIBIT H attached hereto and made a part hereof.
Host acknowledges and agrees that it will be necessary, at the times and to
the extent designated by Stanley in its sole discretion, to reduce the
number of vending machines at the Stanley Hardware Vending Services
Location (as described in EXHIBIT A) as a consequence of the planned
reduction in the number of employees at that site.
6.2 EQUIPMENT.
----------
All vending machines, except for those supplied by the distributors of
certain beverages, the number and locations of which machines shall be
provided to Host by Stanley, and all microwave ovens shall be owned and
supplied by Host, and shall be installed in the specific locations at each
Vending Services Location as Stanley shall designate in its sole
discretion. All vending machines installed by Host at the Vending Services
Locations shall be new or newly refurbished, of the latest production model
and design, and contain solid state controls. Host shall ensure that non-
resettable meters and dollar bill changers shall be installed on all
vending machines. Mars changers will be the coin mechanism on all vending
machines. All vending machines shall be seventy-two (72) inches in height.
All vending machines in a bank of machines (a bank of machines shall mean
two or more machines in one location) shall have similar fronts and shall
be securely bolted to adjacent
14
<PAGE>
vending machine(s). Microwave ovens shall be of a make and model
satisfactory to Stanley in its sole discretion.
6.3 VENDING PRODUCTS.
-----------------
Host shall install the vending machines described in EXHIBIT H fully
stocked with the applicable food and beverage products. Host further
agrees that the food and beverages to be dispensed in all vending machines
it installs at the Vending Services Locations shall consist exclusively of
"name brand" merchandise, including such local brands as Stanley shall
specify from time to time. Beverages shall include, but not be limited to,
Pepsi Cola, Seven Up, and Snapple, of both regular and diet varieties, and
such other recognized nationally-distributed brands as Stanley should
specify from time to time. Coffee shall be of premium quality and
satisfactory to Stanley. Crackers shall be Nabisco or Keebler brands, or
such other national brands as shall be acceptable to Stanley.
Vending machines dispensing cold food and beverages shall contain
freshly prepared sandwiches, salads, desserts, fruits and juices. Host
shall clearly identify the source of all such freshly prepared food. All
such freshly prepared cold food and beverages shall be clearly and
conspicuously labeled with the pull or expiration date. All vending
machines dispensing such products shall have affixed to them a sign
informing the purchaser that (i) food should not be purchased if the date
of purchase is past the pull date; and (ii) refunds are available for food
purchased where the date of purchase is past the pull date. The prices of
such food and beverages shall be consistent with EXHIBIT H and the
applicable portion of EXHIBIT F. Host may increase prices for any food or
beverage item only with Stanley's prior written approval. Any request for
a price increase must be accompanied by written documentation containing a
market-driven justification
15
<PAGE>
for such request. Stanley agrees that such approval shall not be
unreasonably withheld. In no event, however, shall Host be entitled to any
price increase during the first year of this Agreement.
6.4 RESTOCKING OF VENDING MACHINES.
-------------------------------
Host shall inspect and monitor the vending machines at the Vending
Services Locations and restock them with food and beverages, and coin for
change (as appropriate) with the frequency necessary to ensure that there
is a sufficient quantity of fresh products to adequately service the
population of Stanley employees located at each Vending Services Location
as set forth in EXHIBIT H. The frequency of inspection and monitoring of
such machines shall, at all times, be satisfactory to Stanley.
6.5 MAINTENANCE AND CLEANING OF VENDING MACHINES.
---------------------------------------------
Host shall maintain each vending machine (including routinely
calibrating all machines requiring such service) and all microwave ovens so
as to ensure that all vending machines and microwave ovens remain clean,
sanitary and fully operational at all times. Host shall respond (by
providing qualified service personnel to the applicable Vending Services
Location) to all maintenance service calls initiated by Stanley within two
(2) hours. Host shall clean and sanitize all vending machines in such
manner and with such frequency so as to ensure compliance with all
applicable federal, state, and local laws. In addition, Host shall provide
cleaning and sanitizing services for the vending machines in accordance
with the provision set forth in EXHIBIT I attached hereto and made a part
hereof. Host acknowledges and agrees that the vending machines are
subject, from time to time, to inspections of government health department
officials, and other governmental agencies. Host shall provide copies to
Stanley of any and all inspection reports immediately upon receipt thereof
by Host. Host shall promptly cure to the satisfaction of Stanley any and all
16
<PAGE>
deficiencies note during any such inspection or in any such report. Host
shall also submit to Stanley, upon Stanley's request, any and all records
and reports concerning the maintenance, cleaning and calibration of the
vending machines.
