UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended ______________March 31, 1997_________________
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____________ to ____________
Commission File Number: 33-9868-A
Shepherd Surveillance Solutions, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0212471
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 Perimeter Road, Suite 4, Manchester, NH 03103
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(603) 622-8668
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
At March 31, 1997, 4,293,822 shares of common stock,
$.001 par value per share, were outstanding.
Part I. Financial Information
- ------------------------------
Item 1. Financial Statements
- ------------------------------
Shepherd Surveillance Solutions Inc.
Balance Sheets
<TABLE>
<CAPTION>
March 31, 1997 September 30, 1996
-------------- ------------------
(Unaudited) (Note)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 11,611 $116,770
Accounts receivable 405,454 62,786
Inventories 289,328 370,999
Prepaid expenses and other current assets 11,524 30,122
------------- ---------
Total current assets 717,917 580,677
------------- ---------
Property and equipment:
Furniture, machinery and equipment 245,020 139,283
Software and hardware 146,724 36,453
Leasehold improvements 48,826 40,807
------------- ---------
440,570 216,543
Accumulated depreciation 93,696 63,590
------------- ---------
346,874 152,953
Other assets 11,080 6,720
------------- ---------
Total assets $1,075,870 $740,350
============= =========
</TABLE>
See accompanying notes.
Note: The balance sheet at September 30, 1996 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
2
Shepherd Surveillance Solutions Inc.
Balance Sheets (Continued)
<TABLE>
<CAPTION>
March 31, 1997
---------------
September 30, 1996
------------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
<S> <C> <C>
Accounts payable $ 581,902 $ 244,449
Loans from shareholder 886,800 -
Line of credit note payable - bank 180,269 -
Accrued expenses 60,370 52,096
Interest payable to shareholder 382,109 246,047
------------ ------------
Total current liabilities 2,091,450 542,592
----------- -----------
Notes payable to shareholder 5,202,229 3,659,000
Shareholders' deficit:
Common Stock - $.001 par value:
50,000,000 shares authorized;
4,293,822 shares issued and outstanding 4,294 4,294
Additional paid-in capital 5,770,330 5,770,330
Accumulated deficit (11,992,433) (9,235,866)
------------ -----------
Total shareholders' deficit (6,217,809) (3,461,242)
------------- -----------
Total liabilities and shareholders' deficit $ 1,075,870 $ 740,350
=========== ===========
</TABLE>
See accompanying notes.
3
Shepherd Surveillance Solutions Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31,1997 March 31,1996 March 31, 1997 March 31, 1996
<S> <C> <C> <C> <C>
Net sales $ 164,686 $ 101,818 $ 469,129 $ 121,922
Cost of sales 96,671 34,358 338,296 37,594
-------- ------
Gross margin 68,015 67,460 130,833 84,328
---------- ----------
Operating expenses and other costs:
Selling and promotion 578,370 115,963 1,025,672 214,482
General and administrative 418,779 164,049 821,118 251,352
Research and development 439,411 5,374 732,542 17,450
Depreciation and amortization 17,253 3,373 30,106 6,820
------- ---------------
Total operating expenses and
other costs 1,453,813 288,759 2,609,438 490,104
------------- ------------- -------------- -----------
Loss from operations 1,385,798 (221,299) 2,478,605 (405,776)
-------------- ------------- --------------- ------------
Other income (expenses):
Interest expense (158,078) (35,338) (278,378) (61,525)
Other , net 416 (457) 416 (457)
(157,662) (35,795) (277,962) (61,980)
--------- ---------
Net loss $ 1,543,460 $ (257,094) $ 2,756,567 $ (467,756)
========= ========= ========== =========
Loss per share $ (.36) $ (.06) $ (.64) $ (.11)
========= ======== ========== =========
</TABLE>
See accompanying notes.
4
Shepherd Surveillance Solutions Inc.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended March 31,
---------------------- ---
1997 1996
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net cash used in operating activities $(2,350,201) $ (599,578)
----------- -----------
INVESTING ACTIVITIES
Capital expenditures (224,027) 35,333
--------- -------
Net cash provided by (used in) investing activities (224,027) 35,333
--------- --------
FINANCING ACTIVITIES
Loans from shareholder: credit agreements 1,402,000 623,500
demand notes 886,800
Line of credit note payable - bank 180,269
Net cash provided by financing activities 2,469,069 623,500
---------- ----------
Net increase (decrease) in cash and cash equivalents (105,159) 59,255
Cash and cash equivalents at beginning of period 116,770 18,215
-------- ----------
Cash and cash equivalents at end of period $ 11,611 $ 77,470
=========== =============
</TABLE>
5
Shepherd Surveillance Solutions Inc.
Notes to Financial Statements
March 31, 1997 and September 30, 1996
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with Item 310(b) of Regulation S-B and do not include all of the
information and footnotes required for complete financial statements. The
condensed financial statements should be read in conjunction with the Company's
audited financial statements for the fiscal year ended September 30, 1996. In
the opinion of management, the condensed financial statements include all
adjustments necessary for a fair presentation of the results of the reported
interim periods. All such adjustments are of a normal recurring nature.
The results of operations for the interim periods shown are not necessarily
indicative of results for any future interim periods or for the entire fiscal
year.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 1997 September 30, 1996
---------------- ------------------
<S> <C> <C>
Raw Materials $203,993 $178,999
Work in progress 0 13,286
Finished goods 85,335 178,714
------ -------
$289,328 $370,999
====== ======
</TABLE>
3. Stock Options and Warrants
During the three months ended December 31, 1996 (the "First Quarter") and the
three months ended March 31, 1997 (the "Second Quarter"), pursuant to the 1996
Stock Option Plan (the "1996 Plan"), the Company granted options to employees
for the purchase of the Company's $.001 par value common stock (the "Common
Stock") at an exercise price of $.01 per share. The 1996 Plan provides that a
portion of such options are exercisable immediately for certain key employees
and that the remaining options become exercisable based on holding periods after
the grant date and, in certain instances, on other criteria relating to the
operations of the
6
Company. During the Second Quarter, pursuant to a credit agreement, the Company
issued to its majority shareholder and principal lender a warrant to purchase
2,200,000 shares of Common Stock at a price of $.01 per share in connection with
a loan made by such shareholder to the Company. This warrant is exercisable
immediately with respect to 500,000 shares, with the remainder exercisable in
1998. No options or warrants were exercised during the Second Quarter.
Stock options and warrant activity for the three months ended March 31, 1997
are as follows:
<TABLE>
<CAPTION>
Options Warrants
------- --------
<S> <C> <C>
Outstanding at December 31, 1996 4,369,949 14,226,578
Granted during the Second Quarter 454,371 2,200,000
------- ---------
Outstanding at March 31, 1997 4,824,320 16,426,578
========= ==========
Exercisable at March 31, 1997 885,657 14,726,578
========= ==========
</TABLE>
4. Line of Credit Note Payable - Bank
On February 3, 1997, the Company entered into a Commercial Loan Agreement (the
"Bank Agreement") with a bank for a Revolving Line of Credit Loan, repayable on
demand. The Bank Agreement provides the Company with a maximum $900,000
revolving loan, with the maximum amount borrowable at any one time calculated on
a borrowing base of 80% of the Company's accounts receivable balances under 90
days from invoice due date. Interest on outstanding amounts is at a variable
rate equal to the bank's Base Rate (8.25%) plus 1.5% per annum, which aggregated
9.75% as of March 31, 1997. At March 31, 1997, a loan of $180,269 was
outstanding under the Revolving Line of Credit Loan. Obligations under the Bank
Agreement are collateralized by a first priority security interest in all
property and assets of the Company, with the consent of the majority
shareholder, and by a guaranty executed by the Company's majority shareholder.
5. Related Party Transactions
Loans from shareholder
During the Second Quarter, the Company borrowed an aggregate of $1,144,800 from
its majority shareholder, $258,000 of which was in January pursuant to the
Credit Agreement of January 17, 1997, as fully discussed below. The remaining
$886,800 was advanced during February and March pursuant to various demand notes
bearing interest at an annual rate of 12.25%.
Interest payable to shareholder
The March 31, 1997 balance of $382,109 represents interest due on promissory
notes payable to and advances from the Company's majority shareholder. No
interest was paid during the First and Second Quarters. During the Second
Quarter, $141,229 of this unpaid interest became a part of the principal of a
convertible promissory note dated January 21, 1997, as fully discussed below.
Notes payable to shareholder
Promissory note dated June 28, 1996 $1,611,000
Promissory note dated January 17, 1997 2,450,000
7
Convertible promissory note dated January 21, 1997 1,141,229
-----------
$5,202,229
===========
As of June 28, 1996, the Company entered into a Credit Agreement with its
majority shareholder which provided for borrowings of up to $1,611,000. In
connection with this Credit Agreement, the Company executed and delivered to its
majority shareholder a promissory note in the amount of $1,611,000, and issued
to its majority shareholder a warrant for the purchase of 14,226,578 of the
Company's Common Stock, exercisable at a price of $.01 per share. The promissory
note matures on June 28, 1999 and bears interest at a rate equal to the prime
rate (as defined) plus 4%. During the first year, the Company has the option to
capitalize the interest to the existing principal. Principal and any unpaid
interest are due at maturity, unless the Company completes a public or private
sale of its Common Stock in certain minimum amounts, in which case the Company
is required to prepay part or all of such debt with the proceeds. This Credit
Agreement is collateralized by substantially all assets of the Company and is
subordinated to the Bank Agreement with the consent of the majority
shareholders.
On January 17, 1997, the Company entered into another Credit Agreement with its
majority shareholder which provides for borrowings of up to $2,450,000. Included
in this amount are advances received by the Company aggregating $1,048,000
during the last quarter of fiscal 1996, $1,144,000 during the First Quarter and
$258,000 during the Second Quarter. In connection with this Credit Agreement,
the Company executed and delivered to its majority shareholder a promissory note
in the amount of $2,450,000, and issued to its majority shareholder a warrant
exercisable for 2,200,000 shares of the Company's Common Stock, exercisable at a
price of $.01 per share. This warrant is exercisable with respect to 500,000
shares immediately, will be exercisable with respect to 1,700,000 shares on
August 8, 1998 in the event that the Promissory Note is not paid in full by that
date, and expires on August 8, 2003. The $2,450,000 promissory note matures on
August 7, 1998 and bears interest at an annual rate equal to the prime rate (as
defined) plus 4%. All principal and interest is payable at maturity. The
applicable prime rate at December 31, 1996 was 8.25%.
On January 21, 1997, the Company entered into a Credit Agreement with its
majority shareholder for the purpose of refinancing a $1,000,000 loan, and the
Company issued to its majority shareholder a Convertible Promissory Note (the
"Convertible Note") in the amount of $1,141,229. The Company included $141,229
representing interest accrued from November 1, 1995 as principal, resulting in
an aggregate principal balance of $1,141,229. The Convertible Note requires the
Company to make interest payments in cash in January and July of each year, but
during the first two years such interest can be added to principal at the
election of the Company, with interest continuing to accrue on the aggregate
principal. The Convertible Note matures on August 8, 2000, bears interest at an
annual rate of the prime rate plus 4% and is convertible on or after the
maturity date into shares of the Company's Common Stock pursuant to a formula
specified in the Credit Agreement, based on fair market value (as defined) of
the Company's Common Stock.
6. Per Share Data
Loss per share amounts for the three month and six month periods ended March 31,
1997 and 1996 were determined by dividing the net loss for each period by
4,293,822, the number of shares of common stock outstanding during the periods.
8
Part I. Financial Information
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Results of operations
PREFACE
The Company has, for the past several years, experienced substantial operating
losses, and its sales do not generate working capital sufficient to meet current
and future projected operating expenses. At March 31, 1997, the Company had cash
and cash equivalents of approximately $12,000 and the Company could be forced to
drastically cut back operations in the event it does not receive continued
funding. Starting in the middle of its prior fiscal year, the Company has been
the recipient of significant venture funding from its principal shareholder
which funding has been used to revamp its existing technology, develop new
technologies and launch new products, all of which have given rise to a product
line that did not exist until the end of the prior fiscal year. The Company's
full time workforce now numbers 33. Approximately 60% of the Company's $469,129
fiscal 1997 revenues arose from sales to customers outside the U.S.
SECOND QUARTER 1997 COMPARED TO THE SAME PERIOD IN FISCAL 1996
Revenues were $164,686 during the 1997 Second Quarter, an increase of
approximately $63,000 over the same period in 1996. Revenues arose principally
from time and materials billings for work done on large installations resulting
from completed contracts of past years. Margin of approximately 41% realized on
Second Quarter sales declined from the prior year because the nature of the
Company's business and the products sold have changed. Selling and promotion
expenses were $578,370, an increase of approximately $462,000 over the same
period in 1996, reflecting a larger sales staff and the cost of additional and
broader marketing efforts. General and administrative expenses for the Second
Quarter were $418,779, an increase of approximately $255,000, which is a
reflection of costs associated with the administrative and operations staff.
Research and development expenses for the Second Quarter were $439,411, an
increase of approximately $434,000 over the three months ended March 31, 1996,
due toCompany's research and development activities. Interest expense of
$158,078 in the Second Quarter, when compared to $35,338 during the same period
in fiscal 1996, reflects an increase of approximately $123,000, the result of
significantly larger borrowings from the Company's majority shareholder, Trilon
Dominion Partners, L.L.C., a Delaware limited liability company ("Trilon"),
owner of approximately 78% of the Company's outstanding common stock.
SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996
Revenues were $469,129 for the six months ended March 31, 1997, an increase of
approximately $347,000 over the same period in 1996.
9
Revenues for this period arose principally from time and material billings for
work done on large installations resulting from completed contracts of past
years. Margin of approximately 28% realized on fiscal 1997 sales decreased.
Selling and promotion expenses were $1,025,672, an increase of approximately
$811,000 over the same period in 1996. General and administrative for the six
months ended March 31, 1997 were $821,118, an increase of approximately $570,000
over the corresponding period in fiscal 1996. Research and development expenses
for the first half of fiscal 1997 were $732,542, an increase of approximately
$715,000 over the six months ended March 31, 1996. Interest expense of $278,378
in the six months ended March 31, 1997 reflects an increase of approximately
$217,000 over the same period in fiscal 1996, the result of significantly larger
borrowings from Trilon (as previously fully discussed).
