UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _____________________ to ________________________
Commission file number: 33-9868-A
Shepherd Surveillance Solutions, Inc.
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(Name of small business issuer in its charter)
NEVADA 88-0212471
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(State of other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
7 Perimeter Road, Suite 4, Manchester, New Hampshire 03103
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 603-622-8668
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act: None
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(Title of Class)
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 past 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
[ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ x]
Issuer's revenues for its most recent fiscal year are $656,708. The aggregate
estimated market value of the voting stock held by non-affiliates of the issuer
as of December 31, 1996 is $-0- based upon the assumption that all directors and
officers of the Company, and their families, are affiliates. At December 31,
1996, 4,293,822 shares of common stock, $.001 par value per share, were
outstanding.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
RECENT DEVELOPMENTS
The registrant (the "Company" or "Shepherd") was incorporated in the State of
Nevada in 1985, under the name IMProCOM, Inc. and on March 11, 1996, changed its
name to InVision Technology, Inc. Since its founding, the Company has engaged
primarily in the design, development and marketing of computer based
technologies involving image graphics processing and data retrieval. In May
1996, the name of the Company was changed to Shepherd Surveillance Solutions,
Inc. in connection with a restructuring of the management and operations of the
Company, designed to enable the Company to better meet the demands of the
security market. A new chief executive was hired and the Company's headquarters
were relocated from Florida to Manchester, New Hampshire. The Company's decision
to relocate to New Hampshire was based on, among other things, availability of
resources (services and personnel), accessibility of transportation for products
and customers, and lower cost of operation.
A thorough analysis of the security market was conducted by the Company from
November 1995 until March 1996. This analysis indicated that the security
industry as a whole is estimated at $50 billion. The security industry can be
further broken down into electronic surveillance, which the Company estimates is
approximately $10 billion, and CCTV (Closed Circuit TeleVision) (which was and
is the Company's core business), which the Company estimates is approximately $3
billion, with a projected growth rate of 30% annually.
In addition to a review of the security market, an analysis was done of certain
competitors' products and business direction, as well as the trend in the
security industry to integrate CCTV with other security methods. The foregoing
led the Company's management to adopt fundamental changes in the Company's
business plans, which are being implemented across all operating functions as
follows:
DEVELOPMENT: The Company expects to focus now on developing generic security
software integrated with PC hardware to create modular, rather than customized
high-end, solutions to common video surveillance and security problems. Although
the development of hardware continues, the complete system solutions are
designed primarily to take advantage of the performance and cost advantage of
the Shepherd developed software. New products are designed by using existing
state-of-the-art technology from the computer industry to create PC-based video
and security management systems. Where it makes business sense, the Company will
try to create strategic relationships with other manufacturers to bring
competitive products to market quickly.
-3-
SALES: Rather than selling only to end users directly or limiting its sales
efforts only to the bidding process which can be costly, the Company's sales
efforts will be broadened and will focus on a worldwide basis to include
security distributors, dealers, integrators and Original Equipment Manufacturers
("OEMs"). Distribution arrangements have been set up covering 20 countries and
the Company is currently negotiating several key OEM deals. A West Coast
presence was established in the first quarter of fiscal 1997 to better address
dealer and integrator sales.
MARKETING: A new product roadmap was defined that supported the trend of
integrating video surveillance and security functions into the PC via hardware
and software products. A greater emphasis on public relations, advertising and
targeted trade show attendance, using dealers to provide presence at minor
shows, has been adopted. Marketing, like sales, is focused worldwide, no longer
limited to North America. Target customers are no longer just high-end, large
custom installations. The middle market, small to mid-sized CCTV installations,
are the Company's primary marketplace. The Company believes that these potential
customers represent the bulk of the market which, prior to the introduction of
PC-based security solutions, could not afford the high-end solutions.
CUSTOMER SERVICE: Focus has shifted away from providing site planning and
installation services to providing educational, training and technical support.
All installation and direct selling is done by the distributors and dealers.
Technical support will be set up to support the dealer and distributor training
and in the event they cannot resolve a particular issue.
BUSINESS OF REGISTRANT
The Company's systems provide generic surveillance hardware and software
solutions to various vertical markets requiring security. These markets include
and are not limited to retail, financial, facilities management, transportation,
correctional facilities, and environmental control. The open, non-proprietary
architecture of the Company's solutions allow for easy customization by OEMs,
system integrators and dealers and distributors. The Shepherd system solutions
also allow for easy integration into other surveillance markets including access
device control, camera control, environmental management and remote
surveillance. The Company's modularly designed system can be installed in a
custom solution or can be easily added into existing surveillance systems. The
Company believes that its new products will allow the end users to purchase
complete solutions from distributors, dealers and installers to meet their
surveillance needs, and that these products should not be difficult to install
and use.
The Company's technologies are currently geared to generic (not vertical market
specific) security applications. Providing a generic PC-based product to dealers
and
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integrators allows them to better service their customers for their specific
application and market needs by adding value. Such value can come in the form of
supplying cameras, monitors and other peripherals. More sophisticated
integrators can add additional customer benefits by utilizing Shepherd
diagnostic tools for technical support, customizing the user interface for a
particular application, (e.g., retail store, banking, facilities management), or
generating detailed reports using the Shepherd database.
Although the Company believes that the CCTV security industry offers great
opportunities, Shepherd products are designed to try to take advantage of
related markets, including integration with access device controls, and alarm
monitoring, as well as facilities and environmental management. Some industry
analysts predict that over the next few years various security facets should
become integrated into one product. The Company hopes that its modular and
easily customizable design will allow Shepherd to take advantage of the
increasing integration trend within the security industry.
The Company believes that the security industry, in general, is relatively
insulated from the fluctuations in overall economic activity, but has the
potential to be a growth industry of significant size. In general, the need for
electronic security systems is strongest where risk of exposure is greatest.
Financial institutions, government buildings, cultural institutions and museums,
military facilities and public utilities are primary examples of entities that
may have acute security needs. Such entities usually have less concern about
system cost and place greater value on reliability and effectiveness.
The Company has changed its focus from being just a "custom shop", focusing on
high-end jobs, to providing a product line available to all sizes of businesses.
In 1996, Shepherd began phasing out "older generation" products, such as
Pan-Tilt-Zoom (PTZ) controllers and separate alarm and relay boxes. The Company
also redefined, reconfigured and repackaged its existing line into discrete
components which may be sold as individual products in order to penetrate the
distribution, reseller and system integration marketplaces. The base line
technology for these new "box" products was derived from the Company's previous
high end, DOS-based Patriot systems. This development also provides past
customers with an upgrade path for their expanding surveillance needs without
having to replace their existing equipment. The modification, reconfiguration
and repackaging of the Company's products began in early 1996 and is planned to
continue throughout 1997. The Company began shipping new products from this
effort in the Summer of 1996.
In August of 1996, the Company announced its MiniPatriot, a Microsoft Windows
95TM surveillance management system, at the ISC Expo in New York City. The ISC,
one of the two largest domestic security trade shows, provided the Company with
an introduction for its newest product. Additionally, several of the major
security
-5-
publications carried an announcement in their issues over the following few
months. A full page, four-color ad campaign was run in three of the industry's
domestic trade magazines, as well as in three widely circulated European trade
magazines.
The Microsoft Windows 95 compatible MiniPatriot offers reliable, affordable
PC-based video surveillance for small and medium-sized businesses. This new
PC-based camera switching and control system delivers the power and
functionality of a large, computerized surveillance system in a small, modular
package.
The MiniPatriot supports picture-in-picture technology and up to 30 cameras. It
is based on an industry-standard Intel Pentium(TM) PC with up to 16MB RAM, a 1GB
hard drive, Shepherd's Surveillance-Manager Software and Microsoft's popular
Windows 95 operating system. All camera control functions, including switching,
pan, tilt, zoom and presets are initiated through the software.
Shepherd systems' modular and open, non-proprietary design allows customers to
pick and choose add-on products and functionality. The base system consists of
an Intel-based PC into which Shepherd's video switcher board is integrated.
Shepherd's Surveillance Management Software and Microsoft's Windows 95 operating
system are pre-installed. Dealers supply a PC monitor (standard or touchscreen),
additional TeleVision monitors, along with black and white or color cameras and
a videotape recorder. The software performs the system control and management
functions. Through the PC monitor, an operator, utilizing sophisticated graphics
software, can tune or reprogram system parameters, enhance images, examine alarm
situations close-up and review questionable events. The system continues
recording while these other functions are being performed.
A customer can add alarm monitoring functions and relay control by purchasing
Shepherd's Auxiliary Relay Unit (ARU) and Alarm Input Unit (AIU). The ARU
handles up to 24 relays which can include gates, lights and locks. The AIU
handles up to 48 alarms. Alarms can be generated by a number of different events
including motion detection, doors opening, or temperature changes. If a customer
requires pan tilt zoom control, they can purchase Shepherd's PTZ Driver unit for
each PTZ camera.
Under the modular concept, pricing of the product has been designed on a
features used basis. Customers with limited initial needs can reduce selected
features and accordingly lower their costs. As needs increase, features can be
quickly added. The introduction by the Company of its new modular "box"
products; such as the AIU and ARU, facilitates upgrades by customers.
The Company believes its technology is ahead of the security industry and that
none of its competitors currently offer products which operate in a fashion
similar to its PC based modular systems. No patents have been obtained, as the
Company believes
-6-
that the patent process would force disclosure of technological detail and
eventually erode competitive advantage. Design protection features have been
incorporated into the systems and the Company believes that such a course is
prudent.
During fiscal 1995 and for most of fiscal 1996, a significant part of the
Company's business was derived from a small number of customers. For the year
ending September 30, 1995, three (3) customers were responsible for
approximately 68% of the Company's revenues. For the year ending September 30,
1996, three (3) customers were responsible for approximately 79% of the
Company's revenues. The Company, with its adoption of fundamental changes in its
business plans, expects and hopes that such heavy reliance on a few customers
will diminish significantly.
The Mini Patriot system has been designed to keep the amount of production and
distribution resources to a minimum. A variety of vendors do the majority of
manufacturing and parts assembly. Computer software is designed and written by
the Company. All contracts with suppliers who modify commodity devices for the
Company include design protection agreements. Shepherd's current software is a
Windows 95 based package, in contrast to the older DOS based standard in the
video surveillance industry. The Company's present platform (Windows 95) is
adaptable to other advanced 32 bit applications (Windows NTTM) now released for
commercial use.
Where possible, the Company utilizes modular parts, boards, components and chips
made to its specifications. Final assembly and quality control of the system is
by the Company prior to shipment to the customer.
To enhance its penetration of the domestic marketplace, the Company has a
full-time employee in California, giving the company a presence on the West
Coast. This sales person intends to focus on integrators, dealers and
distributors. The sales office in New Hampshire primarily focuses on OEMs. The
Company's European office is located in the UK and has negotiated a strategic
partnership with Grange Associates ("Grange"), a national UK company well
established in the security industry. Grange's contacts have provided a low cost
and relatively fast entry into Europe and established credibility for the
Company's product lines and enabled penetration across markets. The Company is
negotiating an exclusive distribution agreement in Malaysia.
As of December 31, 1996, the Company had 30 employees, 27 of which are full
time.
ITEM 2. DESCRIPTION OF PROPERTY
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The Company leases approximately 10,000 square feet in one building for its
office, engineering and manufacturing space in Manchester, New Hampshire. The
Company believes the site is adequate for its use and is not materially
important to the business. The five year operating lease requires annual lease
payments which range from $40,000 in 1997 to $47,000 in 2001.
The Company incurs annual rental payments of approximately $12,500 in connection
with the European office.
ITEM 3. LEGAL PROCEEDINGS
As of the date hereof, there are no material pending legal proceedings to which
the Company is a party or of which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
By action of written consent dated as of September 10, 1996, the owner of record
of a majority of the outstanding voting capital stock (Trilon Dominion Partners
L.L.C.) of the Company replaced M. Thomas Makmann as William J. Hopke's
successor as a member of the board of directors and approved the adoption by the
Compensation Committee of the board of directors to provide nondiscretionary
option grants to M. Thomas Makmann for a total of 1,685,636 shares of the
Company's common stock.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established current public trading market for the Company's common
stock, and no dividends have been declared during the last two fiscal years with
respect to the common stock. At September 30, 1996, there were approximately 375
security holders of record.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESTATEMENT OF QUARTERLY FINANCIAL INFORMATION
As disclosed in Notes 8 and 10 to the Notes to Financial Statements included
herein, the Company entered into a settlement agreement with its former Chief
Executive Officer on October 17, 1995. Among other things, the agreement
provided for the release by the executive of deferred salaries aggregating
$456,384, which was
-7-
accrued as a liability at September 30, 1995. In its Quarterly Reports on Form
10-QSB for the three-month periods ended December 31, 1995, March 31, 1996 and
June 30, 1996, the Company's financial statements reflected the release of
deferred salaries as Additional Paid-In Capital. While preparing its financial
statements for its 1996 fiscal year, the Company determined that it is more
appropriate to record the $456,384 as a Gain on Litigation Settlement in the
Statement of Operations. The effect on the quarterly financial data previously
reported follows:
QUARTER ENDED:
-------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30,
1995 1996 1996
AS REPORTED:
Additional paid-in capital $6,226,714 $6,226,714 $6,226,714
Other income (expense) (26,185) (35,795) (44,129)
Net (loss) (210,662) (257,094) (729,826)
Net (loss) per share (.05) (.06) (.17)
As restated:
Additional paid-in capital $5,770,330 $5,770,330 $5,770,330
Other income (expense) 430,199 (35,795) (44,129)
Net income (loss) 245,722 (257,094) (729,826)
Net income (loss) per share .05 (.06) (.17)
RESULTS OF OPERATIONS
The accompanying Financial Statements included herein have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company has experienced
substantial operating losses for the past several years and, as of September 30,
1996, the Company has a shareholders' deficit of $3,461,242. In addition, the
Company's sales currently do not generate working capital sufficient to meet
future operating requirements. These factors indicate that the Company may be
unable to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to continue as a going
concern.