6.6 REFUNDS.
--------
Host shall refund to any purchaser of a vending machine food or
beverage all monies spent by such purchaser in circumstances where the
purchaser either received no product or received a product that the
purchaser determined in good faith to be unsuitable due to inferior
quality, spoiling or because the date of the product had extended past the
product's pull date. The procedure to be followed by a purchaser to
request a refund shall be developed by Host, subject to Stanley's prior
written approval, shall at all times be acceptable to Stanley, and shall be
conspicuously posted on or near all vending machines at each Vending
Services Location.
7.6 CASH AND CURRENCY COLLECTIONS.
------------------------------
Host shall be responsible for removing and safeguarding all cash and
currency from the vending machines on a regular basis. Host shall keep all
cash and currency retrieved from the vending machines at the Vending
Services Locations segregated from all other cash and currency, set up a
separate deposit account for such cash and currency collected and deposit
all such cash and currency collected into such account, and provide a
monthly accounting to Stanley (in form satisfactory to Stanley) of all such
cash and currency retrieved from such vending machines, and with the sales
tax and bottle deposit amounts associated with the products sold in such
vending machines, in each case separately listing such receipts for each
machine in each location. Such accounting shall be certified as complete
and accurate by Host's Chief Financial Officer. Host shall also provide
Stanley each month with a copy of the monthly bank statements. Host shall
hold all
17
<PAGE>
such funds in trust for the benefit of Host and Stanley until such funds
are distributed to Host and Stanley as described below.
Host shall be entitled to retain seventy-five percent (75%) of all
cash and currency reflected in its accountings minus sales tax and bottle
deposits as shown on such accountings, and shall remit to Stanley on a
monthly basis the remaining twenty-five percent (25%) of such amount (the
"Stanley Vending Payment"). In no event shall Stanley be responsible for
any costs or expenses in connection with the provision of vending services
under this Agreement. In no event, however, shall Stanley be entitled to
any proceeds from vending sales of freshly prepared cold foods (e.g.,
sandwiches), of milk, or of ice cream products.
SECTION 7. PROVISION OF FINANCIAL STATEMENTS, RECORDS AND REPORTS;
---------- -------------------------------------------------------
AUDITS.
- -------
7.1 In connection with computing the Management Fee and other
payments associated with Dining Services as set forth in Section 5 of this
Agreement as well as the payments to Stanley required under Section 6
above, Host shall provide Stanley with the following records and reports on
a monthly basis: for each Cafeteria Services Location, Catering Services
Location, and Vending Services Location, a report showing sales and costs
for the preceding month in sufficient detail to separately identify all
elements of costs. Such reports shall also show such information on a
year-to-date cumulative basis (based on Stanley's fiscal year end). Host
shall submit such monthly reports no later than the twentieth (20th)
calendar day or the fifteenth (15th) business day following the last day of
the preceding month, whichever is earlier. Such records and reports shall
be in form acceptable to Stanley and shall be certified as correct by
Host's Chief Financial Officer. Host shall maintain such records, reports,
and documentation for a period of at least six (6) years and shall
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<PAGE>
allow Stanley, upon ten (10) day's notice, to inspect, examine, and/or
audit the records of all receipts, expenses, and disbursements of Host's
food service operations, and all books, accounts, memoranda, and any other
documents of Host or any of its affiliates that would detail or
substantiate the cost of any and all food services expenditures and/or
receipts. At a minimum, any such records pertaining to the immediately
preceding twelve (12) months shall be maintained on Stanley's premises at
a location to be designated by Stanley.
In addition, Host shall, at Stanley's request, provide to Stanley the
following: independently reviewed or audited quarterly and annual financial
statements of Host, including, without limitation, statements of financial
conditions, income and cash flows, a reconciliation of net worth, a listing
of all contingent liabilities, notes to financial statements and other
financial information requested by Stanley, all prepared in accordance with
generally accepted accounting principles by a certified public accountant.
Quarterly reports shall be provided as soon as available, but no later than
45 days following the close of the quarter in question; annual reports
shall be provided as soon as available, but no later than 90 days following
the close of the fiscal year.