BALANCE SHEET AT MARCH 31, 1997 COMPARED TO BALANCE SHEET AT SEPTEMBER 30, 1996
Cash and cash equivalents of $11,611 at March 31, 1997 decreased approximately
$105,000 from the corresponding amounts at September 30, 1996. This a
consequence of the Company's lower level of cash resulting from utilizing formal
"target balance" planning with the Company's bank and of the increased level of
payments to vendors. Such cash management arrangements are coincident with the
Company's revolving line of credit loan agreement (as fully discussed in Note 4
to financial statements). Accounts receivable balances at March 31, 1997 were
approximately $343,000 larger than at September 30, 1996, the result of higher
sales during the First and Second Quarters of 1997 than in the last quarter of
fiscal 1996. The $82,000 decrease in inventories at March 31, 1997 compared to
those at September 30, 1996 is consistent with the higher sales activity in the
Second Quarter. The increase of approximately $224,000 in property and equipment
reflects the acquisition of capital equipment used in the Company's engineering
and production activities. The accumulated depreciation increase of
approximately $30,000 corresponds to the larger property and equipment balances,
and is reflective of the comparatively short useful lives (3 to 5 years) over
which many of the Company's fixed assets are depreciated. Accounts payable
increased by approximately $337,000, indicative of increased overall liabilities
for purchases of manufacturing components and fixed assets, as well as marketing
commitments related to media advertising, trade shows and promotional materials
during the first half of fiscal 1997. The $180,269 line of credit note payable
to a bank arose during the Second Quarter (as fully discussed in Note 4 to
financial statement) and represents demand borrowings based on the Company's
accounts receivable balances. Loans from shareholder of $886,800 (as fully
discussed in Note 5 to financial statements) represent working capital advances
from Trilon received during February and March and repayable on demand. Interest
payable to Trilon increased approximately $136,000. Although net of
approximately $141,000 added to note principal during the Second Quarter (as
fully discussed in Note 5 to financial statements), this aggregate increase
resulted mostly from larger corresponding principal balances, with no interest
payments being made by the Company to Trilon. Notes Payable to Shareholder
increased by approximately $1,543,000, the result of the Company's increased
borrowings from Trilon, pursuant to credit that are fully discussed in Note 5 to
financial statements. Accummulated deficit increased by $2,756,567, the amount
of the Company's net loss for the six months ended March 31, 1997.
Liquidity and capital resources
Management believes that the .34 to 1.00 ratio of current assets to current
liabilities in the balance sheet at March 31,1997, as well as a Shareholders'
Deficit of $11,992,433, reflects the
10
Company's current lack of liquidity and its potential inability to meet current
financial obligations. Trilon loaned $1,144,000 to the Company during the First
Quarter and $1,144,800 during the Second Quarter. Such amounts were the
principal source of the Company's working capital. On January 17 and 21, 1997,
respectively, two Credit Agreements between the Company and Trilon were executed
(as fully discussed in Note 5 to financial statements). The Company will need
additional funding (either debt or equity) in the third and fourth fiscal
quarters. There is no assurance that such funding will be obtained. In the event
the Company is unable to obtain additional funding, it would have a material
adverse effect on the Company.
The Company had cash and cash equivalents of approximately $12,000 at March 31,
1997. The Company subsequently borrowed $500,0000 from Trilon during April of
1997. The Company is required to repay to Trilon amounts borrowed under the June
26, 1996 Credit Agreement on or before June 28,1999, amounts borrowed under the
January 17, 1997 Credit Agreement on or before August 7, 1998, and may be
required to repay to Trilon amounts borrowed under the January 21, 1997 Credit
Agreement (see Note 5 to financial statements for further details). The Company
may be unable to meet these financial obligations. In addition, the $886,800
borrowed from Trilon during the Second Quarter is payable on demand. As
discussed in Note 4 to financial statements, during the Second Quarter the
Company entered into a revolving line of credit loan agreement with a commercial
bank, which permits revolving loans up to a maximum of $900,000, based on the
Company's eligible accounts receivable balances. Pursuant to this line of
credit, approximately $180,000 of borrowings were incurred as of March 31, 1997.
Borrowings under this bank line of credit are payable on demand and are
guaranteed by Trilon.
Risk Factors and Cautionary Statements
When used in this Form 10-QSB and in other filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", "hope to", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties, including but not limited to those discussed in
the notes to the financial statements and under this caption "Risk Factors and
Cautionary Statements", that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and wishes to
advise readers that the factors listed below could cause the Company's actual
results for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements.
The Company will NOT undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
11
o The Company's continued working capital and cash resources are dependent on
its ability to obtain additional financing in the near future, as the
Company's operations currently do not generate revenues sufficient to cover
its expenses. There can be no assurance that the Company is able to obtain
additional financing. If such financing is not obtained, it would have a
material adverse effect on the Company.
o The Company's future operating results are dependent on its ability to
develop, produce and market new and innovative products and technologies,
and eventually to enter into favorable licensing and distribution
relationships. There are numerous risks inherent in this complex process,
including the risk that rapid technological change could render the
Company's products obsolete, the risk that the Company will not be able to
timely develop new products at a reasonable cost that find acceptance in
the marketplace, and the risk that the Company will not be able to develop
procedures to bring to these products to the market in a timely fashion.
o The Company is highly leveraged, having borrowed $2,734,000 during fiscal
1996 from its majority shareholder without repaying any amounts of
principal or interest due on these loans. An additional $1,144,000 was
borrowed during the First Quarter and $1,144,800 during the Second Quarter,
a total of $2,288,800 for the six months ended March 31, 1997. There can be
no assurance that the Company will be able to pay principal or interest due
on any of these loans from time to time. Any failure to pay interest or
principal due on these loans would have a material adverse effect on the
Company.
o A single shareholder, Trilon Dominion Partners, L.L.C., which has been the
Company's principal lender, currently holds 3,367,802 shares of Common
Stock (78% of outstanding shares), holds warrants to purchase 16,426,578
additional shares of the Company's common stock and holds a Convertible
Promissory Note to acquire additional shares. Accordingly, Trilon is and
will be able to elect all of the Company's directors and, generally, to
direct the affairs of the Company. This stockholder could effectively block
any majority corporate transactions, such as a merger or sale of all of the
Company's assets, which, under Nevada law, requires the affirmative vote of
holders of a majority of the outstanding Common Stock of the Company.
The Company has experienced recurring losses from operations and has a
significant shareholders' deficit. Furthermore, the Company's operating results
have varied from fiscal period to fiscal period; accordingly, the Company's
financial results in any particular fiscal period are not necessarily indicative
of results for future periods.
Part II. Other Information
Item 5. Other Information
January 17, 1997 Credit Agreement
On January 17, 1997, the Company entered into a Credit Agreement (the
"Agreement") with Trilon which provides for borrowings up to $2,450,000. In
connection with the Agreement, the Company executed and delivered to Trilon a
promissory note in the amount of $2,450,000 (the "Promissory Note"), and issued
to Trilon a warrant exercisable for 2,200,000 shares of the Company's Common
Stock (the "Warrant"), exercisable at a price of $.01 per share. The Warrant is
exercisable with respect to 500,000 immediately, is exercisable with respect to
1,700,000 shares on August 8, 1998 in the event that the Promissory Note is not
paid is full by that date, and expires on August 8, 2003. The Promissory Note
matures on August 7, 1998 and bears interest at an annual rate equal to the
prime rate plus 4%. All principal and interest is payable at maturity. The prime
rate at December 31, 1996 was 8.25%.
12
January 21, 1997 Credit Agreement
On January 21, 1997, the Company entered into a Credit Agreement with Trilon for
the purpose of refinancing a $1,000,000 loan payable to Trilon, and the Company
issued to Trilon a Convertible Promissory Note (the "Convertible Note") in the
amount of $1,141,229. The Company included $141,229 representing interest
accrued on the loan from November 1, 1995 as principal, resulting in an
aggregate principal balance of $1,141,229. The Convertible Note requires the
Company to make interest payments in cash in January and July of each year, but
during the first two years such interest can be added to principal at the
election of the Company, with interest continuing to accrue on the aggregate
principal. The Convertible Note matures on August 8, 2000, bears interest at an
annual rate of the prime rate plus 4% and is convertible on or after the
maturity date into shares of the Company's Common Stock, pursuant to a formula
specified in the Credit Agreement, based on fair market value (as defined) of
the Company's Common Stock.
February 3, 1997 Commercial Bank Agreement
On February 3, 1997, the Company entered into a Commercial Loan Agreement (the
"Bank Agreement") with a bank for a Revolving Line of Credit Loan, repayable on
demand. The Bank Agreement provides for a maximum $900,000 revolving loan, as
determined by a borrowing base of 80% of the Company's accounts receivable
balances under 90 days from invoice due date. Interest on outstanding advances
is at a variable rate equal to the bank's Base Rate plus 1.5% per annum, which
aggregated 9.75% at March 31, 1997. There was a loan of $180,269 outstanding
under the Line of Credit as of March 31, 1997. Obligations under the Bank
Agreement are collateralized by a first security interest in all property and
assets of the Company, and by a performance guaranty executed by Trilon.
Change in Company's Name
As of March 25, 1997, the Board of Directors of the Company voted in favor
of changing its name from Shepherd Surveillance Solutions, Inc. to Shepherd
Surveillance Incorporated. Shareholder approval of this name change was not
required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation, as amended
3.2 By-Laws
10.1* Credit Agreement, dated as of January 17, 1997, by and between the
Company and Trilon Dominion Partners, L.L.C., a Delaware limited
liability company
10.2* Promissory Note, dated as of January 17, 1997, by the Company in favor
of Trilon Dominion Partners, L.L.C.
10.3* Credit Agreement, dated as of January 21, 1997, by and between the
Company and Trilon Dominion Partners, L.L.C.
10.4* Convertible Promissory Note, dated as of January 21, 1997, by the
Company in favor of Trilon Dominion Partners, L.L.C.
10.5 Commercial Bank Agreement, dated as of February 3, 1997, by and between
the Company and Fleet Bank - NH
10.6 Revolving Line of Credit Promissory Note, dated as of February 3, 1997,
by the Company in favor of Fleet Bank - NH
27 Financial Data Schedule
13
* Incorporated by reference to the same numbered Exhibits to the Company's
quarterly report for the period ended December 31, 1996, filed on Form 10-QSB.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report is
filed.
14
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Shepherd Surveillance, Inc.
(Registrant)
Date: May 15, 1997 /s/ M. Thomas Makmann
- ------------------- ---------------------
M. Thomas Makmann
President and CEO
Date: May 15, 1997 /s/ William D. Biser
- -------------------- --------------------
William D. Biser
Principal Financial Officer
15
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
IMProCOM, INC.
The undersigned proposes to form a corporation under the laws of the State of
Nevada, relating to private corporations, and to that end hereby adopts articles
of incorporation as follows:
ARTICLE ONE
NAME
The name of the corporation is IMProCOM, Inc..
ARTICLE TWO
LOCATION
The principal office of this corporation is to be at 150 Lake Glen Drive, City
of Carson City, State of Nevada. The Mailing address is Post Office Box 2152,
Carson City, Nevada 89702.
ARTICLE THREE
PURPOSES
The Corporation is authorized to carry on any lawful business or enterprise,
including but not exclusive to:
(a) Purchasing and selling all types of aircraft and related
accessories,
(b) purchasing and selling all types and kinds of computers,
imaging technologies, laser technologies, including hardware
products and software packages,
(c) Purchasing and selling all types and kinds of marine equipment
and related accessories,
(d) Offering advertising services in connection with the sale of
airplanes, computers, boats, ships, and any and all other
products,
(e) Constructing, manufacturing, raising or otherwise producing,
and repairing, servicing, storing or otherwise caring for any
type of structure, commodity or livestock whatsoever,
processing, selling, brokering, factoring or distributing any
type of property whether real or personal; extracting and
processing natural resources, transporting freight or
passengers by land, sea or air; collecting and disseminating
information or advertisement through any medium whatsoever;
performing personal services of any nature;
-2-
and entering into or serving in any type of management,
investigative, advisory, promotional, protective, insurance,
guarantyship, suretyship, fiduciary or representative capacity
or relationship for any persons or corporations whatsoever,
(f) Engaging in sales, appraisal, management and promotion of
musical and literary properties and activities including but
not limited to publishing, booking talent, making commercials,
and instruction,
(g) Purchasing, distributing, engineering, selling, designing
systems, leasing and franchising all types of
telecommunication-computer products, including but not limited
to satellite-communication devices.
ARTICLE FOUR
CAPITAL STOCK
The amount of the total authorized capital stock of this corporation is
50,000,000 at $.001.
ARTICLE FIVE
DIRECTORS
The members of the governing board of this corporation shall be styled directors
and their number shall be three.
The name and address of each member of the first board of directors is:
Frederick M. Jenner, P.O. Box 10038, Charlotte, NC 28212
Zalkind Hurwitz, 610 Mt. Vernon Avenue, Charlotte, NC 28203
Annette H. Greene, 6810 Old Post Road, Charlotte, NC 28212
ARTICLE SIX
INCORPORATORS
The name and address of the incorporator is: Elizabeth R. Block, 150 Lake Glen
Drive, Carson City, Nevada 89701.
ARTICLE SEVEN
PERIOD OF EXISTENCE
The period of existence of this corporation shall be perpetual.
ARTICLE EIGHT
AMENDMENT OF ARTICLES OF INCORPORATION
The articles of incorporation of the corporation may be amended from time to
time by a majority vote of all shareholders voting by written ballot in person
or
-3-
by proxy held at any general or special meeting of shareholders upon lawful
notice.
ARTICLE NINE
STATUTORY RESIDENT AGENT
The corporation does hereby name, constitute and appoint as its statutory
resident agent within the State of Nevada for receipt of process or any other
lawful purpose STATE AGENT AND TRANSFER SYNDICATE, INCORPORATED, 150 Lake Glen
Drive, Carson City, Nevada with a mailing address of Post Office Box 2152,
Carson City, Nevada 89702, telephone number is (702) 882-1013. This appointment
of resident agent shall be continuous unless otherwise changed by the Board of
Directors of the corporation acting pursuant to the laws of the State of Nevada.
ARTICLE TEN
VOTING OF SHARES
In any election participated in by the shareholders, each shareholder shall have
one vote for each share of stock he owns, either in person or by proxy as
provided by law. Cumulative voting shall not prevail in any election by the
shareholders of this corporation.
IN WITNESS WHEREOF the undersigned, Elizabeth R. Block, for the purpose
of forming a corporation under the laws of the State of Nevada, does make, file
and record these articles, and certifies that the facts herein stated are true;
and I have accordingly hereunto set my hand this 3rd day of October 1985.
INCORPORATOR:
/s/ Elizabeth R. Block
---------------------------
Elizabeth R. Block
STATE OF NEVADA
COUNTY OF CARSON CITY
On October 3, 1985, Elizabeth R. Block personally appeared before me, a notary
public, and executed the above instrument.
/s/ Nancy Graham
---------------------------
SIGNATURE OF NOTARY
Notary Stamp or seal
EXHIBIT 3.1 (con't)
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
IMProCOM, INC.
IMProCOM, INC., a corporation organized under the laws of the State of
Nevada, by its president and assistant secretary, does hereby certify:
1. That the board of directors of said corporation passed a resolution
by unanimous written consent dated March 12, 1996, authorizing the following
change and amendment in the articles of incorporation:
RESOLVED that Article One of said articles of incorporation be amended
to read as follows: "The name of the corporation is InVision Technology, Inc."
2. That the number of shares of the corporation outstanding and
entitled to vote on an amendment to the articles of incorporation is 4,293,930;
that the said change and amendment has been consented to and authorized by the
written consent of stockholders holding at least a majority of each class of
stock outstanding and entitled to vote thereon.
IN WITNESS WHEREOF, the said corporation has caused this certificate to
be signed by its president and assistant secretary and its corporate seal to be
hereto affixed this 12th day of March, 1996.
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IMProCOM, INC.
By: /s/ Jack R. Sauer
----------------------------
Jack R. Sauer
President
By: /s/ Ronald W. Cantwell
----------------------------
Ronald W. Cantwell
Assistant Secretary
(SEAL)
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On March 12th, 1996, personally appeared before me, a Notary Public,
Jack R. Sauer and Ronald W. Cantwell, who acknowledged that they executed the
above instrument.