The Company's ability to continue in operation is dependent upon its ability,
among other things, to generate a significant increase in sales volume of its
new products, its ability to obtain the financing necessary to fund its expanded
operations and, ultimately, its ability to achieve profitable operations. At
present, it is not possible to determine the ultimate outcome of these matters.
For the year ended September 30, 1996 ("fiscal 1996"), the Company's revenues of
$656,708 were comprised as follows: approximately 60% represents revenue
deferred in 1995, but recognized in fiscal 1996 after satisfaction of
development/production contracts from prior years with two large customers;
approximately 30% represents hardware and software service work done in 1996 on
-8-
systems sold by the Company in prior years, most of which was invoiced on a time
and materials basis; and approximately 10% arose in the last two months of
fiscal 1996 from sales of the Company's new products. Total fiscal 1996 revenues
were approximately $507,000 higher than the previous year, principally due to
current year recognition of deferred revenues on the aforementioned contracts.
The large increases in selling, general and administrative expenses in fiscal
1996 over the previous year resulted from costs associated with promoting the
Company's revamped products and the concomitant expense of sales and
administrative staff to manage and support that effort.
Research and development increased by approximately $385,000 in fiscal 1996, a
direct reflection of the engineering costs necessary to achieve a level of
reliability acceptable to the Company for the software programming used in the
Company's current product line.
Interest expense increased approximately $137,000 over the prior year. This is
as a result of the much higher level of interest-bearing debt incurred by the
Company throughout fiscal 1996 which was obtained to fund the Company's product
line transition and operating expenses.
As discussed in Notes 8 and 10 of the Notes to Financial Statements appearing in
this Annual Report on Form 10-KSB, the gain on litigation settlement resulted
from the release of deferred salaries which were a liability of the Company at
September 30, 1995.
During fiscal 1995, the Company accrued an expense of $110,577 representing the
settlement of an employment contract. See Notes 8 and 10 of the Notes to
Financial Statements for a full discussion of this settlement.
As a result of operating losses, the Company made no provision for income taxes
in fiscal 1996 and fiscal 1995. At September 30, 1996, the Company has net
operating loss carryforwards of approximately $2,100,000 for federal income tax
purposes. These carryforwards will begin to expire in fiscal year 2011. See Note
6 of the Notes to Financial Statements for a full discussion of the Company's
accounting for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the 1.1 to 1 ratio of current assets to current
liabilities in the fiscal 1996 financial statements, as well as the total
Shareholders' Deficit, reflects the Company's current lack of liquidity.
-10-
Trilon Dominion Partners, L.L.C., a Delaware limited liability company
("Trilon"), the owner of 78% of the Company's outstanding common stock as of the
date hereof, advanced $2,734,000 to the Company during fiscal 1996, which was
the principal source of the Company's working capital for the year.
The Company had cash and cash equivalents of approximately $117,000 at September
30, 1996 and further borrowings were available from Trilon. The Company
subsequently borrowed approximately $1,152,000 during the first quarter of its
1997 fiscal year. See Notes 8 and 11 of the Notes to Financial Statements for a
full discussion of the Company's outstanding indebtedness.
During the next two fiscal quarters, the Company intends to apply any capital
received (from Trilon or others) to the continued development of its technology
and to the further positioning of its products in the market. Such costs will be
for engineering, promotion, marketing, and production materials. The Company
recently began preliminary negotiations with a commercial bank for an
asset-based line of credit.
The Company hopes it will generate enough positive cash flow to repay or
negotiate an appropriate repayment schedule for the long-term debt under the
credit agreement and the other borrowing arrangements with Trilon (see Item 12
below for further detail). The Company intends to use the resources described
above, and any additional capital raised or amounts borrowed, to continue its
development efforts to enhance its line of new products by further technological
research.
RISK FACTORS AND CAUTIONARY STATEMENTS
When used in this Form 10-KSB 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.
Forward-looking statements in this Annual Report on Form 10-KSB include but are
not limited to statements regarding the Company's: (i) hopes of generating
enough positive cash flow to repay its significant indebtedness and continue as
a going concern, (ii) belief that it can be competitive in the security systems
market, (iii) ability to develop new products, broaden its sales and expand its
marketing efforts, (iv) increase its sales, stay ahead of the technology in the
industry, and expand its business generally, (v) expectations that its heavy
reliance on a few customers will diminish significantly; (vi) belief that it can
focus on a middle market and can take advantage of the increasing integration
trend within the security industry, (vii) continued expansion. The Company
wishes to caution readers not to place undue reliance on
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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.
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's continued working capital and cash resources are dependent on
its ability to obtain additional financing in the future, as the Company's
operations currently generate minimal revenues or income.
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. 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 could have a material adverse effect on the Company.
o A single shareholder, Trilon Dominion Partners, L.L.C. ("Trilon"), which
has been the Company's principal lender, currently holds 3,367,802 shares
of common stock (78% of the outstanding common stock) and holds a warrant
to purchase 14,226,578 additional shares of the Company's common stock.
Trilon is and will be able to elect all of the Company's directors and,
generally, to direct the affairs of the Company. Trilon 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. In addition, with respect to and as consideration for other funds
borrowed from Trilon Dominion Partners, L.L.C., the Company intends to
issue additional warrants for shares of the Company's common stock.
o The Company has incurred recurring losses from operations and has a
significant shareholders' deficit. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
-11-
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.
ITEM 7. FINANCIAL STATEMENTS
This item is submitted in a separate section of this Annual Report on Form
10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Change in Certifying Accountant
By action of written consent, the Board of Directors of the Company approved the
engagement of Ernst & Young LLP, as its independent auditors for the fiscal year
ending September 30, 1996, to replace the firm of James Moore & Co., P.L., who
were dismissed as auditors of the Company effective as of November 25, 1996.
The reports of James Moore & Co., P.L. on the registrant's financial statements
for the past two fiscal years did not contain an adverse opinion or a disclaimer
of opinion. The reports of James Moore & Co., P.L. on the registrant's financial
statements of September 30, 1995 and 1994 were modified as to an uncertainty
over whether the registrant had the ability to continue as a going concern.
In connection with the audits of the Company's financial statements for each of
the two fiscal years ended September 30, 1994 and September 30, 1995, and in the
subsequent interim periods, there were no disagreements with James Moore & Co.,
P.L. on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of James Moore & Co., P.L., would have caused James Moore & Co.,
P.L. to make reference to the matters in their report.
The Company requested James Moore & Co., P.L. to furnish a letter addressed to
the Commission stating whether it agrees with the above statements. See Exhibit
16 hereto.
PART III
Item 9. Directors, Executive Officers, Significant Employees, Promoters and
Control Persons, Compliance with Section 16(a) of the Exchange Act.
The following table sets forth information with respect to the persons who are,
at the present time, directors and/or executive officers and significant
employees of the
-13-
Company. The terms of office of all the directors will expire on the later of
the 1997 Annual Meeting of Shareholders and the date on which their successors
are duly elected and qualified.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Period Served Expire
- ------------------------------------------------------- -------------------------------------- --------------
Jack R. Sauer, 44, director Director since Dec. 20, 1995 Feb. 1997
- ------------------------------------------------------- -------------------------------------- --------------
M. Thomas Makmann, 49, CEO, chief operating officer, Since June 1, 1996 Feb. 1997
acting chief financial officer, president and director
- ------------------------------------------------------- -------------------------------------- --------------
Ronald W. Cantwell, 53, vice-president, treasurer, Since Dec. 20, 1995 Feb. 1997
assistant secretary and director
- ------------------------------------------------------- -------------------------------------- --------------
Dorotea Abele, vice-president, marketing Since July 8, 1996 N/A
- ------------------------------------------------------- -------------------------------------- --------------
J. Roger Kirkland, vice-president sales-international Since July 1, 1996 N/A
- ------------------------------------------------------- -------------------------------------- --------------
John Leone, vice-president engineering Since July 1, 1996 N/A
- ------------------------------------------------------- -------------------------------------- --------------
Barry M. McGriff, vice-president sales-Americas Since July 1, 1996 N/A
- ------------------------------------------------------- -------------------------------------- --------------
</TABLE>
JACK R. SAUER, 44, has been the chairman of the Company since March 1, 1996, and
has been a director of the Company since December 20, 1995. A graduate of
Bernard M. Baruch College, Mr. Sauer is the chief financial officer,
vice-president and a director of VC Holdings, Inc. a Delaware corporation
("VCH"), which is wholly-owned by Ronald W. Cantwell. VCH has 100% of the voting
rights and management of Trilon Dominion Partners, LLC, a Delaware limited
liability company ("Trilon"), which is the majority stockholder of the Company.
Mr. Sauer is on the board of Accessware, Inc.
M. THOMAS MAKMANN, 49, served as the president and chief operating officer of
the Company from March 1996 until June 1996, at which time he became director of
the Company and was appointed CEO. A graduate of Michigan Technology University,
Mr. Makmann most recently served as the president of Sytron Corporation, a
wholly-owned subsidiary of Rexon Corporation, from 1993 to 1995. Prior to
joining Sytron, he held key managerial positions at Maxtor Corporation, Archive
Corporation, Shugart Associates, Memorex Corporation and Control Data
Corporation.
RONALD W. CANTWELL, 53, has been the vice-president, treasurer, assistant
secretary and director of the Company since December 20, 1995. A graduate of the
University of Wisconsin, Mr. Cantwell is the president, 100% owner and a
director of VCH. He is on the board of Odyssey Nutriceutical Science, Inc.,
Caldera Environmental Corporation and Morrison International, Inc.
DOROTEA ABELE, 39, was appointed Vice President of Marketing of the Company on
July 8, 1996. A graduate of Clark University, Ms. Abele most recently served as
the Director of Marketing for Seagate Software, previously Sytron Corporation,
since 1990.
J. ROGER KIRKLAND, 42, was appointed Vice President of Sales-International of
the Company on July 1, 1996. Mr. Kirkland most recently served as Vice President
of
-14-
Distribution sales for Rexon. Prior to joining Rexon in 1993, he was Managing
Director of ARKAY, a marketing consultant firm providing business channels into
Europe for Far Eastern companies.
JOHN C. LEONE, 46, was appointed Vice President of Engineering of the Company on
July 1, 1996. A graduate of the University of Maryland in 1975, Mr. Leone most
recently served as the VP of Operations for Open Technologies in Henniker, NH.
Prior to joining Open Technologies in 1987, he worked for Siemens Nixdorf as a
Principal Design Engineer.
BARRY M. MCGRIFF, 49, was appointed Vice President of Sales-Americas of the
Company on July 1, 1996. A 1971 graduate of the University of Minnesota, Mr.
McGriff most recently served as Managing Director of Rexon Europe. Prior to
joining Rexon in 1993, he was VP of Worldwide Sales at Quantum Corporation.
The Company has not yet established a slate of nominees for the 1997 Annual
Meeting of the Company's shareholders.
There are no family relationships among the Company's executive officers,
directors and significant employees.
Mr. Sauer and Mr. Cantwell are officers and directors of VCH.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
Annual Compensation Awards
- -------------------------------------------------------------------------------
(a) (b) (c) (g)
Name
and
Principal Fiscal Options/
Position Year Salary($) SARs (#)
---------- ---------- ------------
M. Thomas Makmann, CEO 1996 $48,750 1,685,636
Jack R. Sauer 1996 -0- -0-
CEO
1995 -0- -0-
1994 -0- -0-
Frederick Jenner resigned as CEO of the Company in January 1995. Effective at
that time, William Hopke became CEO of the Company and served as CEO until March
1, 1996. Effective as of March 1, 1996, Mr. Sauer became CEO of the Company. Mr.
Jenner resigned as the chairman of the Board of Directors and as the Chief
Technical Officer of the Company effective as of October 17, 1995.
Mr. Sauer served as CEO until June 1996, at which time Mr. Makmann was appointed
CEO of the Company.
-15-
There are no SARs. Pursuant to the 1996 Stock Option Plan, the Company granted
Mr. Makmann options to purchase 1,685,636 shares of common stock at $.01 per
share, none of which were exercisable at September 30, 1996.