Stanley and/or its agents or representatives shall have the right at
all reasonable times after ten (10) days' prior notice to audit Host's
books, records, and books of account relating to and detailing the
transactions which are the subject of this Agreement. Host agrees to
maintain and make available to Stanley and its agents or representatives
all such Host books, records, and books of account. In the event that any
such audit reveals a discrepancy of 3% or more between amounts billed to
Stanley and amounts actually owed by Stanley hereunder for the period or
service in question. Host shall be responsible for all costs incurred by
Stanley in connection with such audit.
19
<PAGE>
SECTION 8. OWNERSHIP OF FACILITIES; MAINTENANCE AND USE OF FACILITIES.
--------- -----------------------------------------------------------
The Cafeteria Services Locations and the Catering Services Location at
Stanley Conference Center as described in EXHIBIT A (the "Conference
Center") shall remain the sole and exclusive property of Stanley. Host
shall not make any alteration to any Cafeteria Services Location or the
Conference Center without the prior written consent of Stanley. Host
acknowledges that Stanley maintains a "No Smoking" policy at each Cafeteria
Services Location and the Conference Center and that all Host personnel
shall strictly adhere to Stanley's "No Smoking" policy.
Stanley presently maintains and shall provide the following equipment
for use by Host at each Cafeteria Services Location and the Conference
Center: food preparation and storage equipment; servery and service
equipment; refrigeration equipment; ovens and grills; dishwashing
equipment; and dining room furniture consisting of tables and chairs; (the
"Stanley Equipment"). Subject to Host's right to use the Stanley Equipment
as provided herein (and in Section 9 below), the Stanley Equipment shall
remain the sole and exclusive property of Stanley. Host acknowledges and
agrees that it has had an opportunity to inspect the Stanley Equipment and
that the Stanley Equipment is sufficient and adequate in all respects.
Host understands and acknowledges that certain additional food service
equipment will be necessary to enable Host to fully provide the Cafeteria
Services, Catering Services, and Coffee Snack Cart Services and,
accordingly, Host shall provide any and all other cafeteria or food
handling or preparation equipment it deems necessary or appropriate for the
provision of the Cafeteria Services, Catering Services, and Coffee Snack
Cart Services (the "Host Equipment"). It is presently anticipated that
Host will invest a total of $54,000 for the procurement of the Host
Equipment, a description of which is attached hereto as EXHIBIT J.
20
<PAGE>
Any and all such Host Equipment shall become the sole and exclusive
property of Stanley as and when any such equipment is fully depreciated by
Host or, at the option of Stanley, if and when Stanley pays Host the then-
depreciated book value of the Equipment.
Stanley shall supply as of the date hereof for use by Host at each
Cafeteria Services Location and the Conference Center a stock of the
following items: china, glassware, tableware, trays, and kitchen utensils
(the "Stanley Smallwares"). An inventory of the Stanley Smallwares at each
Cafeteria Services Location and the Conference Center shall be taken
jointly by Stanley and Host as soon as practicable after the execution of
this Agreement (the "Initial Smallwares Inventory"). Thereafter, Host
shall maintain at all times an accurate inventory of the Stanley Smallwares
(in form satisfactory to Stanley) located at each Cafeteria Services
Location and the Conference Center and provide a copy of such inventory to
Stanley on a quarterly basis. Host shall be required, at its sole cost and
expense, to purchase such items as are needed to maintain the Initial
Smallwares Inventory levels at each Cafeteria Services Location and the
Conference Center.
Stanley shall provide for the use of Host at each Cafeteria Services
Location and the Conference Center office space, sanitary facilities, and
lockers. Host acknowledges and agrees that it has inspected such office
space, sanitary facilities and lockers and that such office space, sanitary
facilities and lockers are fully acceptable to Host in their present, "As-Is"
condition.
Host shall be responsible for maintaining the dining ares(s) of each
Cafeteria Services Location and the Conference Center in a clean and
orderly condition at all times. Specifically, Host shall monitor each such
dining area before and during service to ensure that any and all spills of
food or beverages are cleaned up immediately, that tables and chairs are
neatly placed, and that salt and pepper shakers and sugar dispensers are
aligned.
21
<PAGE>
Host may not prepare food or beverages in any Cafeteria Services
Location or the Conference Center for sale or use for any purposes other
than those specified by this Agreement without the prior written consent of
Stanley.
Stanley and/or its agents or representatives shall have the right to
have access at all times to the food preparation and dining facilities at
the Cafeteria Services Locations and the Conference Center. Stanley agrees
to provide Host, when reasonably possible, with advance notice of its
intention to avail itself of access to any Cafeteria Services Location or
the Conference Center and of the time and nature of such access.