/s/ Patricia M. Rudloff
----------------------------
Notary Public
(SEAL)
EXHIBIT 3.1 (con't)
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
INVISION TECHNOLOGY, INC.
InVision Technology, Inc., a corporation organized under the laws of
the States of Nevada, by its President and Assistant Secretary, does hereby
certify:
1. That the board of directors of said corporation passed a resolution
by unanimous written consent dated May 14, 1996, authorizing the following
change and amendment in the Articles of Incorporation:
RESOLVED that Article One of said Articles of Incorporation be amended
to read as follows: "The name of the corporation is Shepherd Surveillance
Solutions, Inc."
2. That the number of shares of the corporation outstanding and
entitled to vote on an amendment to the articles of incorporation is 4,293,822;
that the said change and amendment has been consented to and authorized by the
written consent of stockholders holding at least a majority of each class of
stock outstanding and entitled to vote thereon.
IN WITNESS WHEREOF, the said corporation has caused this certificate to
be signed by its President and Assistant Secretary and its corporate seal to be
hereto affixed this 15th day of May, 1996.
-2-
InVision Technology, Inc.
By: /s/ Jack R. Sauer
------------------------
Jack R. Sauer
President
By: /s/ Ronald W. Cantwell
------------------------
Ronald W. Cantwell
Assistant Secretary
(SEAL)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On May 15th, 1996, personally appeared before me, a Notary Public, Jack
R. Sauer and Ronald W. Cantwell, who acknowledged that they executed the above
instrument.
/s/ Patricia M. Rudloff
------------------------
Notary Public
(SEAL)
EXHIBIT 3.2
BY-LAWS OF IMProCOM, INC.
ARTICLES 1 - OFFICES
OFFICES.
1. The principal office of the Corporation in the State of Nevada shall be
located in the City of CARSON CITY, County of Carson City. The Corporation may
have other such offices, either within or without the State of Incorporation, as
the Board of Directors may designated, or as the business of the Corporation
may, from time to time, require.
2. As expressly required by Nevada Domestic and Foreign Corporation Laws
(78.105), copies of articles, by laws and duplicate stock ledgers or statements
are kept at the Corporation's principal offices.
3. The right to inspect the stock ledger by authorized stockholders of record,
or other persons, may be denied to such stockholder or other person upon his
refusal to furnish to the corporation an affidavit that such inspection is not
desired for a purpose which is in the interest of a business or object other
than the business of the Corporation, and that he has not, at any time, sold, or
offered for sale, any list of stockholders of any domestic or foreign
corporation, or aided or abetted any person in procuring any such record of
stockholders for any such purpose.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING (As amended at BOD Meeting 12 04 89).
The annual meeting of the stockholders shall be held on the first
Wednesday in February next following the end of the fiscal year in each year,
beginning with the fiscal year ending on September 30, 1989, at the hour of 9:00
o'clock A.M., for the purpose of electing directors and for the transaction of
such other business as may come before the meeting. If the day fixed for the
annual meeting shall be a legal holiday, such meeting shall be held on the next
succeeding business day.
2. PLACE OF MEETINGS.
All meetings of the shareholders shall be held at the principal offices
of the corporation, or at such other place, either within or without the State
of Nevada, as shall be designated in the notice of the meeting or agreed upon by
a majority of the shareholders entitled to vote thereat.
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3. SUBSTITUTE ANNUAL MEETING.
If the annual meeting shall not be held on the day designated by these
By-Laws, a substitute meeting may be called in accordance with the provisions of
Sec. 4 of this Article. A meeting so called shall be designated and treated, for
all purposes, as the annual meeting.
4. SPECIAL MEETINGS.
Special Meetings of the shareholders may be called at any time by the
President, Secretary, or by any two members of the Board of Directors of the
Corporation, or by any shareholder, pursuant to the written request of the
holders of not less than ten per cent (10%) of all the shares entitled to vote
at the meeting.
5. NOTICE OF MEETING (As amended at BOD M'tng, 12 22 87).
Written or printed notice stating the place, day and hour of the
meeting, and, in case of a special meeting, the purpose or purposes for which
the meeting is called, as expressly required by the provisions of the Nevada
Domestic and Foreign Corporation Laws, shall be delivered not less than ten (10)
nor more than sixty (60) days before the date of the meeting, either personally
or by mail, by or at the direction of the president, or the secretary, or the
officer or persons calling the meeting, to each stockholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States Mail, addressed to the stockholder at his
address as it appears on the stock transfer books of the Corporation, with
postage thereon prepaid.
When a meeting is adjourned for thirty (30) days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. When a
meeting is adjourned for less than thirty (30) days, in any one adjournment, it
is not necessary to give any announcement at the meeting at which the
adjournment is taken.
6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purposes of determining stockholders entitled to notice of, or
to vote at, any meeting of stockholders or any adjournment thereof, or
stockholders entitled to receive payment of any dividend or in order to make a
determination of stockholders for any other proper purpose, the directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, sixty (60) days.
If the stock transfer books shall be closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least 10 days immediately
preceding such meeting.
-3-
In lieu of closing the stock transfer books, the directors may fix in advance, a
date as the record date for any such determination of stockholders, such date,
in any case, to be not more than sixty (60) days and, in case of a meetings of
stockholders, not less than thirty (30) days prior to the date on which the
particular action requiring such determination of stockholders is to be taken.
If the stock transfer books are not closed and no record date if fixed for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders, or stockholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed, or the date on which the
resolution of the directors declaring such dividend is adopted, as the case may
be, shall be the record date for such determination of stockholders. When a
determination of stockholders entitled to vote at any meeting of stockholders
has been made, as provided in this section, such determination shall apply to
any adjournment thereof.
7. VOTING LISTS.
The officer or agent having charge of the stock transfer books for
shares of the corporation shall make, at least ten (10) days before each meeting
of stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten (10) days prior to such meeting, shall be kept on file at the principal
office of the corporation, and shall be subject to inspection by any stockholder
at any time during usual business hours. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any stockholder during the whole time of the meeting. The original
stock transfer book shall be prima facie evidence as to who are the stockholders
entitled to examine such list or transfer books or to vote at the meeting of
stockholders.
8. QUORUM.
A majority of the outstanding shares of the Corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of shareholders. If less than a majority of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
9. PROXIES.
1. At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized attorney in
fact.
-4-
Such proxy shall be filed with the secretary of the corporation before or at the
time of the meeting.
2. In the event that any such instrument in writing shall designate;
two or more persons to act as proxies; a majority of such persons present at the
meeting; or, if only one shall be present, then that one shall have and may
exercise all of the powers conferred upon all of the persons so designated,
unless the instrument shall otherwise provide.
3. No such proxy shall be valid after expiration of six (6) months from
date of its execution, unless coupled with an interest, or unless the person
executing it specifies therein the length of time for which it is to continue in
force, which, in no case, shall exceed seven (7) years from the date of its
execution. Subject to the above, any proxy duly executed is not revoked and
continues in full force and effect until an instrument revoking it, or a duly
executed proxy bearing a later date is filed with the secretary of the
corporation.
10. VOTING OF SHARES.
1. Each stockholder entitled to vote in accordance with the terms and
provisions of the Certificate of Incorporation and these by-laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholders.
2. Upon the demand of thirty percent (30%) of the stockholders at the
meeting, the vote for directors and upon any question before the meeting shall
be by ballot. All elections for directors shall be decided by plurality vote;
all other questions shall be decided by majority vote except as otherwise
provided by the Certificate of Incorporation, or by the laws of the State of
Nevada.
11. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders shall be as
follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes or preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7. Unfinished Business.
8. New Business.
12. INFORMAL ACTION BY STOCKHOLDERS. (As amended BOD M'tng 11 30 89)
-5-
Unless otherwise provided by law, any action required to be taken at a
meeting of the shareholders, or any other action which may be taken at a meeting
of the shareholders, may be taken without a meeting if authorized by the written
consent of stockholders holding at least a majority of the voting powers,
provided;
That if any greater proportion of voting power is required for such
action at a meeting, then such greater proportion of written consents shall be
required. Such consents shall be in writing, setting forth the actions so taken,
and shall be filed with the Secretary of the Corporation to be kept in the
corporate minute book.
13. RIGHTS OF STOCKHOLDERS TO INSPECT AND AUDIT FINANCIAL RECORDS.
Any stockholder of record who owns not less than fifteen percent (15%)
of all of the issued and outstanding shares of the stock of the corporation,
upon at least five days written demand, is entitled to inspect the books of
accounts and all financial records of the corporation during normal business
hours, subject to the State of Nevada Domestic and Foreign Corporation Laws
described in NRS 78.257, et al.
ARTICLE III - BOARD OF DIRECTORS
1. NUMBER, TENURE AND QUALIFICATIONS.
Amended at Shareholder's Annual Meeting 02/20/91.
-------------------------------------------------
There shall be five (5) members on the Board of Directors of the
Corporation. Directors need not be residents of the State of Nevada or
shareholders of the Corporation. In the event that less than this number are
named as the initial members of the Board of Directors, the initial members of
the Board of Directors shall have the authority and power to elect additional
members of the Board of Directors not to exceed the above number. The initial
members of the Board of Directors and the additional members elected by them
shall have the same power and authority to act as though elected by the
Shareholders of the Corporation, and shall serve until the first annual meeting
of the shareholders or until their successors are elected and are qualified.
Each Director shall hold office until his death, resignation,
retirement, removal, disqualification, or his successor is elected and
qualified.
2. GENERAL POWERS.
The business and affairs of the corporation shall be managed by the
Board of Directors or by such Executive Committees as the Board of Directors
-6-
may establish pursuant to these By-Laws. The Directors shall, in all cases, act
as a board, and they may adopt such rules and regulations for the conduct of
their meetings and the management of the corporation, as they may deem proper,
not inconsistent with these By-Laws, and the laws of the State of Nevada.
3. REGULAR MEETINGS.
A regular meeting of the directors shall be held, without other notice
than this by-law, immediately after, and at the same place as, the annual
meeting of stockholders. The directors may provide, by resolution, the time and
place for the holding of additional regular meetings without other notice than
such resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the request of
the president or any two directors. The person or persons authorized to call
special meetings of the directors may fix the place and/or method for holding
any special meeting of the directors, including available telecommunications
devices. Such meetings may be held within or without of the State of Nevada.
5. NOTICE OF MEETINGS.
No notice of regular meetings of the Board of Directors on the date
fixed for the annual regular meeting of the Shareholders shall be necessary.
The person or persons calling a special meeting of the Board of
Directors shall, at least two days before the meeting, give notice thereof by
the usual means of communication. Such notice need not specify the purpose for
which the meeting is called. If notice has not being given otherwise, all notice
requirements shall be deemed fully met if mailed to the last address appearing
upon the records of the Secretary.
Attendance by a Director at a meeting shall constitute a waiver of
notice of such meeting, except where a Director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called.
6. QUORUM.
At any meeting of the Directors, not less than two (2) shall constitute
a quorum for the transaction of business.
The act of the majority of the directors present at a meeting at which
a quorum is present shall be the act of the directors.
-7-
7. ELECTION OF DIRECTORS.
Except as provided in Section 1 of this Article, the Directors shall be
elected at the annual meeting of the Shareholders; and those persons who receive
the highest number of votes shall be deemed to have been elected.
If thirty (30) percent of the shareholders entitled to vote so demands,
election of Directors shall be by ballot.
Every shareholder entitled to vote at an election of Directors shall
have the right to vote the number of shares standing of record in his name for
as many persons as there are Directors to be elected, and for whose election he
has a right to vote. No shareholder or proxy holder may vote cumulatively.
8. CHAIRMAN.
There may be Chairman of the said Board of Directors elected by the
Directors from their number at any meeting of the Board. The Chairman shall
preside at all meetings of the Board of Directors and perform such other duties
as may be directed by the Board.
9. EXECUTIVE AND OTHER COMMITTEES.
The Board of Directors, by resolution, may designate from among its
members an Executive Committee, and other committees, each consisting of one or
more directors. Each such committee shall serve at the pleasure of the Board.
The designation of such committee and the delegation thereto of authority shall
not operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed by law.
10. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the Board for any reason, except the
removal of Directors without cause, may be filled by a vote of a majority of the
Directors then in office, although less than a quorum exists. Vacancies
occurring by reason of the removal of the Directors without cause shall be
filled by vote of the stockholders. A Director elected to fill a vacancy caused
by resignation, death or removal shall be elected to hold office for the
unexpired term of his predecessor.
11. REMOVAL OF DIRECTORS.
Any or all of the Directors may be removed for cause by vote of the
stockholders or by action of the Board. Directors may be removed without cause
only by vote of the stockholders.
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12. RESIGNATION.
A Director may resign at any time by giving written notice to the
Board, the President or the Secretary of the Corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt thereof
by the Board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
13. COMPENSATION.
No compensation shall be paid to Directors, as such, for their
services, but by resolution of the Board, a fixed sum and expenses for actual
attendance at each regular or special meeting of the Board may be authorized.
Nothing herein contained shall be construed to preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor.
14. PRESUMPTION OF ASSENT.
A Director of the Corporation who is present at a meeting of the
Directors at which action on any corporate mater is taken, shall be presumed to
have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a Director who voted in favor of such
actions.
15. INFORMAL ACTION BY DIRECTORS.
Action taken by a majority of the Directors of Executive Committee
without a meeting is, nevertheless, Board or Committee action if written consent
to the action in question is signed by all the Directors or members of the
Executive Committee and filed with the minutes of the proceedings of the Board
or Committee whether done before or after the action so taken.
ARTICLE IV - OFFICERS
1. NUMBER.
The Officers of the Corporations shall be a President, a
Vice-President, a Secretary and a Treasurer, each of whom shall be elected by
the Directors. Such other Officers and Assistant Officers, as may be deemed
necessary, may be elected or appointment by the Directors. Any person may hold
two or more offices.
2. ELECTION AND TERM OFFICE.
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The Officers of the Corporation to be elected by the Directors shall be
elected annually at the first meeting of the Directors held after such meeting
of the stockholders. Each Officer shall hold office until his successor shall
have been duly elected and shall have qualified, or until his death, or until he
shall resign or shall have been removed in the manner hereinafter provided.
3. REMOVAL.
Any Officer, or Agent elected or appointed by the Directors may be
removed by the Directors whenever, in their judgment, the best interests of the
Corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the Directors for the unexpired
portion of the term.
5. PRESIDENT.
The President shall be the principal executive officer of the
Corporation and, subject to the control of the Directors shall, in general,
supervise and control all of the business and affairs of the Corporation. The
President shall, when resent, preside at all meetings of the stockholders and of
the Directors. He may sign, with the Secretary or any other proper Officer of
the Corporation thereunto authorized by the Directors, certificates for shares
of the corporation, any deeds, mortgages, bonds, contracts, or other instruments
which the directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Directors or
by these by-laws to some other office or agent of the Corporation, or shall be
required by law to be otherwise signed or executed; and, in general, shall
perform all the duties incident to the office of president and such other duties
as may be prescribed by the Directors, from time to time.
6. VICE-PRESIDENT.
In the absence of the President or in event of his death, inability or
refusal to act, the Vice-President shall perform the duties of the President
and, when so acting, shall have all the powers of, and be subject to, all the
restrictions upon the President. The Vice-President shall perform such other
duties as, from time to time, may be assigned to him by the President, or by the
Directors.