The Company does not pay directors a fee for their services as directors.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1996
<S> <C> <C> <C> <C>
- ----------------------- --------------------- -------------------- --------------------- ----------------------
Number of % of Total Options
Securities Granted to
Underlying Options Employees in
Name Fiscal Year Exercise Price Expiration Date
- ----------------------- --------------------- -------------------- --------------------- ----------------------
M. Thomas Makmann 1,685,636 (1) 39.8% $.01 / share Five years from
grant date
- ----------------------- --------------------- -------------------- --------------------- ----------------------
</TABLE>
(1) Options become exercisable based on holding periods and on other criteria
relating to the operations of the Company.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
- ------------------------ ------------- ------------- ----------------------------- ------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Options at September 30, September 30, 1996
1996
- ------------------------ ------------- ------------- ----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ------------- ------------- ------------- --------------- ------------- ---------------
M. Thomas Makmann None $0 N/A 1,685,636 N/A None
- ------------------------ ------------- ------------- ------------- --------------- ------------- ---------------
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Beneficial Owner (Address included for Amount and Nature of Beneficial Percent of
persons known to hold more than 5%) Ownership Outstanding Stock
- ---------------------------------------------- ------------------------------- ------------------
Trilon Dominion Partners, LLC 3,367,802 owned directly (1) 78.4%
245 Park Avenue, 28th Floor
New York, NY
M. Thomas Makmann 0 0%
Jack R. Sauer* 0 0%
Ronald W. Cantwell* 3,367,802 owned indirectly (1) 78.4%
Dorotea Abele 0 0%
J. Roger Kirkland 0 0%
John C. Leone 0 0%
Barry M. McGriff 0 0%
-16-
All Officers and Directors as a Group 3,367,802 individually and 78.4%
jointly, record and beneficial
including those owned by Trilon
Dominion Partners, LLC
* Officers and Directors of VCH.
</TABLE>
(1) Trilon holds warrants to purchase an additional 14,226,578 shares of the
Company's common stock and the Company intends to issue additional warrants to
Trilon in connection with and as consideration for other and additional funds
borrowed by the Company from Trilon.
Note: The numbers shown above include duplication, because shares beneficially
owned by more than one person or entity are reported as beneficially owned by
all such persons or entities.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 1, 1995, Dominion Capital, Inc. ("Dominion"), a Virginia
corporation, finalized the transfer of its ownership of 3,367,802 shares of the
Company's common stock to Trilon in exchange for a non-voting Class B membership
interest in Trilon. The only other member of Trilon is VCH, the sole manager of
Trilon and the holder of 100% of the voting interests in Trilon.
During the year ended September 30, 1995, Dominion exercised a warrant for
2,650,000 shares of the Company's common stock pursuant to its existing
line-of-credit agreement with the Company. The warrant was exercisable by its
terms at $1.00 per share. In lieu of paying the exercise price in cash, Dominion
converted its outstanding loan to the Company, in the amount of $2,650,000, to
common stock.
During the year ended September 30, 1995, Dominion amended its line-of-credit
agreement with the Company to provide a total of $900,000 to draw on for
operations. At September 30, 1995, the Company had borrowings of $825,000
outstanding under this agreement. The remaining $75,000 was borrowed early in
fiscal 1996. Additionally, at September 30, 1996 and 1995 the Company had a
$100,000 promissory note outstanding under the same terms as the line-of-credit
agreement. On January 2, 1997, the Company obtained from Trilon an irrevocable
commitment to extend the maturity date of these notes from August 8, 1996 to
August 8, 2000, at an interest rate of prime plus 4% per annum. See Notes 8 and
11 of the Notes to Financial Statements for a full discussion of the Company's
outstanding indebtedness.
Pursuant to a certain credit agreement, dated as June 28, 1996, Trilon and the
Company entered into a new $1,611,000 bridge financing agreement. Under the
terms of the agreement, interest is payable on the principal amount of the debt
at prime plus 4%, payable quarterly, beginning in June 1997. During the first
year, the Company has the option to capitalize the interest to the existing
principal. The principal and any unpaid interest is due on June 28, 1999, 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 agreement is collateralized by substantially
all assets of the
-17-
Company. Trilon, in connection with this agreement, was also granted a warrant
to purchase 14,226,578 shares of common stock at an exercise price of $.01 per
share, as described further in Note 5 of the Notes to Financial Statements
included herein.
Also, during fiscal 1996 the Company obtained advances from Trilon totaling an
additional $1,048,000 as of September 30, 1996. These advances accrue interest
at a rate of 12.25% per annum. On January 2, 1997, the Company obtained from
Trilon an irrevocable commitment to enter into a credit agreement, which
provides for maximum borrowings of $2,200,000. Included in this amount is the
aforementioned $1,048,000. Subsequent to September 30, 1996, the Company
received advances on the remaining $1,152,000 commitment. Trilon's commitment
letter specifies a maturity in 1998, interest at prime plus 4% and a grant to
Trilon of an unspecified number of warrants to purchase shares of the Company's
common stock. See Notes 8 and 11 of the Notes to Financial Statements for a full
discussion of the Company's outstanding indebtedness.
During the year ended September 30, 1995, interest of $54,493 due to Dominion
was paid by the issuance of 54,493 shares of common stock, at $1.00 per share,
in lieu of a cash payment. No interest was paid during 1996 and, at September
30, 1996, the Company owed Trilon $246,047 in accrued interest on its
outstanding debt.
ITEM 13. 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 June 28, 1996, by and between the Company
and Trilon Dominion Partners, L.L.C., a Delaware limited liability
company ("Trilon")
10.2* Promissory Note, dated as of June 28, 1996, by the Company in favor of
Trilon
10.3* Warrant to Purchase 14,226,578 shares of the Company's common stock,
dated June 28, 1996, granted to Trilon
10.4 Commitment Letter, dated January 2, 1997, by Trilon to loan $2,200,000
to the Company
10.5 Commitment Letter, dated January 2, 1997, by Trilon to extend the
maturity date of the Company's $1,000,000 secured promissory note
10.6 Shepherd Surveillance Solutions, Inc. 1996 Stock Option Plan
16* Letter, dated November 26, 1996, from James Moore & Co., P.L., the
Company's former certifying accountant, to the Securities and Exchange
Commission regarding the change in the Company's certifying accountant
27 Financial Data Schedule
-18-
* Incorporated by the reference to the same numbered Exhibits to the
Company's quarterly report for the period ended March 31, 1996, filed
on Form 10-QSB.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant, and
in the capacities and on the dates indicated.
SHEPHERD SURVEILLANCE
SOLUTIONS, INC.
Date: January 13, 1997 By:/s/ M. Thomas Makmann
------------------------
M. Thomas Makmann
Chief Executive Officer
and Principal Financial
Officer
Date: January 13, 1997 /s/ M. Thomas Makmann
--------------------------
M. Thomas Makmann
Director, CEO, Principal
Financial Officer and
Principal Accounting Officer
Date: January 13, 1997 /s/ Ronald W. Cantwell
--------------------------
Ronald W. Cantwell
Director
Form 10-KSB - Annual Report
Item 7
Financial Statements
Year Ended September 30, 1996
Shepherd Surveillance Solutions, Inc.
7 Perimeter Road, Suite 4
Manchester, New Hampshire 03103
Report of Independent Auditors
Board of Directors and Shareholders
Shepherd Surveillance Solutions, Inc.
We have audited the accompanying balance sheet of Shepherd Surveillance
Solutions, Inc. as of September 30, 1996, and the related statements of
operations, shareholders deficit, and cash flows for the year then ended. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Shepherd Surveillance
Solutions, Inc. at September30, 1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 2 to
the financial statements, the Company has incurred recurring losses from
operations and has a shareholders deficit. These conditions raise substantial
doubt about the Companys ability to continue as a going concern. Managements
plans in regard to these matters are also described in Note 2 to the financial
statements. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Manchester, New Hampshire
December 12, 1996,
except for Note 11, as to which
the date is January 2, 1997
1
(JAMES MOORE & CO. LETTERHEAD)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Shepherd Surveillance Solutions, Inc.:
We have audited the accompanying statements of operations,
shareholders' deficit, and cash flows of Shepherd Surveillance Solutions, Inc.
(formerly known as InVision Technology, Inc.) for the year ended September 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Shepherd Surveillance Solutions, Inc. for the year ended September 30, 1995, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2 to the financial statements. The ultimate
outcome of these uncertainties cannot presently be determined. Accordingly, no
adjustments have been made in the accompanying financial statements.
/s/ James Moore & Co.
---------------------------
James Moore & Co.
Holly Hill, Florida
January 31, 1996
Shepherd Surveillance Solutions, Inc.
Balance Sheet
September 30, 1996
ASSETS (Note 8)
Current assets:
Cash and cash equivalents $116,770
Accounts receivable, less allowance for doubtful accounts
of $5,000 62,786
Inventories (Note 3) 370,999
Prepaid expenses and other current assets 30,122
--------
Total current assets 580,677
Property and equipment:
Furniture and equipment 139,283
Software and hardware (Note 4) 36,453
Leasehold improvements 40,807
--------
216,543
Accumulated depreciation and amortization 63,590
--------
152,953
Other assets 6,720
--------
Total assets $740,350
========
2
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 244,449
Accrued expenses 52,096
Interest payable to shareholder (Note 8) 246,047
-----------
Total current liabilities 542,592
Notes payable to shareholder (Note 8) 3,659,000
Lease commitments (Note 7)
Shareholders' deficit (Notes 5, 8, 10 and 11):
Common Stock, $.001 par value:
50,000,000 shares authorized
4,293,822 shares issued and outstanding 4,294
Additional paid-in capital 5,770,330
Accumulated deficit (9,235,866)
-----------
Total shareholders' deficit (3,461,242)
-----------
Total liabilities and shareholders' deficit $ 740,350
===========
See accompanying notes.
3
Shepherd Surveillance Solutions, Inc.
Statements of Operations
YEAR ENDED SEPTEMBER 30
1996 1995
----------------------------
Net revenues (Note 9) $ 656,708 $ 149,225
Cost of revenues 578,352 145,783
--------------------------
78,356 3,442
Costs and other operating expenses:
General and administrative 802,547 642,766
Selling and promotion 808,779 660,373
Research and development 497,176 112,034
Loss on holding inventory -- 310,636
Depreciation and amortization 16,124 171,085
---------------------------
Total costs and other operating expenses 2,124,626 1,896,894
---------------------------
Loss from operations (2,046,270) (1,893,452)
Other income (expense):
Interest expense (Note 8) (227,011) (89,623)
Loss on abandonment of assets (50,251) (86,702)
Gain on litigation settlement (Note 8) 456,384 --
Loss on impairment of long-lived assets -- (37,585)
Loss on contract termination (Notes 8 and 10) -- (110,577)
Gain on lease termination -- 20,677
Other - net (10,369) 5,821
--------------------------
Total other income (expense) 168,753 (297,989)
--------------------------
Net loss $(1,877,517) $(2,191,441)
==========================
Net loss per share $ (.43) $ (.44)
==========================
See accompanying notes.
4
Shepherd Surveillance Solutions, Inc.
Statements of Shareholders' Deficit
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated
-----------------------------
Shares Amount Capital Deficit Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 3,048,412 $3,049 $3,066,975 $(5,166,908) $(2,096,884)
Issuance of common stock (Note 8) 2,704,600 2,704 2,701,896 - 2,704,600
Net loss - - - (2,191,441) (2,191,441)
-----------------------------------------------------------------------------
Balance at September 30, 1995 5,753,012 5,753 5,768,871 (7,358,349) (1,583,725)
Retirement of common stock (Note 10) (1,459,190) (1,459) 1,459 - -
Net loss - - - (1,877,517) (1,877,517)
-----------------------------------------------------------------------------
Balance at September 30, 1996 4,293,822 $4,294 $5,770,330 $(9,235,866) $(3,461,242)
=============================================================================
</TABLE>
See accompanying notes.
5
Shepherd Surveillance Solutions, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1996 1995
------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,877,517) $(2,191,441)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization (including, for 1995,
allocation to selling and promotion, and research and
development) 16,124 228,641
Non-cash interest (Note 8) 227,011 54,493
Loss on abandonment of assets 50,251 86,702
Gain on litigation settlement (Note 8) (456,384) -
Loss on impairment of long-lived assets - 37,585
Other 5,000 923
Changes in operating assets and liabilities:
Accounts receivable 59,148 (87,822)
Inventories (115,651) 33,134
Prepaid expenses and other current assets (17,273) 6,939
Accounts payable 108,006 102,597
Accrued expenses 52,096 (26,623)
Accrued loss on open contracts (48,257) 48,257
Deferred revenue (265,993) 71,912
Deferred revenue on shipments to distributors (125,420) 125,420
Due to officer (Note 8) (110,577) 110,577
Accrued officers' salaries - (95,278)
Interest payable to shareholder - 19,036
Accounts payable to officers - (1,267)
Other assets (5,031) 8,114
------------------------------------------
Net cash used in operating activities (2,504,467) (1,468,101)
INVESTING ACTIVITIES
Purchase of property and equipment (130,978) (62,007)
Sale of property and equipment - 3,900
------------------------------------------
Net cash used in investing activities (130,978) (58,107)
FINANCING ACTIVITIES
Loans from shareholder 2,734,000 1,500,000
Proceeds from exercise of stock options - 107
------------------------------------------
Net cash provided by financing activities 2,734,000 1,500,107
------------------------------------------
Net increase (decrease) in cash and cash equivalents 98,555 (26,101)
Cash and cash equivalents at beginning of year 18,215 44,316
------------------------------------------
Cash and cash equivalents at end of year $ 116,770 $ 18,215
==========================================
</TABLE>
6
Shepherd Surveillance Solutions, Inc.