Host shall be responsible for turning off all lights, non-essential
equipment, and securing each Cafeteria Services Location and the Conference
Center at the end of each work day.
In no event shall Host photograph or invite guests into any Cafeteria
Services Location or the Conference Center without the prior written
consent of Stanley. In addition, Host shall not post any signs or other
displays at any Cafeteria Services Location or the Conference Center
without the prior written consent of Stanley.
SECTION 9. STANLEY EQUIPMENT AND FACILITIES.
---------- ---------------------------------
9.1 The Stanley Equipment will be owned by Stanley, and any
replacements of the Stanley Equipment will be at Stanley's sole discretion.
Stanley agrees to permit Host to use the Stanley Equipment solely to
provide the Cafeteria Services and Catering Services as provided herein and
in Section 1, Section 2, and Section 8 above. Host shall exercise
reasonable care at all times in connection with its use of the Stanley
Equipment. In no event may Host remove any Stanley Equipment from any
Cafeteria Services Location or the Conference Center, or in any way alter
such equipment without the prior written approval of Stanley. Stanley shall
be responsible for and shall
22
<PAGE>
have the sole right to repair and maintain the Stanley Equipment. Host may
initiate requests for repairs of the Stanley Equipment. Host shall notify
Stanley in writing of any conditions with respect to the Stanley Equipment
that Host knows require repair or correction in order to comply with any
health or safety codes.
Stanley shall, at its sole cost and expense, provide utilities (heat,
water, gas, electricity, and air-conditioning) at each Cafeteria Services
Location and the Conference Center. At the request of Stanley, Host shall
use its best efforts to provide Dining Services during any interruption of
utility services.
SECTION 10. SANITATION STANDARDS.
----------- ---------------------
Host shall be responsible for ensuring that the food preparation and
dining areas at the Cafeteria Services Locations and the Conference Center
are at all times maintained in a clean and sanitary condition in compliance
with the provisions of all applicable federal, state and local law and with
Stanley's internal policies. At a minimum, Host shall: (i) clean all
kitchen surfaces and equipment on a continuous basis and following each
meal period; (ii) keep public areas free of hazardous conditions; (iii)
adhere to sanitation regulations for warewashing including recommended
water temperatures or the use of chemical sanitizers; and (iv) clean
kitchen and servery floors, walls and vents to a height of eight (8) feet
daily. In connection therewith, Host shall provide regular (i) cleaning of
all Stanley Equipment, Host Equipment, Stanley Smallwares, kitchen, food
handling, preparation and storage areas, cold storage areas, grease traps,
and counter areas; (ii) laundry service for kitchen linens (uniforms,
cleaning cloths, aprons, etc.); (iii) cleaning of the dining room tables
and chairs; and (iv) maintenance and repair of the Host Equipment. Host
shall dispose of the contents of grease traps in such receptacles and in
such manner as to comply with the provisions of
23
<PAGE>
all applicable federal, state, and local law. Host shall keep each
Cafeteria Services Location and the Conference Center free from garbage,
trash, and other debris (in connection therewith, Host shall recycle as
much of such garbage, trash, and debris as is practicable). In addition,
Host shall provide on a regular basis dishwashing services in a sanitary
manner for all non-disposable dishes, tablewares, trays, glasswares,
cooking and serving equipment, and utensils used at each Cafeteria Services
Location and the Conference Center.
Notwithstanding the foregoing, however, Stanley shall, at its sole
cost and expense, be responsible for (i) daily cleaning of all dining area
floors (exclusive of food preparation or service areas) and for the
cleaning of all dining area walls, ceilings, windows and light fixtures;
(ii) furnishing dumpsters for use by Host in locations designated by
Stanley; (iii) furnishing extermination services as required; (iv)
semiannual cleaning of hoods, ducts, and filters; and (v) maintaining and
repairing (as needed) the Stanley Equipment (unless such repairs are
necessitated through the negligent acts or omissions of Host in which case
Host shall, at its sole cost and expense, provide such repairs).
Host acknowledges and agrees that the Cafeteria Services Locations and
the Conference Center are subject, from time to time, to inspections of
government health department officials, fire department officials, and
other governmental agencies. Host shall provide copies to Stanley of any
and all inspection reports immediately upon receipt thereof by Host. Host
shall promptly cure to the satisfaction of Stanley any and all deficiencies
noted during any such inspection or in any such report.
24
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SECTION 11. ACCESS TO FACILITIES.