7. SECRETARY.
-10-
The Secretary shall: keep the minutes of the Stockholders' and the
Directors' meetings in one or more books provided for that purpose; see that all
notices are duly given in accordance with the provisions of these by-laws; or,
as required, be custodian of the Corporate records and of the Seal of the
Corporation and keep a register of the post office address of each stockholder
which shall be furnished to the Secretary by such stockholder; have general
charge of the stock transfer books of the Corporation and, in general perform
all duties incident to the Office of Secretary and such other duties as, from
time to time, may be assigned to him by the President, or by the Directors.
8. TREASURER.
The Treasurer shall have charge and custody of, and be responsible for,
all funds and securities of the Corporation; receive and give receipts for
moneys due and payable to the Corporation from any source whatsoever, and
deposit all such moneys in the name of the Corporation in such banks, trust
companies or other depositories as shall be selected in accordance with these
by-laws and, in general, perform all of the duties incident to the Office of
Treasurer and such other duties as, from time to time, may be assigned to him by
the President or by the Directors. If required by the Directors, the Treasurer
shall give a bond for the faithful discharge of his duties in such sum and with
such surety or sureties as the Directors shall determine.
9. ASSISTANT SECRETARIES AND TREASURERS.
The Assistant Secretaries and Treasurers, when authorized by the Board
of Directors, shall, in the absence or disability of the Secretary or the
Treasurer, respectively perform the duties and exercise the powers of those
offices, and they shall, in general, perform such duties as shall be assigned
them by the Secretary or the Treasurer, respectively, or by the President or the
Board of Directors or the Executive Committee.
10. SALARIES.
The salaries of the Officers shall be fixed, from time to time, by the
Directors, and no Officer shall be prevented from receiving such salary by
reason of the fact that he is also a Director of the Corporation.
ARTICLE V - AUTHORIZATION FOR
EXECUTING CONTRACTS AND OTHER WRITTEN MATTERS
1. CONTRACTS.
The Board of Directors may authorize any Officer or Officers, Agent or
Agents, to enter into any contract or execute and deliver any instrument in the
-11-
name of and on behalf of the Corporation, and such authority may be general or
confined to specific instances.
2. LOANS.
No loans shall be contracted on behalf of the Corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Directors. Such authority may be general or confined to
specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other offers for the payment of money, notes or
such evidences of indebtedness issued in the name of the Corporation, shall be
signed by such officer or officers, agent or agents of the Corporation and in
such manner as shall, from time to time, be determined by resolution of the
Directors.
4. DEPOSITS.
All funds of the Corporation, not otherwise employed, shall be
deposited, from time to time, to the credit of the Corporation in such banks,
trust companies or other depositories as the Directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. Certificates representing shares of the Corporation shall be in such form as
shall be determined by the Directors. Such certificates shall be signed by the
president and by the secretary or by such other officers authorized by law and
by the Directors.
2. All certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the stockholders, the number of shares and
date of issue shall be entered on the stock transfer book of the Corporation.
All certificates surrendered to the Corporation for transfer shall be cancelled
and no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in the
case of a lost, destroyed or mutilated certificate, a new one may be issued
therefor upon such a terms and indemnity to the Corporation as the Directors may
prescribe.
3. LOST CERTIFICATES. The Board of Directors or Executive Committee may
authorize the issuance of a new share certificate in place of a certificate
claimed to have been lost or destroyed, upon receipt of an affidavit of such
fact form the person claiming the loss or destruction. When authorizing such
issuance of a new certificate, the Board of Directors or Executive Committee may
require the claimant to give the Corporation a bond in such sum as it may
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direct to indemnify the corporation against loss from any claim with respect to
the certificate claimed to have been lost or destroyed; or the board of
Directors or Executive Committee may, by resolution reciting that the
circumstances justify such action, authorize the issuance of the new certificate
without requiring such a bond.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
October in each year.
ARTICLE VIII - DIVIDENDS
The Directors may, from time to time, declare, and the Corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
condition provided by law.
ARTICLE IX - SEAL
The Directors shall provide a Corporation Seal which shall be circular
in form and shall have inscribed thereon the name of the Corporation, the State
of Incorporation, and the words, "Corporate Seal".
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ARTICLE X - INDEMNIFICATION
The Corporation shall indemnify any Director, Officer, or employee, or
former Director, Officer, or employee of the Corporation, or any person who may
have served, at its request, as a Director, Officer, or employee of another
Corporation in which it owns shares of capital stock, or of which it is a
creditor, against expenses actually and necessarily incurred by him in
connection with the defense of any action, suit or proceeding in which he is
made a party by reason of being or having been such Director, Officer, or
employee, if he acted in good faith and in a manner which he reasonably believed
to be in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in, or not opposed to,
the best interests of the Corporation, and that, with respect to any criminal
action or proceeding, he had no reasonable cause to believe that his conduct was
unlawful except in relation to matters as to which he shall be adjudged in such
action, suit, or proceeding to be liable for negligence or misconduct in the
performance of his duty to the Corporation unless and only to the extent that
the court, in which such action or suit was brought, determines upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper, including: attorneys fees actually and
reasonably incurred by him in such defense, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him.
Such rights of indemnification and reimbursement shall not be deemed
exclusive of any other right to which such Director, Officer, or employee may be
entitled under any by-laws, agreement, vote of shareholders, or otherwise.
The Corporation may purchase and maintain insurance on behalf of any
person who is, or was, Director, officer, employee or agent of the Corporation
or who is, or was, serving at the request of the Corporation as a Director,
Officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise against any liability asserted against him and
incurred by him in such capacity or arising out of his status as such, whether
or not the Corporation would have the power to indemnify him against such
liability under provisions of this Article.
ARTICLE XI - WAIVER OF NOTICE
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Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or Director of the Corporation under the provisions of
these by-laws or under the provisions of the Articles of Incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE XII - AMENDMENTS
Except as otherwise provided herein, these by-laws may be altered,
amended or repealed and new by-laws may be adopted by the affirmative vote of
the majority of the Directors then holding office at any regular or special
meeting of the Board of Directors.
The Board of Directors shall have no power to adopt a bylaw (1)
requiring more than a majority of the voting shares for a quorum at a meeting of
shareholders, or more than a majority of the votes cast, except where higher
percentages are required by law; (2) providing for the management of the
corporation otherwise than by the Board of Directors or its Executive Committee;
(3) increasing or decreasing the number of Directors except as herein provided;
(4) classifying and staggering the election of the Directors.
EXHIBIT 10.5
FLEET BANK - NH
COMMERCIAL LOAN AGREEMENT
BORROWER'S NAME AND ADDRESS: DESCRIPTION OF LOAN:
Shepherd Surveillance Solutions, Inc. Revolving Line of Credit:
7 Perimeter Road, Suite 4 $900,000.00
Manchester, New Hampshire 03103
DATE OF THIS AGREEMENT:
February 3, 1997
REVOLVING LINE OF CREDIT INITIAL REVIEW DATE: AUGUST 15,1997
-------------------------------------------------
THIS COMMERCIAL LOAN AGREEMENT (the "Agreement"), is made as of the date set
forth above, between the above named Borrower (the "BORROWER") and FLEET BANK -
NH, a bank organized under the laws of the State of New Hampshire with a place
of business at 1155 Elm Street, Manchester, New Hampshire 03101 (the "BANK").
The BANK has agreed to extend to BORROWER, at the BORROWER's request, the
Loan(s) described above, and may, from time to time hereafter extend other loans
to BORROWER (individually, a "Loan" and, collectively, the "Loans"). All of the
Loans are, together with all other debts, liabilities and obligations of
BORROWER to the BANK, direct or indirect, absolute or contingent, now existing
or hereafter arising, hereinafter sometimes collectively referred to as the
"Obligations". Each Loan is or shall be evidenced by a Promissory Note
(individually a "Note" and collectively the "Notes") and each Loan and all of
the other Obligations are secured pursuant to a Security Agreement of even date
between BORROWER and the BANK (the "Security Agreement"). The characterization
of each Loan as either a Revolving Line of Credit, Line of Credit, or Term Loan
shall be as set forth in the Note evidencing such Loan and/or the BANK's
commitment letter (if any) with respect to the same. In connection with the
Loans, the BORROWER may execute certain other documents, certificates and
agreements, all of which are, together with this Agreement, the Notes, and the
Security Agreement, and as all of the same may be hereafter amended, modified,
revised, renewed, or extended, sometimes collectively referred to herein as the
"Loan Documents". Each Loan, whether now existing or hereafter arising, is made
upon and subject to the terms and conditions set forth in the Note evidencing
such Loan, the Security Agreement, the other Loan Documents, and this Agreement.
The terms, conditions, representations, warranties, and covenants set forth in
this
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Agreement are in addition to, and not in limitation of, the terms, conditions,
representations, warranties, and covenants set forth in the other Loan
Documents. In the event of any conflict between the terms, conditions,
representations, warranties, and covenants contained in the Loan Documents, the
term, condition, representation. warranty, or covenant contained in this
Agreement shall control. Where there is more than one BORROWER or guarantor
hereunder, all of the terms, conditions, representations, warranties, and
covenants set forth herein and in the other Loan Documents shall apply to, be
binding upon, and be deemed to be made by each BORROWER and guarantor, jointly
and severally.
IN CONSIDERATION OF the Loans made or to be made by BANK to the BORROWER, and of
all other Obligations of the BORROWER to the BANK, BORROWER and BANK hereby
agree as follows:
I. REVOLVING LINE OF CREDIT. The Revolving Line of Credit Loan first described
above made available by the BANK to the BORROWER shall be upon and subject to
the terms and conditions set forth in the Revolving Line of Credit Note
evidencing such Loan, the other Loan Documents, and this Agreement.
A. Maximum Available Amount. The maximum amount available to the BORROWER from
time to time under the Revolving Line of Credit Loan shall be the LESSER of (1)
the amount set forth in the Note evidencing such Revolving Line of Credit Loan,
or (2) an amount equal to eighty percent (80%) of BORROWER's Acceptable
Accounts, all as set forth and defined on Schedule A attached hereto and by this
reference made a part hereof. The maximum amount available to BORROWER under the
Revolving Line of Credit Loan as determined from time to time under clause (2)
above is hereinafter referred to as the BORROWER's "Borrowing Base".
B. Letters of Credit. At BORROWER's request from time to time, the BANK shall
issue letters of credit (each a "Letter of Credit") under the Revolving Line of
Credit Loan in face amounts which, at the time of issuance thereof, do not
exceed Borrower's then Borrowing Base and with terms which do not extend beyond
the next Review Date (as hereinafter defined). The BANK shall be under no
obligation to issue any Letter of Credit (i) at any time or times during which
an Event of Default has occurred or is existing under this Agreement or the Loan
Documents, (ii) if any condition exists which. if not cured, would with the
passage of time or the giving of notice, or both, constitute such an Event of
Default, (iii) if the issuance of such Letter of Credit would result in an Event
of Default arising under this Agreement or the Loan Documents, or (iv) if the
Revolving Line of Credit Loan has terminated. The Borrowing Base available to
the BORROWER from time to time under the Revolving Line of Credit Loan as
determined under Section I.A. above shall be reduced by the aggregate face
amount of all such Letters of Credit then outstanding (including Letters of
Credit under which draws have been made by the beneficiary thereof and
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BORROWER has not yet reimbursed the Bank) and such Letters of Credit shall be
deemed to be outstanding direct advances under the Revolving Line of Credit Loan
for purposes of this Agreement and the Loan Documents, other than for purposes
of interest accruing thereon. Each Letter of Credit shall be issued in
accordance with the terms set forth in the letter of credit instrument
applicable thereto in favor of a single beneficiary designated by the BORROWER,
all in accordance with and subject to the BANK's customary practices and
procedures for letters of credit. BORROWER shall reimburse BANK immediately for
all payments made under each Letter of Credit issued on behalf of the BORROWER.
For purposes of the foregoing, BORROWER hereby authorizes the BANK to
automatically advance funds to BANK, at BANK's sole discretion. under the
Revolving Line of Credit to reimburse BANK for any payments made under any
Letter of Credit issued on behalf of the BORROWER or to otherwise make any
payments due to BANK by BORROWER with respect to any Letter of Credit.
Additionally, upon the occurrence of either (i) the demand or expiration of the
Revolving Line of Credit or (ii) an Event of Default hereunder, the BORROWER
shall pay to the BANK for its account on demand the full amount of the then
outstanding face amount of each Letter of Credit then outstanding. The BANK
shall be entitled to hold the full amount so paid to the BANK by BORROWER
pursuant to the preceding sentence until the sooner to occur of (1) the
termination or expiration without renewal or extension of the then current
outstanding Letters of Credit without further liability to the BANK thereunder,
whereupon the BANK shall, provided that there are no other outstanding
Obligations, pay over the amount then held by BANK hereunder to BORROWER, or (2)
the BORROWER becoming obligated to reimburse the BANK for a payment made under
the Letters of Credit, whereupon the BANK shall be authorized to pay over to
itself such amount as is required to satisfy in full the reimbursement
obligation of the BORROWER and to retain the balance of the amount held by the
BANK until the occurrence of the event specified in clause (1) above. BORROWER
further agrees to execute and deliver such further applications, documents and
agreements as may be required by BANK from time to time in connection with the
issuance of each Letter of Credit. The obligations of payment of BORROWER
outstanding from time to time hereunder shall be evidenced by the Revolving Line
of Credit Promissory Note of even date herewith.
C. Advances. The Revolving Line of Credit Loan shall be disbursed, advanced,
readvanced, and repaid as provided in the Revolving Line of Credit Note and this
Agreement. BORROWER may request advances orally or in writing from time to time
in accordance with such procedures as the BANK may from time to time specify in
an amount such that the aggregate amounts outstanding under the Revolving Line
of Credit Loan do not exceed the maximum available amount as determined under
Section I.A. above. The BANK is also authorized by BORROWER to automatically
make advances under and repayments of the Revolving Line of Credit Loan pursuant
to the Revolving Line of Credit Management provisions of Section I.F. below. The
BANK shall be under no obligation to make any advance (automatic or otherwise)
at any time
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or times during which an Event of Default has occurred or is existing under this
Agreement or the Loan Documents, or if any condition exists which, if not cured,
would with the passage of time or the giving of notice, or both, constitute such
an Event of Default. At the time of each advance and readvance under the
Revolving Line of Credit Loan, BORROWER shall immediately become indebted to the
BANK for the amount thereof. Each such advance or readvance may be credited by
the BANK to any deposit account of BORROWER with the BANK or be paid to
BORROWER.