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1996 1995
------------------------------------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for interest - $ 16,094
Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock in lieu of cash payment on
debt (Note 8) - $ 2,650,000
Issuance of common stock in lieu of cash payment for interest
(Note 8) - $ 54,493
</TABLE>
See accompanying notes.
7
Shepherd Surveillance Solutions, Inc.
Notes to Financial Statements
September 30, 1996
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Shepherd Surveillance Solutions, Inc. (formerly, InVision Technology, Inc.) (the
"Company") adopted its name in May 1996. The Company was originally incorporated
under the name IMProCOM, Inc. in 1985 and, until 1996, was engaged in the
design, development, and production of large customized security management
systems for customers in the United States. During 1996, the Company
transitioned into a developer of fully-integrated security solutions based on a
PC system and started selling its line of new products through channels such as
dealers and distributors in the United States, Europe and the Pacific Rim.
The Company operates primarily in the security industry. Any negative factors
generally influencing this market segment could have a materially adverse effect
on the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and bank demand deposit accounts with maturities of three months or less at
the time of purchase.
CONCENTRATION OF CREDIT RISK
The Company provides credit to customers in the normal course of business,
generally without requiring collateral. It performs ongoing credit evaluations
of its customers and maintains allowances for potential credit losses. Any such
losses have been within the range of management's expectations.
8
Shepherd Surveillance Solutions, Inc.
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory is stated at the lower of cost, determined on the first-in, first-out
basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
provided for financial reporting purposes using the straight-line method over
estimated useful lives of 1 to 5 years.
REVENUE RECOGNITION
Revenue is generally recognized upon shipment. Where rights of return exist at
the time of sale, revenue is recognized only when conditions set forth in SFAS
No. 48, "Revenue Recognition When Right of Return Exists", are met, or when
rights of return have expired.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for the Company's cash and
cash equivalents and borrowings approximate their fair value.
NET LOSS PER SHARE
Net loss per share is computed based on the weighted average number of common
shares outstanding during the respective years: 4,364,296 in 1996 and 4,974,900
in 1995.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of shares at the date of grant. The
Company accounts for stock option grants in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and intends to continue to do so.
Accordingly, no compensation expense is recognized for stock option grants.
9
Shepherd Surveillance Solutions, Inc.
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
FOURTH QUARTER ADJUSTMENTS
The Company made adjustments to its financial statements in the fourth quarter
of fiscal 1996, including an inventory write-off of approximately $314,000 and
recognizing a loss of approximately $50,000 on abandonment of certain fixed
assets.
NEW ACCOUNTING STANDARD
In October 1995, Statement of Financial Accounting Standard No. 123, "
Accounting for Stock-Based Compensation," was issued which prescribes accounting
and reporting standards for all stock-based compensation plans. Under SFAS No.
123, companies are encouraged, but not required, to adopt the fair value method
of accounting for such plans. Companies can continue to follow the intrinsic
value method of accounting under APB Opinion No. 25, but are required to
disclose the pro-forma information regarding stock-based compensation plans
under the fair value method required by SFAS No. 123. The Company will be
required to adopt the SFAS No. 123 disclosures in fiscal 1997.
2. GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. The Company has experienced substantial operating
losses for the past several years and, as of September 30, 1996, the Company has
a shareholders' deficit of $3,461,242. In addition, the Company's sales
currently do not generate working capital sufficient to meet future operating
requirements. These factors indicate that the Company may be unable to continue
as a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
The Company's ability to continue in operation is dependent upon its ability to
generate a significant increase in sales volume of its new products, its ability
to obtain the financing necessary to fund its expanded operations and,
ultimately, its ability to achieve profitable operations. At present, it is not
possible to determine the ultimate outcome of these matters.
10
Shepherd Surveillance Solutions, Inc.
Notes to Financial Statements (continued)
3. INVENTORIES
Inventories consist of the following at September 30, 1996:
Raw materials $178,999
Work-in-progress 13,286
Finished goods 178,714
----------
$370,999
==========
During 1996, the Company wrote-off inventory of approximately $ 314,000. This
was a consequence of the Company's redesign of product models, resulting in
reengineered components for production units. Accordingly, all materials used in
production models of prior years were written off in 1996.
4. CAPITALIZED SOFTWARE AND HARDWARE
Prior to 1995, certain software and hardware modification and enhancement costs
developed by the Company were capitalized. During the year ended September 30,
1995, the estimated useful lives of these assets were revised to reflect their
inability to generate significant revenue. Amortization and depreciation of
these costs, included in depreciation and amortization expense for the year
ended September 30, 1995, was $132,593. At September 30, 1995, these assets had
a net book value of $0.
During 1996, the Company did not capitalize any software costs. All research and
development expenditures are charged to operations as incurred.
5. Stock Options and Warrants
Prior to 1995, executives were granted options to purchase shares of the
Company's common stock at a range of $.25 to $1.00 per share. The 1,264,893
options outstanding at September 30, 1995 were conveyed to the Company and
cancelled on October 17, 1995, as part of a settlement of litigation between the
Company and certain former executives (see Note 10).
11
Shepherd Surveillance Solutions, Inc.
Notes to Financial Statements (continued)
5. STOCK OPTIONS AND WARRANTS (CONTINUED)
On September 30, 1996, the Company adopted the 1996 Stock Option Plan, which
provides for options to be granted to employees for the purchase of the
Company's common stock. Pursuant to the Plan, the Company has reserved 5,297,714
shares for issuance of options. As of September 30, 1996, options have been
granted to purchase 4,238,168 shares at an exercise price of $.01 per share, the
estimated fair market value of the shares at the date of grant. Options become
exercisable based on holding periods after the grant date and, in certain
instances, on other criteria relating to the operations of the Company. At
September 30, 1996, no options are exercisable.
Additionally, in connection with the bridge financing agreement described in
Note 8, the majority shareholder was granted a warrant to purchase 14,226,578
shares of common stock at an exercise price of $.01 per share, the estimated
fair market value per share at the date of grant. The warrant expires June 28,
2001.
Outstanding warrants and options are summarized as follows:
WARRANTS OPTIONS
-------------------------------
Outstanding at September 30, 1994 2,762,200 1,265,000
Expired (112,200) -
Exercised (at $1.00 per share) (2,650,000) (107)
-------------------------------
Outstanding at September 30, 1995 - 1,264,893
Cancelled - (1,264,893)
Granted 14,226,578 4,238,168
===============================
Outstanding at September 30, 1996 14,226,578 4,238,168
===============================
During the year ended September 30, 1995, 2,650,000 warrants were exercised as
described in Note 8. No options or warrants were exercised during the year ended
September 30, 1996.
12
Shepherd Surveillance Solutions, Inc.
Notes to Financial Statements (continued)
6. Income Taxes
The Company accounts for income taxes according to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
recognition of deferred income taxes for the difference between the financial
statement and tax bases of assets and liabilities, utilizing current tax rates.
Valuation allowances are established to reduce any deferred tax assets to an
amount that will more likely than not be realized.
The Company has net operating loss carryforwards of approximately $2,100,000 at
September 30, 1996 for federal income tax purposes. These carryforwards will
begin to expire in fiscal year 2011.
Components of the Company's deferred tax assets and liabilities at September 30,
1996 are as follows:
Deferred tax assets:
Net operating loss carryforwards $733,000
Interest payable to shareholder 86,000
Other 5,000
--------------------
Deferred tax assets 824,000
Deferred tax liabilities:
Depreciation (4,000)
--------------------
Net deferred tax assets 820,000
Valuation allowance (820,000)
--------------------
$ -
====================
The net change in the valuation allowance for the year ended September 30, 1996
was a decrease of $228,900 due to the change in the composition of temporary
differences.
13
Shepherd Surveillance Solutions, Inc.
Notes to Financial Statements (continued)
7. OPERATING LEASES
Rent expense in fiscal years 1996 and 1995 was approximately $84,000 and
$133,000, respectively. Throughout most of fiscal 1996, the Company leased
office space and equipment on a month-to-month basis. In August 1996, the
Company executed a five-year lease for office, engineering and manufacturing
space. Future minimum commitments under noncancelable operating leases are:
1997 $ 40,000
1998 42,000
1999 43,000
2000 45,000
2001 and thereafter 47,000
------------------
$217,000
==================
8. RELATED PARTY TRANSACTIONS
LOANS FROM SHAREHOLDER
During the year ended September 30, 1995, the majority shareholder of the
Company exercised a warrant for 2,650,000 shares of the Company's common stock
pursuant to its existing line-of-credit agreement with the Company. The warrant
was exercisable by its terms at $1.00 per share. In lieu of paying the exercise
price in cash, the majority shareholder converted its outstanding loan to the
Company, in the amount of $2,650,000, to common stock.
During the year ended September 30, 1995, the majority shareholder amended its
line-of-credit agreement with the Company to provide a total of $900,000 to draw
on for operations. At September 30, 1995, the Company had borrowings of $825,000
outstanding under this agreement. The remaining $75,000 was borrowed early in
fiscal 1996, with total borrowings of $900,000 outstanding at September 30,
1996. Additionally, at September 30, 1996 and 1995, the Company had a $100,000
promissory note outstanding under the same terms as the line-of-credit
agreement. Borrowings under both of these agreements had a scheduled maturity
date of August 8, 1996 (see Note 11).
14
Shepherd Surveillance Solutions, Inc.
Notes to Financial Statements (continued)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
In June 1996, the majority shareholder and the Company entered into a new
$1,611,000 bridge financing agreement. Under the terms of the agreement,
interest is payable on the principal amount of the debt at prime plus 4%,
payable quarterly, beginning in June 1997. During the first year, the Company
has the option to capitalize the interest to the existing principal. The
principal and any unpaid interest is due on June 28, 1999 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 agreement is collateralized by substantially all
assets of the Company. The majority shareholder, in connection with this
agreement, was also granted a warrant to purchase 14,226,578 shares of common
stock at an exercise price of $.01 per share, as described in Note 5.
Additionally, during fiscal 1996, the Company obtained advances from the
majority shareholder totaling an additional $1,048,000 as of September 30, 1996
(see Note 11). These advances accrue interest at a rate of 12.25%.
During the year ended September 30, 1995, interest of $54,493 due to the
majority shareholder was paid by the issuance of 54,493 shares of common stock,
at $1.00 per share, in lieu of a cash payment. No interest was paid during 1996
and, at September 30, 1996, the Company owed the majority shareholder $246,047
in accrued interest on its outstanding debt.
ACCRUED SALARIES
Prior to 1995, a former executive of the Company elected to partially defer
certain salary obligations of the Company. Total deferred salaries as of
September 30, 1995 was $456,384. On October 17, 1995, as part of a litigation
settlement, as described in Note 10, the Company was released of its obligation
to pay this liability and recorded the release of the deferred salaries as a
gain on litigation settlement.
15
Shepherd Surveillance Solutions, Inc.
Notes to Financial Statements (continued)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
DUE TO OFFICER
Prior to 1995, the Company executed an employment agreement with its then
president. On October 17, 1995, as part of a litigation settlement described in
Note 10, the Company was released of any commitments to the former president
under the employment agreement and, thereby, incurred an expense of $110,577.
This amount was accrued in the financial statements as of September 30, 1995 and
paid to the former president during the first quarter of fiscal 1996.
9. SIGNIFICANT CUSTOMERS
During fiscal 1995 and for most of fiscal 1996, a significant part of the
Company's business was derived from a small number of customers. For the year
ended September 30, 1995, approximately 68% of the Company's revenues were
attributable to three customers (27%, 22% and 19% of total revenues,
respectively). For the year ended September 30, 1996, approximately 79% of
revenues were attributable to three customers (38%, 29% and 12% of total
revenues, respectively).
10. LITIGATION AND SETTLEMENT AGREEMENT
In February 1995, litigation was instituted by former executives against the
Company, the majority shareholder, and three members of the Company's Board of
Directors.
On October 17, 1995, the Company and its former president agreed to release one
another from all commitments arising out of an employment agreement. In exchange
for the Company terminating the agreement, the former president agreed to
forfeit to the Company his 107 shares of the Company's common stock and
outstanding options to purchase an additional 64,893 shares. The release
resulted in an expense to the Company of $110,577. A provision of $110,577 was
charged to operations for the year ended September 30, 1995.
16
Shepherd Surveillance Solutions, Inc.
Notes to Financial Statements (continued)
10. Litigation and Settlement Agreement (continued)
On October 17, 1995, the terms of a settlement agreement with the Company's
former CEO, dated September 5, 1995, were satisfied, resulting in the forfeiture
by the former CEO of 1,459,083 shares of the Company's common stock and
cancellation of options to purchase an additional 1,200,000 shares of stock. The
former CEO also agreed to release a claim for deferred salary, as described in
Note 8, which was recorded by the Company as a gain in fiscal 1996.