----------- --------------------
11.1 Stanley agrees to provide Host and its vending subcontractors
with reasonable means of ingress and egress to and from the facilities in
which Dining Services, Vending Services, and Office Coffee Services will be
provided, including the reasonable use of Stanley-designated corridors,
passageways, and loading platforms at such facilities. In no event shall
Host or anyone acting by, through, or under authority of Host be entitled
to use or occupy in any way any other facilities or portions thereof in
which Stanley operates, or occupy any of the facilities where Dining
Services, Vending Services or Office Coffee Services are provided except at
such times and to provide such services as are specified under this
Agreement, unless Stanley has provided its prior written consent. Host and
its vending subcontractors shall comply in all respects with all Stanley
policies regarding access, personnel, security, safety and confidentiality.
Host covenants and agrees with Stanley that the provision of Dining
Services, Office Coffee Services, and Vending Services hereunder shall not
interfere with the ordinary operation of Stanley's business or with
Stanley's ordinary use of its facilities.
SECTION 12. REIMBURSEMENT FOR SERVICES NOT SPECIFIED.
----------- ----------------------------------------
12.1 In no event shall Stanley be required to compensate Host for any
services provided by Host that are not expressly contemplated by this
Agreement unless Stanley has given its prior written consent thereto.
SECTION 13. PERSONNEL; CONTINUITY OF SERVICE.
----------- --------------------------------
13.1 Host shall be solely responsible for recruiting, hiring,
training, supervising, directing, disciplining, discharging, and
compensating all personnel employed by Host at the Cafeteria Services
Locations, Office Coffee Services Locations, Coffee Snack Cart Locations,
Catering
25
<PAGE>
Services Locations, and Vending Services Locations (collectively, the
"Stanley Premises"). In no event shall Stanley be responsible for
supervising, directing, or compensating in any way any Host employee.
Stanley shall have the continuing right to require the removal of any Host
employee whom Stanley determines, in its sole and absolute discretion, to
be unsatisfactory.
13.2 All Host personnel shall wear uniforms (to be provided by Host,
at its sole cost and expense, which uniforms shall be satisfactory to
Stanley) at all times such personnel are at the Stanley Premises. Such
uniforms shall include viable name tags, hats, hair nets, clean shirts,
trousers, and aprons where appropriate.
13.3 Notwithstanding any work stoppages or slowdowns directed at
either Stanley or Host, Host shall continue to provide Dining Services,
Office Coffee Services, and Vending Services as required hereunder.
Notwithstanding the foregoing, however, Stanley shall have the right (but
not the obligation) to provide any Dining Services, Office Coffee Services,
or Vending Services at the sole cost and expense of Host in the event that
Host fails or is otherwise unable to do so. Host shall notify Stanley of
any anticipated failure to provide services as required hereunder as soon
as Host becomes aware of any such situation.
13.4 No Host personnel or subcontractor shall be considered to be, nor
in any way hold themselves out as, employees, agents, or representatives of
Stanley.
13.5 With respect to all services to be provided pursuant to this
Agreement, Host shall designate an account manager responsible for
Stanley's account reasonably satisfactory to Stanley. Host shall make
reasonable efforts to minimize changes in account manager. Such account
manager shall have overall responsibility for Host's administration of this
Agreement and for the services to be provided hereunder. Such account
manager shall be available to meet on a regular basis with
26
<PAGE>
Stanley's designated contact person and shall respond to Stanley questions
and concerns regarding the Agreement and the services hereunder and shall,
if so requested by Stanley, attend meetings regarding this Agreement and
the services provided hereunder, all at no additional cost hereunder.
SECTION 14. LIENS
----------- -----
14.1 Host shall (i) indemnify and hold harmless Stanley, its divisions
and subsidiaries, from and against all laborer's, materialmen's and
mechanics' liens upon Stanley's property in which Host provides food
services arising out of the services or labor furnished by Host or any of
its subcontractors under this Agreement and (ii) keep said property free
and clear of all liens, claims and encumbrances arising from the
performance of this Agreement by Host or its subcontractors.
Host, for itself, its subcontractors, materialmen, laborers, and for
all other persons performing any labor or furnishing any services or labor
for the provision of food or vending services hereunder hereby waives, to
the fullest extent permitted by law, all right to have filed or maintained
any mechanics' or other liens or any other claims for or on account of the
services or labor to be furnished hereunder.
Host shall (i) indemnify and hold harmless Stanley from and against
any security interests or liens or encumbrances that attach to or become a
cloud on title to Stanley's materials and (ii) keep such material free and
clear of all liens, claims and encumbrances.