D. Review and Repayment. All outstanding principal, accrued and unpaid interest,
and other charges payable under the Revolving Line of Credit Loan shall be due
and payable in full by BORROWER upon demand by the BANK. Pending demand, the
Revolving Line of Credit Loan shall be subject to review and, at the sole option
and discretion of the BANK, renewal on the Revolving Line of Credit Initial
Review Date set forth on the first page of this Agreement, and, if renewed,
thereafter on March 15, 1998, and if then renewed thereafter on each subsequent
anniversary of March 15th (the Initial Review Date, March 15, 1998 and each
anniversary thereof to which the Revolving Line of Credit Loan is renewed, being
a "Review Date"). BANK shall give written notice to BORROWER thirty (30) days
prior to any Review Date as to which the BANK elects not to renew the Revolving
Line of Credit Loan. IF THE REVOLVING LINE OF CREDIT LOAN IS NOT RENEWED BY THE
BANK AS AFORESAID ON ANY REVIEW DATE, THE ENTIRE AMOUNT OF OUTSTANDING
PRINCIPAL, ACCRUED INTEREST AND OTHER CHARGES PAYABLE THEREUNDER SHALL BE DUE
AND PAYABLE IN FULL BY BORROWER ON SUCH REVIEW DATE. BORROWER ACKNOWLEDGES AND
AGREES THAT THE BANK HAS NO OBLIGATION OR COMMITMENT TO RENEW THE REVOLVING LINE
OF CREDIT LOAN ON ANY REVIEW DATE. NOTWITHSTANDING THE FOREGOING, OR ANY
PROVISION OF THE REVOLVING LINE OF CREDIT NOTE, ANY OF LOAN DOCUMENTS OR HEREIN
TO THE CONTRARY, THE REVOLVING LINE OF CREDIT LOAN SHALL BE A DEMAND OBLIGATION
OF BORROWER.
E. Interest Rate. The principal balance outstanding from time to time under the
Revolving Line of Credit Loan shall bear interest at a variable rate equal to
the BANK's Base Rate, so called, plus one and one-half percent (1.5%) per annum.
The Base Rate shall be the Base Rate of the BANK as established and changed by
the BANK from time to time whether or not such rate shall be otherwise published
or BORROWER receives notice thereof. The BORROWER acknowledges that the Base
Rate is used for reference purposes only as an index and is not necessarily the
lowest interest rate charged by the BANK on commercial loans. Each time the Base
Rate changes the interest rate under the Revolving Line of Credit Loan shall
change contemporaneously with such change in the Base Rate. Interest shall be
calculated and charged daily on the basis of actual days elapsed over a three
hundred sixty (360) day banking year. Accrued interest is payable in accordance
with the provisions of the Revolving Line of Credit Note.
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F. Revolving Line of Credit Management. Set forth on Schedule A are additional
terms and conditions relating to the management of the Revolving Line of Credit
Loan.
G. Purposes. Amounts advanced to BORROWER under the Revolving Line of Credit
Loan shall be used solely for BORROWER's ordinary working capital requirements.
II. FEES. In addition to such other fees as are provided in this Agreement and
in the other Loan Documents, BORROWER agrees to pay the BANK the periodic fees
set forth on Schedule B with respect to the maintenance of each Revolving Line
of Credit Loan, Line of Credit Loan and Term Loan as is outstanding from time to
time.
III. PAYMENTS. All payments made by the BORROWER of principal and interest on
the Loans, and other sums and charges payable under the Loan Documents, shall be
made to the BANK in accordance with the terms of the respective Loan Documents
in lawful United States of America currency at its office set forth above, or by
the debiting by the BANK of the demand deposit account(s) in the name of the
BORROWER at the BANK, or in such other reasonable manner as may be designated by
the BANK in writing to the BORROWER. The BORROWER authorizes the BANK
automatically to debit the BORROWER's demand deposit account as described above
and in accordance with the Cash Management provisions set forth herein below.
IV. SECURITY. Each of the Loans and all other Obligations of the BORROWER to the
BANK, whether now existing or hereafter arising, shall at all times be secured
by first priority perfected security interests in the Collateral (as hereinafter
defined), which security interests shall continue until payment in full of all
amounts outstanding under said Loans and the other Obligations. The full and
punctual payment and performance of the Loans and all other Obligations of
BORROWER shall be guaranteed by the guarantor executing this Agreement
hereinbelow (the "Guarantor") pursuant to a Guaranty Agreement of even date (the
"Guaranty"). The term "Collateral" as used herein shall be deemed to include all
property and assets of the BORROWER secured, mortgaged, pledged, assigned, or
otherwise encumbered or covered by any of the Loan Documents, including, but not
limited to the Security Agreement. The BORROWER covenants and agrees to take
such further actions and to execute such additional documents as may be
necessary from time to time to enable the BANK to obtain and maintain the
security interests and liens arising under the Loan Documents. If the Collateral
includes accounts and account receivables of BORROWER, then, in addition to such
other rights and remedies as are provided the BANK under the Loan Documents, the
BORROWER agrees that BANK may communicate with account debtors in order to
verify the existence, amount, and terms of any such accounts and account
receivables. Upon an Event of Default and for the duration of such
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Event of Default, BANK may notify account debtors of the BANK's security
interest and require that payments on accounts and account receivables be made
directly to BANK, and upon the request of BANK upon the occurrence of an Event
of Default, BORROWER shall notify account debtors and indicate on all billings
that payments and returns are to be made directly to BANK. Solely in furtherance
of the foregoing, BORROWER hereby appoints BANK as attorney irrevocable with
full power to collect, compromise, endorse, sell, or otherwise deal with the
BORROWER's accounts and account receivables or proceeds thereof and to perform
the terms of any contract in order to create accounts and account receivables in
BANK's name or in the name of BORROWER.
V. SUBORDINATION AND STANDBY OF DEBT. The BORROWER and Guarantor covenant and
agree that all existing debt of BORROWER to Guarantor and all future debt if
permitted hereunder from BORROWER to Guarantor, shall be and hereby is, without
need for further writing, made subject and subordinate to the prior payment and
performance of all the Loans and other Obligations of BORROWER. The Guarantor
further covenants and agrees that any claims against the BORROWER (or any other
guarantor of the Loans), individually or jointly, to which the Guarantor may
become entitled (including, without limitation. claims by subrogation or
otherwise by reason of any payment or performance by the Guarantor, individually
or jointly, in satisfaction and discharge, in whole or in part, of his or their
obligations under the Guaranty) shall be and hereby are, without need for
further writing, subject and subordinate to the payment and performance in full
of all of the Loans and other Obligations due the BANK. In furtherance of the
foregoing, the BORROWER and Guarantor shall provide such subordinations,
certificates, and other documents, and shall mark its corporate books, records,
stock certificates, and ledgers, as the BANK may reasonably request from time to
time, in form and substance satisfactory to BANK and BANK's counsel, evidencing
the subordination of all debt of BORROWER to Guarantor, whether now existing or
hereafter arising, in accordance with the covenants of BORROWER and Guarantor
hereunder. Notwithstanding the foregoing, BORROWER and BANK will not increase
the principal amount of the Obligations above $3,000,000.00 or increase the
maximum available amount under Section I.A. above without the prior written
consent of the Guarantor.
VII. CONTINUING REPRESENTATIONS AND WARRANTIES. The BORROWER and the Guarantor,
as the case may be, jointly and severally warrant and represent to the BANK that
so long as any of the Obligations are outstanding:
A. Good Standing. Each of BORROWER and Guarantor is duly organized, validly
existing, and in good standing under the laws of its state of organization and
is qualified to do business in all other jurisdictions where the nature of the
business conducted or property owned by BORROWER or Guarantor, as the case may
be, require it to be so qualified and where the failure of the BORROWER or
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Guarantor, as the case may be, to be so qualified would have a material adverse
effect on the business of the BORROWER or Guarantor, as the case may be.
BORROWER has adequate corporate power to own its properties and to carry on its
business as now being conducted.
B. Authority. BORROWER and Guarantor have full corporate power and authority to
enter into this Agreement and to borrow under the Loan Documents, to execute and
deliver the Loan Documents and to incur the obligations provided for herein and
in the Loan Documents, all of which have been duly authorized by all proper and
necessary corporate or other action. The persons executing the Loan Documents on
behalf of the BORROWER and the Guarantor have been duly authorized to do so.
C. Binding Agreement. This Agreement and the Loan Documents constitute the valid
and legally binding obligations of the BORROWER and Guarantor, enforceable in
accordance with their terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or other laws, affecting the enforcement of
creditors' rights generally, and except as the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding thereof may be brought.
D. Litigation. There are no suits or proceedings of any kind or nature pending
or, to the knowledge of the BORROWER and Guarantor, threatened against the
BORROWER or the Guarantor or their assets which, if adversely determined, would
have a material adverse affect on the financial condition or business of the
BORROWER or the Guarantor and which have not been disclosed in writing to the
BANK.
E. Conflicting Agreements, Consents. There is no charter, bylaw, preference
stock, or trust provision of the BORROWER or the Guarantor, and no provision(s)
of any existing mortgage, indenture. contract or agreement binding on the
BORROWER or the Guarantor or affecting their property, . which would conflict
with, have a material adverse affect upon, or in any way prevent the execution,
delivery, or performance of the terms of this Agreement or the Loan Documents.
Neither the BORROWER nor the Guarantor is required to obtain any order, consent,
approval, authorization of any person, entity, or governmental authority in
connection with or as a condition to the execution, delivery, and performance of
this Agreement or the Loan Documents or the granting of the security interests
and liens in the Collateral that has not been obtained.
F. Financial Condition. The financial statements delivered to the BANK by the
BORROWER and the Guarantor have been and shall be prepared in accordance with
generally accepted accounting principles, consistently applied, and will fairly
present the financial condition and results of the BORROWER and the Guarantor.
Other than those liabilities disclosed in writing to the BANK, there are no
material liabilities, direct or indirect, fixed or contingent, of
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the BORROWER or the Guarantor which are not reflected in the financial
statements or in the notes thereto which would be required to be disclosed
therein and there has been no material adverse change in the financial condition
or operations of the BORROWER or the Guarantor since the date of such financial
statements.
G. Taxes. BORROWER and Guarantor have filed all federal, state and local tax
returns required to be filed by them and have paid all taxes shown by such
returns to be due and payable on or before the due dates thereof.
H. Full Disclosure. None of the information with respect to the BORROWER or the
Guarantor which has been furnished to the BANK in connection with the
transactions contemplated hereby is false or misleading with respect to any
material fact, or omits to state any material fact necessary in order to make
the statements therein not misleading.
I. Employee Benefit Plans. To BORROWER's knowledge, all Plans (as hereinafter
defined) which are pension plans as defined in Section 3(2) of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA"), qualify under
Section 401 of the Internal Revenue Code of 1986 (as amended, the "IRC"), and
all Plans are in compliance with the provisions of the IRC and ERISA, and have
been administered in accordance with their terms. The term "Plan" means any
pension plan, as defined in Section 3(2) of ERISA and any welfare plan, as
defined in Section 3(l) of ERISA, which is sponsored, maintained or contributed
to by BORROWER or any commonly controlled entity, or in respect of which
BORROWER or a commonly controlled entity is an "employer" as defined in Section
3(5) of ERISA. To BORROWER's knowledge, and except with respect to events which
would not have a material adverse affect on BORROWER's business or financial
condition:
(i) Prohibited Transactions. None of the Plans has participated in,
engaged in or been a party to any non-exempt "prohibited transaction" as defined
in ERISA or the IRC, and no officer, director or employee of BORROWER has
committed a breach of any of the responsibilities or obligations imposed upon
fiduciaries by Title I or ERISA.
(ii) Claims. There are no contested claims, pending or threatened,
involving any Plan which is a pension plan by a current or former employee (or
beneficiary thereof) of BORROWER, nor is there any reasonable basis to
anticipate any claims involving any such Plan.
(iii) Reporting and Disclosure Requirements. There have been no
violations of any reporting or disclosure requirements with respect to any Plan
and no such Plan has violated applicable law, including but not limited to ERISA
and the IRC.
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(iv) "Accumulated Funding Deficiency"; Reportable Event. No Plan which
is a defined benefit pension plan has (a) incurred an "accumulated funding
deficiency" (within the meaning of Section 412(a) of the IRC), whether or not
waived, (b) been a plan with respect to which a Reportable Event (to the extent
that the reporting of such events to the Pension Benefit Guaranty Corporation
(the "PBGC") within thirty (30) days of the occurrence has not been waived) has
occurred and is continuing, or (c) been a Plan with respect to which there
exists conditions or events which have occurred presenting a risk of termination
by PBGC.
(v) Multiemployer Plan. No Plan which is a multiemployer pension plan
(as defined in Section 414(f) of the IRC) to which BORROWER contributes has been
a plan with respect to which BORROWER has received any notification that such
Multiemployer Plan is in reorganization or has been terminated within the
meaning of Title IV of ERISA and no such Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated within the meaning of Title
IV of ERISA. BORROWER has not withdrawn from, or incurred any withdrawal
liability to, any multiemployer plan.
(vi) COBRA. There has been no violation of the applicable requirements
of Section 4980B of the IRC pertaining to COBRA continuation coverage with
respect to any Plan.
(vii) Employee Welfare Benefit Plans. No Plan which is a medical,
dental, health, disability, insurance or other plan or arrangement, whether oral
or written, which constitutes an "employee welfare benefit plan" as defined in
Section 3 )(1) of ERISA, has any unfunded accrued liability or provides benefits
to former employees or retirees (except as may be required by COBRA).
J. Location of Records. All of the books and records or true and complete copies
thereof relating to the accounts and contracts of the BORROWER are and will be
kept at BORROWER's principal place of business located at the address first set
forth above (the "Premises").
K. Compliance with Laws. The BORROWER and the Guarantor are in compliance in all
material respects with all laws and governmental rules and regulations
applicable to the Collateral and to their businesses, properties and assets
which the failure to comply with would have a material adverse effect on the
business of the BORROWER.
L. Hazardous Waste. No Hazardous Waste (as hereinafter defined) has been
generated, stored or treated on any of the premises occupied by BORROWER, except
in compliance with all applicable laws. To the BORROWER's knowledge, no
Hazardous Waste has ever been. is being, is intended to be, or is threatened to
be spilled, released, discharged, disposed, placed or otherwise caused to be
found in the soil or water in, under, or upon any of the premises occupied by
the BORROWER. The BORROWER and the
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Guarantor agree to indemnify and hold the BANK harmless from and against any
claims, damages. liabilities (whether joint or several), losses and expenses
(including, without limitation, attorneys' fees) incurred by the BANK as a
result of the breach of these representations. For the purpose of this
Agreement, the term "Hazardous Waste" means "hazardous waste", "hazardous
material", "hazardous substance", and "oil" as presently defined in the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Hazardous Material Transportation Act, the
Federal Water Pollution Control Act, and corresponding state and local statutes,
ordinances, and regulations, as such statutes, ordinances and regulations may be
amended, or as defined in any federal or state regulation adopted pursuant to
such acts.
M. Title to Collateral. BORROWER has and will at all times have good and
marketable title to the Collateral, free and clear from any liens, security
interests, mortgages, encumbrances. pledges or other right, title or interest of
any other person or entity, except those arising under the Loan Documents or
disclosed to the BANK in the Security Agreement ("Permitted Encumbrances").
N. Employees. BORROWER has complied in all material respects with all laws
relating to the employment of labor, including any provisions thereof relating
to ERISA, wages, hours, collective bargaining, the payment of social security
and similar taxes, equal employment opportunity, employment discrimination and
occupational safety and health, and is not liable for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
VIII. AFFIRMATIVE COVENANTS. Until payment in full of all indebtedness under the
Loans and the other Obligations, the BORROWER and the Guarantor, as the case may
be, jointly and severally agree that, unless the BANK shall otherwise consent in
writing, they will:
A. Prompt Payment. Pay promptly, subject to any applicable cure or grace period,
when due all amounts due and owing to the BANK.