11. Subsequent Event
On January 2, 1997, the Company obtained an irrevocable commitment to enter into
a credit agreement with the majority shareholder which provides for maximum
borrowings of $2,200,000. Included in this amount are advances received by the
Company aggregating $1,048,000 during fiscal 1996 (see Note 8) and outstanding
at September 30, 1996. Subsequent to September 30, 1996, the Company received
advances on the remaining $1,152,000 under the commitment. The commitment letter
specifies a maturity in 1998 and interest at prime plus 4%. The commitment
letter also requires the Company to grant to the majority shareholder an
unspecified number of warrants.
On January 2, 1997, the Company also obtained an irrevocable commitment from the
majority shareholder to extend the maturity date on the $1,000,000 of promissory
notes due to the majority shareholder at September 30, 1996 (see Note 8) from
August 8, 1996 to August 8, 2000 at an interest rate of prime plus 4%.
As a result of the Company obtaining the aforementioned commitment letters
specifying maturity dates on the borrowings which extend beyond one year, the
$1,048,000 and $1,000,000 outstanding at September 30, 1996 have been classified
as non-current liabilities on the balance sheet.
17
Shepherd Surveillance Solutions, Inc.
Notes to Financial Statements (continued)
12. Restatement of Quarterly Financial Information (Unaudited)
As disclosed in Notes 8 and 10, the Company executed a settlement agreement with
its former CEO on October 17, 1995. Among other things, the agreement provided
for the release by the former CEO of a claim for deferred salaries aggregating
$456,384, which was accrued as a liability at September 30, 1995. In its
Quarterly Reports on Form 10-QSB for December 31, 1995, March 31, 1996 and June
30, 1996, the Company's financial statements reflected the release of deferred
salaries as Additional Paid-In Capital. While preparing its September 30, 1996
financial statements, the Company determined that it is more appropriate to
record the $456,384 as a Gain on Litigation Settlement in the Statement of
Operations. The effect on reported quarterly financial data follows:
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
------------------------------------------------
As reported:
Additional paid-in capital $6,226,714 $6,226,714 $6,226,714
Other income (expense) (26,185) (35,795) (44,129)
Net (loss) (210,662) (257,094) (729,826)
Net (loss) per share (.05) (.06) (.17)
As restated:
Additional paid-in capital $5,770,330 $5,770,330 $5,770,330
Other income (expense) 430,199 (35,795) (44,129)
Net income (loss) 245,722 (257,094) (729,826)
Net income (loss) per share .05 (.06) (.17)
18
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.
-2-
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.
-2-
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.
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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.
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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
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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.
January 2,1997
M. Thomas Makmann, President
Shepherd Surveillance Solutions, Inc.
7 Perimeter Road, Suite 4
Manchester, NH 03103
Re: Commitment to Loan Funds
Dear Mr. Makmann:
This letter hereby confirms the irrevocable commitment of Trilon
Dominion Partners, L.L.C. ("Trilon"), to loan a minimum of $2,200,000 (the
"Loan"), to Shepherd Surveillance Solutions, Inc. (the "Company") in exchange of
the covenant by the Company to execute and deliver to Trilon a Secured Term
Promissory Note in the principal amount of $2,200,000 and bearing interest at
Prime rate plus 4% per annum, and the issuance of warrants. The Secured Term
Promissory Note shall evidence the Company's obligation to repay the principal
amount of the Loan and any accrued interest and shall mature in 1988 and certain
other terms and conditions consistent with the Company's and Trilon's previous
agreements.
We also confirm hereby that from August 1 through December 31 of 1996,
the total amount of the Loan has been delivered to the Company.
We hereby consent to the furnishing of a copy of this letter to Ernst &
Young LLP, and the reliance of such firm upon this letter, in connection with
the completion of its audit of the Company's financial statements for the fiscal
year ended September 30,1996.
By: /s/ Jack R. Sauer
------------------------
Title: Vice President
January 2,1997
M. Thomas Makmann, President
Shepherd Surveillance Solutions, Inc.
7 Perimeter Road, Suite 4
Manchester, NH 03103
Re: Commitment to Extend Maturity Date
Dear Mr. Makmann:
This letter hereby confirms the irrevocable commitment of Trilon
Dominion Partners, L.L.C. ("Trilon"). Pursuant to a Credit Agreement currently
being negotiated, to extend the maturity date of the $1,000,000 secured
promissory note to Shepherd Surveillance Solutions, Inc. (the"Company") in favor
of Trilon from August 8,1996 to August 8,2000. Such note will bear at the prime
rate plus 4%.
We hereby consent to the furnishing of a copy of this letter to Ernst &
Young LLP, and the reliance of such firm upon this letter, in connection with
the completion of its audit of the Company's financial statements for the fiscal
year ended September 30,1996.
By:/s/ Jack R. Sauer
------------------------
Title: Vice President
EXHIBIT 10.6
SHEPHERD SURVEILLANCE SOLUTIONS, INC.
1996 STOCK OPTION PLAN
1. PURPOSE. The purpose of the Shepherd Surveillance Solutions. Inc. 1996 Stock
Option Plan is to encourage ownership of the Stock by key employees of and
consultants to the Company and its Related Corporations and to provide
additional incentive for them to promote the success of the Company's business.
The Plan is intended to be an incentive stock option plan within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, but not all of the
options granted hereunder need be Incentive Options within the meaning of
Section 422 of the Code.
2. DEFINITIONS. As used herein the following terms shall have the following
meanings:
2.1 BOARD means the Board of Directors of the Company.
2.2 CHANGE IN CORPORATE CONTROL means the date on which any individual
corporation, partnership or other person or entity (together with its
"Affiliates" and "Associates," as defined in Rule 12b-2 under the Securities
Exchange Act of 1934 as amended), which does not "beneficially own" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934 as amended), in the
aggregate 20% or more of the outstanding shares of capital stock of the Company
entitled to vote generally in the election of directors of the Company, acquires
and 'beneficially owns" in the aggregate 20% or more of such capital stock.
2.3 CODE means the Internal Revenue Code of 1986, as amended.
2.4 COMMITTEE means the Compensation Committee of the Company's Board
of Directors.
2.5 COMPANY means Shepherd Surveillance Solutions, Inc., a corporation
organized under the laws of the State of Nevada.
2.6 EXERCISE PRICE means the price paid by an Optionee upon the
exercise of an Option under this Plan.
2.7 FAIR MARKET VALUE means the value of a share of Stock on any date
as determined by the Committee.
2.8 GRANT DATE means the date on which an Option is granted, as
specified in Section 7.
2.9 INCENTIVE OPTION means an option which qualifies for tax treatment
as an "Incentive stock option" under Section 422 of the Code.
2.10 MAJOR SHAREHOLDER means a person who, within the meaning of
Section 422(b)(6) of the Code, is deemed to own capital stock possessing more
than 10% of the total combined voting power of all classes of capital stock of
the Company (or any Related Corporations).
2.11 NONSTATUTORY OPTION means any Option that is not an Incentive
Option.
2.12 OPTION means an option to purchase shares of the Stock granted
under the Plan.
2.13 OPTION AGREEMENT means an agreement between the Company and an
Optionee, setting forth the terms and conditions of an Option.
2.14 OPTION SHARE means any share of Stock transferred to an Optionee
upon exercise of an Option pursuant to this Plan.
2.15 OPTIONEE means a person eligible to receive an Option, as provided
in Section 6, to whom an Option shall have been granted under the Plan.
2.16 PLAN means this 1996 Stock Option Plan of the Company, as amended
from time to time.
2.17 RELATED CORPORATION means a current or future Parent Corporation
or a Subsidiary Corporation, each as defined in Section 424 of the Code.
2.18 SECURITIES ACT means the Securities Act of 1933, as amended.
2.19 STOCK means the common stock, $.001 par value, of the Company.
3. TERM OF THE PLAN. Options may be granted under the Plan at any time during
the period beginning on the date of approval of the Plan by the Board and ending
immediately prior to the tenth anniversary of the earlier of the adoption of the
plan by the Board or approval of the Plan by the Company's shareholders. Options
granted prior to shareholder approval of the Plan are hereby expressly
conditioned upon such approval, and shall be void ab initio in the event the
shareholders of the Company shall fail to approve the Plan within twelve (12)
months of the Board's approval of the Plan.
4. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 17 of the
Plan, the number of shares of the Stock which may be issued pursuant to the
exercise of Options granted under the Plan plus the number of shares then
issuable upon exercise of outstanding Options granted under the Plan shall at
no time exceed 5,297,714. Shares of Stock to be issued upon the exercise of
Options granted under the Plan may be either authorized but unissued shares or
shares held by the Company in its treasury. If any Option expires, terminates,
or is canceled for any reason without having been exercised in full. the shares
of Stock not purchased thereunder shall again be available for Options
thereafter to be granted. Each Optionee may not be granted more than 2,648,857
Option Shares in any given year under the Plan.
5. ADMINISTRATION. The Plan shall be administered by the Committee, or in the
event no Committee has been established by the Board of Directors. by the Board,
in accordance with this Section 5. Subject to the provisions of the Plan and the
provisions of Section 422 of the Code and applicable regulations issued pursuant
thereto, the Committee shall have sole authority, in its absolute discretion, to
make the following determinations with respect to each Option to be granted by
the Company: (a) the key employee or key advisor or consultant to receive the
Option; N the time or times of the granting the Option; (c) the number of shares
of Stock subject thereto: (d) the terms of such Options; and (e) whether any
Options are intended to be an Incentive Option or a Nonstatutory Option. In
making such determinations, the Committee may take into account the nature of
the services rendered by the key employees and key advisors, their present and
potential to the success of the Company and any Related Corporations, and such
other factors as the Committee in its discretion shall deem relevant. Subject to
the provisions of the Plan, the Committee shall also have complete authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the terms and provisions of the respective Stock
Option Agreements (which need not be identical), and to make all other
determinations necessary or advisable for the administration of the Plan. The
Committee's determinations on the matters referred to in this Section 5 shall be
conclusive. The members of the Committee shall consist solely of members of the
Board.
6. ELIGIBILITY. An Option may be granted only to a key employee of or key
advisor or consultant to one or more of the Company and any Related
Corporations. A director of one or more of the Company and its Related
Corporations who is not also an employee or consultant of one or more of the
Company and its Related Corporations shall not be eligible to receive an Option.
A Major Shareholder shall be eligible to receive an Incentive Option only if the
Option Price is at least 110% of the Fair Market Value on the Grant Date and
only if the Incentive Option expires, to the extent not theretofore exercised,
no later than immediately prior to the fifth anniversary of the Grant Date.
7. TIME OF GRANTING OPTIONS. The granting of an Option shall take place at the
time specified by the Committee. Upon granting of an Option, each holder of such
Option shall be required to execute and deliver to the Company a Stock Option
Agreement which may contain certain terms and conditions to which the holder
agrees to be bound. Only if expressly so provided by the Committee, shall the
Grant Date be the date on which a Stock Option
Agreement shall have been duly executed and delivered by the Company and the
Optionee.
8. EXERCISE PRICE. The Exercise Price under each Incentive Option shall be not
less than 100% of the Fair Market Value of the Stock on the Grant Date except
that the Exercise Price under an Incentive Option granted to a Major Shareholder
must be not less than 110% of such Fair Market Value. The Exercise Price under
each Nonstatutory Option shall not be so limited solely by reason of this
Section 8.
9. OPTION PERIOD. No Incentive Option may be exercised later than immediately
prior to the tenth anniversary of the Grant Date or, for an Incentive Option
granted to a Major Shareholder, the fifth anniversary of the Grant Date. The
Option period under each Nonstatutory Option shall not be so limited solely by
reason of this Section 9. An Option may be immediately exerciseable or become
exerciseable in such installments, cumulative or non-cumulative, as the
Committee may determine. In case of an Option not otherwise immediately
exerciseable in full, the Committee may accelerate the exercisability of such
Option in whole or in part at any time, provided the acceleration of the
exercisability of any Incentive Option would not cause the Option to fail to
comply with the provisions of Section 422 of the Code. Upon a Change in
Corporate Control, each outstanding Option shall immediately become fully
exercisable.
10. MAXIMUM SIZE OF OPTION. An Incentive Option shall be considered to be an
Incentive Option only to the extent that the number of shares of Stock for which
the Option first becomes exerciseable in a calendar year do not have an
aggregate Fair Market Value (determined as of the date of the grant of the
Option) in excess of $100,000 minus the aggregate Fair Market Value at the date
of grant of the number of shares of Stock available for purchase for the first
time in the same year under each other Incentive Option previously granted to
the Optionee under the Plan. Any Options granted with respect to any shares of
Stock which exceed the foregoing limit shall be deemed to be a separate
Nonstatutory Option, otherwise identical in its terms to those of the Incentive
Option, governed by the same Stock Option Agreement.