Host shall include a provision satisfying the requirements of this
Section 14 as part of any and all subcontracts issued hereunder.
27
<PAGE>
SECTION 15. INSURANCE.
----------- ---------
Host shall, at its sole cost and expense, obtain and carry throughout
the term of this Agreement as a minimum the following insurance in such
form and with such carriers as are satisfactory to Stanley covering the
performance of this Agreement:
* Workers' Compensation as required by statute, and Employers
Liability Insurance in an amount equal to $1,000,000.
* General Liability Insurance, including Products Liability, in
which the limit of liability for injuries, including accidental
death, shall be $2,000,000 for any one occurrence and $2,000,000
per person.
* General Liability Insurance in which the limit of liability for
property damage shall be $1,000,000 for any one occurrence.
* Automobile Liability Insurance in which the limit of liability
for injuries, including accidental death and property damage,
shall be $1,000,000 for any one occurrence and $1,000,000 per
person.
* Umbrella Liability Insurance in which the limit of liability per
occurrence shall be $5,000,000.
* Liquor Liability Insurance in which the limit of liability per
occurrence shall be $1,000,000.
All insurance policies shall be issued by companies authorized to do
business under the laws of the State of Connecticut and the State of Rhode
Island (as applicable), shall be in form satisfactory to Stanley, and shall
contain a provision prohibiting cancellation or reduction in coverage
except upon at least thirty (30) days prior written notice sent by
registered mail to Stanley and shall contain
28
<PAGE>
a complete waiver by the insurer of subrogation against Stanley. All such
insurance policies will be primary in the event of a loss arising out of
Host's performance hereunder and shall provide that where there is more
than one insured, the policy will operate, except for the limits of
liability, as if there was a separate policy covering each insured.
Certified copies of said policies or certificates evidencing such insurance
and naming Stanley and its subsidiaries, affiliates, and their respective
officers, agents and employees as additional insureds shall be filed with
Stanley before the execution of this Agreement.
Host shall insert in all subcontracts issued hereunder provisions
which shall conform substantially to the requirements set forth in this
Section 15.
SECTION 16. INDEMNIFICATION.
---------- ---------------
16.1 Host shall be solely responsible for any and all loss, damage,
expense or injury (including death) to persons (including employees of Host
and any subcontractor) or property arising out of the performance of this
Agreement, it being the intent of this Agreement to protect and indemnify
Stanley from any and all loss arising out of or in connection with the
services performed under this Agreement. In furtherance of the foregoing
(but not by way of limitation), Host shall indemnify, defend and hold
harmless Stanley and Stanley's directors, officers and employees from and
against any and all liability, claim of liability, cause of action, loss,
expense or damage whatsoever arising from any loss, damage, expense or
injury (including death) to any person (including employees of Host and any
subcontractor) or property of every type or nature relating to the
performance of this Agreement or the actions of any Host employee or
subcontractor.
Host shall insert in all subcontracts issued hereunder provisions
which shall conform substantially to the requirements of this Section 16.
29
<PAGE>
SECTION 17. COMPLIANCE WITH LAW.
----------- -------------------
17.1 Host shall fully comply with any federal, state, local or other
applicable laws, rules, regulations, ordinances and other governmental
pronouncements, including, but not limited to, all such laws, rules,
regulations, ordinances and governmental pronouncements relating to the
provision of food services as required hereunder, including, but not
limited to, the posting of requisite notices and signs.
Host shall comply with and give all stipulations and representations
required by applicable state and federal laws. Host represents and warrants
that all services provided under this Agreement shall fully comply with the
provisions of the Occupational Safety and Health Act, as it may be amended
from time to time, and with all regulations promulgated thereunder. Host
further represents that it will comply with all provisions of federal law
in connection with all employees providing services under this Agreement
who are not citizens of the United States.
Host shall insert in all subcontracts issued hereunder provisions
which shall conform substantially to the requirements of this Section 17.
SECTION 18. ASSIGNMENT.
----------- ----------
18.1 Host shall not assign this Agreement or any of its rights
hereunder without the prior written consent of Stanley. In no event,
however, shall Host be relieved of any liability for any acts or omission
committed by any party to whom Host has assigned any of its rights or
obligations hereunder.
Stanley acknowledged that Host may subcontract the Vending Services to
a third party. However, any and all such subcontracts issued hereunder by
Host shall be approved in writing in advance by Stanley.
30
<PAGE>
Stanley may, at its option, assign any or all of its rights hereunder
without the consent of Host and without recourse to Stanley.