B. Use of Proceeds. Use the proceeds of the Loans only for working capital
purposes and will furnish the BANK with such evidence as it may reasonably
require with respect to such use.
C. Financial Statements. Furnish the BANK with such financial statements of
BORROWER as are described on Schedule B attached hereto. All such statements
shall be prepared on a consistent basis in a format reasonably acceptable to the
BANK.
D. Maintenance of Existence. Take all necessary action to maintain BORROWER's
legal existence.
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E. Maintenance of Business. Do or cause to be done all things reasonably
necessary to maintain and preserve BORROWER's business.
F. Maintenance of Insurance. Keep all of BORROWER's properties (specifically
including, but not limited to, the Collateral) adequately insured against loss
or damage by fire and such other casualties and hazards as the BANK may specify
from time to time; maintain adequate Workman's Compensation Insurance under
applicable laws and Comprehensive General Public Liability Insurance; and
maintain adequate insurance covering such other risks as the BANK may reasonably
specify from time to time hereafter. All insurance required hereunder shall be
effected by valid and enforceable policies issued by insurers of recognized
responsibility authorized to transact business within the State of New Hampshire
and shall, inter alia, (1) name the BANK as an additional insured and/or loss
payee, and (2) provide that the BANK shall be notified in writing of any
proposed cancellation of such policy at least ten (10) days in advance thereof
and will have the opportunity to correct any deficiencies justifying such
proposed cancellation. For the purposes of this Paragraph, an insurance policy
shall be deemed to be "adequate" if it provides coverage against such risks and
in such amounts as is customarily carried by owners of similar businesses and
properties.
G. Inspection by the Bank. Upon prior reasonable notice (other than upon and
during the continuation of any Event of Default when no notice shall be
required) and during normal business hours, permit any person designated by the
BANK to inspect any of its properties, including its books, records, and
accounts (and including the making of copies thereof and extracts therefrom)
during normal business hours. BORROWER also agrees that the BANK may conduct
regular field examination audits of the BORROWER's books, records, accounts,
inventory, and other property up to two (2) times during each of BORROWER's
fiscal years and that BORROWER shall pay the BANK all reasonable fees, costs,
and expenses charged or incurred by BANK for such audits.
H. Prompt Payment of Taxes. Accrue BORROWER'S tax liability (including
withholdings for employee taxes and social security) in accordance with usual
accounting practice and pay or discharge (or cause to be paid or discharged) as
they become due all taxes, assessments, and government charges upon its
property, operations, income and products (as well as all claims for labor,
materials or supplies), which, if unpaid might become a lien upon any of its
property; provided, that the BORROWER shall, prior to payment thereof, have the
right to contest such taxes, assessments and charges in good faith by
appropriate proceedings so long as, upon request of the Bank, the BANK's
interests are protected by bond, letter of credit, escrowed funds or other
appropriate security.
I. Notification of Default Under This and Other Loan or Financing Arrangements.
Promptly notify the BANK in writing of the occurrence of any
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Event of Default under this Agreement or any other loan or financing
arrangement.
J. Notification of Litigation. Promptly notify the BANK in writing of any
litigation that has been instituted or is pending or threatened which, if
determined adversely, would be reasonably likely to have a material adverse
affect on BORROWER'S continued operations or financial condition.
K. Notification of Governmental Action. Promptly notify the BANK in writing of
any governmental investigation or proceeding that has been instituted or is
pending or threatened, including without limitation, matters relating to the
federal or state tax returns of the BORROWER or the Guarantor. compliance with
the Occupational Safety and Health Act, or proceedings by the Treasury
Department, Labor Department, or Pension Benefit Guaranty Corporation with
respect to matters affecting employee welfare, benefit or retirement programs.
L. Preservation of the Collateral. Cause BORROWER to take all reasonably
necessary steps to preserve, protect and defend the Collateral and keep it in
good operating condition and repair (reasonable wear and tear excepted) and free
of unpermitted liens and give BANK access to and permit it to inspect the
Collateral upon reasonable prior notice during all business hours and other
reasonable times.
M. Maintenance of Records. Keep adequate records and books of account, in which
complete entries will be made in a manner reasonably acceptable to the BANK and
consistently applied, reflecting all financial transactions of the BORROWER.
N. Compliance With Laws. Cause BORROWER to comply in all material respects with
all applicable laws, rules, regulations, and orders, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments, and governmental charges imposed upon it or upon its property;
provided, however, that BORROWER shall be entitled to contest the same in good
faith so long as such action, in the BANK's sole opinion, does not have an
adverse affect upon the BANK's rights hereunder or the Collateral.
O. Accounts, Deposits, and Balances. BORROWER shall maintain its primary
operating and deposit accounts with the BANK.
P. Notification of Material Adverse Changes. Promptly notify the BANK in writing
of any conditions or circumstances which would be reasonably likely to have a
material adverse effect on BORROWER's continued operations or financial
condition.
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Q. Additional Financial and Other Covenants. Comply with the additional
financial and other covenants set forth on Schedule B attached hereto.
IX. NEGATIVE COVENANTS. Until payment in full of all indebtedness under the
Loans and the other Obligations, the BORROWER and the Guarantor, jointly and
severally, covenant and agree that without the express prior written consent of
the BANK:
A. Nature and Scope of Business. BORROWER will not enter into any type of
business other than that in which it is presently engaged. or otherwise
significantly change the scope or nature of its business.
B. Additional Indebtedness. BORROWER will not incur indebtedness for borrowed
money (or issue or sell any of its bonds, debentures, notes or similar
obligations) or guaranty indebtedness of others except: (1) borrowings under the
Loans; (2) other Obligations to the BANK; (3 )) borrowings used to prepay in
full the Obligations; (4) ordinary unsecured trade account payables; and (5)
indebtedness due the Guarantor which is fully subordinated in writing to all of
the Obligations upon terms and conditions acceptable to the BANK.
C. Liens and Mortgages. BORROWER will not incur, create, assume or suffer to
exist any mortgage, pledge, lien, attachment, charge or other encumbrance of any
nature whatsoever on any of the Collateral, now or hereafter owned, other than
(1) the security interests or liens granted to the BANK pursuant to the Loan
Documents; (2) deposits under Workmen's Compensation, Unemployment Insurance and
Social Security laws; (3) liens imposed by law, such as carriers, warehousemen's
or mechanic's liens incurred in good faith in the ordinary course of business,
and which do not in the aggregate have a material adverse effect on the
BORROWER's financial condition or the Collateral; and (4) the Permitted
Encumbrances.
D. Capital Structure; Acquisition of Stock. BORROWER and Guarantor will not
alter or amend the BORROWER's capital structure or permit BORROWER to purchase,
redeem or otherwise acquire for value any of its outstanding capital stock.
E. Ownership; Management. BORROWER and Guarantor will not change the current
ownership of BORROWER such that Guarantor no longer controls BORROWER through
majority ownership of the capital stock of the BORROWER.
F. Places of Business: Location of Collateral. BORROWER will not maintain or
relocate to, open or close, any other place of business or move any of the
Collateral from the Premises, except upon thirty (30) days prior written notice
to the BANK.
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X. CONDITIONS PRECEDENT TO MAKING OF LOANS. The obligation of the BANK to make
any Loan and make disbursements and advances of the proceeds of the same to the
BORROWER is subject to the satisfaction by the BORROWER or its representatives
of the following conditions precedent with respect to such Loan: (1) the
BORROWER and the Guarantor have executed and delivered all of the Loan Documents
deemed appropriate and necessary by the BANK, in form and substance satisfactory
to the BANK, including, but not limited to, the documents described on the
Closing Agenda attached hereto as Schedule C; (2) the BORROWER's and Guarantor's
warranties and representations as contained herein and in the Loan Documents
shall be accurate and complete; (3) BANK shall have received an opinion of
BORROWER's and Guarantor's legal counsel in form and substance satisfactory to
the BANK; and (4) the BORROWER and Guarantor shall not be in default under any
of the covenants, warranties, representations, terms, or conditions contained in
this Agreement or in the Loan Documents as of the date of entering into such
Loan and as of the date of each disbursement and advance thereunder.
XI. EVENTS OF DEFAULT; ACCELERATION. The occurrence of any one or more of the
following events shall constitute a default under this Agreement, each of the
Loan Documents and each of the Obligations (individually, an "Event of Default",
and collectively, "Events of Default"): (1) if any statement, representation or
warranty made by the BORROWER or Guarantor in this Agreement or in any of the
Loan Documents, or in connection with any of the same, or if any financial
statement, report, schedule, or certificate furnished by the BORROWER or
Guarantor or any of its officers or accountants to the BANK, shall prove to have
been false or misleading in any material respect when made; (2) default by the
BORROWER in payment on its due date of any principal or interest called for
under any of the Loans or the Loan Documents, or of other amounts due under any
other of the Obligations, or other event of default under the Loan Documents or
the other Obligations, provided such default is not cured within any applicable
grace period thereunder; (3) default by the BORROWER in the performance or
observance of any of the provisions, terms, conditions, warranties or covenants
of this Agreement, the Loan Documents, or any other of the Obligations; (4) the
dissolution, termination of existence, merger or consolidation of the BORROWER
other than a merger or consolidation in which the BORROWER is the surviving
entity, or a sale of BORROWER's business or the Collateral not in the ordinary
course of business; (5) the BORROWER or the Guarantor shall (a) apply for or
consent to the appointment of a receiver, trustee or liquidator of it or any of
its property, (b) make a general assignment for the benefit of creditors, (c) be
adjudicated as bankrupt or insolvent, (d) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation under any law or
statute, or an answer admitting the material allegations of a petition filed
against it in any proceeding under any such law or statute, or (e) offer or
enter into any composition, extension or arrangement seeking relief or extension
of its debts; (6) proceedings shall be commenced or an order, judgment or decree
shall be entered, without the application, approval or
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consent of the BORROWER or Guarantor, as the case may be, in or by any court of
competent jurisdiction, relating to the bankruptcy, dissolution, liquidation,
reorganization or the appointment of a receiver, trustee or liquidator of the
BORROWER or Guarantor, or of all or a substantial part of its assets. and such
proceedings, order, judgment or decree shall continue undischarged or unstayed
for a period of sixty (60) days; (7) BORROWER's inability to pay its debts as
they mature or other act of insolvency, however defined and determined by the
BANK in a commercially reasonable manner; (8) a judgment for the payment of
money shall be rendered against the BORROWER and the same shall remain
undischarged for a period of thirty (30) days, during which period execution
shall not be effectively stayed; or (9) if BANK otherwise deems itself insecure
within the meaning of New Hampshire RSA 382-A:1-208 (as amended).
Upon the occurrence of any Event of Default, the BANK's commitment to make
further Loans under the Loan Documents or any other agreement with the BORROWER,
and to make any advances or disbursements under any Loan, shall immediately
cease and terminate and, at the election of the BANK, all of the Obligations of
the BORROWER to the BANK, under any of this Agreement, the Loan Documents, or
otherwise, will immediately become due and payable without further demand,
notice or protest, all of which are hereby expressly waived. Thereafter, the
BANK may proceed to protect and enforce its rights, at law, in equity, or
otherwise, against the BORROWER, the Guarantor, and any other endorser or
guarantor of the BORROWER's Obligations, either jointly or severally, and may
proceed to liquidate and realize upon any of its Collateral in accordance with
the rights of a secured party under the Uniform Commercial Code, under any other
applicable law, under any Loan Documents, under any other agreement between the
BORROWER and the BANK, or under any agreement between any guarantor or endorser
of the BORROWER's Obligations to the BANK, and to apply the proceeds thereof to
payment of the Obligations of the BORROWER to the BANK in such order and in such
manner as the BANK, in its sole discretion, deems appropriate.
XII. MISCELLANEOUS PROVISIONS.
A. Entire Agreement; Waivers. This Agreement, the Schedules hereto, and the Loan
Documents together constitute the entire agreement between the BORROWER, the
Guarantor, and the BANK and no covenant, term, condition or other provision
thereof nor any default in connection therewith may be waived except by an
instrument in writing, signed by the BANK and delivered to the BORROWER. The
BANK's failure to exercise or enforce any of its rights, powers or privileges
under this Agreement or the Loan Documents shall not operate as a waiver
thereof.
B. Remedies Cumulative. All remedies provided under this Agreement and the Loan
Documents or afforded by law shall be cumulative and available to the BANK until
all of the BORROWER's Obligations to the BANK have been paid in full.
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C. Survival of Covenants. All covenants, agreements, representations and
warranties made in this Agreement and in the Loan Documents shall be deemed to
be material and to have been relied on by the BANK, notwithstanding any
investigation made by the BANK or in its behalf, and shall survive the execution
and delivery of this Agreement and the Loan Documents. All such covenants,
agreements, representations and warranties shall bind and inure to the benefit
of the BORROWER's, the Guarantor's, and the BANK's successors and assigns,
whether so expressed or not.
D. Governing Law: Jurisdiction. This Agreement and the Loan Documents shall be
construed and their provisions interpreted under and in accordance with the laws
of the State of New Hampshire. The BORROWER and the Guarantor, to the extent
they may legally do so, hereby consent to the jurisdiction of the courts of the
State of New Hampshire and the United States District Court for the State of New
Hampshire for the purpose of any suit, action or other proceeding arising out of
any of their obligations hereunder or with respect to the transactions
contemplated hereby, and expressly waive any and all objections they may have to
venue in any such courts.
E. Assurance of Execution and Delivery of Additional Instruments. The BORROWER
and Guarantor agree to execute and deliver, or to cause to be executed and
delivered, to the BANK all such further instruments, and to do or cause to be
done all such further acts and things, as the BANK may reasonably request or as
may be necessary or desirable to effect further the purposes of this Agreement
and the Loan Documents.
F. Waivers and Assents. The BORROWER, the Guarantor, and any other guarantor or
endorser of the BORROWER's Obligations to the BANK, hereby waive, to the fullest
extent permitted by law, all rights to marshalling of assets and all rights to
demand, notice, protest, notice of acceptance of this Agreement and the Loan
Documents, notice of Loans made, credit extended, Collateral received or
delivered or other action taken in reliance hereon and all other demands and
notices of any description with respect both to the Loan Documents and the
Collateral. Each Guarantor further waives all defenses based upon suretyship or
impairment of collateral and all defenses which the BORROWER may assert on the
Obligations, including, but not limited to, failure of consideration, breach of
warranty, fraud, statute of frauds, bankruptcy, lack of legal capacity, statute
of limitations, lender liability, accord and satisfaction, and usury. The
BORROWER and Guarantor assent to any extension or postponement of the time of
payment or any other indulgence, to any substitution, exchange or release of
Collateral, to the addition or release of any party or person primarily or
secondarily liable, to the acceptance of partial payments thereon and the
settlement, compromising or adjusting of any thereof, all in such manner and at
such time or times as the BANK may deem advisable.
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G. No Duty of the Bank With Respect to the Collateral. The BANK shall have no
duty as to the collection or protection of Collateral or any income thereon, nor
as to the preservation of rights against prior parties, nor as to the
preservation of any rights pertaining thereto, beyond the safe custody thereof
and those duties required by the Uniform Commercial Code as in effect in New
Hampshire.