11. EXERCISE OF OPTION. Subject to the provisions of Section 12, an Option may
be exercised by giving written notice, in the manner provided in Section 22
hereof, the number of shares with respect to which the Option is being
exercised, accompanied by (a) full payment for such shares in the form of check
or bank draft payable to the order of the Company, (b) certificates representing
shares of the Stock (1) with a current Fair Market Value equal to the Option
Price of the shares to be purchased and (ii) which have been held for at least
six months (or such other period as the Committee may determine is required to
avoid adverse accounting effects) endorsed for transfer to the Company or
accompanied by appropriately signed stock powers, (c) irrevocable instructions
to a brokerage firm to sell a sufficient number of the Option Shares to generate
the full exercise price plus all applicable withholding taxes and to pay over to
the Company such proceeds of sale, or (d) any combination of the foregoing.
Receipt by the Company of such notice and payment shall constitute the exercise
of the Option or a part thereof The Company shall thereafter deliver or cause to
be delivered to the Optionee a certificate or certificates for the number of
shares then being purchased by the Optionee. Such shares shall be fully paid and
non-assessable. If any law or applicable regulation of the Securities and
Exchange Commission or other body having jurisdiction in the premises shall
require the Company or the Optionee to take any action in connection with shares
of Stock being purchased upon exercise of the option, exercise of the option and
delivery of the certificate or certificates for such shares shall be postponed
until completion of the necessary action, which shall be taken at the Company's
expense.
12. STOCK PURCHASE AGREEMENT/RESTRICTIONS ON ISSUE of SHARES. Each Optionee upon
exercise of an Option, at the request of the Company, shall be required to sign
a Stock Purchase Agreement representing, in form satisfactory to counsel for the
Company that he or she will not transfer, sell or otherwise dispose of the
Option Shares, in a manner which would violate the Securities Act, and the
regulations of the Securities and Exchange Commission thereunder; and the
Company may, at its discretion, make a notation on any certificates issued upon
exercise of options to the effect that such certificate may not be transferred
except after receipt by the Company of an opinion of counsel satisfactory to it
to the effect that such transfer will not violate such Act and such regulations,
and may issue "stop transfer" instructions to its transfer agent, if any, and
make a "stop transfer" notation on its books as appropriate. Such Stock Purchase
Agreement shall include such other provisions as the Committee may determine are
appropriate.
13. PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION
13.1. INVESTMENT REPRESENTATION. Unless the shares to be issued upon
exercise of an Option granted under the Plan have been effectively registered
under the Securities Act, the Company shall be under no obligation to issue any
shares covered by any Option unless the person who exercises such Option, in
whole or in part, shall give a written representation to the Company which is
satisfactory in form and substance to its counsel and upon which the Company may
reasonably rely, that he or she is acquiring the shares issued pursuant to such
exercise of the Option of his or her own account for the purpose of investment
and not with a view to, or for sale in connection with, the distribution of any
such shares.
13.2. REGISTRATION. If the Company shall deem it necessary or desirable
to register under the Act or other applicable statutes any shares with respect
to which an Option shall have been granted, or to qualify any such shares for
exemption from the Act or other applicable statutes, then the Company shall take
such action at its own expense. The Company may require
from each Option holder, or each holder of shares of Stock acquired pursuant to
the Plan, such information in writing for use in any registration statement,
prospectus, preliminary prospectus or offering circular as is reasonably
necessary for such purpose and may require reasonable indemnity to the Company
and its officers and directors from such holder against all losses, claims,
damage and liabilities arising from such use of the information so furnished and
caused by any untrue statement of any material fact therein or caused by the
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made. In addition, the Company may require of any such
person that he or she agree that, without the prior written consent of the
Company or any applicable managing underwriter, he or she will not sell, make
any short sale of, loan, grant any option for the purchase of, pledge or
otherwise encumber. or otherwise dispose of, any shares of Stock during the 180
day period commencing on the effective date of the registration statement
relating to such underwritten public offering of securities.
14. NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF SPECIFIED HOLDING
PERIOD. The Company may require that the person exercising an Incentive Option
give a written representation to the Company, satisfactory in form and substance
to its counsel and upon which the Company may reasonably rely, that he or she
will report to the Company any disposition of shares purchased upon exercise
prior to the expiration of the holding periods specified by Section 422(a)(1) of
the Code. If and to the extent that the disposition imposes upon the Company
federal, state. local or other withholding tax requirements, or any such
withholding is required to secure for the Company an otherwise available tax
deduction, the Company shall have the right to require that the person making
the disposition remit to the Company an amount sufficient to satisfy those
requirements.
15. TERMINATION OF ASSOCIATION. In the event that the Optionee's association
with the Company and the Related Corporations is terminated for any reason other
than death. or the recipient of the Optionee's services ceases to be the Company
or a Related Corporation, the Option, to the extent exercisable at such
termination or cessation, as the case may be, may be exercised by the Optionee
at any time within 30 days after termination or cessation, as the case may be,
unless terminated earlier by its terms. If termination results from the death of
the Optionee, the Option, to the extent exercisable at the date of death, may be
exercised by the person to whom the Option is transferred by will or the
applicable laws of descent and distribution, at any time within 12 months after
the date of death, unless terminated earlier by its terms. Military or sick
leave shall not be deemed a termination of employment provided that it does not
exceed the longer of 90 days or the period during which the absent employee's re
employment rights are guaranteed by statute or by contract.
16. TRANSFERABILITY OF OPTIONS. Options shall not be transferable, otherwise
than by will or the laws of descent and distribution, and may be exercised
during the life of the Optionee only by the Optionee.
17. ADJUSTMENT OF NUMBER OF SHARES.
17.1. STOCK DIVIDEND, ETC. in the event of any stock dividend payable
in Stock or any split-up or contraction in the number of shares of Stock after
the date of the Option Agreement and prior to the exercise in full of the
Option, the number of shares subject to such Option Agreement and the price to
be paid for each share subject to the Option shall be proportionately adjusted.
17.2 STOCK RECLASSIFICATION. In the event of any reclassification or
change of outstanding shares of Stock, shares of stock or other securities
equivalent in kind and value to those shares an Optionee would have received if
he or she had held the full number of shares of Stock subject to the Option
immediately prior to such reclassification or change and had continued to hold
those shares (together with all other shares, stock and securities thereafter
issued in respect thereof) to the time of the exercise of the Option shall
thereupon be subject to the Option.
17.3 CONSOLIDATION OR MERGER. Subject to the remainder of this Section
17.3, in the event of any consolidation or merger of the Company with or into
another company or in case of any sale or conveyance to another company or of
the property of the Company as a whole or substantially as a whole, shares of
stock or other securities equivalent in kind and value to those shares and other
securities an Optionee would have received if he or she had held the full number
of shares of Stock remaining subject to the Option immediately prior to such
consolidation, merger, sale or conveyance and had continued to hold those shares
(together with all other shares, stock and securities thereafter issued in
respect thereof) to the time of the exercise of the Option shall thereupon be
subject to the Option. However, unless any Option Agreement shall provide
different or additional terms, in any such transaction the Committee, in its
discretion, may provide instead that any outstanding Option shall terminate, to
the extent not prove exercised by the Optionee prior to termination, either (a)
at the close of a period of not less than ten (10) days specified by the
Committee and commencing on the Committee's delivery of written notice to the
Optionee of its decision to terminate such Option without payment of
consideration as provided in the following clause or (b) as of the date of the
transaction, in consideration of the Company's payment to the Optionee of an
amount of cash equal to difference between the aggregate Fair Market Value of
the shares of Stock for which the Option is then exercisable and the aggregate
exercise price for such shares under the Option.
17.4 DISSOLUTION OR LIQUIDATION. Upon dissolution or liquidation of the
Company, the Option shall terminate, but the Optionee (if at the time in the
employ of or otherwise associated with the Company or any of its Affiliates)
shall have the right, immediately prior to such dissolution or liquidation, to
exercise the Option to the extent exercisable on the date of such dissolution or
liquidation.
17.5 RELATED MATTERS. Any adjustment required by this Section 17 shall
be determined and made by the Committee. No fraction of a share shall be
purchasable or deliverable upon exercise, but in the event any adjustment
hereunder of the number of shares covered by the Option shall cause such number
to include a fraction of a share, such number of shares shall be adjusted to the
nearest smaller whole number of shares. In the event of changes in the
outstanding Stock by reason of any stock dividend, split-up, contraction,
reclassification. or change of outstanding shares of Stock of the nature
contemplated by this Section 17, the number of shares of Stock available for the
purposes of the Plan as stated in Section 4 shall be correspondingly adjusted.
18. STOCK RESERVED. The COMPANY shall at all times during the term of the Plan
reserve and keep available such number of shares of the Stock as win be
sufficient to satisfy the requirements of the Plan and shall pay all fees and
expenses necessarily Incurred by the Company in connection therewith.
19. LIMITATION OF RIGHTS IN THE OPTION SHARES. An Optionee shall not be deemed
for any purpose to be a stockholder of the Company with respect to any of the
Option Shares except to the extent that the Option shall have been exercised
with respect thereto and, in addition, a certificate shall have been issued
therefor and delivered to the Optionee.
20. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board
nor the submission of the Plan to the shareholders of the Company shall be
construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including without
limitation, the granting of stock options other than under the Plan, and such
arrangements that may be either applicable generally or only in specific cases.
21. TERMINATION AND AMENDMENT OF THE PLAN. The Board of Directors of the Company
may at any time terminate the Plan or make such amendments to the Plan as it
shall deem advisable, provided that, it may not, without the approval by the
holders of a majority of the Stock, change the classes of persons eligible to
receive Options, increase the maximum number of shares available for option
under the Plan or extend the period during which Options may be granted or
exercised. No termination or amendment of the Plan may, without the consent of
the Optionee to whom any Option shall theretofore have been granted, adversely
affect the rights of such Optionee under such Option.
22. NO SPECIAL EMPLOYMENT OR OTHER RIGHTS. Nothing contained in the Plan or in
any Option shall confer upon any Optionee any right with respect to the
continuation of his or her employment or other association with the Company (or
any Related Corporation), or interfere in any way with the right of
the Company (or any Related Corporation), subject to the terms of any separate
employment or consulting agreement or provision of law or corporate articles or
by-laws to the contrary, at any time to terminate such employment or consulting
agreement or provision of law or corporate articles or by-laws to the contrary,
at any time to terminate such employment or consulting agreement or to increase
or decrease the compensation of the Optionee from the rate in existence at the
time of the grant of an Option.
23. NOTICES. Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered in hand, if to the Company, to its office located at 7 Perimeter Road,
Suite 4, Manchester, NH 03103, and, if to the Optionee, to the address the
Optionee shall last have furnished to the Company.
24. GOVERNING LAW. The Plan and all Options and actions taken thereunder shall
be governed, interpreted and enforced in accordance with the internal
substantive laws of the Commonwealth of Massachusetts without regard to the
conflict of laws principles thereof.
[FORM OF EXECUTIVE AND KEY MANAGEMENT OPTION AGREEMENT]
SHEPHERD SURVEILLANCE SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT dated ___________ (the "Grant Date") between Shepherd
Surveillance Solutions, Inc., a Nevada corporation (the "Company") and
___________________________ ("Optionee").
WHEREAS, the Compensation Committee of the Board of Directors of the
Company has determined that it is to the advantage and interest of the Company
and its stockholders to grant to Optionee an incentive stock option pursuant to
the Company's 1996 Stock Option Plan (the "Plan") as an inducement to remain an
employee of the Company and its subsidiaries and as an incentive for increased
effort during that service; and
WHEREAS, Optionee is engaged in the service of the Company or any
parent and subsidiary corporations as defined in Section 424(e) and Section
424(f) of the Internal Revenue Code of 1986, as amended (the "Related
Corporations");
NOW THEREFORE, the parties agree as follows:
1. GRANT OF OPTIONED SHARES: Subject to the terms and conditions set
forth in this Agreement and the Plan, the Company hereby grants to the Optionee
an option (the "Option") to purchase from the Company all or any part of a total
of _______________ shares (the "Optioned Shares") of the Company's common stock,
$.001 par value (the "Stock"). This Option is intended to constitute an
Incentive Stock Option within the meaning of Section 422 of the Code. On and
after the dates or occurrence of the conditions as listed below, the Option
shall be exercisable for the cumulative percentages of Optioned Shares listed,
provided, however, that once the Option has become exercisable for 100% of the
Optioned Shares, in accordance with this Section 1, the Option shall not become
exercisable for any more shares of Stock.