SECTION 19. TERM AND TERMINATION.
----------- --------------------
19.1 The term of this Agreement shall be from the date hereof until
August 31, 2004. Unless sooner terminated as provided by Section 19.2
below, this Agreement may be renewed, upon agreement by the parties hereto,
on or before the date which is one hundred and eighty (180) days prior to
the expiration hereof for two additional one (1) year period(s).
19.2 This Agreement may be terminated by Stanley at any time, with or
without cause, upon the provision of thirty (30) days written notice to
Host. This Agreement may be terminated by Host at any time with or without
cause upon the provision of one hundred twenty (120) days written notice to
Stanley.
19.3 This Agreement may be terminated by Stanley if Host fails to cure
to the satisfaction of Stanley any default hereunder after ten (10) days
written notice of such default from Stanley to Host.
19.4 Upon the expiration or termination of this Agreement, Host shall
immediately (i) vacate the Stanley Premises; (ii) leave the Stanley
Premises in a clean and orderly condition to the satisfaction of Stanley;
(iii) leave all Stanley Equipment, Stanley Smallwares, and any Host
Equipment that has become the property of Stanley in accordance with the
provisions of this Agreement in a clean, orderly, and operating condition;
(iv) remove all food and beverages from the Stanley Premises; (v) and
provide Stanley with closing reports of all services rendered under this
Agreement from the beginning of the month in which the Agreement expired or
was terminated up to and including the last day any services were provided
hereunder.
31
<PAGE>
19.5 TERMINATION ASSISTANCE: The foregoing paragraph notwithstanding,
in anticipation of and, if so requested by Stanley, for a reasonable period
of time following any expiration or earlier termination hereof, Host shall
cooperate with and render assistance to Stanley and such third parties as
Stanley may identify, to enable the orderly transfer and conversion of
processes, records, procedures and the like in connection with the
provision of the services to be provided hereunder or their equivalent by
such third party or parties as Stanley may designate or by Stanley itself
following such expiration or termination. Such assistance shall be
rendered to Stanley with no price increase and no decrease in the level of
service unless otherwise agreed by the parties.
SECTION 20. WARRANTIES.
---------- ----------
20.1 Host represents and warrants to Stanley that Host is experienced
and well-skilled in the services it is required to provide hereunder and
acknowledges that Stanley is relying upon Host to impart that experience in
the performance of its duties hereunder.
20.2 Host represents and warrants to Stanley that Host is a
corporation duly organized and validly existing under the laws of the State
of Delaware and has full power to conduct its business as currently
conducted and contemplated hereunder and to execute, deliver, and perform
its obligations under this Agreement. All necessary action has been taken
to enable Host to execute and deliver this Agreement and perform its
obligations hereunder.
SECTION 21. PERMITS AND LICENSES.
----------- --------------------
Host shall, at its sole cost and expense, obtain, maintain, and
display in prominent locations designated by Stanley any and all necessary
permits and licenses required by federal, state, or local authorities for
the provision of the food services required by this Agreement.
32
<PAGE>
SECTION 22. STATUS OF PARTIES; CONFIDENTIALITY.
----------- ----------------------------------
22.1 The relationship between Stanley and Host shall be solely that of
independent contractors, and nothing herein contained shall be construed as
creating any other relationship. Neither Host or any of Host's employees
or agents shall have any authority, power or right to bind or obligate
Stanley in any way, manner or thing whatsoever.
22.2 All confidential information disclosed in writing by one party to
the other and labeled as confidential will remain the exclusive property of
the disclosing party, and will be used by the receiving party only in
furtherance of the purposes of this Agreement. Each party will maintain
procedures to maintain the integrity of such confidential information of
the other at least equal to those that the receiving party would use to
protect its own confidential information. This Section 22 does not cover
information that is or becomes public knowledge, that is already known to
the receiving party, or that is lawfully made available to the receiving
party by a third party. At the termination or expiration of this
Agreement, all confidential information shall be returned to the disclosing
party except for one archival copy. The obligations of this Section 22
shall survive the expiration or termination of this Agreement.
SECTION 23. TAXES.
----------- -----
23.1 Host shall be solely responsible for the collection and payment
to all applicable federal, state, or local governmental authorities, of all
sales, transfer, value-added and use taxes, fees, and charges associated
with the provision and sale of the food services as contemplated hereunder.
SECTION 24. NON-WAIVER OF DEFAULTS.