H. Election of the Bank. The BANK may exercise its rights with respect to
Collateral without resorting or regard to other collateral or sources of
reimbursement for the Obligations of BORROWER to the BANK.
I. Assignment. If at any time, by assignment or otherwise, the BANK transfers
its rights in any of the Obligations and its rights in Collateral therefor, in
whole or in part, such transfer shall carry with it the powers and rights of the
BANK under this Agreement. the Loan Documents, and the Collateral so transferred
and the transferee shall become vested with such powers and rights whether or
not they are specifically referred to in the instrument evidencing the transfer.
If, and to the extent that the BANK retains such rights and Collateral, the BANK
shall continue to have the rights and powers herein set forth with respect
thereto. This Agreement and the Loan Documents shall be binding upon and inure
to the benefit of the BANK, the BORROWER and the Guarantor, their successors,
assigns, heirs and personal representatives; provided, however, the rights and
obligations of the BORROWER and the Guarantor are not assignable, delegable or
transferable without the consent of the BANK. All of the rights of the BANK
under this Agreement and the Loan Documents shall inure to the benefit of any
participating bank or banks and its or their successors and assigns.
J. Expenses: Proceeds of Collateral. The BORROWER and the Guarantor covenant and
agree that they shall pay to the BANK, on demand, any and all reasonable
out-of-pocket expenses, including reasonable attorneys' fees, court costs,
sheriffs' fees, and other expenses incurred or paid by the BANK in protecting
and enforcing its rights under this Agreement, the Loan Documents, and the other
Obligations. including the costs of preparation of this Agreement and the Loan
Documents, and any amendments, modifications, consents, or waivers in respect
thereof, and all filing, auditing, accounting, and appraisal fees. After
deducting all of said expenses and the reasonable expenses of retaking, holding,
preparing for sale, selling and the like, the residue of any proceeds of
collections or sale of Collateral shall be applied to the payment of principal
of or interest on Obligations of the BORROWER to the BANK in such order or
preference as the BANK may determine, and any excess shall be returned to the
BORROWER (subject to the provisions of the Uniform Commercial Code) and the
BORROWER shall remain liable for any deficiency.
K. The Bank's Right of Offset. The BORROWER and the Guarantor hereby grant the
BANK a continuing security interest in, and the right to set off against, any
deposits or other sums at any time credited or due from the BANK
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to the BORROWER or the Guarantor, and any securities or other property of the
BORROWER or Guarantor which at any time are in the possession of the BANK, for
the payment of any Obligations due the BANK. The BANK may apply or set off such
deposits or other sums against the BORROWER's Obligations whether or not the
Collateral is considered by the BANK to be adequate. The BORROWER and the
Guarantor expressly grant to the BANK the right to set off and apply such
deposits and sums without having to resort to recourse to any other Collateral
in which the BANK has a security interest.
L. Notices. All notices, requests, demands and other communications provided for
hereunder shall be in writing (including telegraphic communication) and shall be
either mailed by certified mail, return receipt requested, or delivered by
overnight courier service, to the applicable party at the addresses set forth in
this Agreement.
M. Savings Clause. Any provision of this Agreement or any of the Loan Documents
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or thereof
or affecting the validity or enforceability of such provision in any other
jurisdiction.
N. Term of this Agreement. This Agreement shall remain in full force and effect
until all of the Obligations have been paid in full, all of the terms,
conditions and covenants under the Loan Documents have been performed, and all
commitments of the BANK advance funds under any of the Loans have terminated.
O. Interest Rate Provisions. The interest rate provisions of each of the
Obligations are subject to the condition that in no event shall the amount paid
or agreed to be paid to the holder of such Obligation which is deemed interest
under applicable law exceed the maximum rate of interest on the unpaid principal
balance of such Obligation allowed by applicable law, if any, (the "Maximum
Allowable Rate"). For purposes hereof, "applicable law" shall mean the law in
effect on the date hereof, except that if there is a change in such law which
results in a higher Maximum Allowable Rate being applicable to the Obligation
subject thereto, then such Obligation shall be governed by such amended law from
and after its effective date. In the event that fulfillment of any provisions of
any Obligation results in the interest rate thereunder being in excess of the
Maximum Allowable Rate, then amount to be paid thereunder resulting in an
excessive interest rate shall automatically be reduced to eliminate such excess.
If notwithstanding the foregoing, the holder of such Obligation receives an
amount which under applicable law would cause the interest rate thereunder to
exceed the Maximum Allowable Rate, the portion thereof which would be excessive
shall automatically be applied to and deemed a prepayment of the unpaid
principal balance under such Obligation and not a payment of interest.
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P. Waiver of Jury Trial. THE BORROWER AND GUARANTOR WAIVE ANY RIGHTS THEY MAY
HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS
AGREEMENT OR ANY OF THE LOAN DOCUMENTS, AND AGREES THAT ANY SUCH DISPUTE SHALL
BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
IN WITNESS WHEREOF, the BANK and the BORROWER have executed this Agreement all
as of the day and year first above written.
WITNESS: FLEET BANK - NH
/s/ Marcia LaTome By: /s/ Amy M. LeBlanc
- ----------------- -------------------------------
Amy M. LeBlanc, Assistant
Vice President
WITNESS: BORROWER:
SHEPHERD SURVEILLANCE
SOLUTIONS, INC.
/s/ Marcia LaTome By: /s/ Thomas Makmann
- ----------------- -------------------------------
M. Thomas Makmann, President
AGREEMENT OF GUARANTOR. For and in consideration of the BANK entering into this
Agreement with the BORROWER, and extending the Loans to the BORROWER, all to the
benefit of the undersigned, the undersigned hereby become a party to this
Agreement as Guarantor, and agrees to the terms and conditions set forth above
in this Agreement, all as of the day and year first above written.
WITNESS: GUARANTOR:
TRILON DOMINION PARTNERS, LLC
BY: VC Holdings, Inc., its manager
/s/ By: /s/ Jack R. Sauer
- ----------------- -------------------------------
Jack R. Sauer, Vice President
STATE NEW YORK
COUNTY OF NEW YORK
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On this the 3rd day February 1997, before me, the undersigned notary
or justice, personally appeared Jack R. Sauer, who acknowledged himself to be
Vice President of VC Holdings, Inc. the manager of Trilon Dominion Partners,
L.L.C., a Delaware limited liability company, and that he, as such member being
authorized so to do, executed the foregoing instrument for the purposes therein
contained.
/s/ Juliet N. Page
----------------------------------
Justice of the Peace/Notary Public
* Subject to the change being made whereby the financial covenant in III B to
Schedule B reads the net loss for the six months ending June 30, 1997 shall
not exceed $1,000,000.00
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FLEET BANK - NH
COMMERCIAL LOAN AGREEMENT
SCHEDULE A
----------
BORROWING BASE AND CASH MANAGEMENT PROVISIONS
I. APPLICABLE PERCENTAGE OF ACCEPTABLE ACCOUNTS FOR DETERMINATION OF BORROWER'S
REVOLVING LINE OF CREDIT BORROWING BASE UNDER SECTION I.A.: EIGHTY PERCENT (80%)
DEFINITION OF ACCEPTABLE ACCOUNTS: The term "Acceptable Accounts" means those of
the BORROWER's accounts and accounts receivable as the BANK determines to be
satisfactory as set forth below. Subject to the foregoing, "Acceptable Accounts"
shall not include any service charges or sales or other taxes and shall be
accounts of the BORROWER: (i) which arise in the ordinary course of BORROWER's
business from BORROWER's performance of services or sale of goods which have
been performed or sold; (ii) which are not more than ninety (90) days old from
date of invoice (in the event that twenty percent (20%) of the accounts
receivable from a particular account debtor are over ninety (90) days old, all
of the accounts receivable from that particular account debtor shall be excluded
from Acceptable Accounts); (iii) which are not evidenced by a promissory note or
other instrument; (iv) which are payable in U.S. Dollars; (v) which are owed by
any corporation or other entity other than one which is related to the BORROWER,
or is of common ownership with the BORROWER, or could be treated as a member of
the same controlled group of corporations of which the BORROWER is a member;
(vi) which constitute valid. binding, and enforceable obligations of account
debtors which are not subject to any claim, counterclaim, set off. credit,
allowance, or chargeback; (vii) as to which the BORROWER has received no notice
and has no knowledge as to whether the account debtor (or any guarantor or
endorser thereof) is bankrupt or insolvent, or any other facts which make the
collection of the account doubtful; (viii) which are not owed by any person
employed by, or salesman of. the BORROWER; (ix) which do not arise out of the
sale by the BORROWER of goods consigned or delivered to the BORROWER on "sell or
return" terms (whether or not compliance has been made with Section 2-3326 of
the UCQ; and (x) which do not arise out of any sale made on a "bill and hold",
dating, or delayed shipping basis. Accounts payable by BORROWER to any account
debtor shall be netted against accounts due from such debtor.
BORROWER shall furnish the BANK within ten (10) days of each month-end with a
Borrowing Base Certificate substantially in the form attached hereto as Exhibit
A-1, which shall be accompanied by a reconciliation and aging reports for
accounts receivable, all in a form reasonably acceptable to the BANK.
The acceptance of or characterization by the BANK of any account as an
Acceptable Account shall not be deemed a determination by the Bank as to its
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actual value nor in any way obligate BANK to accept any account arising
subsequently from such debtor to be, or to continue to deem such account to be,
an Acceptable Account. All accounts of BORROWER whether Acceptable Accounts or
not shall constitute Collateral under the Security Agreement.
II. ADDITIONAL TERMS AND CONDITIONS FOR MANAGEMENT OF REVOLVING LINE OF CREDIT
LOANS.
BORROWER shall from time to time inform the BANK of the target balance which
BORROWER desires to maintain in its Demand Deposit Account with the BANK, which
shall in no event be less than any minimum balance (if any) required under this
Agreement. To maintain the desired target balance in BORROWER's Demand Deposit
Account, BORROWER hereby instructs, authorizes, and directs BANK to charge
BORROWER's Demand Deposit Account to make payments to reduce the debit balance
of BORROWER's Loan Account with the BANK and to make payment of BORROWER's other
obligations to the BANK, and to make advances under the Revolving Line of Credit
Loan increasing the debit balance in BORROWER's Loan Account and credit the same
to BORROWER's Demand Deposit Account. Notwithstanding the foregoing, BORROWER's
obligations to pay each Loan are the general obligations of the BORROWER and
shall not be deemed to be obligations to be satisfied solely from funds in the
Demand Deposit Account or by advances under the Revolving Line of Credit Loan.
BORROWER acknowledges and agrees that the target balance is only a desired goal
based upon estimates and that the BANK shall have no responsibility for
variances from the target balance as long as all charges, advances and credits
are made in good faith. All credits against BORROWER's indebtedness indicated in
the Loan Account shall be conditional upon final payment to the BANK of the
items giving rise to such credits. The amount of any item credited against
BORROWER's Loan Account which is not paid or which is charged back against the
BANK for any reason may be charged as a debit to the Loan Account or may be
charged back against the Demand Deposit Account of BORROWER, and shall be an
obligation of the BORROWER to the BANK in each instance whether or not the item
so charged back or not paid is returned. Any item received in payment towards
BORROWER's outstanding indebtedness reflected in the Loan Account which requires
clearance or payment (other than items drawn on the Bank) shall be considered to
be applied immediately for purposes of determining the maximum available amount
under BORROWER's Revolving Line of Credit under Section 1. A. of this Agreement,
but shall not be considered to have been credited to the Loan Account until two
(2) business days after receipt by the BANK of such item for purposes of
interest accruing on the outstanding indebtedness indicated by the Loan Account.
Notwithstanding any other provision hereof, no advances shall be made by BANK to
BORROWER's Demand Deposit Account at any time an Event of Default exists under
this Agreement or the Loan Documents, or any condition exists which, if not
cured, would with the passage of time or the giving of notice, or both,
constitute such an Event of Default. Except in the case of BANK's gross
negligence, willful misconduct, or failure to act in good faith,
-23-
BANK shall not be liable for any act done or omitted by it in good faith, or for
any mistake in fact or law, or for anything it may do or refrain from doing in
connection with or as required by this Section II of Schedule A. In addition,
BORROWER will reimburse and indemnify BANK for any damages, losses, liabilities,
claims, costs, or expenses, of any kind whatsoever and however caused,
including, but not limited to, reasonable attorneys' fees, paid, suffered or
incurred by BANK as a result of any third party claim against BANK arising out
of or in connection with BANK's performance of the services contemplated by this
Section 11 of Schedule A to be provided by BANK, except to the extent the same
results from the gross negligence, willful misconduct, or failure to act in good
faith by BANK.
-24-
FLEET BANK - NH
COMMERCIAL LOAN AGREEMENT
SCHEDULE A
EXHIBIT A-1
FLEET BANK - NH
BORROWING BASE CERTIFICATE
BORROWER: SHEPHERD SURVEILLANCE SOLUTIONS, INC.
The undersigned hereby certifies to Fleet Bank - NH (the "Bank)
pursuant to Schedule A of the Commercial Loan Agreement (the "Agreement") dated
January _, 1997, as follows:
Calculation of Borrowing Base:
Accounts Receivable:
1. Total Accounts Receivable as of
_________, 199_, as per
attached Aging Report ("Certified
Accounts") $______
2. Disqualified Accounts:
Accounts over 90 days from
invoice due date $___
Other non-qualifying accounts $___
Total Disqualified Accounts $______
3. Item 1 minus item 2 ("Acceptable
Accounts") $______
4. Advance Rate on Acceptable
Accounts per Agreement 80%
5. Item 3 times item 4 $______
6. Amount of Outstanding Letters of
Credit $______
7. Amount of Outstanding Direct Advances $______
Available Commitment:
-25-
8. Available Commitment under Revolving
Line of Credit (Lesser of Item 5 or $900,000.00,
less Item 6 and Item 7) $______
Based upon the foregoing calculation made as of the close of business on the
date indicated below, the undersigned hereby requests that the Bank make a loan
to Borrower in accordance with the provisions of Section I of Schedule A of the
Loan Agreement, which Loan, when added to the outstanding principal amount of
all other advances, interest thereon, unpaid costs, charges and expenses related
hereto and to the Agreement as of the date hereof, does not exceed the Available
Commitment. Except as set forth in the accompanying letter, the undersigned
hereby reasserts and restates all representations and warranties set forth in
the Agreement as of the date hereof and certifies that no Event of Default under
the Agreement, or any event which with the passage of time or the giving of
notice, or both, would constitute an Event of Default, has occurred and is
continuing. Each capitalized term used, but not defined herein, shall have the
respective meaning set forth in the Agreement.
WITNESS the execution hereof on the __ day ______, of 199_.
SHEPHERD SURVEILLANCE SOLUTIONS,
INC.
By:________________________________
Signature and Title
--------------------------------
[Print Name and Title]
-26-
FLEET BANK - NH
COMMERCIAL LOAN AGREEMENT
SCHEDULE B
ADDITIONAL TERMS AND CONDITIONS
I. Fees Payable by BORROWER
Revolving Line of Credit Loan Facility Fee: .25% per annum of full commitment
amount of $900,000.00 under Revolving Line of Credit Loan, payable quarterly in
arrears.
Revolving Line of Credit Loan Closing Fee: $10,000.00, one-half of which is
payable on the date hereof and the other half being payable on August 15, 1997
if the Revolving Line of Credit Loan is renewed on such date.