(a) With respect to 60% of the Optioned Shares, on each of the
following dates the Option shall be exercisable for the following percentages of
the Optioned Shares:
PERCENTAGE OF
DATES OPTIONED SHARES
----- ---------------
Grant Date 20%
Nine month anniversary of Grant Date 30%
Eighteen month anniversary of Grant Date 40%
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Twenty seven month anniversary of Grant Date 50%
Thirty six month anniversary of Grant Date 60%
(b) With respect to 20% of the Optioned Shares, in the event that the
Net Sales of the Company (as defined below) shall exceed any one or more of the
following amounts in any fiscal year of the Company which is completed prior to
the expiration or termination of the Option, the Option shall be exercisable, as
of the last day of such fiscal year and thereafter until expiration or
termination in accordance with this Agreement, for the following additional
percentages of the Optioned Shares:
NET SALES
---------
$5,000,000 4%
$10,000,000 8%
$15,000,000 12%
$20,000,000 16%
$25,000,000 20%
(c) With respect to 20% of the Optioned Shares, in the event that the
Cumulative EBIT of the Company (as defined below) shall exceed the following
amounts in any fiscal year of the Company which is completed prior to the
expiration or termination of the Option, the Option shall be exercisable, as of
the last day of such fiscal year and thereafter until expiration or termination
in accordance with this Agreement, for the following additional percentages of
the Optioned Shares:
CUMULATIVE EBIT
---------------
$50,000 4%
$300,000 8%
$750,000 12%
$1,400,000 16%
$2,500,000 20%
(d) Notwithstanding the foregoing, the Option shall become fully and
immediately exercisable on the date of any Change in Corporate Control (as
defined in the Plan).
(e) As used herein, the term "Net Sales" shall mean with respect to any
period, the gross sales of products of the Company, less trade and cash
discounts actually granted, refunds, replacements or credits for the return of
any products or as reimbursement for
-3-
damaged products, sales and use taxes and any other governmental tax or charge
(except income taxes) imposed on or at the time of production, use or sale of
the products.
(f) As used herein, the term "EBIT" shall mean the net income of the
Company, determined in accordance with the United States generally accepted
accounting principles, consistently applied, plus interest expense and income
tax expenses for the period with respect to which it is determined.
2. EXERCISE PRICE: Subject to the terms of Section 7, the exercise
price to be paid for the Optioned Shares upon exercise of the Option shall be
$.01 per share which was determined by the Company's Board of Directors to be
the fair market value of the Stock on the Grant Date.
3. TERMINATION OF OPTION: If the Optionee is an employee of the Company
and ceases to be employed by the Company or any Related Corporations for reason
other than death (including disaffiliation of his/her employer with the
Company), the Option thereafter may be exercised only with respect to any or all
of the Optioned Shares which the Optionee could have purchased on the day the
Optionee ceased to be so employed, and the Option shall expire 30 days after
such termination unless terminated earlier by the terms of the Option. If the
Optionee is a consultant to the Company and ceases to render services to the
Company or any Related Corporations for any reason other than death (including
disaffiliation of the recipient of his or her services with the Company), the
Option thereafter may be exercised only with respect to any or all of the
Optioned Shares which the Optionee could have purchased on the day the Optionee
ceased to serve in such capacity as a consultant, and the Option shall expire 30
days after such termination unless terminated earlier by the terms of the
Option. If the Optionee dies during his/her employment or consulting
relationship, the Option may be exercised by the person to whom the Option is
transferred by will or applicable laws of descent and distribution only with
respect to any or all of the Optioned Shares which the Optionee could have
purchased on the date of death. Such exercise must be made within 12 months
after death. Leave of absence for military service, illness, or other bona fide
purpose shall not be deemed a termination of employment or consulting services,
provided that it does not exceed the longer of 90 days or the period during
which the absent employee's reemployment or consultant's service providing
rights are granted by statute or by contract. If the Optionee does not so
return, his/her employment or consulting arrangement shall be deemed to have
ended on the 91st day of such leave of absence.
4. EXERCISE OF OPTION: The Optionee may exercise the Option by
execution and delivery to the Company of a Stock Purchase Agreement in the form
attached hereto as Exhibit A. The Stock Purchase Agreement shall specify the
number of shares of the Stock which the Optionee elects to purchase, and the
Optionee shall deliver to the Company payment equal to the exercise price of the
shares of the Stock. The Optionee may elect to pay the exercise price in any of
the following four ways: (a) cash in the form of check or bank draft payable to
the order of the Company; (b) surrender of certificates representing shares of
the Stock with a current Fair Market Value equal to the Exercise Price of the
Shares to be
-4-
purchased and owned by the Optionee for at least six months, endorsed for
transfer to the Company or accompanied by appropriately signed stock powers; (c)
irrevocable instructions to a brokerage firm to sell a sufficient number of
Option Shares to generate the full exercise price plus all applicable
withholding taxes and to pay over to the company such proceeds of sale; or (d)
any combination of the foregoing. The Company shall deliver or cause to be
delivered to the Optionee a certificate for the number shares then being
purchased. If any law or applicable regulation of the Securities and Exchange
Commission or other body having jurisdiction shall require the Company or the
Optionee to take any action in connection with shares of Stock being purchased
upon exercise of the Option, exercise of the Option and delivery of the
certificate or certificates for such shares shall be postponed until completion
of the necessary action, which shall be taken at the Company's expense. In the
case of the Optionee's death, the person to whom the Option is transferred may
exercise the Option by execution and delivery to the Company of a Stock Purchase
Agreement in the form attached hereto as Exhibit A and delivering to the Company
payment equal to the exercise price of the shares of the Stock which are being
purchased.
5. TRANSFER OF OPTION: During the lifetime of the Optionee, the Option
may be exercised only by the Optionee. Except by will or by the laws of descent
and distribution, the Option and all rights granted hereunder may not be
transferred, assigned, pledged, or hypothecated (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
Any attempted transfer, attachment, pledge, hypothecation or other disposition
of the Option or of such rights contrary to the provisions hereof and the levy
of any attachment or similar process upon the Option or such rights shall be
void.
6. NOTICE OF DISPOSITION; PAYMENT OF WITHHOLDING TAX: The Optionee
shall give prompt notice to the Company in the event of any disposition of any
Optioned Shares within 24 months after the Grant Date or within 12 months after
the exercise of the Option. The Optionee shall pay cash to the Company in the
amount reasonably requested by the Company to permit the Company to pay over to
applicable taxing authorities any amounts the Company may be required to
withhold with respect to either the exercise of the Option or the disposition of
Optioned Shares.
7. CAPITAL CHANGES: In the event of any capital adjustments, including
stock splits, stock contractions, stock dividends, reclassifications, exchanges,
and substitutions, occurring after the date of this Agreement and prior to the
exercise in full of the Option, the number of shares for which the Option may
thereafter be exercised and the exercise price shall be proportionately
adjusted. No fraction of a share shall be purchasable or deliverable, but in the
event any adjustment of the number of shares covered by the Option shall cause
such number to include a fraction of a share, such fraction shall be adjusted to
the nearest smaller whole number of shares.
8. RESERVATION OF SHARES: The Company shall at all times during the
term of this Agreement reserve and keep available such number of shares of the
Stock as will be
-5-
sufficient to satisfy the requirements of this Agreement and shall pay all fees
and expenses necessarily incurred by the Company in connection with this
Agreement and the issuance of Optioned Shares.
9. LIMITATION OF RIGHTS IN OPTIONED SHARES: The Optionee shall not be
deemed for any purpose to be a stockholder of the Company with respect to any of
the Optioned Shares except to the extent that the Option shall have been
exercised and, in addition, a stock certificate shall have been issued and
delivered to the Optionee. Any Stock issued pursuant to the Option shall be
subject to all restrictions upon the transfer thereof which may be now or
hereafter imposed by the Articles of Incorporation or By-Laws of the Company.
10. COMPANY'S POWERS: The existence of the Option shall not diminish
the right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Stock of the rights thereof, or dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceedings, whether of a
similar character or otherwise.
11. NOTICES: Any communication or notice required or permitted to be
given under this Agreement shall be in writing, and mailed by registered or
certified mail or delivered in hand, if to the Company, to its address at 7
Perimeter Road, Suite 4, Manchester, NH 03103, and, if to the Optionee, to the
address set forth below, or such other address, in each case, as the addressee
shall last have furnished to the communicating party.
12. DISPUTES: Any dispute or disagreement which may arise under or as a
result of, or pursuant to, this Agreement shall be determined by the Company, in
its sole discretion, and any decision made by it in good faith shall be
conclusive on all parties.
13. GOVERNING LAW: This Agreement shall be governed by the internal
substantive laws of the Commonwealth of Massachusetts without regard to the
conflict of laws principles thereof.
-6-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SHEPHERD SURVEILLANCE SOLUTIONS, INC.
By:
-------------------------------
M. Thomas Makmann
Title: Chief Executive Officer
OPTIONEE:
-------------------------------------
Name
-------------------------------------
Number and Street
-------------------------------------
City, State and Zip Code
EXHIBIT A to STOCK OPTION AGREEMENT
SHEPHERD SURVEILLANCE SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
This Agreement dated ______________________ is made between
_______________ (the "Purchaser") and Shepherd Surveillance Solutions, Inc., a
Nevada corporation (the "Company").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Definitions. The following terms shall have the meanings set forth
below.
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Stock" shall mean the Company's common stock, par value $.001 per
share and any stock or securities issued with respect thereto or in replacement
thereof.
(c) "Related Person" shall mean the parents, siblings, spouse or issue
of the Purchaser or another Related Person, the guardian or conservator of the
Purchaser or any trust for the benefit of the Purchaser or any Related Person,
provided that such trust is revocable only by the Purchaser.
(d) "Shares" shall mean the shares of Stock purchased by the Purchaser
pursuant to this Agreement.
(e) "Subject Shares" shall mean all Shares held by the Purchaser and
all Shares theretofore transferred by the Purchaser unless those Shares have
ceased to be Subject Shares pursuant to this Agreement.
(f) "Option" shall mean the option to purchase shares of the Stock
pursuant to the Stock Option Agreement, dated __________ ___, _____ issued by
the Company to the Purchaser.
2. Purchase of Shares. Subject to the terms and conditions hereof, the
Purchaser hereby exercises the Option for the purchase of the number of Shares
set forth on the signature page of this Agreement below the Purchaser's name at
the purchase price set forth in the Option and agrees to pay to the Company the
aggregate purchase price therefor in full within ten (10) days of the date of
this Agreement. Promptly upon receipt in full of such payment by the Company,
the Company will cause one or more certificates for the Shares to be issued and
delivered to the Purchaser.
-2-
3. Investment Representation. The Purchaser represents and warrants to
the Company that the Shares are being acquired for the Purchaser's own account
for investment only and not with a view to any resale or distribution. The
Purchaser agrees that the Shares will not be sold or otherwise disposed of in
violation of the provisions of the Act. The Purchaser acknowledges that the
Shares are being sold in reliance upon an exemption from the registration
requirements of the Act and that the Shares must be held indefinitely unless
they are subsequently offered and sold in a transaction registered under the Act
or for which an exemption from registration is available.
4. Receipt of Information. The Purchaser acknowledges receipt of the
annual report issued by the Company most recently prior to the date of this
Agreement. The Purchaser represents and warrants to the Company that he has
reviewed the foregoing materials and that during the course of this transaction
and prior to the execution of this Agreement, he has had the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the purchase, has been permitted to examine such materials as the
Purchaser deemed necessary and has been provided with sufficient information
upon which to make an investment decision regarding the Shares.
5. Legend on Certificates. The following legend shall be placed on each
certificate representing the Shares:
TRANSFER RESTRICTED
The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended. No
transfer, sale or other disposition of these shares may be
made unless a Registration Statement with respect to these
shares is effective under said Act, or the issuer has been
furnished with an opinion of counsel satisfactory to the
issuer that such registration is not required.
6. Amendments; Waivers. Neither this Agreement nor any of the terms,
conditions or provisions hereof may be amended or waived orally, but only by an
instrument in writing signed by the party against which enforcement of such
amendment or waiver is sought.
7. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors,
assigns and legal representatives.
8. Entire Agreement. This Agreement shall supersede all previous
agreements (whether written or oral) between the parties relating to the subject
matter hereof, and this Agreement shall constitute the entire agreement of the
parties with respect to its subject matter.
-3-
9. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
10. Governing Law. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the Commonwealth of Massachusetts.
11. Notices. All notices required or permitted to be given hereunder
shall be directed to the parties at their respective addresses appearing on the
signature page of this Agreement.
-4-
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as an instrument under seal as of the date first above written.
The Purchaser:
-----------------------------------
No. of Shares: _____________
Purchase Price: ____________ Per Share
Total: $__________________
Address:
------------------------------------
------------------------------------
The Company:
Shepherd Surveillance Solutions, Inc.
By: _______________________________
Title: _____________________________
Address:
Chief Executive Officer
Shepherd Surveillance Solutions, Inc.
7 Perimeter Road, Suite 4
Manchester, New Hampshire 03103
[FORM OF EMPLOYEE OPTION AGREEMENT]
SHEPHERD SURVEILLANCE SOLUTIONS, INC.