----------- ----------------------
Any failure by Stanley at any time, or from time to time, to enforce
as required the strict keeping and performance of any of the terms or
conditions of this Agreement shall not constitute a
33
<PAGE>
waiver of such terms or conditions in any way, or the right of Stanley at
any time to avail itself of such remedies as it may have for any breach or
breaches of such terms or conditions.
SECTION 25. MERGER OF NEGOTIATIONS.
----------- ----------------------
25.1 The terms and provisions herein contained together with the
exhibits attached hereto constitute the entire agreement between the
parties and shall supersede all previous communications, representations or
agreements, either oral or written, between the parties hereto with respect
to the subject matter hereof, including without limitation, any discussion
outlines, letters of intent or the Host Proposal.
25.2 In the event of any conflict between the terms and provisions of
this Agreement and those of the RFP, the terms and provisions of this
Agreement shall control as to the respective rights, duties, obligations,
and liabilities of Host and Stanley.
SECTION 26. MISCELLANEOUS.
----------- -------------
26.1 If any dispute occurs between the parties, arising out of or
relating to this Agreement or the respective rights and responsibilities
hereunder, the matter shall be settled and determined by arbitration under
the then current rules of the America Arbitration Association. The
decision and award of the arbitrator shall be final and binding and any
award so rendered may be entered in any court having jurisdiction thereof.
The arbitration shall be held and the award shall be deemed to be made in
the city of Hartford, Connecticut.
26.2 This Agreement shall be binding upon, inure to the benefit of,
and be enforceable by the respective beneficiaries, representatives,
successors and assigns of the parties hereto.
26.3 The Services supplied hereunder (including without limitation any
equipment used in connection with such Services and the process which
insures that the overall Service can be
34
<PAGE>
performed to applicable standards) are and will continue to be "Year 2000
Compliant." For the purposes of this Agreement. "Year 2000 Compliant"
means that neither performance nor functionality of the services hereunder
is or will be affected by processing of dates prior to, during, and after
January 1, 2000. Specifically, no value for dates will cause any
interruption in operations; date-based functionally will behave
consistently for dates prior to, curing and after January 1, 2000; in all
interfaces and data storage, the century in any date must be specified
either explicitly or by unambiguous algorithms or inferencing rules; and
the year 2000 must be recognized as a leap year.
26.4 Neither party shall issue any press release or make any public
statement or make any official announcement to the press or the public
regarding this Agreement or its subject matter without the prior written
consent of the other party, which consent may be withheld in such party's
sole discretion..
26.5 Notices under this Agreement shall be sent by U.S. mail, first
class postage prepaid, or by hand delivery, properly addressed to:
If to Stanley:
The Stanley Works
1000 Stanley Drive,
New Britain, Connecticut
Attn: Vice President of Human Resources
With a copy to:
The Stanley Works
1000 Stanley Drive,
New Britain, Connecticut
Attn: Manager, Employee Services
With a copy to:
The Stanley Works
1000 Stanley Drive,
New Britain, Connecticut
35
<PAGE>
Attn: General Counsel
If to Host:
Host America Corporation
Two Broadway
Hamden, Connecticut 06518-2697
Attn: Geoffrey Ramsey, President
26.6 Wherever used, the singular shall include the plural, the plural
the singular, and the use of any gender shall be applicable to all genders.
26.7 This Agreement may be amended only by a writing signed by all of
the parties. The terms of this Agreement shall govern over terms of any
Buyer's Order or Seller's quotation pertaining to the subject matter hereof.
26.8 The captions and headings used in this Agreement are for
convenience of reference only and shall not be construed as limitations or
expansions upon the text to which they refer.
26.9 This Agreement may be executed in one or more counterparts, each
of which shall be an original instrument and all of which together shall
constitute one and the same instrument.
26.10 In the event that any provision hereof shall be deemed to be
invalid and unenforceable in any context, such invalidity r
unenforceability shall affect only the particular provision in the
particular context and shall not have an effect upon the remaining
provisions hereof, or the application of the challenged provision in any
other context.
26.11 This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Connecticut without regard to application of
its conflicts of laws principles.
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
WITNESS:
/s/ THE STANLEY WORKS
- -------------------------------
Mgr. Employee Services By /s/
- ------------------------------- -------------------------------
Its VP HR
-------------------------------
/s/ HOST AMERICA CORPORATION
- -------------------------------
By /s/ GEOFFREY RAMSEY
-------------------------------
Director of Marketing
- -------------------------------
Its President & CEO
------------------------------
37
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