Cash Management Fees: $300.00 per month for target balance management and
additional fees to be determined in the BANK's reasonable discretion upon basis
of scope of monthly services (e.g. lockboxes, zero balance account, etc.).
Financial Covenant Waiver Fee: In the event that BORROWER fails to comply with
the financial covenants contained hereinbelow and BANK, in its sole discretion,
elects to waive said default. BORROWER shall pay BANK an amount equal to $500.00
per waiver; provided, that. the BANK shall not be entitled to collect more than
one waiver fee per month.
II. Description of Financial Statements to be Delivered:
A. Annual audited financial statements of BORROWER within ninety (90) days after
the end of each fiscal year, including balance sheets and statements of income,
retained earnings and surplus, and a statement of cash flow, together with
supporting schedules, setting forth in each case comparative figures for the
preceding fiscal year, and in each case prepared by an independent certified
public accountant reasonably acceptable to BANK The BANK acknowledges that the
firm of Ernst & Young L.L.P. is acceptable to it for the purposes of this
section..
B. Monthly financial statements of the BORROWER within ten (10) days after the
end of each month, including balance sheets and statements of income and cash
flow, together with supporting schedules, all as prepared by the BORROWER.
C. Annual audited financial statements of Guarantor within ninety (90) days
after the end of each fiscal year, including balance sheets and statements of
income, retained earnings and surplus, and a statement of cash flow, together
-27-
with supporting schedules, setting forth in each case comparative figures for
the preceding fiscal year, and in each case prepared by an independent certified
public accountant reasonably acceptable to BANK.
D. Semi-annual financial statements of the Guarantor within sixty (60) days
after the end of each six (6) month period, including balance sheets and
statements of income and cash flow, together with supporting schedules, all as
prepared by the Guarantor.
III. Description of Additional Financial and other Covenants
A. BORROWER shall have a ratio of EBITDA (as hereinafter defined) to Interest
Expense (as hereinafter defined) of not less than (i) 1.5:1 for the month ending
June 30, 1997 and (ii) 2.0:1 for each quarter ending thereafter. "EBITDA" means
earnings for applicable period ending on the date of determination, before
reduction for interest, taxes, depreciation, and amortization expense for such
period, all as determined in accordance with generally accepted accounting
principles from BORROWER's Financial Statements. "Interest Expense" means the
aggregate interest due and payable on all outstanding indebtedness of BORROWER
during the applicable period ending on the date of determination, all as
determined in accordance with generally accepted accounting principles from
BORROWER's Financial Statements.
B. BORROWER shall report and certify to Bank its compliance with the financial
covenant in paragraph A hereinabove within ten (10) days after the end of each
fiscal quarter on the form attached hereto as Exhibit B-2.
-28-
FLEET BANK - NH
COMMERCIAL LOAN AGREEMENT
SCHEDULE B
EXHIBIT B-2
COMPLIANCE CERTIFICATE
Fleet Bank - NH
1155 Elm Street
Manchester, New Hampshire 03 1 01
ATTENTION: Amy M. LeBlanc
Ladies and Gentlemen:
Pursuant to the provisions of a certain Commercial Loan Agreement dated January
_, 1997 (the "Loan Agreement"), by and between Shepherd Surveillance Solutions,
Inc. (collectively, the "BORROWER") and Fleet Bank - NH (the "Bank"), the
undersigned hereby certifies as follows:
1. That the financial statements (the "Financial Statements") of the
BORROWER delivered to the Bank with this certificate are true and accurate in
all material respects for the periods covered therein as of the date hereof.
2. That during the periods set forth in the Financial Statements, the
BORROWER was in compliance with the Financial Covenants set forth in Section III
of Schedule B of the Loan Agreement, and, specifically, that as of the ending
date of the periods covered by the Financial Statements, the BORROWER had:
(a) A ratio of EBITDA to Interest Expense of ________:1; and
(b) Net Income (or Loss) of $__________________.
3. The representations and warranties contained in the Loan Agreement
are otherwise true and correct in all material respects on and as of the date
hereof as if made on and as of such date and all covenants contained in the Loan
Agreement have been and continue to be met.
Terms defined in the Loan Agreement and not otherwise expressly defined herein
are used herein with the meanings so defined in the Loan Agreement.
-29-
IN WITNESS WHEREOF, the undersigned has executed this certificate on this __ day
of _________________, 199_.
SHEPHERD SURVEILLANCE
SOLUTIONS, INC.
_____________________________ By:________________________
Witness Print name and title below
------------------------
------------------------
EXHIBIT 10.6
REVOLVING LINE OF CREDIT PROMISSORY NOTE
----------------------------------------
$900,000.00 U.S. Manchester, NH February 3, 1997
FOR VALUE RECEIVED, SHEPHERD SURVEILLANCE SOLUTIONS, INC., a Nevada
corporation with a principal place of business at 7 Perimeter Road, Suite 4,
Manchester, New Hampshire 03103 (the "Borrower"), promises to pay, ON DEMAND, to
the order of FLEET BANK - NH, a bank organized under the laws of the State of
New Hampshire with a place of business at 1155 Elm Street, Manchester, New
Hampshire 03101 (the "Bank"), at such address, or such other place or places as
the holder hereof may designate in writing from time to time hereafter, the
maximum principal sum of NINE HUNDRED THOUSAND DOLLARS ($900,000.00), or so much
thereof as may be advanced or readvanced by the Bank to the Borrower from time
to time hereafter (such amounts defined as the "Debit Balance" below), together
with interest as provided for hereinbelow, in lawful money of the United States
of America.
The Borrower's "Debit Balance" shall mean the debit balance in an account
on the books of the Bank, maintained in the form of a ledger card, computer
records or otherwise in accordance with the Bank's customary practice and
appropriate accounting procedures wherein there shall be recorded the principal
amount of all advances made by the Bank to the Borrower, all principal payments
made by the Borrower to the Bank hereunder, and all other appropriate debits and
credits.
Under the Revolving Line of Credit Loan evidenced by this Note (the "Line
of Credit"), the Bank agrees to lend to the Borrower, and the Borrower may
borrow, up to the LESSER of (a) the maximum principal sum provided for in this
Note or (b) the Borrower's Borrowing Base, all in accordance with and subject to
the terms, conditions, and limitations of this Note and the Commercial Loan
Agreement of even date entered into by and between the Borrower and the Bank, as
the same may be amended from time to time (the "Loan Agreement"). The holder of
this Note is entitled to all of the benefits and rights of the Bank under the
Loan Agreement. However, neither this reference to the Loan Agreement nor any
provision thereof shall impair the absolute and unconditional obligation of the
Borrower to pay, ON DEMAND, the principal and interest of this Note as herein
provided. Terms not otherwise defined herein shall have the meanings ascribed to
them in the Loan Agreement.
The Borrower shall make requests for advances under this Note as provided
in the Loan Agreement. The Borrower agrees that the Bank may make all advances
under this Note by direct deposit to any demand account of the Borrower with the
Bank or in such other manner as may be provided in the Loan Agreement, and that
all such advances shall represent binding obligations of the Borrower.
-2-
The Borrower acknowledges that this Note is to evidence the Borrower's
obligation to pay its Debit Balance, plus interest and any other applicable
charges as determined from time to time pursuant to the Loan Agreement, and that
it shall continue to do so despite the occurrence of intervals when no Debit
Balance exists because the Borrower has paid the previously existing Debit
Balance in full.
Interest shall be calculated and charged daily, based on the actual
days elapsed over a three hundred sixty (360) day banking year, on the unpaid
principal balance outstanding hereunder from time to time at a variable rate
equal to the Bank's Base Rate, so called, plus one and one-half (1.5%) per
annum. The Base Rate shall be the Base Rate of the Bank as established and
changed by the Bank from time to time whether or not such rate shall be
otherwise published or Borrower is provided with notice thereof Each time the
Base Rate changes, the interest rate hereunder shall change contemporaneously
with such change in the Base Rate effective as of the opening of business on the
date of change. The Borrower acknowledges that the Base Rate is used for
reference purposes only as an index and is not necessarily the lowest interest
charged by the Bank on commercial loans.
Pending demand or an Event of Default as provided in the Loan
Agreement, the Bank shall extend the Line of Credit through and until August 15,
1997, and, if the Line of Credit is renewed and extended by the Bank pursuant to
the Loan Agreement, through and until March 15, 1998, and if then renewed,
thereafter until each anniversary of such date to which the Line of Credit is
renewed and extended (August 15, 1997, March 15, 1998, and each anniversary
thereof to which the Line of Credit is renewed and extended, being a "Review
Date"). The Borrower shall (i) make payments of principal from time to time as
provided in the Loan Agreement and (ii) make payments of interest monthly in
arrears commencing thirty (30) days from the date hereof (or on any day within
30 days of the date hereof agreed to by the Borrower and the Bank to provide for
a convenient payment date) and continuing on the same date of each month
thereafter through and until the earlier of the demand, acceleration of this
Note upon an Event of Default, or any Review Date with respect to which the Line
of Credit is not renewed by the Bank, whereupon all principal, accrued and
unpaid interest, and any other charges provided for hereunder shall be due and
payable in full. In the event that the Line of Credit is renewed pursuant to the
Loan Agreement as of any Review Date, this Note shall thereafter continue to
evidence amounts advanced and due under the Line of Credit as renewed.
This Note is being executed and delivered in accordance with the terms
of the Loan Agreement and the documents defined therein as the "Loan Documents".
The payment and performance of the obligations contained in the Loan Documents
are secured by the collateral granted to the Bank therein (the "Collateral") and
the security granted to the Bank in the Loan Documents.
-3-
The holder may impose upon the Borrower a delinquency charge of five
percent (5%) of the amount of interest not paid on or before the tenth (10th)
day after such installment is due. The entire principal balance hereof, together
with accrued interest, shall after maturity, whether by demand, acceleration or
otherwise, bear interest at the contract rate of this Note plus an additional
five percent (5%) per annum.
The Borrower agrees that any other property upon or in which the
Borrower has granted or hereafter grants the holder a mortgage or security
interest, securing the payment and performance of any other liability of the
Borrower to the holder, shall also constitute Collateral. As additional
Collateral, the Borrower grants (1) a security interest in, or pledges, assigns
and delivers to the holder, as appropriate, all deposits, credits and other
property now or hereafter due from the holder to the Borrower; and (2) the right
to set off and apply (and a security interest in said right), from time to time
hereafter and without demand or notice of any nature, all, or any portion, of
such deposits, credits and other property, against the indebtedness evidenced by
this Note whether the other Collateral, if any, is deemed adequate or not.
The Borrower, and every maker, endorser, or guarantor of this Note,
jointly and severally, agree to pay on demand all reasonable out-of-pocket costs
of collection hereof, including reasonable attorneys' fees, whether or not any
foreclosure or other action is instituted by the holder in its discretion.
No delay or omission on the part of the holder in exercising any right,
privilege or remedy shall impair such right, privilege or remedy or be construed
as a waiver thereof or of any other right, privilege or remedy. No waiver of any
right, privilege or remedy or any amendment to this Note shall be effective
unless made in writing and signed by the holder. Under no circumstances shall an
effective waiver of any right, privilege or remedy on any one occasion
constitute or be construed as a bar to the exercise of or a waiver of such
right, privilege or remedy on any future occasion.
The acceptance by the holder hereof of any payment after any default
hereunder shall not operate to extend the time of payment of any amount then
remaining unpaid hereunder or constitute a waiver of any rights of the holder
hereof under this Note.
All rights and remedies of the holder, whether granted herein or
otherwise, shall be cumulative and may be exercised singularly or concurrently,
and the holder shall have, in addition to all other rights and remedies, the
rights and remedies of a secured party under the Uniform Commercial Code of New
Hampshire. The holder shall have no duty as to the collection or protection of
the Collateral or of any income thereon, or as to the preservation of any rights
pertaining thereto beyond the safe custody thereof and those duties imposed by
the Uniform Commercial Code of New Hampshire. Surrender of this Note, upon
payment or otherwise, shall not affect the right of the holder to retain the
-4-
Collateral as security for the payment and performance of any other liability of
the Borrower to the holder.
The Borrower, and every maker, endorser, or guarantor of this Note,
hereby jointly waive. to the fullest extent permitted by law, presentment,
notice, protest and all other demands and notices and assents (1) to any
extension of the time of payment or any other indulgence, (2) to any
substitution, exchange or release of Collateral, and (33) to the release of any
other person primarily or secondarily liable for the obligations evidenced
hereby.
This Note and the provisions hereof shall be binding upon the Borrower
and the Borrower's heirs, administrators, executors, successors, legal
representatives and assigns and shall inure to the benefit of the holder, the
holder's heirs, administrators, executors, successors, legal representatives and
assigns.
The word "holder" as used herein shall mean the payee or endorsee of
this Note who is in possession of it, or the bearer, if this Note is at the time
payable to the bearer.
This Note may not be amended, changed or modified in any respect except
by a written document which has been executed by each party. This Note
constitutes a New Hampshire contract to be governed by the laws of such state
and to be paid and performed therein.
The provisions of this Note are expressly subject to the condition that
in no event shall the amount paid or agreed to be paid to the holder hereunder
and deemed interest under applicable law exceed the maximum rate of interest on
the unpaid principal balance hereunder allowed by applicable law, if any, (the
"Maximum Allowable Rate"), which shall mean the law in effect on the date
hereof, except that if there is a change in such law which results in a higher
Maximum Allowable Rate being applicable to this Note, then this Note shall be
governed by such amended law from and after its effective date. In the event
that fulfillment of any provisions of this Note results in the interest rate
hereunder being in excess of the Maximum Allowable Rate, the obligation to be
fulfilled shall automatically be reduced to eliminate such excess. If
notwithstanding the foregoing, the holder receives an amount which under
applicable law would. cause the interest rate hereunder to exceed the Maximum
Allowable Rate, the portion thereof which would be excessive shall automatically
be applied to and deemed a prepayment of the unpaid principal balance hereunder
and not a payment of interest.
-5-
Executed and delivered this __ day of February, 1997.
SHEPHERD SURVEILLANCE
SOLUTIONS, INC.
/s/ By: /s/ M. Thomas Makmann
- ------------------------- --------------------------------
Witness M. Thomas Makmann, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1997, INCLUDED
WITH FORM 10Q-SB, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,611
<SECURITIES> 0
<RECEIVABLES> 420,454
<ALLOWANCES> (15,000)
<INVENTORY> 289,328
<CURRENT-ASSETS> 717,917
<PP&E> 440,569
<DEPRECIATION> (96,696)
<TOTAL-ASSETS> 1,075,870
<CURRENT-LIABILITIES> 2,091,450
<BONDS> 5,202,229
0
0
<COMMON> 4,294
<OTHER-SE> (6,222,103)
<TOTAL-LIABILITY-AND-EQUITY> 1,075,870
<SALES> 469,129
<TOTAL-REVENUES> 469,129
<CGS> 338,296
<TOTAL-COSTS> 338,296
<OTHER-EXPENSES> 2,653,544
<LOSS-PROVISION> 5,000
<INTEREST-EXPENSE> 278,378
<INCOME-PRETAX> (2,801,089)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,801,089)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,801,089)
<EPS-PRIMARY> (.65)
<EPS-DILUTED> 0
</TABLE>