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT dated ___________ (the "Grant Date") between Shepherd
Surveillance Solutions, Inc., a Nevada corporation (the "Company") and
___________________________ ("Optionee").
WHEREAS, the Compensation Committee of the Board of Directors of the
Company has determined that it is to the advantage and interest of the Company
and its stockholders to grant to Optionee an incentive stock option pursuant to
the Company's 1996 Stock Option Plan ("the Plan") as an inducement to remain an
employee of the Company and its subsidiaries and as an incentive for increased
effort during that service; and
WHEREAS, Optionee is engaged in the service of the Company or any
parent and subsidiary corporations as defined in Section 424(e) and Section
424(f) of the Internal Revenue Code of 1986, as amended (the "Related
Corporations");
NOW THEREFORE, the parties agree as follows:
1. GRANT OF OPTIONED SHARES: Subject to the terms and conditions set
forth in this Agreement and the Plan, the Company hereby grants to the Optionee
an option (the "Option") to purchase from the Company all or any part of a total
of _______________ shares (the "Optioned Shares") of the Company's common stock,
$.001 par value (the "Stock"). This Option is intended to constitute an
Incentive Stock Option within the meaning of Section 422 of the Code. On and
after the dates or occurrence of the conditions as listed below, the Option
shall be exercisable for the cumulative percentages of Optioned Shares listed,
provided, however, that once the Option has become exercisable for 100% of the
Optioned Shares, in accordance with this Section 1, the Option shall not become
exercisable for any more shares of Stock.
(a) On each of the following dates the Option shall become exercisable
for the following percentages of the Optioned Shares:
PERCENTAGE OF
DATES OPTIONED SHARES
----- ---------------
First anniversary of Grant Date 33%
Second anniversary of Grant Date 33%
Third anniversary of Grant Date 33%
-2-
(b) Notwithstanding the foregoing, the Option shall become fully and
immediately exercisable on the date of any change in Corporate Control (as
defined in the Plan).
2. EXERCISE PRICE: Subject to the terms of Seciton 7, the exercise
price to be paid for the Optioned Shares upon exercise of the Option shall be
$.01 per share which was determined by the Company's Board of Directors to be
the fair market value of the Stock on the Grant Date.
3. TERMINATION OF OPTION: If the Optionee is an employee of the Company
and ceases to be employed by the Company or any Related Corporations for reason
other than death (including disaffiliation of his/her employer with the
Company), the Option thereafter may be exercised only with respect to any or all
of the Optioned Shares which the Optionee could have purchased on the day the
Optionee ceased to be so employed, and the Option shall expire 30 days after
such termination unless terminated earlier by the terms of the Option. If the
Optionee is a consultant to the Company and ceases to render services to the
Company or any Related Corporations for any reason other than death (including
disaffiliation of the recipient of his or her services with the Company), the
Option thereafter may be exercised only with respect to any or all of the
Optioned Shares which the Optionee could have purchased on the day the Optionee
ceased to serve in such capacity as a consultant, and the Option shall expire 30
days after such termination unless terminated earlier by the terms of the
Option. If the Optionee dies during his/her employment or consulting
relationship, the Option may be exercised by the person to whom the Option is
transferred by will or applicable laws of descent and distribution only with
respect to any or all of the Optioned Shares which the Optionee could have
purchased on the date of death. Such exercise must be made within 12 months
after death. Leave of absence for military service, illness, or other bona fide
purpose shall not be deemed a termination of employment or consulting services,
provided that it does not exceed the longer of 90 days or the period during
which the absent employee's reemployment or consultant's service providing
rights are granted by statute or by contract. If the Optionee does not so
return, his/her employment or consulting arrangement shall be deemed to have
ended on the 91st day of such leave of absence.
4. EXERCISE OF OPTION: The Optionee may exercise the Option by
execution and delivery to the Company of a Stock Purchase Agreement in the form
attached hereto as Exhibit A. The Stock Purchase Agreement shall specify the
number of shares of the Stock which the Optionee elects to purchase, and the
Optionee shall deliver to the Company payment equal to the exercise price of the
shares of the Stock. The Optionee may elect to pay the exercise price in any of
the following four ways: (a) cash in the form of check or bank draft payable to
the order of the Company; (b) surrender of certificates representing shares of
the Stock with a current Fair Market Value equal to the Exercise Price of the
Shares to be purchased and owned by the Optionee for at least six months,
endorsed for transfer to the Company or accompanied by appropriately signed
stock powers; (c) irrevocable instructions to a brokerage firm to sell a
sufficient number of Option Shares to generate the full exercise price plus all
applicable withholding taxes and to pay over to the company such proceeds of
-3-
sale; or (d) any combination of the foregoing. The Company shall deliver or
cause to be delivered to the Optionee a certificate for the number shares then
being purchased. If any law or applicable regulation of the Securities and
Exchange Commission or other body having jurisdiction shall require the Company
or the Optionee to take any action in connection with shares of Stock being
purchased upon exercise of the Option, exercise of the Option and delivery of
the certificate or certificates for such shares shall be postponed until
completion of the necessary action, which shall be taken at the Company's
expense. In the case of the Optionee's death, the person to whom the Option is
transferred may exercise the Option by execution and delivery to the Company of
a Stock Purchase Agreement in the form attached hereto as Exhibit A and
delivering to the Company payment equal to the exercise price of the shares of
the Stock which are being purchased.
5. TRANSFER OF OPTION: During the lifetime of the Optionee, the Option
may be exercised only by the Optionee. Except by will or by the laws of descent
and distribution, the Option and all rights granted hereunder may not be
transferred, assigned, pledged, or hypothecated (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
Any attempted transfer, attachment, pledge, hypothecation or other disposition
of the Option or of such rights contrary to the provisions hereof and the levy
of any attachment or similar process upon the Option or such rights shall be
void.
6. NOTICE OF DISPOSITION; PAYMENT OF WITHHOLDING TAX: The Optionee
shall give prompt notice to the Company in the event of any disposition of any
Optioned Shares within 24 months after the Grant Date or within 12 months after
the exercise of the Option. The Optionee shall pay cash to the Company in the
amount reasonably requested by the Company to permit the Company to pay over to
applicable taxing authorities any amounts the Company may be required to withold
with respect to either the exercise of the Option or the disposition of Optioned
Shares.
7. CAPITAL CHANGES: In the event of any capital adjustments, including
stock splits, stock contractions, stock dividends, reclassifications, exchanges,
and substitutions, occurring after the date of this Agreement and prior to the
exercise in full of the Option, the number of shares for which the Option may
thereafter be exercised and the exercise price shall be proportionately
adjusted. No fraction of a share shall be purchasable or deliverable, but in the
event any adjustment of the number of shares covered by the Option shall cause
such number to include a fraction of a share, such fraction shall be adjusted to
the nearest smaller whole number of shares.
8. RESERVATION OF SHARES: The Company shall at all times during the
term of this Agreement reserve and keep available such number of shares of the
Stock as will be sufficient to satisfy the requirements of this Agreement and
shall pay all fees and expenses necessarily incurred by the Company in
connection with this Agreement and the issuance of Optioned Shares.
-4-
9. LIMITATION OF RIGHTS IN OPTIONED SHARES: The Optionee shall not be
deemed for any purpose to be a stockholder of the Company with respect to any of
the Optioned Shares except to the extent that the Option shall have been
exercised and, in addition, a stock certificate shall have been issued and
delivered to the Optionee. Any Stock issued pursuant to the Option shall be
subject to all restrictions upon the transfer thereof which may be now or
hereafter imposed by the Articles of Incorporation or By-Laws of the Company.
10. COMPANY'S POWERS: The existence of the Option shall not diminish
the right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Stock of the rights thereof, or dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceedings, whether of a
similar character or otherwise.
11. NOTICES: Any communication or notice required or permitted to be
given under this Agreement shall be in writing, and mailed by registered or
certified mail or delivered in hand, if to the Company, to its address at 7
Perimeter Road, Suite 4, Manchester, NH 03103, and, if to the Optionee, to the
address set forth below, or such other address, in each case, as the addressee
shall last have furnished to the communicating party.
12. DISPUTES: Any dispute or disagreement which may arise under or as a
result of, or pursuant to, this Agreement shall be determined by the Company, in
its sole discretion, and any decision made by it in good faith shall be
conclusive on all parties.
13. GOVERNING LAW: This Agreement shall be governed by the internal
substantive laws of the Commonwealth of Massachusetts without regard to the
conflict of laws pricnciples thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SHEPHERD SURVEILLANCE SOLUTIONS, INC.
By:
--------------------------
M. Thomas Makmann
Title: Chief Executive Officer
OPTIONEE:
-5-
-------------------------------------
Name
-------------------------------------
Number and Street
-------------------------------------
City, State and Zip Code
SHEPHERD SURVEILLANCE SOLUTIONS, INC.
STOCK PURCHASE AGREEMENT
This Agreement dated ______________________ is made between
_______________ (the "Purchaser") and Shepherd Surveillance Solutions, Inc., a
Nevada corporation (the "Company").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Definitions. The following terms shall have the meanings set forth
below.
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Stock" shall mean the Company's common stock, par value $.001 per
share and any stock or securities issued with respect thereto or in replacement
thereof.
(c) "Related Person" shall mean the parents, siblings, spouse or issue
of the Purchaser or another Related Person, the guardian or conservator of the
Purchaser or any trust for the benefit of the Purchaser or any Related Person,
provided that such trust is revocable only by the Purchaser.
(d) "Shares" shall mean the shares of Stock purchased by the Purchaser
pursuant to this Agreement.
(e) "Subject Shares" shall mean all Shares held by the Purchaser and
all Shares theretofore transferred by the Purchaser unless those Shares have
ceased to be Subject Shares pursuant to this Agreement.
(f) "Option" shall mean the option to purchase shares of the Stock
pursuant to the Stock Option Agreement, dated __________ ___, _____ issued by
the Company to the Purchaser.
2. Purchase of Shares. Subject to the terms and conditions hereof, the
Purchaser hereby exercises the Option for the purchase of the number of Shares
set forth on the signature page of this Agreement below the Purchaser's name at
the purchase price set forth in the Option and agrees to pay to the Company the
aggregate purchase price therefor in full within ten (10) days of the date of
this Agreement. Promptly upon receipt in full of such payment by the Company,
the Company will cause one or more certificates for the Shares to be issued and
delivered to the Purchaser.
-2-
3. Investment Representation. The Purchaser represents and warrants to
the Company that the Shares are being acquired for the Purchaser's own account
for investment only and not with a view to any resale or distribution. The
Purchaser agrees that the Shares will not be sold or otherwise disposed of in
violation of the provisions of the Act. The Purchaser acknowledges that the
Shares are being sold in reliance upon an exemption from the registration
requirements of the Act and that the Shares must be held indefinitely unless
they are subsequently offered and sold in a transaction registered under the Act
or for which an exemption from registration is available.
4. Receipt of Information. The Purchaser acknowledges receipt of the
annual report issued by the Company most recently prior to the date of this
Agreement. The Purchaser represents and warrants to the Company that he has
reviewed the foregoing materials and that during the course of this transaction
and prior to the execution of this Agreement, he has had the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the purchase, has been permitted to examine such materials as the
Purchaser deemed necessary and has been provided with sufficient information
upon which to make an investment decision regarding the Shares.
5. Legend on Certificates. The following legend shall be placed on each
certificate representing the Shares:
TRANSFER RESTRICTED
The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended. No
transfer, sale or other disposition of these shares may be
made unless a Registration Statement with respect to these
shares is effective under said Act, or the issuer has been
furnished with an opinion of counsel satisfactory to the
issuer that such registration is not required.
6. Amendments; Waivers. Neither this Agreement nor any of the terms,
conditions or provisions hereof may be amended or waived orally, but only by an
instrument in writing signed by the party against which enforcement of such
amendment or waiver is sought.
7. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors,
assigns and legal representatives.
8. Entire Agreement. This Agreement shall supersede all previous
agreements (whether written or oral) between the parties relating to the subject
matter hereof, and this Agreement shall constitute the entire agreement of the
parties with respect to its subject matter.
-3-
9. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
10. Governing Law. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the Commonwealth of Massachusetts.
11. Notices. All notices required or permitted to be given hereunder
shall be directed to the parties at their respective addresses appearing on the
signature page of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as an instrument under seal as of the date first above written.
The Purchaser:
-----------------------------------
No. of Shares: _____________
Purchase Price: ____________ Per Share
Total: $__________________
Address:
------------------------------------
------------------------------------
-4-
The Company:
Shepherd Surveillance Solutions, Inc.
By: _______________________________
Title: _____________________________
Address:
Chief Executive Officer
Shepherd Surveillance Solutions, Inc.
7 Perimeter Road, Suite 4
Manchester, NH 03103
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for the year ended September 30, 1996, included
with Form 10K-SB, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 166,770
<SECURITIES> 0
<RECEIVABLES> 67,786
<ALLOWANCES> 5,000
<INVENTORY> 370,999
<CURRENT-ASSETS> 580,677
<PP&E> 216,543
<DEPRECIATION> (63,590)
<TOTAL-ASSETS> 740,350
<CURRENT-LIABILITIES> 542,592
<BONDS> 3,659,000
0
0
<COMMON> 4,294
<OTHER-SE> (3,465,536)
<TOTAL-LIABILITY-AND-EQUITY> 740,350
<SALES> 656,708
<TOTAL-REVENUES> 656,708
<CGS> 578,352
<TOTAL-COSTS> 578,352
<OTHER-EXPENSES> 1,723,862
<LOSS-PROVISION> 5,000
<INTEREST-EXPENSE> 227,011
<INCOME-PRETAX> (1,877,517)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,877,517)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,877,517)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> 0
</TABLE>
